Are We Courting a Populist Backlash?

The government is doing a lousy job helping distressed homeowners. And according to John Dugan, the Comptroller of the Currency, the little that’s been done has had surprisingly little effect. Nearly 36 percent of homeowners holding mortgages whose terms were adjusted to give them more leeway defaulted on payments within three months, and almost 53 percent were behind on payments by six months.

What’s going on? It’s hard to know for sure, because the homeowners who have qualified for help so far were supposed to have been fairly good credit risks to begin with. My guess is the worsening economy is making it harder for just about all homeowners to pay their mortgages, and those who were teetering on the edge months ago — although perhaps good credit risks before that time — are now way under water. Two of the biggest culprits: Layoffs and fewer working hours. With far less money coming in, more and more people have to choose between paying their mortgages and trying to keep up with larger and larger credit card debt. They’re trying to manage both while paying the medical bills and the food bills and energy bills, and they can’t make it.

It wouldn’t surprise me if many of these Americans were starting to look at the size of the bailouts of Wall Street and the bailout of the Big Three — at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse — and conclude that a fundamental principle of fairness is being violated.

These Americans aren’t revolutionaries. To the contrary, they’re deeply conservative. They’ve worked hard, but their hard work hasn’t paid off. Some have tried to save, only to see their savings disappear. They’re worried about the future and about their kids’ futures. They never expected anything like this.

This is the angry soil in which populist backlashes can take root.


Originally published at Robert Reich’s blog and reproduced here with the author’s permission.

35 Responses to "Are We Courting a Populist Backlash?"

  1. aerial view   December 9, 2008 at 8:01 am

    Very well said! This crisis more than any other in recent history has illuminated the short sighted, pigeon holed obsession of maximum profit primarily by our financial institutions over everything else, including the sustainability of the world’s economic and financial systems! All of their energy is spent devising new ways to recklessly use leverage, circumvent oversight and regulation and operate in a clandestine manner; they have no values and their God has become Greed!

  2. Anonymous   December 9, 2008 at 9:10 am

    What’s going on is that a segment of the population have gotten used to not paying for what they buy. The economy won’t revive until measures are directed at the people who are willing to pay for what they purchase.

    • Guest   December 9, 2008 at 1:29 pm

      Yes. They’re called politicians.

  3. Anonymous   December 9, 2008 at 11:16 am

    AMEN. It angers me that unions and wall street benefits from tha bailout, but NOT me. Obama has proposed lots of pie in the sky ideas, NONE of which directly benefit most people. He has proposed a $1000 per person stimuls when he gets in. Big Whoop. Use that as a downpayment on the $25K per man, woman and child for the bailout of Wall ST!. No surprise they will be unleashing 20,000 troops on Main Street. THEY know what they are doing to us. They just don’t care: either out of stupidity or greed. Makes me want to run up all my credit cards and declare bankruptcy. SCREW them! I realize this is not eloquent ecnomic analysis, but its how I feel.

  4. Anonymous   December 9, 2008 at 11:42 am

    You are a prophet in the wilderness. Unfortunately the average citizen can’t expect relief through the electoral process. Socio-economic special interests have Congress in their back pockets. Now that an active-duty army unit has been deployed in the US I doubt that any populist backlash will get very far.

    • Anonymous   December 10, 2008 at 4:18 am

      20,000 troops vs 110,000,000 citizens with weapons? It’s gonna get interesting

  5. Guest   December 9, 2008 at 5:41 pm

    This is capitalism baby.

    • Anonymous   December 9, 2008 at 8:52 pm

      Like in the 30’s we can expect economic depression to be followed by political extremism over the next decade. It is not surprising that Obama is getting so much support from conservative quarters, he is the system’s last hope.

    • Guest   December 10, 2008 at 6:37 am

      This is NOT capitalism. Capitalism would allow Wall Street along with GM, Ford, and Chrysler all go belly up. Giving all these genuises Taxpayer money is Socialism, which is the opposite of Capitalism. What Reich really fears is a CONSERVATIVE backlash where all his “progressive” uptopian ideas wind up on the ash heap along with Marx, Lenin, Stalin and all the rest. What the Government is essentially doing now is stealing money from babies, poorer workers, and struggling small businesses and giving billions to fatcats and well heeled union workers. No wonder these are the groups who support the Democrat party. Now Obama will bring us to European or Japanese stagnation, perhaps for decades. America was suppossed to be different, where a man would be free to succeed or fail, based on his wits and initiative. Instead these power hungry central planners are condemning us to a future of the mediocre. Hopefully a few folks will figure it out, so Reich feels compelled to head them off by starting the name calling (like “angry populists”) early.

