housing/residential segregation

The Federal Reserve Bank recently released 1,197 pages of transcripts of its 2006 closed door meetings.  As the Wall Street Journal comments: “The transcripts paint the most detailed picture yet of how top officials at the central bank didn’t anticipate the storm about to hit the U.S. economy and the global financial system.”  

Federal Reserve officials suspected that housing prices were peaking (see chart below).  But since they didn’t believe that prices had been driven up by a well entrenched bubble, they were not very concerned that they were coming down. 

The Financial Times described the general Federal Reserve stance as follows:

Almost every Fed policymaker concluded that weaker housing would cause a slowdown in consumption and investment but expected that to offset strength elsewhere in the economy, leading to continued growth overall.

“Housing is the crucial issue. To get a soft landing, we need some cooling in housing,” said Ben Bernanke, Fed chairman, in his summing up of the economic situation in March 2006. “I think we are unlikely to see growth being derailed by the housing market.”

…

Indeed, a number of Fed officials saw the housing slowdown as welcome news that would help resolve a potential threat to the economy. “As to housing, we are in fact, as all have noted, squeezing out of that sector the speculative excesses that developed with the low interest rates of recent years — and doing so is unavoidable if we want to correct the sector,” said Thomas Hoenig, then president of the Kansas City Fed, at the September 2006 meeting of the FOMC. 

The transcripts show that the Federal Reserve was so confident that the economy was on solid footing that many officials were, according to the Wall Street Journal:   

…offering praise for outgoing Fed Chairman Alan Greenspan, who attended his final Fed meeting in January 2006. Timothy Geithner, then president of the Federal Reserve Bank of New York and now Treasury Secretary, playfully offered this forecast about Mr. Greenspan’s legacy: “I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.”

…

The transcripts also suggest that Fed officials misgauged the potential for housing problems to spill over into the broader economy.

“Our recent financial-market data don’t, in my view, provide a convincing case for a substantial increase in the probability of a much weaker path for growth going forward,” Mr. Geithner said at a meeting in December 2006.  

So how did the best and the brightest get it so wrong?

Perhaps the major reason is because it served their interests to pretend there was no housing bubble.  The recovery from our 2001 recession was driven by consumption and that consumption was supported directly and indirectly by the housing bubble.  In other words stopping the bubble would have revealed the weakness in our economy and the need for serious structural change.  It was far easier and more lucrative for those at the top to just let the bubble go on expanding and pretend that it didn’t exist.

The following chart from the New York Times puts the movement in housing prices highlighted above into a longer term perspective, revealing just how strong speculative pressures were in the housing market.

As Dean Baker, one of the very few economists to warn about the dangers of the bubble, explains:  

First, what happened is very straightforward: we had a huge run-up in house prices that had no basis in the fundamentals of the housing market. After 100 years in which nationwide house prices just kept even with the overall rate of inflation, house prices began to sharply outpace inflation, beginning in the late 1990s.

By 2002, when some of us first noticed the bubble, house prices had already risen by more than 30 per cent in excess of inflation. By the peak of the bubble in 2006, the increase in house prices was more than 70 per cent above the rate of inflation.

This was a huge problem because this bubble was driving the economy. It drove the economy directly by creating a boom in residential housing construction. We were building housing at a near record pace in the years 2002-2006. This was in spite of the fact that we had an ageing population and record levels of vacancies at the start of that period.

The other way in which the bubble was driving the economy was through its effect on consumption. The bubble created more than US $8tn [trillion] in ephemeral wealth in housing. Homeowners thought this wealth was real and spent accordingly. The result was a massive consumption boom that sent the saving rate down to zero in the years from 2004-2006.

In reality, a lot of the consumer spending driving growth was financed by home refinancing, which helped many housholds compensate for stagnant wages and weak job creation at the cost of a sharp rise in debt.  As a Wall Street Journal blog post pointed out, “From 2000 to 2007, household debt doubled from $7 trillion to $14 trillion, with debt related to housing responsible for 80% of the increase. By 2007, the household debt to GDP ratio reached its highest level since 1929.”

