What Do I Get? The Everyday Politics of Expectations and the Subprime Crisis

Abstract

Were Americans who agreed to subprime loans stupid? This article suggests not, and that individual choices on home loans reflect a welfare trade-off steeped in social norms. These norms provide a range of choices for individuals' intentional rationality, from which decisions can be legitimated among their social peers. To understand individual choices about taking on a home loan, such actions must be interpreted within the context of the dominant welfare trade-off within a society over how one ensures income over their life cycle. This can be understood comparatively and also over time. This article situates the American experience among other advanced industrialised economies to locate its particular variety of residential capitalism and why their experience is more mild than wild. It then assesses change over time in the US case, arguing that the subprime crisis requires us to consider the everyday politics of expectations. Seen over time, everyday expectations about how the economy works provide constraints on the capacity of economic and political elites to change the system. They also encourage institutional experiments to cope with crises. I discuss this in the context of institutional experiments in response to the 1980s crisis in the US and the role that community activists played in linking credit access to rights discourses from the 1930s and 1960s. I then discuss how this politics has played out in the current crisis, providing a broader perspective on the politics of the subprime crisis and why it's not just the economy, stupid.

Keywords:

• Subprime
• intentional rationality
• securitisation
• community activism
• financial crisis
• everyday politics
• constructivism

Notes

See the various descriptions at the ‘Redlining in Philadelphia’ website, here: http://cml.upenn.edu/redlining/PDFs/HOLC1936/libroG.pdf; http://cml.upenn.edu/redlining/PDFs/HOLC1936/libroK.pdf; http://cml.upenn.edu/redlining/PDFs/HOLC1936/libroC.pdf, based on HOLC maps from the Records of the Federal Home Loan Bank Board (FHLBB) at the US National Archives (RG195) (accessed July 2009).

Available from Banking Senate Committee at: http://banking.senate.gov/prel99/1112gbl.htm.

Federal Financial Institutions Examination Council, Home Mortgage Disclosure Act Database, National Aggregates, Table 5–2, 2001–03; Table 5–6, 2001–03. Data available from: http://www.ffiec.gov/hmda/

‘Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2007’, Department of the Treasury, Federal Reserve Bank of New York, Board of Governors of the Federal Reserve System, April 2008, pp. 10, 25. Available from http://www.ustreas.gov/tic/fpis.shtml (accessed 21 July 2009).

IOSCO Technical Committee's Task Force, ‘Report on the Subprime Crisis Report – Final Report’, May 2008, p. 4, http://www.iosco.org/library/pubdocs/pdf/IOSCOPD273.pdf (accessed 21 July 2009)

See: http://www.federalreserve.gov/newsevents/press/monetary/20081125a.htm.

Available from: http://www.financialstability.gov/docs/regs/FinalReport_web.pdf.

The FHFA replaces the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight, the latter of which acted as the overseer for Fannie and Freddie. The former was created to deal with the Savings and Loans crisis of the late 1980s–early 1990s.

As stated by former Freddie Mac chief, Richard Syron, see ‘Fannie Mae “HomeStay” & Freddie Mac “SafeStep Mortgages”’, https://www.efanniemae.com/sf/homestay/index.jsp (see also Shenn 2008; http://www.sifma.org/capital_markets/securitization-markets.shtml).

Personal interview with NCRC research staff, Washington DC, 3 October 2008.

‘FHFA Submits Report on Homeowner Assistance to Congress’, Federal Housing Finance Agency, 12 February 2009. Available from: http://www.fhfa.gov/webfiles/911/FPMgrReportRelease21209.pdf. Including, for example, Freddie Mac enabling the use of foreclosed properties as rental properties (see Seattle Times 2009).

On the complaint see: http://www.ncrc.org/index.php?option=com_content&task=view&id=409&Itemid=75.

This is one of the many topics being considered by the Warwick Commission on International Financial Reform, see: http://www2.warwick.ac.uk/research/warwickcommission/.