Des Moines Register
08-26-07
Doak: For real solution to mortgage crisis, try
boosting wages for borrowers
By RICHARD DOAK
SPECIAL TO THE REGISTER
Pity the poor mortgage bankers. They made a bunch of questionable loans,
made a killing sucking all the fat fees they could out of their low-income
customers, and now they're whining that those customers can't repay the loans.
Last week, Iowans found out how bad it is here. The Register reported this state
has the ninth-highest rate of home foreclosures in the nation. In one month for
which statistics were available, more than 5,570 Iowans were in foreclosure.
Modest incomes tend to be the norm in Iowa. It's not surprising this state should
have more than its share of foreclosures, but numbers in the thousands are
dismaying.
Behind each statistic is a dream shattered, turmoil, dislocation and
embarrassment, all for the sin of people wanting a home of their own or buying
more house than they can afford.
No one seems to care much about the people getting evicted, but mortgage
defaults make Wall Street nervous, so the Federal Reserve rode to the rescue by
offering cheaper money to banks. If things get much worse, look for a taxpayer
bailout of the mortgage industry to come next.
Bummer. Taxpayers shouldn't pick up the tab for businesses' mistakes. Lenders
who exercise bad judgment in making loans should suffer the consequences.
That's the way a market economy is supposed to work.
But with everyone worried about the ripple effects of a mortgage crisis, thoughts
turn to bailing out the mortgage industry.
Funny no one ever thinks about bailing out those people on the other side of the
bad loan - the poor souls whose homes are being foreclosed.
Yet it would be perfectly logical to attack the crisis from the other side. People
are defaulting on their mortgages because they don't make enough money to
afford the loan payments. Raise their wages, and the problem goes away.
The ideal solution to the mortgage crisis isn't to bail out the lenders. It's to boost
the incomes of the borrowers.
There might not be enough time to do that in the immediate crisis. No one is
simply going to hand money to dispossessed would-be homeowners.
Still, the crisis should awaken the nation to the reality of low wages and the
danger they pose to the economy. Inflation-adjusted wages, especially among
low-income workers, have been essentially stagnant for the last three decades.
Meanwhile, costs of essentials such as health care and energy have soared. No
wonder low-income workers can't afford to buy a house.
This hasn't happened by accident or by the invisible hand of the market. The
unspoken national policy has been to hold down wages. The system has been
rigged to bestow greater rewards on owners and managers than on wageearners.
Look no further than the tax code, which taxes income from capital gains and
dividends at much lower rates than income from labor. In fact, income from labor
is taxed twice, once with a payroll tax and again with an income tax. That's
grossly unfair, not to mention a threat to long-term economic health.
America should make conscious policy choices intended to boost wages and
thereby distribute the fruits of its economy more equitably.
A beginning has been made by raising the minimum wage, although that's more
a matter of catchup than real increase. Restoring equality of taxation among
capital and labor should be the next step. Billionaire Warren Buffett is right to
point to the injustice of his secretary paying taxes at a higher rate than he does.
If illegal immigration cannot be stemmed, then at least enforce the labor laws on
immigrant labor, so employers can't get away with paying below minimum wages.
Also, launch a big program of infrastructure improvements. They're badly
needed, and the projects would create a demand for labor that would tend to lift
wages across the board.
A national policy shift in favor of wage earners - in favor of the middle class,
really - would also include ratcheting down the costs of health care and higher
education, which might leave low-income families with enough left over to make
the house payment.
As the mortgage crisis suggests, when wages stay down too long, the whole
economy might eventually head that direction, too.
RICHARD DOAK is a retired Register editor and columnist and a lecturer in
journalism at Iowa State University.