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Accumulation and Dispossession: Lifting the Veil on the Subprime Mortgage Crisis

Accumulation and Dispossession: Lifting the Veil on the Subprime Mortgage Crisis

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Accumulation and Dispossession:Lifting the Veil on the SubprimeMortgage Crisis
Kendra Strauss
School of Geography and the Environment, University of Oxford, Oxford, UK;kendra.strauss@geog.ox.ac.uk 
Greg Wood’s 19 September (2007) interview with Edward Jordan onBBC Radio 4’s
The Today Programme
must have been the first timemany UK listeners were exposed, through the mainstrain media, tothe real face (or voice) of the American subprime mortgage crisis.Mr Jordan, 79, of Brooklyn, New York City, told how he had soughtfinancing to cover $30,000 worth of credit card debt and ended up witha re-finance loan for $350,000. The interest rate, initially set at 1%,“ballooned” to over 8% within 1 month and the payments with it. “Iworkedallmylifeforgoodcredit”,saidMrJordan,whoisnowindangerof losing his home. Mr Jordan is one of those “
. . .
homebuyers with apoor or non-existent payment record who were lent too much money”,as subprime borrowers have been characterised (
The Economist 
2007a).Yet as Jessica Attie, a lawyer with the Brooklyn-based ForeclosurePrevention Project, explained, Mr Jordan could have qualified for a“prime” loan but was targeted by subprime lenders because of his age,where he lives, and the fact that he is African–American. In the lastdecade many elderly, low-income, and ethnic minority borrowers havebeen steered to subprime loans even when eligible for better terms,and aggressive sales techniques, complicated terms, and misreportingof income data characterise many of the transactions: in Mr Jordan’scase, the lender inflated his monthly income from $2000 to 8000. Thesepredatory practices, according to Ms Attie, represent the largest singledrain on wealth in African–American communities in recent years.The current crisis was foreshadowed by Michael E. Stone’s 1975paper in this journal, in which he stated that: “The stability of the entirestructure of capitalism has become interwoven with the stability of thehugeresidentialmortgagedebtwhichhasbeencreatedbythechangesinthemortgagesystem(22).AtthetimethatStonewaswriting, however,the revolution in securitisation—the process of creating new financial
 Antipode
Vol. 41 No. 1 2009 ISSN 0066-4812, pp 10–14doi: 10.1111/j.1467-8330.2008.00652.x
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Lifting the Veil on the Subprime Mortgage Crisis
11
instruments by combining different types of assets and marketing themto investors—was in its infancy and the deregulation of mortgagemarkets was yet to come. The expansion of the subprime sector, inwhich lenders make financing available to those with supposedly poorcredit histories and those on low incomes (usually at higher interestrates, because of the higher risk of default), has been more recent andhas coincided with the partial retreat of the state from an active role infacilitating private property ownership.
1
This explosion in subprimelending is the result of three imperatives that profoundly influencethe functioning of housing markets in capitalist societies: the needto facilitate social reproduction, the need to embed and reinforce theideology of property ownership for political ends, and the need toensure that housing functions as a vehicle for the production of surplusvalue and capital accumulation (Boddy 1976). Between 1994 and 2000theUSsubprimemarketgrewbyanaverageannualrateof26%(FederalReserve Bank of San Francisco 2001).That the subprime crisis affected more than just “the wretched andthe reckless” (
The Economist 
2007b) and resulted in the current “creditcrunchseems to have taken many by surprise. Yet the predatorypractices of subprime lenders, the profits they generate, and thespatial distribution and concentration of lending and borrowing hadnot gone undocumented. In 2006
Geografiska Annaler Series B— Human Geography
published a paper entitled American home:Predatory mortgage capital and neighbourhood spaces of race andclass exploitation in the United States(Wyly et al 2006), whichcomprehensivelyspelledoutthedeeplyrootedproblemsinthesubprimesector.Init,theauthorsbuiltonDavidHarvey’s(1983[1974])argumentsto suggest that the subprime market acts to extract class monopoly rentsthrough the delocalised conduits of transnational capital flows. Theauthors made a number of further important points: that subprime loansare extremely lucrative in terms of the fees and interest they generate,especiallyintherefinancemarket(wherethemajorityofsubprimeloansare made); that these profits and the process of securatisation makesubprime loans attractive to regular “prime” lenders such as HSBC,as well as to investment banks who pool them into mortgage-backedsecurities (MBS) and investors who purchase those MBS shares; andthat despite the clear logic of accumulation, the authors’ geographicalanalysis of subprime segmentation shows that borrowers with goodcreditscoresfromworking-classandethnicneighbourhoodsaretargeteddisproportionately for subprime loans while those with poor creditscores in wealthy white neighbourhoods are treated as prime borrowers.Perhaps because of the complexity of products themselves and theopaque world of structured finance from which they originate, perhapsbecause the paper was published quite recently (but see Wyly, Atia andHammel 2004), there has been relatively little comment and/or further
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12
Antipode
work in this area by geographers, especially those working outside theUS.Leyshonetal(2006)examinedmoneylendersinthehome-collectedcredit market in the UK using the ecological metaphors of parasitismand symbiotic mutualism to describe the relationships between theagents of doorstep credit companies and their clients. Yet while theconceptofdifferent,localised“ecologiesoffinanceistheoreticallyandanalytically appealing, it precludes (at least as it is applied) a broaderanalysisofthemacro-processesofcapitalaccumulation,circulationandclass oppression that create the conditions in which these relationshipsdevelop. Therein lies the value in Wyly et al’s (2006) analysis: it drawsback the veil of mystification that surrounds the complex processes of global financial markets and their agents and traces specific effectsof profit-seeking behaviour where it intersects with the needs andvulnerabilities of communities traditionally excluded from access tomortgagecapital.Inpreciselytracingthemechanismsofclassmonopolyrent extraction through predatory lending in the subprime marketthey, like Harvey, illustrate both the concrete spatial segmentation of communities and the multi-scalar nature of the processes that underlieit. This multi-scalarity has been strikingly reinforced by the globalreverberations of the recent market turmoil.Wyly et al’s (2006:124) paper also opens up further possibilitiesfor conceptualising and analysing the current subprime crisis. “Fromthe standpoint of homeowners who wind up with high-cost, high-risk credit”,theywrite,“theresultofsecuritizationistoshatterthetraditionalshared interest of all parties in cooperating to avoid adverse events”. Inother words,
dispossession
is itself a mechanism of accumulation inthe subprime universe. Defaults offer opportunities for the acquisitionof assets at knock-down prices while borrowers have their creditratings destroyed and risk bankruptcy. Homeownership has become themantra of wealth creation yet the flight to “bricks and mortar” createshousing bubbles, which inflate the value of residential property with theconsequence that low-income households who do manage to buy canafford a smaller and smaller equity stake in their home. The differencesbetween renting and buying shrink: it is a matter of paying “rent” to thebank rather than to a private landlord.
2
As Wyly et al (2006:126) pointout:“Demandingfairaccesstocapitalinvolvestheriskofbeingtargetedby capital
. . .
with no guarantee of greater individual or communitysecurity”. Moreover, there is a question about whether illusory gains inthe property market can make up for stagnant real wages and growingincome disparity in the USA and elsewhere.What is certain is that the current subprime crisis, and rising numbersof people defaulting on their mortgages, will have real and materialimpacts on local communities, as Jessica Attie pointed out in herinterview. If people like Mr Jordan are forced from their homes, thoselocal neighbourhood “ecologies” suffer fundamental ruptures. It is also
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