Marx on mortgages

PIMCO bond fund manager Bill Gross's call for the creation of a "Reconstruction Mortgage Corporation" to bail out homeowners facing foreclosure prompted one InmanBlog reader to denounce Gross last week as "a socialist, and borderline communist."

So just for kicks, here's some commentary on the subprime lending fallout from Britain's "revolutionary anti-capitalist paper," the SocialistWorker.

If your mind is boggled by the complexity of the financial markets that provided mortgage lenders with much of the capital that fueled the housing boom, imagine the headache that's in store for anyone who wants to look at mortgage-backed securities, collateralized debt obligations and interest rate and credit default swaps through the lens of Marxist theory.

Whether you agree with him or not, Marx's ideas about "fictitious capital" are close to 150 years old, and not all that sophisticated. Let's just say that if many economists who are true believers in capitalism admit they don't have a very firm understanding of the mechanisms that fund mortgage lending today (see the tail end of this Inman News story), we can't expect much insight from Marx.

But Joseph Choonara does his best to give the SocialistWorker's readers an overview of the situation from a Marxist perspective. While you may not like his slant, he does hit on some generally agreed upon principles -- like the role that the U.S. appetite for imports had in generating investment capital that poured back into mortgage lending -- and actually comes across as more level-headed than some housing bubble bloggers.    

"It is not clear how long the turmoil will last, or to what extent it will spill over into the rest of the economy," Choonara concludes. "Comparisons with the 1929 Wall Street Crash and the great depression of the 1930s are unhelpful – it is perfectly possible for stock markets to crash while the 'real' economy grows.

"Nonetheless, the situation is a serious one. Unlike many of the financial crises of the 1990s, this one is centred on the US – the biggest economy the world has ever seen. It is also a reflection of deeper problems facing capitalism."

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