Evaluating the Logic of the Alternative: The Downside of "Winding Down" Fannie and Freddie
There are two separate points that I want to make in my evaluation of Obama's suggestion that it might be time to "wind down" the government-sponsored secondary mortgage market agents. I'll tackle the first in this section. It is, in my view, indisputable that the removal of the GSEs from secondary mortgage markets in the U.S. would significantly increase the volatility of housing markets and make the institution of home ownership more tenuous and risky for all but an increasingly small minority of the U.S. population, capable of purchasing residential property without recourse to mortgage loans. My foundations for making this conclusion emanate from the recent record of mortgage securitization and from the history of GSE/agency issuance of MBSs and CDOs relative to private sector/non-agency issuance of MBSs and CDOs.
In order to understand why I am arguing that the dissolution of Fannie and Freddie would damage the accessibility of home ownership for moderate to lower income households, I have to introduce a series of statistical data, from diverse sources, that seem to support my case. Bear with me on this, even if all the numbers seem inane! My point is that the goal of expanding home ownership cannot withstand the elimination of a secondary market substantially structured by the federal government. The whole idea of setting up a secondary market is to accumulate capital for the issuance of mortgages in primary mortgage markets, even if private holders of capital do not envision the potential to realize adequate rates of return from lending to prospective home buyers. Since the 1970s, securitization of home mortgages by the GSEs has been the standard mechanism by which the GSEs (and Ginnie Mae, the wholly government owned secondary market agent for FHA-insured and VA-supported home mortgages) have raised capital for their financing of primary mortgage markets, supporting larger quantities of mortgage lending than might otherwise have occurred over this period. The key period that interests me, however, is the period encompassing the high tide of the housing price bubble (around 2005) through the meltdown to the present.
Table 1 attempts to make an important point about the relationship between primary and secondary mortgage markets. Specifically, over the course of the housing market expansion, securitization in the secondary market became increasingly important as a strategy, especially for agents in primary markets seeking to accumulate capital for their lending processes. By 2007, over 50 percent of mortgage debt outstanding in the U.S. had been securitized into MBSs and/or CDOs. Prior to this period, bundling of mortgages was almost entirely restricted to the GSEs and Ginnie Mae, and securitizations rarely exceeded 40 percent of outstanding mortgage debt. On the other hand, rates of owner occupancy for U.S. housing stock rarely exceeded 65 percent prior to this period and exceeded 69 percent at the height of the housing price bubble. The difference here, reflected in an unprecedented increase in owner occupancy of U.S. housing stock, appears, to a substantial extent, to be explained by securitization. Likewise, the rapid decline of private/non-agency securitization after 2009 accompanies a severe, if not unprecedented, decline in housing sales, shown in table 3, and a decline in owner occupancy of housing stock from 69.0 percent in mid-2006 to 65.0 percent in mid-2013 (see Census Bureau, "Homeownership Rates for the U.S. and Regions: 1965 to Present," Table 14, at: http://www.census.gov/housing/hvs/data/histtab14.xls).
Table 1: Mortgage Debt Outstanding and Mortgage Securitization,
2002-2012
Mortgage Securitized Percentage
Year Debt Outstanding(MD) Debt(SD) Securitized
(Thousands $) (Thousands $) (SD/MD)
2002 8,361,212 3,994,462 47.77%
2003 9,376,248 4,353,353 46.43
2004 10,652,318 4,835,957 45.40
2005 12,096,298 5,791,969 47.88
2006 13,508,779 6,625,504 49.06
2007 14,602,757 7,431,954 50.89
2008 14,693,954 7,576,601 51.56
2009 14,391,889 7,621,690 52.96
2010 13,738,559 3,055,482 22.24
2011 13,411,868 3,001,598 22.38
2012 13,156,187 2,927,522 22.25
Source: Board of Governors of the Federal Reserve System, "Mortgage Debt Outstanding," at: http://www.federalreserve.gov/econresdata/releases/mortoutstand/frb_mdo_historical.csv.
