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The Meltdown on Wall Street and America's Cities

With the subprime mortgage and housing bubble crises now metastasizing into the full-blown implosion of the U.S. economy, global markets have been gasping to keep up with the turmoil. Later this week Congress will be pressured to approve a mind-boggling $700 billion "bailout" package which would effectively transform Treasury Secretary Henry Paulson Jr. into an "overseer" of the entire economy, with complete and unassailable power to purchase so-called "toxic" debts from any bank he chooses.

Michael Dudley | September 23, 2008, 12pm PDT
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With the subprime mortgage and housing bubble crises now metastasizing into the full-blown implosion of the U.S. economy, global markets have been gasping to keep up with the turmoil. Later this week Congress will be pressured to approve a mind-boggling $700 billion "bailout" package which would effectively transform Treasury Secretary Henry Paulson Jr. into an "overseer" of the entire economy, with complete and unassailable power to purchase so-called "toxic" debts from any bank he chooses.

Critics have been swift to decry the bill, which appears to be giving Wall Street investors everything they want while leaving nothing for "Main Street". For example, economist Robert Kuttner argues at the Huffington Post that instead the bill needs to include provisions for

"mortgage refinancing, and authority for cities and towns to acquire foreclosed properties and put buyers and renters back in them. The package should include at least $200 billion of new economic stimulus, in the form of aid to states, cities, and towns, for infrastructure rebuilding, more generous unemployment and retraining benefits, and green investment."

Eric Lotke of the Campaign for America's Future agrees. The answer to the crisis is to rebuild America's bridges, dams and schools:

"America needs rebuilding. And the American people need jobs. Put one and one together. Make two. And build a bridge while you're at it. It's a real way out of our economic mess. Every $1 billion of federal funding invested in transportation infrastructure creates 47,500 jobs. Every $1 billion spent on our water infrastructure creates 57,400 jobs. Catching up on $20 billion in deferred school maintenance would generate 250,000 jobs."

These calls to keep the interests of cities in mind are significant. There is after all a fundamentally urban dimension to this crisis: the unbridled expansion of suburban sprawl was largely financed in recent years through patently insane lending practices, which are now bringing down the economy. At the same time, the federal government has long neglected funding infrastructure upgrades, to the point where the U.S. is facing an estimated (2005) $1.6 trillion infrastructure deficit.

Now with the federal government taking control of Fannie Mae and Freddie Mac (which may eventually cost taxpayers $300 billion) and set to pour almost a trillion more dollars of taxpayers' money into the hole created by the "sprawl economy", there will likely be very little capacity at the federal level to fund these vitally necessary upgrades to the country's infrastructure.

So unless such provisions for infrastructure funding can swiftly be made a part of this bailout, it is questionable whether such an enormous commitment will otherwise be possible. Indeed, this crisis may mean a reduced role for the federal government in America's cities for years to come.

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