Center for Community and Economy Newsletter – June 16, 2011

1. Where’s George Bailey When We Need Him?

By Allan Carlson

HENRY POTTER: Have you put any real pressure on these people of yours to pay those mortgages? 
PETER BAILEY: Times are bad, Mr. Potter. A lot of these people are out of work. 
POTTER: Then foreclose! 
BAILEY: I can’t do that. These families have children. 
POTTER: They’re not my children.
BAILEY: But they’re somebody’s children, Mr. Potter.
POTTER: Are you running a business or a charity ward? 

Mr. Potter’s questions from the 1946 film It’s a Wonderful Life continue to haunt American politics. The contemporary mortgage crisis is now in its fourth year. It has destabilized the American and global economies, brought down vast banking enterprises, and seen millions of American households lose their homes.

Utah has been one of the four states most flattened by the mortgage crunch, exceeded on a proportional basis only by California, Florida, and Nevada. It is true that in recent months the pace of foreclosures has slowed, although this seems due mainly to legal and accounting delays in the foreclosure process. Ten percent of Utah’s households – some 50,000 – are still either at least 30 days late on their payments or in some stage of foreclosure. 1

During the 1930s and 1940s, filmland’s Bailey Building and Loan had brought forth lovely suburban homes for struggling families and had weathered several financial crises. As Peter Bailey’s more famous son, George, would declare in another dialogue from It’s a Wonderful Life:


Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?

How would George Bailey, the fictional saint of the old mortgage industry, view the ongoing crisis and governmental response?

Some real history may help here. The classic “savings and loan association” portrayed in the film grew out of the “friendly society” tradition of 19th century America. Often associated with ethnic and religious groups, these early mutual savings banks encouraged thrift and made loans to responsible and credit-worthy borrowers. Depositors and borrowers alike were members of the society, with voting and oversight rights. This foundation in communities ensured that those who took out loans were carefully scrutinized and personally monitored by the lenders. Slackers were pressured back into line; defaults were few.

Congress stabilized (and to some degree nationalized) the system through the Federal Home Loan Bank Act of 1932. This measure regularized the long-term, amortized mortgage for home purchases, mobilized capital toward this end, and allowed Savings and Loans to pay a higher interest on savings deposits than commercial banks. The chartering of the Federal National Mortgage Association (“Fannie Mae”) came in 1938, funneling still more money into the system. Tax reforms made the interest on a home mortgage deductible, turning houses into a favored form of capital investment. 2

Following World War II, the mortgage business soared. The Serviceman’s Readjustment Act of 1944 guaranteed “VA” home loans for veterans at up to 100 percent of the selling price. President Harry Truman declared to the National Conference on Family Life that “children and dogs are as necessary to the welfare of this country as is Wall Street and the railroads.” The sweeping Housing Act of 1949 committed the country to providing “a decent home … for every American family.” Federal Housing Administration (FHA) loan guarantees also came into play. In 1949 alone, the industry recorded 1,466,000 housing starts, an unprecedented number.

This housing boom had its own sociology. More than 98 percent of the new VA- and FHA-insured loans went to young married couples starting their families. As the official Fannie Mae history of housing explains, federal mortgage programs “made home ownership available to many families who could never have considered it otherwise.” They allowed Americans to express their concern “for bringing up children in the ‘wholesome, clean-air’ environment of the suburbs.” 3

Importantly, calculations of mortgage eligibility during this era counted only a husband’s income. Underwriters saw young married women as potential dropouts from the labor market, once they became pregnant. This policy also had the unintended effect of holding housing prices down.

Americans responded to this favorable policy environment. Between 1945 and 1960, there was a 90-percent increase in the number of owner-occupied homes. The increase was even higher in Utah. The marriage rate climbed sharply, the fertility rate soared, and even the divorce rate fell steadily after 1946. By the early 1960s, the government’s pro-family housing policy could be judged a success. To be sure, there were problems: a broad national over-investment in housing that retarded other forms of capital investment; a discouraging conformity in suburban housing design; and a design preference for the “companionate” model of marriage and home life which abandoned the function-rich family. All the same, George Bailey would surely have been proud.

However, the housing and mortgage markets began operating in strange new ways, starting about 1970. In short, the family-centered nature of the American housing boom unraveled. In Part 2 of this series in next month’s newsletter, I will explain how this unraveling occurred, bring the historical narrative up to the present, and discuss how George Bailey would (and Utah should) respond to the housing crisis to deal with the aftereffects and prevent similarly disastrous events from happening in the future.

The author, Dr. Allan C. Carlson, is director of Sutherland Institute’s Center for Community and Economy, president of The Howard Center for Family, Religion & Society, and distinguished visiting professor at Hillsdale College in Michigan. Dr. Carlson founded the World Congress of Families in 1997. He has written for numerous publications including the Wall Street Journal, National Review, and Intercollegiate Review, and is the editor of The Family in America. He is the author of nine books, including The Natural Family: A Manifesto (Spence, 2007), which he co-authored with Paul T. Mero. 


1. Alex Viega, “Pace of foreclosure filings slow in Utah, U.S.,” The Salt Lake Tribune, 12 May 2011; and Lesley Mitchell, “Foreclosures Ease Grip on Utah, But Rate Still High,” The Salt Lake Tribune, 19 May 2011.
2. Harvey S. Rosen, “Owner Occupied Housing and the Federal Income Tax: Estimates and Simulations,” Journal of Urban Economics (Vol. 6, 1979).
3. See: Gertrude Sipperly Fish, ed., The Story of Housing, sponsored by the Federal National Mortgage Association (New York: MacMillan, 1979).


2. Nuclear Power and Water in Utah

Earlier this week, Sutherland hosted the second of three forums on nuclear energy in Utah. In this session, we discussed water requirements and water resources needed in the proposed nuclear power plant near Green River, Utah.

Sutherland President Paul Mero interviewed three water experts, Dr. Thom Hardy, Jerry D. Olds, P.E. and Nicholas G. Zervos. If you missed the live webcast, you can view the video here.


3. Radical Environmentalism: Nature’s Worst Enemy?

In the past, radical environmentalists on the left have rarely proposed any serious solution to environmental destruction. More often than not, their “solutions” amount to little more than feel-good policies that create as many significant problems as they purport to solve, for both man and nature.

For instance, in the early 1960s some developing countries in Africa “had nearly wiped out malaria” by using a chemical called DDT. Then in 1962 Rachel Carson published Silent Spring,marking the birth of the modern environmental movement of the left. Silent Spring vilified pesticides like DDT, and indirectly those who used them, as killers of both wildlife and nature. Environmentalists subsequently led a crusade to ban the use of DDT and largely succeeded. This environmental “victory” cost millions of human lives. …