The point here is not that securitization, as a financial practice, is intrinsically good or beneficial. Rather, securitization increases the liquidity of mortgage debt, encouraging primary market mortgage originators to write more mortgages at lower rates of interest relative to what would have to be charged if originators were forced hold on to all the mortgages they've written in their own financial portfolios. If, as a society, we are really committed to the goal of increasing the number of owner occupiers of residential property, then securitization is definitely a reasonable strategy to pursue in organizing the accumulation of housing market capital for issuing debt.
This process works really well when all of the secondary and primary mortgage market players are playing by the rules, writing mortgages for households that stand a fighting chance in paying them off, and buying and bundling mortgages with relatively low risk of default. It describes what Fannie Mae, Freddie Mac, and their primary market partners did before 2004, and it still describes what Ginnie Mae does with FHA-insured and Veterans Administration loans. Over the period that I am reviewing here, however, private/non-agency secondary market actors (e.g. Bear Sterns, Merrill Lynch, Bank of America) started to overwhelm the secondary markets, buying risky MBSs, repackaging them into risky CDOs, and insuring them with default swaps. Table 2 shows how issuance of MBSs and CDOs increasingly became the business of private, non-agency actors and how the GSEs and Ginnie Mae were increasingly crowded out of secondary markets (in relative terms - they were, after all, practically monopolizing the secondary markets prior to the passage of Gramm-Leach-Bliley). As private, non-agency issuers of securities increased their share of the secondary markets, the securities became substantially riskier, because primary market lenders were awash with capital to write riskier mortgages for households who were unlikely to be able to repay their debts.
Table 2: GSE (Agency) and Private (Non-Agency) Securitized Residential Mortgage
Debt Issued, 2002-2012
Year MBSs, CDOs Issued (Billions $) Percentage of Total Issues
Agency Non-Agency Agency Non-Agency
2002 2,044.3 243.5 89.36 10.64
2003 2,757.2 343.1 88.93 11.07
2004 1,393.0 430.1 76.41 23.59
2005 1,347.7 726.0 65.00 35.00
2006 1,239.1 687.5 64.32 35.68
2007 1,465.6 509.5 74.20 25.80
2008 1,366.8 32.4 97.68 2.32
2009 2,022.9 9.2 99.55 .45
2010 1,919.9 12.1 99.37 .63
2011 1,615.3 2.8 99.83 .17
2012 2,015.8 4.2 99.79 .21
Source: Securities Industry and Financial Markets Association (SIFMA), "U.S. Mortgage-Related Issuance and Outstanding," at: http://www.sifma.org/uploadedfiles/research/statistics/statisticsfiles/sf-us-mortgage-related-sifma.xls?n=23348#Issuance!A1.
And so, in mid-2007, the outcome that was likely to happen happened, as shown in table 2. As subprime defaults started piling up, the private, non-agency issuers of mortgage backed securities withdrew from the secondary markets, and, as a result, the primary mortgage markets froze up making it difficult for anyone, even with very high credit ratings, to obtain credit to purchase residential property (see table 3 below for the mild drop in housing units sold in 2007 and accelerated drop in 2008). For all intents and purposes, private MBSs and CDOs cease to exist after 2007. Without all of that private capital in secondary markets, the forward march of the "Ownership society" came to a grinding halt.
Table 3: Total Housing Sales and Median and Average Sale Prices in U.S., 2002-2012
Year Housing Units Sold Median Sales Price Average Sales Price
(Thousands)
2002 973 $187,600 $228,700
2003 1,086 195,000 246,300
2004 1,203 221,000 274,500
2005 1,283 240,900 297,000
2006 1,051 246,500 305,900
2007 776 247,900 313,600
2008 485 232,100 292,600
2009 375 216,700 270,900
2010 323 221,800 272,900
2011 306 227,200 267,900
2012 368 245,200 292,200
Source: U.S. Census Bureau, "Houses Sold by Region: Annual Data," at: http://www.census.gov/construction/nrs/pdf/soldann.pdf;
and "Median and Average Sales Prices of New Homes Sold in United States: Annual Data," at: http://www.census.gov/construction/nrs/pdf/uspriceann.pdf.
