An equal opportunity recession?

March 16, 2009

Jim CarrJames H. Carr is chief operating officer for the National Community Reinvestment Coalition, a Washington-based association that promote access to basic banking services for America’s working families. He is a member of the Insight Center for Community Economic Development’s “Experts of Color Clearinghouse”. The views expressed are his own.

The U.S. economy is unraveling at a pace not seen in decades. The more than 650,000 jobs lost last month has contributed to a growing concern that the unemployment rate could rise to 10 percent or higher before the economy rebounds. At the center of the economy’s instability is a foreclosure crisis that has claimed 3.5 million homes in the last year alone, and threatens the loss of an additional 8 to 10 million homes to foreclosure over the next five years.

The loss of wealth associated with the collapse of the housing market is staggering. More than $5 trillion in housing equity has virtually evaporated since the foreclosure crisis began. Major stock indexes have also been cut in half, further contributing to decreased consumer confidence, substantially reduced spending, lower productivity, rising unemployment and additional foreclosures.

The magnitude of the economic decline has led many observers to conclude that the current crisis is an “equal opportunity financial nightmare.” But, reality paints a different picture.

While few have been able to escape the financial pain completely, African Americans, Latinos, Native Americans and many Asian sub‐populations are bearing the brunt of this national epidemic. Today, as the national unemployment rate rests at 8.1 percent, African Americans and Latinos are mired in double-digit job losses — the unemployment rate exceeds 13 percent for African Americans, is just under 11 percent for Latinos, and is a little over 7 percent for non-Hispanic whites. For young black males, the rate is 25 percent and climbing.

Before the current crisis, African Americans and Latinos held on average a mere $10 and $12 of net worth respectively for every $100 held by the typical non‐Hispanic white household. The disproportionate impact of the foreclosure crisis on African Americans and Latinos expands further the racial and ethnic wealth gap.

African Americans and Latinos were the disproportionate targets for the unfair, deceptive and reckless lending practices that triggered the foreclosure collapse and imploded the credit markets. The situation is so dire within the African‐American community that United for a Fair Economy, a Boston‐based policy group, estimates that African Americans could experience the greatest loss of wealth since Reconstruction.

To date, federal intervention has focused almost exclusively on propping up the credit markets. While ensuring the health of the credit system is essential, ignoring the plight of struggling homeowners has proven to be a costly and ineffective remedy. In total, the federal government has provided $9.7 trillion in investments and loans to ailing financial institutions. This amount is equivalent to almost 90 percent of all mortgage debt outstanding. Yet only 11 percent of outstanding home loans are delinquent or in foreclosure.

Meanwhile, the financial system remains in critical condition and may require several hundred billion dollars of additional life support. The Obama administration recently launched the most comprehensive program to date to stem foreclosures, but more borrower‐focused assistance is needed. The administration has also enacted a major economic recovery program to preserve or create 3 to 4 million jobs. Although impressive in scale and scope, that nearly $800 billion package of stimulus spending will not fully repair the severely damaged economy that has been inherited by the new administration.

There is growing consensus that a second round of stimulus will be needed. The administration and Congress should consider targeting spending in a manner that prioritizes communities that have the highest levels of unemployment, the greatest concentrations of foreclosures and historically under‐funded, inferior or poorly maintained infrastructure.

Channeling dollars to individuals and communities that need them most will immediately stimulate the economy and save and create jobs because families living on the margins of survival will pour those recovery dollars immediately back into the economy through spending on food, medicine, clothing, child care, energy, transportation and other necessities. Prioritizing areas hardest hit by the foreclosure crisis would more directly help stabilize the housing markets and steady falling home prices that continue to infect financial institutions.

Finally, investing in areas most in need of infrastructure improvements would provide fertile ground for shovel‐ready projects in communities long‐neglected. This prioritization of economic recovery spending would not only jump start the economy, it would aid the most financially vulnerable populations, stabilize communities, and reward all Americans by providing a more direct route to economic recovery.

Of course, there are those who will feel now is not the time to focus on wealth and income disparities and that further one‐time tax rebates to struggling middle-income families generally would be more equitable in the current crisis. But broad‐based stimulus checks will not have the same economic leverage effect as channeling those same dollars to the families and communities that need them the most.

