The real estate crisis that has hit the United States is unfortunately unfolding according to a predictable scenario. For years, households, that might have saved money, have preferred investing speculatively in the biggest possible housing, so as to obtain the maximum return on their investment. As for underprivileged households, since their home loans could be securitized profitably, they have been encouraged to buy their homes to respond to the demand on Wall Street. As their monthly revenue was eaten up by the payments on their loan, they were encouraged to stake the virtual increase in the value of their home, which made it possible to free up 9 trillion dollars over the past ten years. These 9 trillion dollars were quickly spent on consumer goods. This consumer spending has helped China to become a major industrial power. In the present context, with the bursting of the real estate bubble and the fall in housing prices, the virtual increase in home values has disappeared like smoke, as have some of the savings that were unfortunately invested in housing real estate. As a result, people in the U.S. are finding themselves without any savings on the eve of a recession that looks to be very serious.

In and of itself, the ideal of everybody owning their own home is admirable, but it is nothing more than propaganda when the gap between household income and household holdings excludes, in practice, a large part of the population from realizing this ideal. In this case, it is a sinister farce when one employs a “forced march” to turn those who objectively lack the means into property owners, similar to the sinister farce seen in the case of the “vulture loan,” which, on the pretext of granting a home loan to the poor, in reality steals their scant savings. Will recourse to the Federal Reserve make a “soft landing” possible, as has been announced here and there? Not a bit. With more than a hundred credit establishments put into receivership in the course of the last few months, and with the survivors — even the biggest ones — in a delicate situation, with the profitability of established Wall Street firms like Bear Stearns and Lehman Brothers seriously affected, with at least two million households facing the possible loss of their homes in 2007 and 2008, and with only a fraction of those two million in a position to be saved – a soft landing is simply impossible. The whole house of cards has come tumbling down, dragging with it the many financial establishments which bought securities issued in the United States and backed with necessarily dubious loans. The European banks – and also the Asian, Australian, and Canadian banks – that have been at risk up to now are the ones that have subprime mortgages directly (ABS) or indirectly (CDO) among their holdings. Having said that, if the price of U.S. real estate were to plummet even more – as seems probable – other U.S. real estate loans will likely join the subprimes in the “at risk” category (Alt-A, Option ARMs).

Alan Greenspan, the former president of the Federal Reserve, who can hardly be suspected of harboring left-wing ideas, fears that the growing gap between income and holdings will cause jolts that could tear U.S. society apart. This is the context in which the financial crisis, which looks to be extremely serious, is unfolding. The question of organizing society differently must be asked – but in what way?

For my part, I have put forward the idea of a genuine constitution for the economy.* To begin defining this constitution, it is necessary to draw lessons from the failures that have already become part of history. The main lesson is that all authoritarian solutions are intolerable, that all dictatorships are detestable, even a dictatorship that is exercised by the “wretched of the earth,” should they come to power through a just reversal of the existing situation. Democracy is a historic attainment and it must serve as the basis – it is democracy that was able to eradicate the Social Darwinist law of the jungle from our political system and the same objective must be reached in the economic domain. The guarantee that each individual’s basic needs and health requirements will be met by society as a whole must certainly be one of the main axes of this constitution for the economy. Another lesson from history – our species now represents a threat to its own survival on this planet. Quickly eliminating this threat must obviously constitute the general framework of the constitution for the economy.

Associate researcher at the University of California at Los Angeles.

Latest book published : Vers la crise du capitalisme américain
(Éditions La Découverte, 2007).

(*) http://www.pauljorion.com/blog/ ?p=165

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