Sub-Prime Market in Freefall

What do I see all over the L.A. Times today, huge problems within the sub-prime market due to delinquincies and foreclosures. Well, I called this 'collapse' of the sub-prime market a long time ago, it was only a matter of time, and is a manifestation of the inherent contradictions in the accumulation process of capital and the dialectic of class struggle.

Below is from an article I drafted back in 2006.

Historically, within the Marxist literature on housing the concern has been over the conditions of housing for the working class, lack of affordable housing and the crisis in terms of inability to provide housing for all. The first being an issue of quality and the later two issues of quantity. These main concerns were first highlighted in Engels’ “The Question of Housing”, where he outlined three main thesis of housing under a capitalist economic system, affordable housing will never exist in abundance because mass housing is not profitable enough, affordable housing is secondary to issues of income distribution and the issue of affordable housing will never be solved without ending capitalism and it is these three thesis that continue to hold the focus of Marxist’s with respect to the question of housing. However, I would like to shift attention away from the first issue – the conditions of housing - and indirectly towards the latter two - the inability to provide housing for all and the lack of affordable housing. I wish to specifically focus on how capital uses these two realities to its advantage in the accumulation process.

I write this paper with a few assumptions about capital that I must make explicit: (1) capital not only seeks the accumulation of capital but to guarantee this accumulation process, (2) capital seeks to expand the accumulation process, (3) capital seeks to prevent overproduction generally [although overproduction can also be used as a crisis mechanism to reduce to cost of labor], (4) capital seeks to minimize the existence of the white elephant – to minimize the time span between production and consumption and (5) different capitals can compete for the same total piece of the pie – (workers wages). I must also make clear that when I speak of capital I understand that capital can only act through human action and that although it may appear that I speak of capital as an inanimate entity I am merely referring to the internal logic of capital and the laws that guide its movement, which are typically manifested in reality through human actors.

These five assumptions underlie the foundation of my thesis, that Alternative A (Alt-A) loans are one attempted solution concocted by the industries of housing construction and mortgage lending to the problem of capital accumulation in the housing market. Through an investigation into the trends of wages, housing construction in aggregate numbers and sale price, alternative loans, default rates and bankruptcy laws this paper will demonstrate the my thesis holds true: that through the creation and extension of Alt-A loans capital seeks to expand the accumulation process, minimize the white elephant of unrealized exchange-value and prevent overproduction in the housing industry while through the legislative process capital seeks to guarantee its accumulation process through the passage of stricter bankruptcy laws.

Any capitalist industry is confronted with roadblocks at one time or another in its quest for the valorization of capital, and when these events occur capital will seek to overcome these roadblocks in several ways, depending on the industry – within this article I will display that the Alt-A market emerged as one avenue to address the problems of capital valorization in the housing market. Yet, this attempted solution also creates its own problems or risks that must then be dealt with to minimize the interruptions that might occur in the process of accumulation. One way was to counteract the higher rate of delinquincy and foreclosure that exists in the sub-prime and Alt-A marekt is to charge higher interest rates on the loans.

However, the sub-prime companies failed to realize that or did not really care that with interest rates at historic lows they were bound to only go one way, up! And that the individuals taking out these loans whould not be able to afford such increases, since the only way they can afford a mortgage in the first place is through the opening up of these sub-prime markets. If you do not pay the worker enough, they cannot afford to own a home and therefore produce capital for your through interest payments. On top of this, the whole conception that since the worker already gets paid a shitty wage and therefore lacks savings and credit etc., they are thus forced to pay higher interest rates is ridiculous - in essence the worker gets jacked twice. Yet, this problem of trying to ensure demand while limiting disposable income, which is intrinsic to capital, may not be perceived as a problem with the tough consumer bankruptcy bill that was passed 2006, as these lenders are guaranteed their money some way or another, so who gets screwed in the end, again, the working classes.

LA Times Articles
http://www.latimes.com/business/la-fi-subprime14mar14,0,7406728.story?coll=la-headlines-business
http://www.latimes.com/business/la-fi-mortgage14mar14,0,4068976.story?coll=la-headlines-business
http://www.latimes.com/business/la-fi-market14mar14,0,4631202.story?coll=la-headlines-business