Photo credits: JP Morgan and Hurricane house remixed by the author of the post
JP Morgan made a record $33.8 billion in its 2nd quarter. Goldman Sachs also did well. According to CNBC, they made “$2.42 billion in profit, or $6.26 a share, crushing the $3.78 a share...” Meanwhile, the eviction courts are revving up to throw out 28 million people from their homes. With the emergency orders lifting, they are going to expire. The people will be at the mercy of the banks and their landlords.
Why doesn't the government intervene?
They did. For the rich. CNBC attributes JPMorgan’s success to the: “steps taken by the Federal Reserve to support credit markets have created the best environment for trading and advising on debt and equity issuance in years”. Same story with Goldman Sachs. CNBC quoting Octavio Marenzi, CEO of Opima, said: “Goldman’s earnings this quarter were too good — almost indecent, in fact…The Fed has been able to engineer a huge bounce-back in the markets by injecting trillions of dollars, benefiting investment banks primarily.” If the Fed propped up homeowners instead, the headlines would tell a different story.
Are there insufficient homes?
In this policy, we explore housing. In Islam, housing is a basic right. Prophet Muhammad (saw) said:
“The son of Adam has no right to anything except these: a house to live in, clothing to cover his 'awrah (parts of the body that must be covered in public), a chunk of bread, and water.” [Tirmidhi].
In Capitalism, it is not. To be clear things were bad before the recession. In the 2007 Recession, 10 million were evicted. Yet, nothing was done. A Princeton professor, Matthew Desmond, even published a best-seller on the issue. And yet nothing is done. And now we are facing the fallout from COVID-19. Therefore, it should be no surprise that about 10% of the population is now facing eviction.
Is there a shortage of housing?
No. In San Francisco, there are 30,000 empty hotels – ample to house the 8,000 homeless. The rate of homeless is a result of the Capitalist system: investors matter more than people.
This is, of course, not just an American problem: “1.6 billion people around the world are being denied the basic human right of adequate shelter”. However, if the wealthiest nation can’t solve homelessness with Capitalism, who can?
Why are homes an investment?
We take it as a given that real estate is an investment. The struggle to secure a home is the focus of most family’s budgets.
But should that be the case? Let’s contrast housing to healthcare.
In healthcare, we can see how maximizing profits can harm patient care. Hospitals eliminated inventories and ordered equipment & supplies “just in time” (JIT). Hospital saved money on storage and made more money by using that space to see more patients. Predictably, this results in a shortage during a healthcare crisis, like the one experienced during the COVID-19 Crisis. The result? Healthcare workers who fall sick and even die. More profits, less people.
The exact same problem exists with housing: investors and banks profit, while millions go homeless. Consider the trauma of being made homeless. Consider going being processed by the 'eviction machine.’ Running the gauntlet of courts, cops and moving trucks. A locksmith to lock you out of your own home. They will give only a few minutes to grab it all and go. Where you and the kids will sleep tonight? That’s not their problem. Too bad, the Federal Reserve didn't help you the way they helped the JP Morgan and Goldman Sachs make record profits. That's Capitalism. Capital matters, and people don't.
Insidious of interest
A large part of the problem in making housing into an investment is interest (riba). Without interest, banks would not be involved in real estate. Behind almost every house, lurks a banker silently taking his cut. A loan grows exponentially due to compound interest. Sucking people dry. Your landlord may want to give you a break. But her creditor doesn’t. So too bad. Out you go.
Consider what happened to Leo Olguin. He was fired from his job during the pandemic. The same day a letter was waiting for him: pay the rent or else. The foreclosure moratoriums, just give you time to move back with mom and dad. No family? That’s not their problem. The Capital must get paid.
Capitalist solution to housing: Indebt the poor
Sounds like the start of a bad joke: “how do Capitalists "solve" homelessness?” The not-so-funny answer: by indebting the poor. In the US, there is the Department of Housing and Urban Development (HUD) in the 1960s, which offers mortgage insurance to “help” poor people get loans.
