October 16, 2008

As The Economic Meltdown Deepens...

The ongoing economic meltdown is terrifying, but at the same time many of us have no real idea of what’s rolling down the pike at us.

There are many aspects of the crisis and the coming recession which are impossible to predict. One impact though, will be unavoidable: crippling budget crises at the state and municipal levels, driven by falling real estate values, layoffs, business closings, increased borrowing costs and recession.

What Happens When the Banks Don’t Lend

To get a sense of what this could look like, it is instructive to look at what happened to New York City starting in 1975, when bank credit dried up and a fiscal crisis that lasted more than a decade kicked in. Remember that this was a budget crisis isolated to one city, rather than the generalized collapse of the banking system we are seeing now.

The immediate background is that by the early ‘70s, the City’s budget was deep in the red, kept going with fiscal jiggery-pokery especially in Mayor Lindsay’s second administration and under his successor, Mayor Beame. The back story is more complex of course, having much to do with federal policy since the Eisenhower administration which directed resources to suburbanization at the expense of city and country—money for interstates, not mass transit and railroads, subsidizing vast auto-dependent tracts of single houses on what had been farmland—you know the deal.

What plunged the City into crisis was the large banks refusing, collectively, in March, 1975 to extend credit to New York any longer, declining to roll over loans and boycotting the City’s bond auctions. The Beame administration moved to lay off 25,000 city workers and defer contractual raises for others, cut services, increase the transit fare and institute tuition in the City College of New York system.

For months there was a political war over how things would get resolved,, with highway workers, cops and other city employees staging militant demonstrations and threatening an October general strike. The NY State government stepped in with aid but the federal government refused until massive pressure from the financial industry was brought to bear.

With everyone staring into the abyss of bankruptcy (and the possibility of a judge writing off the bonds the banks still held or canceling union contracts), the municipal unions made a devil’s pact with the banks, the details of which I leave for another post.

"The Bronx Is Burning"

What I want to remind people of is what happened to NYC once the austerity, service cuts, layoffs, tighter credit, tax hikes and the rest of the bank-sponsored “rescue package” kicked in.

Garbage piled up in the streets, and law enforcement abandoned whole neighborhoods. The public education system, already jolted by the refusal in the ‘60s of Blacks and Latina/os to accept a two-tier, heavily segregated system, now faced serious cuts. Class sizes ballooned. “Non-essential” programs like art and music education and vocational training disappeared.

The Transit Authority adopted a policy of “deferred maintenance”—only fixing things when they broke down completely. One leader of the militant opposition within Transport Workers Union, Local 100 at the time, Arnold Cherry, pointed out whenever he spoke that every housewife knows that if you don’t empty the crumbs out of the toaster, eventually it stops working. Not TA management, though—the system veered toward total collapse in the early ‘80s.

Meanwhile, landlords in “bad neighborhoods” emulated the Transit Authority, milking their aging apartment buildings for every dime in rent they could collect while "deferring” maintenance, laying off supers, ignoring heating oil bills, and finally abandoning the buildings themselves rather than pay city taxes. Or, given a chance, burning them down to collect the insurance.

This was seared into the national consciousness in the famous blimp shot of a five alarm fire in the South Bronx during the 1977 World Series while Howard Cosell intoned, "There it is, ladies and gentlemen, the Bronx is burning." As much as 40% of the housing stock in the borough was destroyed during these years, increasing an impossible-to-ignore homeless population and pumping up rents for vacant apartments in surviving buildings. (The City, meanwhile, was closing firehouses as a money-saving measure.)

Huge cuts in the NYC medical system on top of deteriorating social conditions laid the ground work for what Nick Freudenberg and his co-authors identify as a deadly “syndemic”: the three interlinked epidemics of TB, murder and HIV infection.

Even after the emergency financial aid was paid back, and the City’s budget was balanced and the banks decided they would once again buy long term bonds issued by the city (1981) , the Emergency Financial Control Board kept austerity policies in place and the damage they did to millions of people reverberated through the decade and up to the present. To cite only one example, the City College system which had boasted free tuition for NYC residents before the crisis, now costs upwards of $2000 a semester.

What It Means

I could go on. There are a lot of particular lessons to learn from the New York City fiscal crisis, and how various social forces responded and what kinds of popular resistance developed and worked.

But lesson number one is that this kind of crisis is on the agenda right now, in cities around the country, and once it erupts, there is no quick bounceback. Start trying to size up the situation where you live and figure out who your allies are going to be in the coming years.


Anonymous said...

I would add a bit another contributing factor to the '76 crisis, "The Bronx is Burning!", etc.: not just a refusal on the part of the banks to finance the city, the MTA, and other big stakeholders. It was also that the banks were practicing "red-lining" – taking a map, drawing a red line around the black and Latino neighborhoods, and refusing to lend to landlords or homeowners in that area.

The drying up of mortgage money was what led the landlords to neglect buildings. The problem in the Bronx was that while the mortgage money was drying up, the insurance policies on the buildings remained –
thus, torching a building became more profitable than maintaining it.

Since the banks were both perpetrating and being affected by white supremacy, of course it was also easy for the landlords to blame Black and Latina/o residents for the arsons – the common urban legend being that black and Latino tenants were stripping wiring and the like for scrap metal.

In the case of the current crisis, I wouldn't worry so much about arson – yet. What seems to be getting hit are the extremely high end of housing and real estate or the low end of it – either luxury condos, McMansions, office towers, or the homes that people honestly
believed they were going to live in. It's not the denser housing of absentee landlords.

But it does bear caution that one of the key measures fought for by the housing organizations to combat the flight of lenders and the arsons of inner city housing, the Community Reinvestment Act (CRA), is now in the line of fire of conservatives looking for a scapegoat for the subprime mortgage crisis.

The CRA basically provided that if a bank operates in an area, it can't pick and choose the neighborhoods it lends to. In other words, you can't soak up Upper East Side money and then refuse loans for housing in Harlem.

The right wing's narrative of the subprime mortgage crisis is interesting in that it admits that subprime loans were bad – but in typical blame-the-victim ploy, says that the problem of that lending were the quality of the people who received those loans (i.e., the old "black people expect handouts and get burnt" canard).

The problem, according to this logic, is that we got rid of redlining in the first place.

Should that logic gain traction, all bets are truly off – the balance would again tip toward the arsonists.

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