44 comments

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Those who think that the disadvantage of race is a twentieth century phenomenon should look at the 16th century, when Americans decided that Africans should be enslaved rather than treated as equals. The law of slavery is gone but the social consequences have never been eliminated, like they were for once oppressed immigrant groups like the Irish and Chinese. We have poverty, unemployment, failing schools and their consequence, high prison populations as a result.
And as one person pointed out, the poor and minorities did not invent bad mortgages and complex derivatives that have brought down the financial system and with it businesses, consumption and employment. Neither did the Community Reinvestment Act or Fannie Mae. Blaming the victims is bad policy. Rather the “welfare queens” of today are getting million dollar bonuses from AIG and similar bailout recipients. If anything the finance industry took advantage of the decline of local lenders and replacement with global financial institutions unconnected to local communities, inflation in home values, and stagnant wages and decline of the social safety net, so that the consumer economy needed to be maintained by borrowing. All this was enabled by a regulatory system that was dysfunctional at the private, state and federal level.
The first thing to do is fix bad mortgages so they are fixed, affordable and related to the real value of the property. Take over insolvent banks, recapitalize them into smaller, more broadly owned banks that can be privatized. We also need to give more of the fruits of labor to working people and less to owners to spread the wealth in the tradition of Henry Ford rather than concentrating it in the tradition of George Bush. And we need to reregulate the entire financial sector to prevent these and similar abuses from reoccurring, and fund the regulators so they can do their jobs. Ultimately we need to invest more in our communities, keep local factories up with technologies, and prevent abuses around the world from undermining us at home.
As for minorities, we need to invest heavily in improving their school systems, not just with money but with know how and experience. And there need to be jobs paying good wages at the end of the tunnel.

Posted by Stan Hirtle | Report as abusive

“That is contributing to the overall ecomony (sic! – A.), albeit not exactly what some people wish it was.”

Posted by MJ
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If you believe the goal of the bailout should be creation of more McJobs and support of Chinese manufacturing – that’s your right, the 1st Amendment is still on the books. However it’s my right to disagree with it under the same 1st Amendment.
Back then, when McDonnell Douglas was still in existence, it was said that McDonalds job is not an equivalent replacement of a McDonnell Douglas job. Still holds true. Stimulating creation of McJobs at the expense of more skilled, better paid jobs (the bailout, no matter how big, is still finite resource) will result only in Middle Class of today becoming the Poor of tomorrow.
Like it or not, American manufacturing has shrunk. The most notable manufacturers still surviving are auto and aircraft makers. The poor don’t buy new cars, and not supposed to. If they do, then whoever underwrote their auto loan is either brainless or a crook, and the whole thing most likely will result in repo. Is that the kind of economical activity you’d want to see growing?
Aircraft orders more or less correlate with the intensity of air travel. The poor simply can’t afford flyaway vacations – even middle class hardly can in today’s economy. If the poor still buy flyaway vacation – then whoever underwrote their credit card is either brainless or a crook, and the whole thing most likely will result in either default or enslavement of the card holder by sky high interest payments for years to come. Is that the kind of economical activity you’d want to see growing?
If we want to revive domestic economy, we must first and foremost empower the consumers of domestic goods and services, and that is the middle class. It is the middle class (and above) that buys cars and houses. It’s the middle class that uses financial, travel, telecom, whatever services. And that’s the industries that create decent jobs, including the ones that don’t require high education and skill level. And who benefits from these low skill jobs? Exactly the poor, and that’s their chance on upward mobility, the lack of which you lament. You can disparage the trickle down approach all you want, but that’s how it works.

Posted by Anonymous | Report as abusive

They weren’t all “taken advantage” of – a large majority lied about their income and more to cash in on the GREED in the housing market. The GREED was color blind – EVERYONE jumped on. Now you want to make it a race issue – another sad, easy and cop-out commentary when things go wrong, it must be racial.

Posted by John | Report as abusive

In the name of recession and global slowdown, many companies engaged in job cuts. Instead, companies should request its employees to work with lesser pay and retain their jobs, until the economic recovery. Many people agree with this idea and even trade unions agree with it. I think, this experiment will largely succeed and the employee feel loyalty to the organisation.On the other hand, company can retain better skilled staff instead of finding new staff and train them with new environment. Pay cuts is necessary at top executive level. Job insecurity is hunting Americans minds and their respective govt. and corporations find a better solution like retaining their employees through pay cuts if they are willing to work. It is a cyclic reaction in the economy. If the employees survive, then only corporate will survive,govt. will survive.

Half hungry is sometime good for innovate new things. If they are full hungry and feel full insecurity, then there is no room for innovation and creativity. It will definitely create chaos, violence and criminal action. Is the corporate world and American and EU nations listening to me?!

Posted by commonman | Report as abusive