      • Anonymous   December 10, 2008 at 9:57 am

        Place the blame where it rightly belongs – Bush Administation. Suddenly, Obama, who hasn’t even been sworn in, is getting blamed. Why don’t you blame 8 years of Bush’s cronyism, NeoCon crazy conquer the world ideology, over spending, decreasing taxes with 2 wars, and letting Wall Street run wild without any oversight or regulation. Obama is being handed a horrible horrible situation. Would you rather he just sit back and let economy crater. Then you would be complaining that he’s not doing anything while millions lose their jobs, homes, savings, and the banks collapse. So stop the whining!

        • Guest   December 10, 2008 at 11:52 am

          Hitler ran on the forum of change as well. Just because Obama wants to change things doesn’t mean it’s for the better. Remember that Bush was a change from Clinton. Now Obama has changed his mind from being a supporter of the consumption tax and taxing rich people to taxing no one. Wasn’t not paying for thing what got us into this mess to begin with? Also, no person that actually owned their home has lost it due to the economy. They never owned it – the bank did!! They just rented it from the bank. It’s the same as a landlord kicking me out for not paying my rent. Perhaps I should apply for bailout for my rent.

        • Guest   December 11, 2008 at 11:02 pm

          How about placing the blame where it belongs, on greedy Wall Streeters, Banksters and borrowers who can’t live up to their promise to pay their debt. Bush did not approve any loans or co-sign anyone’s mortgage.This left right who’s to blame cr*p misses the point.Banksters blew the deal by not making sure loans could be repaid and borrowers by not making sure they could pay it back

  6. Guest   December 9, 2008 at 7:13 pm

    Yes we are!How could Nardelli, who took 200mm to leave Home Depot get any sympathy? or the AIG crowd? Bear Stearns?Now we’re going to bail them out and Chrysler won’t produce financial statements! Someone better soon limit exec pay and perks before the populist backlash is not controllable.Add to the list the ridiculous pensions of the public sector for backlash.Fairness is long gone. Out with the last passenger trains.

    • Anonymous   December 10, 2008 at 4:20 am

      …Personally, I’m fond of Thain’s request for a $10,000,000 bonus this year, as the Merrill loss would have been greater than the $11.6 billion it was without his efforts/genius.

  7. Frustrated with Pundits   December 9, 2008 at 9:21 pm

    Yes you are courting backlash via boorish posts like this one. The hoi polloi don’t want mortgage owners bailed out any more than they want to see corporate welfare and socialization of corporate costs. We also resent you refering to overleveraged property speculators as “homeowners.” You are naive and foolish in your assessments of popular awareness.

    • Guest   December 10, 2008 at 12:39 am

      Americans, for the most part, don’t know what their representatives are doing and don’t seem to care, in the long run, how they vote. Congressmen know they can vote against their constituencies with impunity. It’s happening right now, this week. So where will the populist backlash come from? It’s a terrible situation.

    • Anonymous   December 10, 2008 at 10:04 am

      Many homeowners having difficulties now were not overleveraged speculators. Many have ended up in that situation not of their own doing. Maybe they lost their job, or live in a neighborhood where other homes have been foreclosed lowering their property’s value. Don’t put everyone having trouble in the same boat. Have some kind of compassion during these difficult times!

  8. Strangewalk   December 10, 2008 at 12:25 am

    I somewhat agree with Frustrated. Everyone was greedy during the bubble, no one cared about the long term benefit to the country as long as they got theirs fast. People are afraid to see the root cause. Blame the forces that transformed America from something that was basically good and decent into a nation of overfed internet porn hounds. Find the forces that did this, then kill them. We will need to destroy this country in order to save it.

  9. USA Founded Upon Agrarian Ideals   December 10, 2008 at 12:48 am

    The only hope is to put people back to work in PRODUCTIVE sectors of the economy as opposed to purely CONSUMPTIVE sectors.As population levels stabilize in developed countries like the U.S. and elsewhere the economy cannot grow as much as it used to; we need to get used to this and accept a certain level of stagnation as in Japan and many European nations unless we want to flood our country with masses of immigrants or start mandating that women have more children just to keep the economy growing at a fast pace.A healthy/optimum American economy would be broken down approximately as follows (much leeway here):* Agriculture and Environmental: approx. 25% (agriculture is by far the most important productive sector and as such as many people as possible should be employed in this sector)* Manufacturing and Technology: approx. 25% (not as many workers needed as in the past because of automation, i.e. the technology itself replaces people)* Services (medical, education, etc): about 20%* Defense and Government: about 15%* Other: approx. 15%We need to do away with the wasteful, overly materialistic, and hyperconsumerist economy and bring back one based on PRODUCTION OF ESSENTIALS, i.e. “back to the basics.” Also, more opportunities for leisure must also be made available (perhaps working hours for the majority of non-essential jobs could be cut?) because what’s the point of working feverishly for all of this prosperity if we never take the time to actually enjoy it?

