Well everyone, we’re about a week past the inauguration and for some reason the world just seems so much safer. Doesn’t it? I mean California, DC, and Chicago are all opening back up and the last time I turned on CNN they had gotten rid of their death toll tracker. We seemed to have reached the peak of Covid. Must’ve been one of those executive orders that Joe signed. Or I don’t know maybe it was just because the WHO decided to change their testing protocols to mandate further testing for asymptomatic carriers. Whatever it was, he sure bitch slapped Covid. Way to go Joe. There may be a correlation between this opening paragraph and what the rest of this article is actually about. However, rest assured, this piece is not about Covid… That was so 2020.
My father is from Cuba. More on this later. So now you’re probably thinking, ‘here’s a paranoid individual who’s ancestors are from a communist country… great. Here comes a rant about socialism coming to the US.’ Well you’re not wrong, but unlike a gun touting redneck Trumper, I hope to pave a path that actually conveys how we may end up getting from point A to B.
Does anyone ever wonder what might happen if our government continues to forgive, or at least extend, rent and mortgage payments? I do! The financial crisis of 2008 was not too long ago and although I was just a little punk 17 year old, I do remember how it affected my family. It wasn’t fun.
What happened in 2008?
Prior to 2008, when banks would issue mortgages to folks, these mortgages would end up being grouped into what were called mortgage-backed securities (MBSes). Investors could then purchase these MBSes. Given the fact that these interest rates were higher than those of government backed securities, investors temporarily enjoyed incredible returns. I say temporarily due to two main factors. After an unsustainable surge in subprime lending, in which 90% of these mortgages were adjustable rate mortgages (ARMs)- meaning the interest would increase over time - coupled with the increase in housing speculation, it all came crashing down. Mortgages rose significantly and those who owned homes were much more likely to default on their mortgages than renters were to default on their rent. So homeowners were foreclosed on, pushing primary residents or renters out. As a result, the MBSes that were held by the worlds largest financial firms lost most of their value and the Goldman Sachs’s and the Lehman Brothers of the world got REKT! But again, that was also temporary.
Thanks to the OG himself - Mr. Warren B - the greedy institutions who ironically hold this flawed version of capitalism together got bailed out. The Bush administration had planned on letting these financial giants fail but Warren Buffett hit up then Treasury Secretary, Hank Paulson and saved the country. At the time, the government was planning on buying the distressed assets themselves via a program called TARP (Troubled Asset Relief Program). But then Superman hit up the Monopoly banker and was like “Nah dawg, if we do that then the government owns the assets and we both know you guys suck at managing assets. You are really good at printing money though. I realize the big banks kinda fucked up on this one but you’d probably fuck it up worse so how about you just print the money, loan it to the banks, and let the existing system function. I’ll tell you what, in exchange for saving their asses, I bet they give you preferred stock and some gnarly dividends. And hey, if you want to buy shares at a fixed price in the future I bet they go for it.” Hank was like “Damn Warren. That actually sounds kinda rad. You right. I’m down.” And then GW said “Thanks Warren. I almost blew it. You’re a real one.”
Then and now…
So how is this different from what is gearing up to take place in the near future? Well, for starters, in 2008, while Democrats held majority in the Senate and the House, they did not hold down the oval office. Something tells me that if John Kerry had won the 2004 election, he may not have been so hip to Buffett’s suggestion. This time around they have the Executive and Legislative branches.
The straw that is bound to break the camel’s back here is as follows. This time around, loans and grants are coming from the government directly. However, aside from the stimulus checks, they’re not necessarily coming in the form of loans and grants. Rather, 16 states have banned evictions for tenants and the federal government has put laws in place that allow for mortgage forbearance — when your lender allows you to pause or reduce your mortgage payments for a period of time while you regain your financial footing. Now according to the Consumer Financial Protection Bureau, lenders can start foreclosing as early as February 28th, 2021. However, in certain states such as California, Maryland, Nevada, New Jersey, New York, Oregon, Vermont and Washington, the eviction bans won’t end until well after that. Some give an actual date and some vaguely state ‘until the end of the emergency’.
