Housing and the Financial Crisis: What Happened and What to Do About It
Michael E. Stone
University of Massachusetts
Sub-prime lending is but the last act in a housing finance house of cards built over decades. Not only was the collapse of this house predictable; it was predicted 30 years ago, when the house had far fewer cards: Meanwhile the inability of working-class families to keep up existing mortgage payments has increased mortgage defaults and foreclosures on both owner-occupied housing and apartment buildings…. Unable to deal with the causes of mortgage defaults and foreclosure, which lie within the institutions of capitalism, the options available will only compound the problem in the long run. The proposals all basically involve reductions in current housing costs by increasing debt…. Adding more claims to future income in these ways only adds to the increasing vulnerability of the entire financial system as well as the mortgage system in particular…. (Stone, 1975). Since then, I have chronicled the growing instability of the house of cards (Stone, 1978; 1980a; 1980b; 1983, 1986; 1993; 2006), albeit with no influence on the course of events. The recent events emerge from the deep structure of the housing and financial systems. Resolving the problems, and preventing similar occurrences in the future, will require fundamental changes to those systems. This paper examines each of the pieces in a schematic way. (For greater detail on the construction of the house of cards see Stone, 1993, Part II, and Stone, 2006a; and for more detail on the types of structural changes needed, see Stone, 1993, Part III).