The interesting thing here, and the larger point of my argument as to why "winding down" Fannie and Freddie might not be a good idea, concerns how the financing of home purchases changes after 2007, as shown below in table 4. As expected, a smaller percentage of households purchase residential property with conventional mortgages (conforming prime rate mortgages, Alt-A, subprime, or otherwise). In 2010, two out every five housing purchases in the U.S. were financed without recourse to a conventional mortgage. Significantly, two other financing sources gain prominence - first, purchases with Federal Housing Administration (FHA) insured or Veterans Affairs (VA) supported loans, and, second, purchases with cash. In fact, FHA and VA loans, which had seen a decline over the period of the housing price bubble, witness a substantial increase in their shares as sources of residential financing. Going back to table 2, this increase also explains, in part, why the total number of MBSs and CDOs issued by agency issuers rises by as much as it does after 2007. Even as Fannie and Freddie come under U.S. government conservatorship (i.e. they get taken over and forced to divest of their toxic asset portfolios), Ginnie Mae, which purchases FHA and VA loans, becomes a major issuer of MBSs and CDOs, again, fully and faithfully backed by the U.S. Treasury in explicit terms against borrower default.
Table 4: Percent of Housing Sales by Financing Type, 2002-2012
Year Housing Units Sold Conventional Mortgage FHA+VA Loan Cash
(Thousands) (Percent) (Percent) (Percent)
2002 973 80.99 14.39 4.32
2003 1,086 83.89 11.97 3.78
2004 1,203 87.03 8.73 3.82
2005 1,283 89.71 6.16 4.05
2006 1,051 90.29 5.99 3.62
2007 776 89.56 6.70 3.87
2008 485 73.81 21.44 4.74
2009 375 62.40 33.07 4.53
2010 323 58.51 35.91 5.88
2011 306 62.09 31.37 6.54
2012 368 63.59 29.89 6.52
Source: U.S. Census Bureau, "Houses Sold by Type of Financing," at: http://www.census.gov/construction/nrs/pdf/soldfinca.pdf.
All of this statistical evidence says something important to me about the idea of having a society in which there is at least some expectation that home ownership, across the general population, will increase over time. Specifically, it suggests that a secondary market is absolutely indispensable in accumulating the necessary capital to expand the scale of housing purchases, that we need institutions committed to making housing purchases for moderate to lower income groups affordable with tangible, rigorous standards for mitigating default risk (i.e. conformity standards), and that, as a matter of housing policy, the federal government must have a role in housing market processes.
Under present conditions, moreover, the federal government will maintain a place in secondary markets, even if Fannie and Freddie are "wound down." To my knowledge, there has been no talk from the Obama administration about "winding down" Ginnie Mae or eliminating FHA and VA housing programs, although I am sure that there are at least some House Republicans for whom this is the ultimate goal! The evidence in table 4 attests emphatically to the fact that taking such a step would be an unmitigated disaster for the U.S. housing market and for the prospect that anyone without substantial household reserves of cash would be able to finance a housing purchase in the immediate future. A total elimination of the federal role in housing markets would crush the feeble housing market recovery since 2010. However, at question in the fate of Fannie and Freddie is the health of conventional mortgage markets.
Obama's suggestion that "private lending should be the backbone of the housing market" (see Calmes,"Obama Outlines Plans for Fannie Mae and Freddie Mac," New York Times, at: http://www.nytimes.com/2013/08/07/us/politics/obama-fannie-mae-freddie-mac.html?_r=0) is manifestly unrealistic, unless we are content to have less expansive housing markets and fewer home owners. Private capital, especially in the U.S., is simply too focused on short-term rates of return to accept substantial investments in long-term assets, like thirty-year mortgage debt. The success of Fannie Mae and Freddie Mac, from the 1970s through 1999, at accumulating private capital, with small margins of profitability, probably did have much to do with the implicit government guarantee on its issues of mortgage backed securities. On the other hand, it also had to do with the innately conservative nature of investments in thirty-year conforming mortgages. Such assets do not yield exciting blockbuster returns to investors, but they provided decent low-risk flows of income. The same can be said for assets currently being marketed by Ginnie Mae. These assets certainly have their place in financial portfolios, but it seems unlikely that, in the high-flying world of the contemporary global financial sector, U.S. secondary mortgage markets, structured around conservative, fixed income assets, will solicit enough interest among larger institutional investors to adequately, and consistently, finance new generations of prospective moderate to lower income home owners.