As we now know only too well, the collapse of the housing bubble reverberated through the economy, including the financial sector, triggering the Great Recession.  Tragically, many of the “best and brightest” remain in leadership positions today, still arguing for the soundness of economic fundamentals. 

A new study shows that owners of run-down apartment buildings are selling them to each other  “in a criminal conspiracy to avoid having to do the legally required maintenance necessary to keeping their buildings habitable and safe” (BoingBoing).

A tenant advocate was working with the city to document unsafe living conditions in apartments — things like leaking sewage and lead levels that were causing mental retardation — and get the owners of the buildings to make repairs  “But every time documented problems were delivered to the current LLC [Limited Liability Company] owners by city officials,” the report says, “nothing would happen.”

When the city’s deadline approached to fix the violations, the old LLC owner would explain that the property had changed hands and they were no longer involved. The buildings continued to deteriorate as owner after owner avoided addressing the violations.

In fact, the buildings were shifting hands within an extended family.  Confirming the connections between the various landlords proved that “…properties exchanged hands not as independent and valid real estate investments but as a conspiracy to avoid fixing the building violations.”

So, it went something like this. The building was passing from one LLC to another:

But all the LLCs were controlled by people connected to one other:

So the family had found a way around the law, “allowing the owners to ‘strip mine’ the equity from the buildings,” while leaving tenants in dangerous conditions.

The authors of the report call this a “common slumlord modus operandi.”  You should read the whole thing; it’s pretty stunning.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

To add to our coverage of sketchy Halloween costumes and the social significance of costume themes Ann K., Dolores R., Tessa S., Zeynep A., and occasional guest blogger Brady Potts all sent in an opinion column that ran in the New York Times on Friday about a costume party at Steven J. Baum, a law firm near Buffalo, NY. Steven J. Baum specializes in representing banks and mortgage companies as they attempt to foreclose on homes and evict the residents; according to the NYT piece, it is the largest such firm in New York, representing clients such as Bank of America and JP Morgan Chase.

Apparently the company has a big annual Halloween party, with employees encouraged to dress up and the office elaborately decorated. In 2010, the theme in one department was…mocking people who are losing their homes. Part of the office was decorated as “Baum Estates,” a set of foreclosed-upon homes, and some employees dressed up as residents of homes in foreclosure, whom they depict as dirty, pathetic, booze-loving liars. Part of the room was decorated as foreclosed homes; the sign says “Foreclosure Sale.”

Recently I posted about Philip Zimbardo’s research on conformity and the ways that seemingly normal people become involved in horrible acts, and I think his research has some relevance here. It’s possible these employees are all openly mean-spirited, callous people who lack compassion, and that they were like that before they got to Steven J. Baum. But more likely, they are reacting to a corporate culture that gives clear signals that this type of attitude and behavior is acceptable. Indeed, according to the NYT article,

When we spoke later, [the former employee who sent the photos] added that the snapshots are an accurate representation of the firm’s mind-set. “There is this really cavalier attitude,” she said. “It doesn’t matter that people are going to lose their homes.” Nor does the firm try to help people get mortgage modifications; the pressure, always, is to foreclose.

For these employees, there’s going to be a powerful motivation to view people being foreclosed upon as lying, stupid cheats. Day after day, your job is to help kick people out of their homes. Your workplace has made it clear that the preferred outcome is always to foreclose, not to help people get loan modifications that might allow them to stay in their homes. Your job, by definition, requires you to not try to help people, even when they have legally-guaranteed options available.

Given that situation, belittling the homeowners, dehumanizing them, thinking of them as just stumbling blocks who cause you headaches with their complaints that you haven’t followed proper procedure, their efforts to legally block the foreclosure proceedings, their various attempts to avoid becoming homeless…those seem like unsurprising outcomes encouraged as part of the corporate culture, and job requirements, described at Steven J. Baum.