    • Anonymous   December 10, 2008 at 4:24 am

      We’ll move in this direction regardless. We won’t have the $$$ to import the necessities, so we’ll either produce them, or we’ll starve. If I never hear about “free” markets again it’ll be too soon.

  10. K. Blair   December 10, 2008 at 1:30 am

    What about the proposal offered on Barrons today to reset mortgages to 4.5% through refinancing and write down principle on some distressed mortgages to prevent foreclosure? the proposal allows for resets for alt-A and subprime borrowers who have contined to pay despite the “fact” they dont officially qualify. Lowering interest rates would substantially reduce payments and effectively reset the economy. It is doubtful the current administration will do this, as they are oblivious to the middle and lower classes. But something to this effect must be done or the backlash will come…not from the anger over the unfairness–though there is much anger…but from the army of unemployed, bankrupt and destroyed individuals who will shortly have nothing to do but act out their anger. Look at the riots in Greece..the unrest in China, India…its just a matter of time before average people in the U.S. start acting out of anger. I am hopeful about Obama, but I wonder if Geitner (who is trying to fire Bair) is sympathetic at all to the average citizen.

  11. Anonymous   December 10, 2008 at 6:55 am

    DEAD ON!RAGE!!!! raw, blood burning, adrenaline pumping, tear your hair out, grind your teeth down, scream your lungs out RAGE!!!!!!!!!!!!!!!!!!!!!! Iraq war? Subprime loans? Bailouts for overpaid wall street guys?Bailouts for overpaid auto execs and union workers with fat pensions who make big gas guzzling piles of junk?What the hell is this stuff???? Who is going to bail me out??? I think I am going to stop paying ALL my taxes and let the government come after me so I can spit in their faces. RAW DEAL!! This country is a pretty sick place to do this to their own citizens. God Damn America!

    • Guest   December 10, 2008 at 2:24 pm

      When you stop paying taxes the government will pay attention. Be ready to do more than spit.

  12. Anonymous   December 10, 2008 at 8:22 am

    I am sure Washington has been SHOCKED that there have not been major protests in every city across America–I sure am.Are Americans THIS lazy that they won’t even get involved when food is literally being taken from their kid’s mouths, and their savings decimated??WHAT will it take???Call your Congress person TODAY!www.house.gov

  13. Anonymous   December 10, 2008 at 8:26 am

    F Wall street and F the homeowners who got in over their heads and credit card deadbeats. And the person who said everyone was greedy during the bubble is also wrong. There are several responsible folks who didn’t participate in the bubble. Only they need to be rewarded by keeping the govt off the whole mess. 4.5% mortgage rates for deadbeats won’t cut it either. If tomorrow the rates go up, home prices will continue their fall and those deadbeats will be dead again. What we need is for the housing bubble to find a bottom fast. That’s the only fair outcome. Bleeding heart liberals who weep for homeowners who got caught with their pants down forget that there are several responsible renters who are still in the wilderness waiting for the housing bottom. By denying them their reward (responsibility should be rewarded), you are messing with fairness.

    • Anonymous   December 10, 2008 at 8:38 pm

      Agreed. I am tired of calling people “homeowners” simply because they signed a loan document and I did not. I am ready and able to buy, but the prices are still way too high.

  14. Anonymous   December 10, 2008 at 8:30 am

    And btw, no one cried for govt intervention when the stock market crashed in 2000. Lots of people lost money. They deserved it for investing in an inflated market. So why do homeowners (aka deadbeats) now cry for govt. help? Most bought homes they could not afford because they wanted a piece of the ever expanding pie. Somewhat like the stock market in 2000. So now pay for your mistake. Don’t ask responsible renters to bail you out. That’s a double slap in the face for me.

  15. Anonymous   December 10, 2008 at 9:46 am

    Our current economic plight has been years in the making. How ironic that our economy has drifted from a major manufacturer to a major consumer nation. The government promotes excessive consumption which has led to overwhelming debt, and now the little guy is left holding the bag while the corporations, who were fraudulently reckless and incompetent, get most of the help. When you have enough of the former middle class losing their jobs, homes, 401ks, pension plans, and dreams there will definitely be a backlash. If the jobloss numbers are correct that are being projected for next year then I think the seeds are being planted right now for that scenario.