A more likely scenario for secondary mortgage markets, if private investors are to become the default source of capital, would be a repetition of short run boom and bust cycles, where risk-loving institutional investors periodically hurl large quantities of money capital into secondary markets and into housing construction projects chasing and/or generating abnormally high rates of return. In the process, they'll drive down interest rates and induce a temporary bubble in housing prices, as new generations of households that have no business looking to purchase real estate find their way into housing markets, lured by unscrupulous lenders, and compete for temporarily diminished inventories of housing stock for purchase. When the wisest of the investors come to their senses, realizing that they'd been through this territory before, they'll pull out and many more will follow. Mortgage markets will lock up once more, and the unlucky erstwhile home owners who fell for the promise of a place of their own will end up out on the street with their earthly possessions as a new foreclosure crisis ensues.
If Fannie and Freddie are "wound down" or otherwise reorganized without either an implicit or explicit guarantee of U.S. Treasury insurance against risk of default, then, following the logic of supply and demand, maybe U.S. housing markets are due for a long-term secular deflation of housing prices to bring the valuation of housing stock back in line with the long-run diminished availability of capital in mortgage markets. Such a deflation would reverberate across many, many other markets, including labor markets, and inflict lingering pain on the larger U.S. economy. This is, however, a long-term prediction, and, as with any long-term prediction, it abstracts from a wide range of countervailing tendencies (e.g. short term housing booms) and the possibilities for changes in government policies that could transform the reality that it seeks to comprehend. At least in the short run, it seems incomprehensible to me that private capital will satisfy the contemporary demands for primary mortgage market financing to revive housing markets, reduce current inventories of vacant housing stock in particular regional markets (e.g. Las Vegas, Phoenix) especially hard hit by the deflation of the housing price bubble, and energize residential building construction. Likewise, it is probable that the federal government, through Ginnie Mae/FHA/VA, will continue to play an enhanced role, at least until the last remnants of a federal role in housing markets can be killed off by Congressional conservatives at war with the New Deal. Without significant, robust efforts by the federal government to restore the GSEs to financial viability and to a pivotal role in secondary mortgage markets, it seems likely to me that housing markets and housing construction will continue to be depressed for the indeterminate future. Given Obama's comments, such a robust effort is not going to be in the cards.
Housing Market Realism and the Potential for a Radical Turn
My remaining comments here concern the other, more realistic side of Obama's recommendations for federal housing policy. In particular, the tone of Obama's comments suggest a change in policies to realize a "rebalancing" of federal housing expenditures to enhance the development of affordable rental housing. He, likewise, expressly argues that "banks and the government too often made everyone feel like they had to own a home, even if they weren't ready and didn't have the payment," and suggests that this was a mistake. Again, I emphatically want to argue that such a position recognizes the fact that lower income households were, to a great extent, eagerly pushed by the primary mortgage market operators to purchase property when there was no expectation that they would be able to continue making their payments and retain their purchase as interest rates reset on prevalent adjustable rate mortgages. On the other hand, it neither explicitly blames or absolves either side in primary subprime and Alt-A mortgage markets for their roles in creating the mortgage market meltdown. And, critically, it recognizes that the federal government needs to proceed with a greater deference to the role of rental housing as one component within the larger landscape of affordable housing options, especially for lower income groups.
