Friday, March 23, 2007

Subprime lending and philanthropy

Say what? The title of this post may be a bit confusing to you. What does subprime lending - and the now unfolding mortgage default mess - have to do with philanthropy? Well, in my pattern-riddled brain, a lot.

Here's how, from a social perspective. Today's NYT has a front page story (subscription required) on how homeowners in major suburbs have taken to sprucing up the yards and installing alarms in the now-empty foreclosed houses in their neighborhoods. Their reasoning? Simple. They need to prevent the "snowball effect in which surrounding property values suffer and worried neighbors move away." In other words, we are our neighbors foreclosure. The ripple effect, socially, is profound. Communities will unwind, neighbors and friends leave, crime may increase. And not just poor communities - all communities.

The economic connections are also profound. Some suburbs have been particularly hard hit, including Euclid, Ohio outside of Cleveland; Gwinnet and DeKalb counties outside Atlanta' and several towns south of Chicago, according to the Times. Municipalities are losing tax revenue and some are borrowing money to cover the costs of increased property inspections, rehabilitation and renovation of foreclosed properties to prevent the problem from getting worse. The effects on schools, elderly supports, police protection - all the things property taxes paid for - may be still over the horizon, but we know they're on their way.

I'm going to guess that we are at the early stages of what may become the first version of the Savings and Loan debacle of the 21st century. Congress will hold more hearings, fingers will point, lending regulations may change (or existing ones be enforced). But what we need to consider is how we are all bound together in this - by the neighbors we count on, the public resources that will go into fixing the mess, and whatever complex economic ripples will come from interest rate changes, fewer housing starts, fewer jobs, etc. etc.

But wait, where is philanthropy in this? At least two categories of questions come to mind when I see these kinds of economic stories. The first category has to do with the economic ties that bind the wealthy and the poor. Those ties may seem slender but great wealth is often made right alongside great poverty. Is this just further evidence of the income gap in this country, which is partly responsible for the great boom in philanthropy and wholly responsible for the increasing numbers of poor? Will the ripple effect be solely economic - will the only impact on philanthropy be the effect of markets rising/falling on endowment sizes?

The second category has to do with the social mission of philanthropy. how do these kinds of systemic financial quakes effect the work of philanthropists? Do they care? Do they change directions? Increase local giving? Do tremors such as this influence direction and uses of philanthropic wealth in any meaningful way, or just the size of that wealth?

I think this is another area where the sectors that can make a difference in the policy and regulations that shape this kind of financial event are oblivious to the incentives they have - admittedly, long term and abstract - for not letting these kinds of things happen. A collapse of the mortgage industry and orthogonal financial systems, increased regulations, expensive public hearings and investigations, public sector bailouts, etc. etc. are certainly not in the interest of the shareholders, wealthy individuals, and their corporations (who also happen to be the source of the big philanthropy). None of what has happened, and what be may still come, is in the interest of the defaulting mortgage holder. But someones, somewheres made a boatload (household?) by selling subprime mortgages which also drove home building binges which also led to more jobs, more spending, more money, more tax revenue - in the short term.

No one paid attention to the long term costs and the long term incentives. Which, one would hope, might be an interest of foundations endowed in perpetuity.

1 comment:

Anonymous said...

I hope there is philanthropic engagement in the housing market as it effects society and not only "the effect of markets rising/falling on endowment sizes."

Investment in financial education about lending and being a homeowner would help prevent lower economic classes falling prey to subprime lenders.