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UPDATE: It appears that Steven J. Baum PC has folded in the aftermath of this scandal.  Reports Globe St.:

New York’s largest foreclosure firm, Steven J. Baum PC, has announced “mass layoffs,” signaling that the firm is closing its doors. The move followed recent decisions by Fannie Mae and Freddie Mac to stop referring new cases to the embattled firm.

Gwen Sharp is an associate professor of sociology at Nevada State College. You can follow her on Twitter at @gwensharpnv.

A confession to PostSecret this week inspired me to add to and revise this post from 2009.

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I have posted before on the way that black people are fetishized in the U.S.  It is as if they are, literally, more colorful, more interesting, cooler, hipper, even spicier than white people.  Whites, in contrast, can seem bland, boring, vanilla, even whitebread.  From this perspective, being a “boring white” person can seem, well, boring.  Both of these confessions can be read as suggesting as much (though there are surely other readings as well):

It’s important to remember that this projection of soulfulness and other positive characteristics onto black people specifically is problematic, even if it’s not derogatory (for posts on the “magic negro,” see here, here, and here).   People of color often report that they feel like white folks are friends with or date them specifically because they aren’t white.  This is no compliment.  Most of us desire to be friends with people who see us as individuals and not stereotypes.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Last year Raquel Nelson was crossing the street with her 4-year-old son who was struck by a driver who fled the scene. Her son died and Nelson — just to be clear, the mom, not the driver of the car — was convicted of homicide by vehicle and reckless conduct (source). Nelson, you see, was jaywalking.  Her apartment complex was directly across the street from the bus stop and a half-mile from the nearest crosswalk.  None of the jurors on her case had ever taken public transportation.

(source)

There was a chorus of opposition to her trial and conviction and, likely in part because of the uproar, the judge gave her a probation instead of jail time. He also offered her a new trial; it begins this month.

In the meantime, Nelson’s tragedy drew attention the many neighborhoods that are unsafe for pedestrians. Transportation for America is collecting photographs of streets designed and maintained with cars in mind, but unsafe for pedestrians and those using public transportation. Here are a few examples from their flickr stream:

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Cross-posted at Family Inequality.

The grandparent spike spikes on.

Last fall I learned that the number of children who live with at least one grandparent had spiked upward over the last half decade or so. The one-year update of that trend was dramatic enough to justify a yikes-edition update.

Again, the non-poor and near-poor lead the upward trend, while the highest rates are among near-poor. Although there were upward movements in the years before 2008, for the present I think we should file this under recession studies.

(For more on grandparents providing care for children, see this Pew report from last fall.)

Sangyoub Park, an Assistant Professor at Washburn University, sent in a link to a story by NPR about the racial gap in homeownership rates, a gap that has worsened during the recession. For instance, while over 70% of White households owned their home in 2010, less than half of African American households did:

This graph from the Census Bureau also shows the rate for Hispanics and “all other races” — the only group whose homeownership rate is still significantly higher than it was in the early ’90s. Hispanics are only slightly more likely to own their home than are African American households:

NPR also has a page with interactive maps that show foreclosure rates, unemployment, and median income (though unfortunately it doesn’t break information down by race/ethnicity). You can roll over a county and get the specific data. Here’s the foreclosure information for Clark County, Nevada, home to Las Vegas, me, and, as far as I can tell, the highest proportion of homes in foreclosure in the nation — 1 in 99:

Also see our related posts on African American and White job loss during the recession, the growing racial wealth gap, and more on racial differences in the severity of the economic crisis.

Photography projects can draw our attention, poignantly, to class inequality.  Consider Vivian Mayer’s vintage photographs of New York and Chicago, for example, or Peter Menzel’s What We Own series.  We need these projects because most of us are in class-segregated occupations and neighborhoods, not to mention a profoundly unequal world.

Photographer James Mollison has embarked on a similar project, Where Children Sleep, sent in by Kristina Killgrove, an anthropologist at Vanderbilt University, Yvette M., Amanda B., Dmitriy T.M., and my sister, Keely.  Mollison has documented children and their bedrooms around the world.  It’s heartbreaking to see how much some children have, and how little others do.

See the pictures, with details about the children, at the New York Times.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.