Clearly, if the "winding down" of Fannie Mae and Freddie Mac and replacement of these secondary mortgage market agents with a greater reliance on private capital remain the central elements of the Obama administration's recommendations on federal housing policy, then the government would need to develop expedients that could supplement private capital accumulation for conventional mortgage issuance, such as an expansion of FHA mortgage insurance programs. Active fiscal support of affordable rental housing is another necessary piece as we extend beyond what FHA can do to insure households at reasonable thresholds of risk for default. Thus, we are bound to encounter the outer limits of the "Ownership society." If, however, ownership of one's own home has become synonymous with our conception of the "American dream," then we need to critically examine the proposition that some segment of the U.S. population, perhaps two-fifths and maybe more over time, will never be able to enjoy the prospect of home ownership.
Two concerns immediately jump into my mind, the first ideological and the second practical, although each of these concerns tends to shape the other and, in at least some sense, they are intertwined. First, there is no clear conception of what the "American dream," as an ideological construct, actually means or entails. Following Althusser's Marxian conception of ideology, the American dream represents the imaginary relationship of every individual American to our lived experiences of economic, political, and cultural conditions of existence. That is to say, the American dream isn't an objective something lying "out there," outside of our selves, unifying us as a society through our consensus image of success - it is an image that all Americans individually make up as we go along to represent our particular (fantasized) relationships to our real life processes as citizens, wage workers, capitalist entrepreneurs, retirees, parents, homemakers, churchgoers, etc. Those images shape us as individuals making everyday life choices and, cumulatively, shape the evolution of American society as we all strive to obtain what our (individual) American dream promises. Thus, to question the terms of the American dream must necessarily induce a personal psychological crisis of sorts in the lives of many millions of Americans, as the transformation of a real economic process (i.e. home ownership) forces individuals to reconfigure their images of what it means to succeed in America. In this manner, I don't think that, in the "winding down" of Fannie and Freddie, the American dream is in any danger of disappearing, but, for millions of Americans locked out of home ownership, it must change, and these transformed individual images of the American dream will necessarily reflect the full range of economic, political, and cultural processes that we as individuals experience in our everyday lives.
There is fertile ground here for cultural arguments to actively reshape images of the American dream as they are constructed by more and more American households who find themselves locked out of home ownership. By this I mean, theories and analyses, that attempt to hammer home the point that, absent some significant federal intervention into housing markets (that is, itself, highly improbable), the dream of owning one's own home is going to be unrealistic for a steadily increasing number of American households, might actively contribute to the cultural reconfiguration of the meaning of success. It is not a question of getting lower to moderate income households to merely accept that they will never get to live on a half an acre of their own space in the suburbs, but it must, on the contrary, support the necessity of opting out of individual home ownership as a goal and a criterion of success per se. What we need is to produce a counterargument on the definition of the American dream, with the hope that this counterargument will embody the sort of transformations in American society that we are trying to produce.
As a Marxist, I know precisely what sort of counterargument I would advance. As a larger society, we need to acquiesce in the cultivation of community, embodying the intentional unification of extended groups of households into private, democratized organizations that will operate to support the interests of individual members and of the collectivity as a whole. In relation to housing, the sorts of organizations that most readily come to mind are housing cooperatives or co-housing arrangements, where multiple households cooperate in pooling financial resources to purchase and maintain a larger, multi-unit property. Such organizations are voluntary, and they certainly do not abolish the sanctity of individual choice. On the other hand, they perform a critical life process (i.e. housing) through collective organization and democratic deliberation between involved households. Ideally, they reinforce an ethos of collective, organizational self-reliance, even to the extent that such cooperatives may require some measure of outside financial assistance, perhaps by small lenders, other cooperative entities (e.g. credit unions), or governmental entities.
