Meltdown and Overseas Guyanese

Oct 26, 2008 Features / Columnists, Ravi Dev

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I just returned from a trip to the U.S. and was surprised to find that there was already talk here about Guyanese being “down and out” in New York as a result of the meltdown that is threatening to bring down the U.S. financial system.

While the reason for the trip was personal (a birthday bash for a brother in Texas who had attained one of those “round number” birthdays) I did manage to circulate in the community and certainly did not find the situation as dire as “down and out”.

Undoubtedly, the mood in the Guyanese community, as with the rest of America, is very chastened. There is definite uncertainty about the longer-term future in the face of the unrelenting negative news that is bombarding them, 24/7.

As far as the subprime mortgage-induced crisis that has resulted in widespread foreclosures, it has long been discussed in the community that there were real estate operators who were playing it fast and loose when it came to closing deals with individuals who might not have been in a position to keep up their mortgage payments.

We now know, however, that this practice had spread across the country – aided, abetted and encouraged by the government and entire financial establishment.

It was sparked by the government sponsored subprime mortgages – “subprime” (dubbed “ninjas” by wags) because it targeted individuals who ordinarily would not qualify for mortgages: those that had “no income, no jobs, or assets” – after 2001.

The financial institutions ranged from the governmental backed Fannie Mae and Freddy Mac to the financiers of Wall Street and the bankers of Main Street to the ubiquitous “mortgage brokers” that popped up almost on every street corner. It became practically un-American to refuse a mortgage. And therein lies the heart of the crisis.

Mortgages had always been a safe investment for banks because it had consistently been an intensely local activity.

The prospective homebuyer was placed under the microscope by his neighbourhood bank and independent real-estate valuators, who were professionally trained to further scrutinize him.

Failure in the housing market within one geographical area, for one reason or the other, rarely spread to other areas where conditions were dissimilar.

Even if one bundled together mortgages and began to sell them to investors, as began to occur since the eighties, the overall package remained safe.

Once the banks and investment houses knew that Fannie Mae would buy up whatever mortgage-backed securities that were issued, however, a feeding frenzy ensued in an environment where almost all regulations had been obliterated.

The US housing market for the first time became a nationally integrated one, driven not by local demand but by government fiat that every American should be able to purchase a home – whether they could afford to or not.

When the credit-induced bubble inevitably burst as the marginal homeowners with no history or wherewithal of financial discipline walked away from their “easy-come easy-go” homes, the effect was national. And catastrophic, as the house of cards crumbled.

But for the Guyanese community, with its immigrant drive to secure home ownership, the demand for housing was, at its base, quite real and the number of foreclosures has not been as significant as in other communities.

This does not mean that those individuals who were convinced to plunk down for mortgages without a substantial or secure income flow are not hurting or will not hurt, but they are digging down deep to retain those homes.

Multiple jobs, rented basements and second floors, doubling-up with relatives etc., are only some of the survival mechanisms that they will resort to if the economy continues to decline.

I visited the community of Schenectady, three hours away from New York, where a significant Guyanese community has entrenched itself.

Schenectady had been a “company” town dependent on a huge GE plant that produced turbines and other power generating equipment. When those jobs eventually moved overseas, the town crumbled and thousands of homes were abandoned.

An enterprising Guyanese real estate operator saw the opportunities in those abandoned homes as he compared them with the inflated housing market in Richmond Hill, which was beyond the reach of so many immigrants.

A deal was struck with the Mayor and a win-win situation was created: whole neighbourhoods were rehabilitated and a tax base was created for the township while the Guyanese became proud homeowners for a song. The town is still borderline, economically, because there has been no replacement for GE.

I thought that if the new administration took a page out of FDR’s book during the great depression of the 1930s, they could use fiscal and other measures to encourage businesses to return into their old manufacturing haunts.

In Schenectady at least, they have a willing pool of able-bodied workers. In the meantime, the Guyanese are carving out a solid life.

Twenty years after leaving, I found most of my contemporaries in New York and New Jersey still quite concerned about developments in Guyana. They form the backbone from whence the remittances to Guyana flow.

Many of them have been shook-up by the devaluation of their company pension funds and 401K’s (personally created and employer matched pension fund) but they understand that their best bet is not to panic but to back the best candidate who may be able to straighten the mess and allow their investment to return to decent levels, by the time they retire.

Most US-based Guyanese, I found, are solidly behind Barack Obama. In the meantime, they are enjoying the fruits of their hard work: vacations are a big item nowadays – cruises, trips to India, waiting for cricket in the Caribbean, etc.

I do believe that as the Guyanese community in the States ride out what they see as inevitable hard times in the near future, there will be a downturn in their remittances – as the official studies have already shown.

But I also believe that if the government properly structures the deals, a number of Guyanese whose investments in the U.S. will be generating lower returns, may be induced to invest in worthwhile projects here.

Unlike some “emerging markets” that are witnessing dollar outflows because of anticipated volatility, paradoxically, Guyana, as a backwater, may be spared such turmoil. In any case, we can expect a downturn in the “backtrack” market in the next few years.

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