Foreclosure from Freud to Fannie Mae

Abstract

One of the events that inaugurated the Great Recession was the countless home foreclosures in 2008, culminating in the credit crisis in fall of that year and subsequent government bank bailout. Between 2007 and 2008, the number of home foreclosures grew anywhere from 20 per cent to 30 per cent, and continued to grow throughout 2009. A fundamental cause of the crisis was the proliferation of subprime loans, mortgages sold to borrowers who represented a high risk of default. These loans were then used as a guarantee to securities sold by the lending bank, effectively passing along the risk to other investors. Karl Marx used the term “fictitious capital” to refer to any kind of capital—money, credit, financing—with no material basis in commodities.¹ For Marx, fictitious capital is “the fountainhead of all manner of insane forms” of capital; yet at the same time, it becomes indispensable for the production of surplus value and capital accumulation, manipulating the time of production by trading in the future. In the case of subprime loans, we see an exponential abstraction of capital from any commodity, what Swiss economist Christian Marazzi (2010) calls “the production of surplus- value by accumulation” (Marazzi, 2010, p. 63), which supports the insight from historical sociology that capital expands in systemic cycles (see Arrighi, 1994).