Moreover, collective housing implicates a range of other practical concerns. First among them, it is entirely conceivable (and ready examples exist) that housing cooperatives will arise in suburban or rural areas, but the notion of having multi-unit housing purchases by an organized group of households seems to prioritize urban areas where such units readily exist. As an urban redevelopment strategy, collective housing achieves a critical goal: it endogenizes incentives in the maintenance of multi-unit rental housing stock. In other words, if renters in multi-unit urban housing group together as a cooperative and purchase the larger space in which they are renters, then they will have an incentive to maintain the quality of the space that did not exist when they were pure renters from a single, possibly external/absentee, landlord. Further, if such households lack the potential to exit and, individually, purchase single-unit suburban property, then they will, likewise, embody incentives to enhance the quality of their collective space over time insofar as such enhancements individually benefit the quality of life for members (even to the extent that enhancements marginally elevate the collective property tax burden on the property).
Finally, collective strategies in housing both necessitate and enhance the potential for collective, communal organizations in other economic processes (e.g. finance, consumer services, health care, manufacturing). In this manner, if the breakdown of a reliable pathway to suburban living as isolated, individual households for millions of Americans creates the potential for collective housing as an improvisation, arising from a reconfiguration of the terms of the "American dream," then such an improvisation must generate some collective mechanism for the assembly of residential financing (a cooperative financial pool), and the collective reorganization of finance and housing may give rise to other collective organizations to resolve still other social problems. Within my own research, I would posit that such an extensive networking of collective/cooperative organizations seems to characterize the development of the cooperative movement in Quebec, arising initially among financial cooperatives (caisses populaires) organized at the level of individual Catholic parish communities and extending into a wide range of economic processes, first in rural areas and later in cities. The pathways might be distinctly different in the U.S. and different from region to region and city to city, but the critical point is that a turn toward collective organization might exist as a radical potential to be actively and intentionally developed here as a response to the truncation of more individually focused opportunities embodied in the "Ownership society." This potentiality would certainly be neither an automatic nor axiomatic outcome of a retraction of the Ownership society, but it exists as a definite improvisational and entrepreneurial strategy for progressive advocates of a different course in American economic development and, critically, for the redevelopment of urban space and urban economies.
Having dealt with my ideological concern, there remains another very practical matter. Namely, in the current context of an affluent consumption oriented economy, accumulated housing equity remains a very important component as collateral in the financing of consumer expenditures and household investments, especially big ticket items like college education. If, as a society, the institution of owner occupancy is bound to encounter at least a temporary diminution if not a long term secular decline, then how can we maintain a macroeconomy so centrally committed to consumption as a driving force of development? Similarly, if other the costs of higher education continue to increase at predictable rates in the future and other avenues of educational financing (e.g. federal educational grants) encounter constrictions, how will moderate to lower income American households continue to finance higher education as a (theoretical) means of social mobility for younger generations without recourse to home equity? I need to directly ponder the larger question of higher educational financing and its connection to social mobility in some future post, but, for now, the general subject of a loss of home equity as collateral for household borrowing presents itself as a very clear problem if we accept the idea that the Ownership society is going into retreat.
For reasons that I have already stated, I believe that the home equity question is intertwined in ideological questions concerning the definition of success (the "American dream"). In some sense, owning a home out in the suburbs is less satisfying without certain other big (or at least moderately big) ticket consumption goods, like swimming pools, plasma screen t.v.s, a finished "man cave" in the cellar complete with a mini-bar and, maybe, a pool table, etc. All of these things contribute to the larger definition of what it means to live the "American dream" for many moderate income Americans, and it is harder to realize them outside of the unique spatial contexts of suburban living, absent ownership of single-unit housing, and without the ability to draw on home equity to finance consumption. Again, if an increasing population can expect to remain continuously in rental property in more or less urban settings, then the foundations for a consumption-driven economy will be undermined and the terms defining individual success must, necessarily, come into question.
