Page One

A summary review of: Richard A. Walker, Pictures of a Gone City: Tech and the Dark Side of Prosperity in the San Francisco Bay Area (Oakland, PM Press, 2018.)

M.L. Butler was born to a sharecropper family resident on the J.W. Jones Cotton Farm in St. Francis County, Arkansas. His father, W.M. Butler, "picked cotton by hand... sixty years after the legal end of slavery—and received no wages for his work. Instead, the owner was supposed to give him a percentage of the cotton's market value. First, though, the landowner deducted the cost of his 'tenant' farmers' seeds, fertilizer, clothing, and food. Their take-home pay was usually calculated down to zero." His son M.L. Butler migrated to Los Angeles, settled there, found a job, saved a down-payment, bought a house and spent the rest of his working life paying its mortgage, only, in the end, to lose it, purchased at auction pursuant to foreclosure of a second mortgage which he was persuaded — as a boon to his retirement years — to take out during the housing industry credit bubble that culminated in the financial debacle of 2008-2009. Thanks to the TARP legislation and banker bail-out (the joint work of both parties and two presidents), the buyer was "reimbursed" in full for the difference between the inflated value of the mortgage and the more realistic price at auction, at least doubling his money. Odds are, too, that if Mr. Butler had not been compelled by the bank credit monopoly (W.M. Butler's generation called it the "Money Trust") to pay usury ("interest") to the investors who owned his first mortgage — which over time approximately doubled his cost of shelter — his circumstances later in life would not have made him so easy a mark for the clever fellow who, for a nice percentage, convinced him that a second mortgage was a wise option for his retirement years.

These matters are conveniently shrouded in discreet mystery by California state law but the likelihood is that the buyer of Mr. Butler's foreclosed mortgage worked for a shell company intermediary with headquarters out of state — Phoenix, say — which passed the deed along to a hedge fund in New York, such as the one operated by President Trump's Treasury Secretary Steven Mnuchin, where it became one of hundreds of thousands of such properties, newly converted to rentals and thus yielding its absentee investor owners monthly returns two or three times higher than Mr. Butler's mortgage payments. This kept real estate and mortgage investment markets inflated, and Americans' cost of shelter high and rising, while millions lost their jobs as well as their homes and later were able to find employment only for reduced pay in worse conditions, often needing two jobs to get by, or doing "independent" piece work in the so-called "gig economy." Over the decade of purported "recovery" following the 2008 crash most Americans saw their actual livelihood and quality of life seriously deteriorate, while the young had a long, hard, slow start and the disproportionate "share" in the possession of the wealthy few soared to heights unseen in more than a century. 

Today the absentee-owned debtor economy imposed on the South by post Civil War "Reconstruction" has become the condition of our country at large. Over 80% of all bank loans are for real estate; their primary result is asset inflation. Brookings Institution research discloses that in contemporary America "the average middle-class household spends 80% of its income on just five essentials: housing, health care, food, clothing, and transportation." Many do much worse, or do without. The bulk of these payments wind up in the "financial sector," whether as mortgage payments, or rent to investors in apartment-developments and hedge funds, insurance payments, or dividends to stock-holders (oil, automotive, pharmaceutical, food-processing, communications, etc.). The American consumer economy is a debt-cropper plantation with a company store. Housing takes far the largest share of American household incomes, and health care the next largest. Not coincidentally, the housing "industry" is also the largest sector of America's economy and the health care "industry" comes second. They are the metropolitan elite's two fattest cash cows. 

The "value" of the housing sector consists almost entirely of financial paper; in 2018 the total sale price of 617,000 newly built homes represented 0.48% of the value of the entire sector — one two-hundredth. The rest is assets-in-place and, mostly and especially, the financial instruments attached to them which "capitalize" decades of inflation by mortgage usury and interest-leveraged speculation. Above 99% of the sector's "industry" is comprised of writing, shuffling, buying, selling and processing "income streams" attached to these legal papers — entitlements to extract tolls from other people's incomes backed by the force of law, with costs of enforcement paid by the states and counties. A housing tract is a mortgage-serf plantation that bears harvests of usury. An apartment complex is a rent-slave plantation. Student loans give the younger generation a starter course in debt peonage. 