  16. Anonymous   December 10, 2008 at 10:45 am

    If you’re so concerned about fairness, Mr. Reich, why not consider the plight of renters. Those of us who’ve been working hard, playing by the rules, saving (gasp!) for a downpayment, and living within our means.Many of us in our 20s and 30s have been shut out of the housing market completely by this artificial bubble. Bailing out anyone (banks or homeowners) only helps to slow the return of housing prices back to affordable levels that make sense given local rents and incomes. Not to mention that all this wanton printing of money is courting hyper-inflation, which makes the savings of the fiscally responsible worthless.It’s sad that someone who considers himself a progressive is so enamoured of inflationary policies that benefit the relatively wealthier asset owners rather than those of us with less advantage and priviledge.Allowing a housing market correction would actually make housing affordable–a boon for the 30% of renters in this country, especially us younger folks. And *not* printing all this excess money to bailout irresponsible corporations and homeowners would be beneficial to, since courting hyper-inflation by printing trillions of extra dollars is highly detrimental to those with lower incomes and the eldery who tend to live on fixed incomes.

  17. Jonathan   December 10, 2008 at 12:10 pm

    Here’s an idea that produces a fair outcome for most, even the responsible folks, as well as contributing to a restabilization of the market.You may have read recently that the OCC announced that the re-default rate on mortgage mods after 6 months is greater than 50%.Why not change the “workout” programs so that any mods by the bank (eg principal forebearance, or reduced rate) are assumable by any subsequent buyer.Picture someone who took out an option ARM in 2005 with a 2% teaser rate to buy a $1M house. This person defaults, the bank can offer him a mortgage mod, which this person still can’t afford. If he re-defaults, instead of foreclosing and likely taking a huge loss (maintenance, property taxes, selling costs) the bank can offer the same deal to any prospective buyer.Banks could make rate adjustments without writedowns since the better qualified buyer (the stronger hand) now owns the property. No more unfair, non-market-based loan mods, and reduced risks for the bank.FDIC could do this with the ex-IndyMac assets very quickly since they can set their own rules. Same for Fannie+Freddie

    • Anonymous   December 10, 2008 at 2:23 pm

      Nobody with the ability to afford the properties would want to buy it while the value is dropping, even with the “deal” incentive.Prices need to fall by a large margin, and due to the economic devastation this is bringing, they will probably overshoot by a pretty good margin when the floor of people holding on for dear life finally falls out (and/or are forced to move/sell). Expect drops in values in the long run for decades, maybe longer, with only rent savers buying in 3-5 years. Thanks to the economy more people are doubling (and tripling, and more) up in housing and living with family, so housing will depress even beyond the rent savers since they won’t be saving rent until the cost of housing is truly affordable (much less than even recent historic levels). My bet is that the true bottom will only be seen when the mortgage payments are around 15-20% of a single earner’s income. Do the math. The semi-recoveries seen on the way down will probably be soft bottoms, in spite of real estate industry members trumpeting it as the final turnaround. There is still a lot of speculation and irrational mentalities in the system at the moment, so the real crash hasn’t happened yet.

  18. Disgusted   December 10, 2008 at 1:23 pm

    Americans are useless sheeple, otherwise they would have risen in fiery protest MONTHS ago. I hpoe the USSA DROPS DEAD. Go CHINA GO!!!!!!

  19. Guest   December 10, 2008 at 3:04 pm

    We should give up the fraud of being Conservative meaning lemmings who follow and become revolutionaries, people willing to take the entire system down and get even with Academia, the Media, Government and those in business, especially those in business. We should take everything away from them and make sure THEIR FAMILIES live in poverty for life.

  20. fedwatcher   December 10, 2008 at 4:56 pm

    Mr. Reich,The high rate of default among the modified home loans demonstrates that home prices are still too high and potential equity buildup is too low.We need to roll back the changes to the bankruptcy laws to empower judges to cram down mortgages where appropriate and make people renters where appropriate. In many cases buyers lied and should lose their homes. In other cases high medical bills or a job loss has caused an honest buyer to default. Also, in other cases, the buyer was misled by greedy mortgage brokers.This cannot be resolved by a blanket solution.All of the other present measures are geared to propping up the insane real estate prices. This makes many young people permanent renters. It also prevents investors from being able to buy then rent at affordable rates.Any new buyer tax credit would go straight into propping up the price.Any lower interest program would go into propping up the price.There is no need to rescue homebuilders as this industry has very low barriers to entry and many new homebuilders will exist after prices stabilize.The bottom line is that you cannot fix a problem of too much debt by creating more debt. And you cannot fix the problem of too high prices by offering incentives to buy.

  21. marty   December 11, 2008 at 12:26 pm

    I think its time for another revolution .But it wont happen because Americans are fat lazy sheep. Unfortunately there is no coming back from this situation.