From Global Buck to Local Muck: Capital Markets, Public Policy and Neighborhood Wreckage in the U.S.

Abstract

The U.S. subprime crisis was the result of a continual movement of U.S. mortgage markets towards vertical disintegration, structured finance, and deregulation since the early 1980s. The result was an increasingly direct connection between global capital markets and U.S. homeowners and neighborhoods, with little mediation, oversight or restraint, especially by the public sector. There was no concern with the consequences that high-risk lending might have on local communities and their residents; the focus was on promoting liquidity at all costs, to increase the transactions (and the associated profits) and continue to promote financialization of the economy. The impacts of the subprime crisis, both direct and indirect, are far too vast and widespread to be addressed in a single paper. However, I attempt here to describe one critical aspect of this impact - the piling up of vacant, foreclosed properties in many U.S. neighborhoods, especially those in older central cities as well as those in newer, outlying suburban and exurban communities in some parts of the country. I also discuss the primary federal response to the problem of vacant, foreclosed properties, the Neighborhood Stabilization Program, which was adopted initially in the summer of 2008, with supplemental funding in 2009.