So let’s play out a hypothetical situation that is likely not so hypothetical for many individuals at the moment. Let’s say I own an apartment complex in California. About a quarter of the tenants have not been paying rent. Freddie Mac has been pretty cool with me so far but only because he had to be. Nevertheless, I’ve been allowed to pay 75% of my apartment building loan per month. That’s coming to an end though. Apparently these tenants are able to forgo paying rent until the end of June according to the Eviction Moratorium Extension that Gavin Newsom passed as of January 25, 2020. So now I just better hope that Freddie is cool with that 75% payment for the next 5 or so months. If not, I just lost my apartment complex. And let’s be honest, Freddie, Fanny, and crew are likely itching to foreclose on anyone who isn’t paid up. If I was a homeowner who had renters that weren’t keeping up with rent through the pandemic, I’d be shitting my pants. Lots of investors will lose their asses and lots of people will lose their homes.
There is a real possibility that the federal mortgage forbearance laws get extended when another stimulus bill gets passed but that doesn’t negate the fact that that money will need to be paid back at some point. A years worth of rent or mortgage payments is a lot more than the average person can save in a year. Especially when 69% of adults have less than $1000 in their savings… and thats under normal conditions.
So if we remember, in 2008, folks were able to pay rent but others weren’t able to pay their mortgages due to adjusted interest rates and the housing market speculation. In 2021, folks aren’t able to pay rent or mortgages. I’m not a realtor or anything but that seems worse.
When mortgage payments aren’t paid banks can’t survive. So this begs the question. Who comes in to save the day? I bet the government would gladly buy the loan. They’ll come in and reduce payments and take a stake in the property in order to secure the loan, you know, to “help” people. If this sounds far fetched, just remember that this is exactly what the federal government planned on doing with TARP in 2008 prior to Warren’s late night call to Hank.
Circumventing the 4th Amendment
In the beginning of this article I mentioned that my father was from Cuba. When he was 4 years old the Cuban police came to his house, arrested his parents for opposing Fidel (well actually they tried to kill him), and subsequently seized all of their assets including their home. This happened to everyone, not just people who vehemently opposed Castro. Typically when I’m talking to my Leninist friends I use this scenario to proclaim my distaste for the idea of ‘seizure of private property’. Most people tell me not to worry about that ever happening in America. American capitalist values are far too strong to ever let something like that happen. Probably true. At least in the direct sense. But what about indirectly?
When fear is high, logic is low
When I was a kid I would play my older brother in Monopoly. He always won. I remember him being so confident as I would pass “Go” to collect my $200. I’d be so excited to get my little stimulus check and he would just scoff. By the end of the game when I was out of money, he would tell me that he would pay me well under market value for my properties. I had no other choice. Out of fear of losing the ability to continue playing the game, I would concede.
“Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety.” Benjamin Franklin
If history has taught us anything it’s that people are more likely to give up their freedoms when they’re afraid. When people were afraid of terrorists after 9/11, we willingly accepted the Patriot Act (I’ll never forget the popular notion of “if you don’t have anything to hide who cares?”). When people were afraid during the financial crisis of 2008 we gladly paid for the bailouts with our own tax money. During the Covid pandemic, people were afraid to go outside so they listened when they were forced to stay in and now they’re lining up for what’s shaping up to be a mandatory vaccine. And this is just within the last 20 years! What’s to say that when folks are afraid of losing their homes that they won’t question why the government is now their loan servicer? Damn, what if Covid was just a long con for the government to seize assets? Nah, that couldn’t be. Could it?
Who knows? All I know is that before something comes crashing down it has to fly high so I’m just gonna buy Bitcoin until everything crashes and then buy some property on the low low from Joe Joe. Peace!
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