To speak of rent-slave and debt-serf plantations is more than metaphor or sarcasm. The San Francisco Bay region is currently ground zero for the progress of these "developments." Geographer Richard A. Walker details its methods and results.. The so-called "Silicon Valley" boom in computer and internet technology, gathering momentum from the 1960s, reached a climax stage during the 1990s and since then has utterly transformed the region. 

"The principal effect of the wealth erupting from the new technologies is that the Bay Area has become vastly more unequal." 

"The 1% and their allies in the top 10% [have] effective control over the private economy and the right to hire and fire, direct and supervise, everyone else." 

Big tech "capitalists have engaged in a massive upward redistribution of income while keeping a tight lid on wages. 

" From 1979 to 2013 in California there was an increase in labor productivity of 89% and an increase in real compensation of labor of 3%. In California today "0.5% of the population take home over 20% of state income [that is, 4000% of an equitable share].... Wealth inequality is greater by orders of magnitude than income differences. Among the elite, incomes derive chiefly from property, not from work." 

"One in four households are in poverty; two thirds of the lower group makes minimum wage." 

The inequitable distribution of wealth in "the four counties of the West Bay ... ranks somewhere on a par with Guatamala, putting the heartland of High Tech neck and neck with a nation of latifundia." 

"The global reach of the Bay Area's tech giants is motivated by one thing above all: access to cheap labor." 

This objective is achieved both by exporting ("off-shoring") jobs and by importing skilled labor from countries with lower standards of living and comparatively inexpensive costs of education (thus also importing lowered social expectations). The effects on America's "workforce," schools, society, and culture are discounted or written off — or described as "progress." As a result of this immigration "the state has been utterly transfigured over the last fifty years.... California absorbed millions of immigrants, more than any other state in the country." 

By 2015 "the Bay Area's population was about one-third foreign-born." The impact of this vast influx of new residents — immigrants from other states as well as overseas — has severely impacted transportation and public services and has produced what is described as a "housing crisis" — the result, as Walker shows, of two "critical economic shifts: the rapid growth in inequality, which has put too much money in the hands of the upper classes who are the main buyers [in the present market] of single-family homes ... and the growth of finance in relation to industry and the resulting excesses of credit and free-floating capital" devoted to speculative investment. This wreckage of infra-structure by overstress is a direct result of largely absentee investor funded corporate profit-making "development," but its costs—in suffering, maintenance, and the needs for expansion it causes — are dumped almost entirely on the public and on government. 

In the recession following the 2008 crash the Bay Area lost over 200,000 jobs. In San Joaquin, Modesto and Merced counties foreclosure rates were 30-50% and house price declines reached 40-50%. 

"In Oakland between 2007-2010 some 10% of the city's total stock of owner-occupied housing" was foreclosed. Following the crash speculators moved in, bought up foreclosures and converted "tens of thousands of former working-class homes to rentals." As a consequence, throughout the region, formerly affordable middle-class "starter-homes" [sic] disappeared from the market. An "explosion of real estate investment trusts ... gobbled up apartment buildings all around the Bay Area." In 2014, after the dust of the 2008-2009 mortgage fraud debacle settled, revealing the extent of the ruins, there were 18,600,000 vacant homes in America and, "on any given night over 600,000 people homeless." 

In 2020 there are an estimated 46,000 vacant residences and 28,000 homeless people in the Bay Area — this in the middle of the biggest building boom in the region's history. Clearly the problem is not a shortage of housing but of affordable shelter confronting a vast inflow of cheapened labor. Between 2010 and 2018 Bay Area rents doubled. 

"Working people spend a huge proportion of their income on housing" and commute further and further as "working-class" housing is pushed to the outskirts of the urban area and beyond. 

This expanding "suburban" development (in preference to "in-fill" construction) reflects the fact that "it is in the interest of property capital to stretch suburbia as far as possible because the highest profits come from land value appreciation, not from building houses and the cheapest land is at the periphery." This fully accords with and confirms Henry George's central thesis that speculative inflation of land prices is the fundamental driver of the concentration and mal-distribution of wealth. Similar motives inform "the tendency to build overly large (if cheaply built) homes ["McMansions"] that could only be purchased with huge mortgages." According to Walker's investigation, local regulation of zoning, development planning, and permit approvals, which are regularly advanced by housing industry public relations agents and the media (if there is a difference) as a "cause" of the so-called "housing crisis," have little or nothing to do with the rising cost of shelter or the putative shortage of housing. As one reason why local governments appear so helpless facing the machinations of absentee capital, Walker points to the extreme fragmentation of legal governmental jurisdictions in the Bay Area — over 100 municipal entities, thousands of "boards." With the public interest minutely divided, the dominant forces are investment capital, business and self-styled "development." Efforts at regional planning, such as they are, programmatically channel development into "lower class zones" and away from elite enclaves. 