Then there’s Fannie Mae and Freddie Mac[1]" Because banks won’t lend to poor people, these two will buy the loans and then sell them as bonds to other investors. For example, a pension fund will invest in such things instead of a government bond because it pays more interest (click here for a diagram)
What role do Freddie Mac and Fannie Mae play? The government will pay the bondholders their principal and interest should the borrowers – the poor people – default on their loans.
Of course, these are not solutions. A society that indebts the poor is sadistic.
An Islamic approach to housing: housing as a human right
Why is it okay to make someone homeless because they are broke? Aren’t people more important than money?
We can ask the activist group “Moms 4 Housing” this question. They found that people are less important than money. They found that the State deployed a heavily armed swat team, not to help them, but to secure the capital of the rich. The activist dared to occupy a house and then were arrested during the raid. Homeless yet again. Yes, it belonged to Wedgewood. But this house was vacant for two years. Does that make sense that women and children should be homeless, while the property sits idle? That’s where ‘law and order’ comes in. The order the Capitalist law maintains is that the right of capital supersedes a human being’s right to a home.
And that's the problem. Although we believe that people are more important than things, the actual system does not. Islam, on the other hand, does. In Islam, housing is a basic need that’s guaranteed by the State:
“The son of Adam has no right to anything except these: a house to live in, clothing to cover his 'awrah (parts of the body that must be covered in public), a chunk of bread, and water.” [Tirmidhi].
In terms of affordability, by eliminating interest-based transactions, we are a long way there. Islam forbids interest:
“O you who believe! Observe your duty to Allah, and give up what remains of your demands for riba (interest), if you are (in truth) believers. And if you do not, then take notice of war (against you) from Allah and His Messenger. [TMQ 2:278-279].
So, there’s no mortgage industry and no payment plans, which will in sha Allah, result in lower prices.
Firstly, studies have shown that interest charges account for half the price paid. If someone is paying $250 for a cell phone, then $125 will interest payments. Why so much? It all adds up: the cell phone maker pays interest and passes it on, chip make pay interest and passes it on, the glassmaker also pay interest and passes it on, and so on.
Secondly, through interest-based payment plans, people spend more of their budget on expensive items. For example, a high-end watchmaker found that people spent 70% more once interest-based payment plans were introduced. Nearly half would not have made the purchase without such a plan.
Land policies in Islam
When looking at the issue of land, Islam has a ‘use it, and it is yours' approach. The Prophet (saw) said:
“Whosoever cultivated a land that is not owned by anybody he is more deserving of it.” [Bukhari]
“Anyone who cultivated a dead land it becomes his.” [Bukhari]
This also includes land that’s been ruined in some way. For example, Uthman bin Affan (ra) granted ‘Uthman bin Abi al-‘Aas al-Thaqafi land in Basra that was marshland. He drained and then cultivated it. Also, the ruler can give away non-barren land to anyone. For example, in Madinah, RasulAllah (saw) gave Zubair (ra) land that had trees and palms on it for him to cultivate.
These land policies will drive down prices: you can't compete with free. However, there's a condition: the recipient must 'use it or lose it.' For example, Umar bin al Khattab (ra) took the land back from Bilal bin Harith al Muzni (ra) because it was not cultivated for 3 years.
Such policies are quite the contrast from HUD, Fannie Mae and Freddie. These Capitalist schemes are just a way to entrap people into debt. In contrast, Islam implements land policies that address two problems in one shot: broader access to land ownership and more productive use of land. The land is not meant to be a poker chip that you gamble on – hoarding it, so it goes up in value, and then you can "make it big."
In sha Allah, in the next post, we will look at the underlying problem of mortgages and the broader impact of interest.
[1]. Fannie Mae's full name is "Federal National Mortgage Association," while Freddie Mac is really "Federal Home Loan Mortgage Corporation.