Our economy, driven by a culture that values debt, anxiety, and greed, results in a delusion, Alyssa Katz shows in her new book, Our Lot: How Real Estate Came to Own Us (Bloomsbury USA, 2009), that inevitably led to a real estate mania and the collapse of the global economy.
To help the reader navigate this complex story, Katz, a journalism professor at New York University, and a former editor of City Limits, has found vivid, outrageous, and sympathetic characters for us to follow. My favorite character is Gale Cincotta, a Chicago housewife and activist, who in the 1970s, helped turn the community organizing group, National People’s Action, into a powerful force that led to the passage of the federal Community Reinvestment Act (CRA) of 1977. The CRA, a brilliantly innovative affordable housing law, forced banks to meet the credit needs of all neighborhoods. It would become one of the most successful government policies to promote homeownership. At the outset of her story, Katz follows Cincotta, one of the few heroes of the book, to help explain how housing is financed in America.
Katz counterbalances Cincotta with another great character, Lewis Ranieri. Ranieri, a fierce, a trader for Salomon Brothers and a fierce pioneer of financial services deregulation, had no use for (or knowledge of) regulations like the CRA, or or even of the successful housing programs such as public housing. He certainly was not interested in improving the Federal Housing Administration (FHA) as a way of extending credit to previously discriminated urban households. Instead, Ranieri, partnering with President Ronald Reagan’s “brain trust,” devised an unfettered free market program to promote homeownership. Ranieri and the Reaganites plan would, according to Katz, “dismantle the regulations of a previous generation — cautious Depression-era strictures on securities trading that were preventing pension funds, insurance companies and other institutions…responsible for investing billions of dollars in other people’s cash, from poring their wealth into the places where we live.” Ranieri’s program would turn homes into commodities as tradable as stocks and bonds. He called it securitization.
Soon, Salomon Brothers and the rest of the financial services industry convinced a Democratically-controlled Congress and Republican-controlled Senate that the combination of securitized mortgages and deregulation was the route to expanding homeownership: everyone would be a winner!