"Virtually every corner of the Bay Area had high homeownership rates until recently." 

The new industrial and residential landscape is the creation of "anonymous developers and real estate investors." Absentee investment capital dominates this transformation. Its narrow concentration of ballooning industrial development in the region produces the ballooning demand for housing and the appreciation of land values from which it also profits (more handsomely and in perpetuity). Contracting wage income and expanding dependence on credit play a pivotal role. The interests of the region's people, society, culture or ecosystems, or the interests of other regions, which might benefit from dispersal of industrial development, have no significant bearing on the process. Silicon Valley capital is substantially absentee, often foreign: "One of the top five angel investors funding tech start-ups is Japanese; Uber is backed by Saudi Investment Fund; GM has put $1 billion into Lyft.... Chinese investment in the U.S. surged in 2016, with California the biggest recipient at $27 billion (chiefly in internet technology, real estate, and entertainment)." 

In the lead up to the 2008 credit bubble collapse, mortgage investors "backed by Wall Street ... pumped up California's housing market to absurd heights ... with rampant speculation and financial bloat." Once the bubble collapsed investors swooped in, with the welcome connivance of TARP and the "banker bail-out," bought up foreclosures at drastically shrunken prices, and reinflated the market — a classic Morgan market maneuver, applied now to the shelter business, and with international players invited. "As the chief economist for the National Association of Realtors has observed, 'Without a doubt foreign investors are pushing up the prices in California.'" "A survey of global real estate investors shows San Francisco to be the third most popular target in the world." 

America's plantation economy is designed to see to it that nine tenths of us spend as much at the company store as we receive in monthly income. And it works. Over half of us possess no wealth at all. A fifth of us die in debt. Some of us find roomier niches, some barely find elbow-room, others sink under the weight; overseers and house-slaves do better than most; but the major parameters of the systemic box, its fundamental limits, prescribe the narrowing confines within which nearly all of us dwell. The American economy's world-topping maldistribution of wealth is one parameter or consequence of this situation. 

"The essence of slavery is that it takes from the laborer all he produces save enough to support an animal existence," Henry George wrote in 1880 when the facts of chattel bondage were still fresh in American memory. For most residents of the San Francisco Bay region the parameters of animal existence have not yet reached the degree of constriction prevalent at J.W. Jones Cotton Farm. but hundreds of thousands of farm-workers, contract janitors, maids, dishwashers, Uber drivers, and the like, living three families in one deteriorating tract house or three in a one-bedroom apartment already exceed it. And we are all living on the same plantation, shopping at the same company store. 

Four generations after the end of chattel slavery and Reconstruction, historian Lawrence Goodwyn summarized the results: "The values and the sheer power of corporate America today pinch the horizons of millions of obsequious corporate employees, tower over every American legislature, state and national, determine the modes and style of mass communications and mass education, fashion American foreign policy around the globe, and shape the rules of the American political process itself. The scope of intimidation extends deep into the American academy and into the very core of American intellectual life. Perhaps nothing illustrates the subtle power of the received culture more tellingly than the paucity of serious inquiry — by economists, historians, and political scientists — into the economic and political substance of that central component of American capitalism — commercial banking. Self-evidently, corporate values define modern American culture. It was the corporate state that the People's Party attempted to bring under democratic control."
 

Quotations (except as noted) are from: 

Richard A. Walker, Pictures of a Gone City: Tech and the Dark Side of Prosperity in the San Francisco Bay Area (Oakland, PM Press, 2018. 

The first three paragraphs refer to:Aaron Glantz, Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions out of Their Homes and Demolished the American Dream (New York, Harper/Collins, 2019) 

The statistics in the fourth paragraph are from 

worldpropertyjournal.com), statista.com, and daveramsey.com. 

The attributed quotations are from: 

Henry George, Progress and Poverty (New York, Robert Schalkenbach Foundation, 1935, 1st pub. 1880). 

Lawrence Goodwyn, Democratic Promise: The Populist Moment in America (New York, Oxford, 1976).