As a practical matter, households locked out of home ownership and locked into rental housing will have to reconfigure household consumption and investment expenditures to account for the critical absence of an ability to draw on home equity. Maybe this will imply that an increasing segment of the U.S. population will experience a degree of austerity in consumption comparable to that experienced by American households in the 1930s. If this happens, then motivations may exist for improvisational community organization to supplement everyday consumption processes. Again, my imagery in this regard is shaped by my own theoretic preferences for collective, democratized entities like cooperative organizational forms, but the larger idea is that we, as a society, are going to have to become more creative and entrepreneurial in our conceptions of how we purchase or otherwise obtain, consume, recycle, and re-use articles of consumption, especially durables. In this regard, I am very much impressed with the idea of "community glue," denoting the development of volunteer groups of handy-people seeking to repair and re-use consumption articles/appliances rather than discarding broken household items and buying new ones (see the Community Glue Workshop, at: http://communityglueworkshop.wordpress.com/2012/06/13/welcome-to-community-glue-workshop/). Experiments like this have the potential to enhance the quality of life for households with lower incomes and wealth while simultaneously promoting ecological sustainability by re-using and recycling materials that would have otherwise made their way into landfills. It reminds me, in part, of a passage in Jane Jacobs' The Economy of Cities (Vintage Books, 1973) where she argues that one day, perhaps, urban entrepreneurs may discover boundless wealth in mining their own cities' garbage for desired commodities and for sources of alternative energy - maybe now we are arriving at such a moment.
Further, the loss of home equity as a source of collateral must exert some impact on small business development through private commercial lending. If individual entrepreneurs or groups/partnerships (including prospective cooperatives) are unable to marshal home equity as a basis for obtaining financing from private lenders, then alternative, non-bank financial sources will attain a much greater importance as means for moderate and lower income entrepreneurs. One clear alternative already exists in loans and grants by government agencies (e.g. federal Small Business Administration (SBA)rule 7(a) loans and the SBA microloan program), but, in an environment in which the fiscal stability of governments at all levels has become highly uncertain and in which, at the federal level, partisan struggle over the role of government in economic development threatens to undermine any active intervention to promote the health of local economies, government does not constitute a reliable funding source for small business financing. Once again, the point here has to be that, in a future characterized by greater limitations on access to traditional lending, local communities will have to organize themselves to enable pooling of financial resources for prospective entrepreneurial projects, evaluating risks and devising means to support experimentation. This might involve the development of credit unions or other formal institutional mechanisms for capital accumulation, but it must go further. In particular, it will require entrepreneurs to expressly articulate supply-chain connections (i.e. networks of prospective upstream suppliers and downstream clients) in their business plans in order to provide a tangible basis for evaluating the viability of projects where scarce community resources would be at stake. The sorts of entrepreneurial projects emerging from such processes might be expected to be quite modest in scale but highly detailed in organizational planning to ensure that limited, conservative objectives to realize profitability might be readily achieveable.
Another alternative remains, on the question of home equity, in the organization of collective housing, particularly cooperatives. Divergent scenarios in the organization of home equity in cooperative property (e.g. market value v. contractually limited equity cooperatives) introduce possibilities through which cooperative members would be able to individually marshal equity from their shares in cooperative housing to finance household consumption or investment expenditures. Here again, however, the organization of cooperatives relies on a much broader level of community organization, including financial pooling to enable cooperative members to obtain adequate financing for the purchase of multi-unit property. In these terms, the larger body of alternative possibilities advanced in this section require a substantial degree of intentional cultural transformation by committed advocates of such an alternative, laying the groundwork for commitments within particular moderate to lower income communities to support a network of new collective institutions, in lieu of individualist methodologies that might otherwise be pursued if involved households had greater access to financing to move off to isolated suburban plots.
To me, there is something meaningful and positive to be extracted from the impending disintegration of the "Ownership society," conveyed by the retraction of a federal role in the structuring of secondary mortgage markets in the interest of expansive home ownership. Reframing the "American dream" around a more communal vision is not only more viable in a context where capital for mortgage markets is more scarce, but it also enjoys the potential for a deepening of economic democracy through collective organization and for the creation of endogenous incentives for the redevelopment of urban communities on a more ecologically and economically sustainable basis. As I have suggested here, there is nothing automatic about any of this - if any of this is going to happen it will take immense quantities of work, ingenuity, and entrepreneurial creativity. However, in my view, it represents the best possible hope for the reconfiguration of expectations regarding American society beyond the death of the New Deal project.
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