Keynes: Eugenic Prophet

“…agriculturists and households throughout the world, who have borrowed on mortgage, would find themselves the victims of their creditors. In such a situation it must be doubtful whether the necessary adjustments could be made in time to prevent a series of bankruptcies, defaults, and repudiations which would shake the capitalist order to its foundations.” (139)

Prophetic, almost, in the above statement, Keynes nearly describes the current lending/foreclosure mess of recent. Take August 2008 as an example: one in every 416 households received a foreclosure filing, a 27 percent jump from August 2007 (NYT, “Finding Profits in a Distressed Market”). Keynes might have had an “I-told-you-so” look on his face if he heard Center for American Progress say that nearly 0.6 percent of all housing units in the U.S. are owned by a bank, the same percentage during “The Great Slump”.

So what do the candidates have to say? To stabilize the housing market, Obama has sponsored the “HOPE for Homeowners Act of 2008,” legislation that creates a new Federal Housing Administration housing security program based on five principles (please excuse some of the obvious political rhetoric…):

• Long term affordability. New loans will be based on the ability to repay the loan.
  No investor or lender bailout.
• No windfall for borrowers. Borrowers will have to share their new equity and future appreciation equally with the Federal Housing Administration.
• Voluntary Participation.
• Restore confidence, liquidity and transparency.

(“Dodd Announces ‘Hope for Homeowners Act’ ”). McCain’s proposal would allow burdened homeowners to trade their mortgages for more manageable loans that reflect the current market value of their homes. But, only holders of nonconventional mortgages taken after 2005, who were creditworthy at the time of the original loan, are eligible for the loans that would also be backed by the Federal Housing Administration.

Either way, Keynes would argue that until lenders and productive borrowers “are brought together again” by “lenders becoming ready to lend on easier terms and over a wider geographical field” and “borrowers recovering their good spirits and so becoming readier to borrow” the crisis will not be resolved. Lehman certainly can’s help.

Side note: WE would be proud. According to Wikipedia, before his death in 1946, Keynes declared eugenics “the most important, significant and, I would add, genuine branch of sociology which exists.”