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It was a heady time
just after 9/11. The nation had been shocked by the appalling attack in New York. George Bush was standing on a rubble pile in Manhattan threatening vengeance and telling us all to keep shopping. The Marines were about to be called to arms, the Army revved up to fighting trim. America, largely at peace since the late 1970s after Vietnam, was about to launch two aggressive wars of choice, one perhaps justified in Afghanistan, another completely unwarranted in Iraq. Dick Cheney, fresh from a secret pow wow with big oil executives, was in an undisclosed location, quietly circling the Kirkuk and Rumalia oil fields on a map. The heavy divisions, complete with Abrams tanks, Bradley AFVs and the ubiquitous Hummers began to board ships for their staging areas in Kuwait. The United States, at the apex of its power, was about to commit the bulk of its land army and upwards of a trillion dollars in a vain and futile effort to bring a handful of Arab terrorists to justice.
Back then, the nation was equally primed for another 100 hour ass kicking in the Gulf, and Saddam was the perfect lightening rod for our national ire, even if he had nothing whatsoever to do with 9/11. We were opening up a trillion dollar can of whoop ass, and he was getting the biggest serving. Period, over, done. Bush, our new decider, yelled “bring ‘em on!” and the great Kabuki theater began. We were at war with terror—one of the strangest concepts to evolve from national policy in decades, for terrorism was a tactic, not a person or place.
A close friend of mind who dapples in poetry sent me a poem called “Invasion Jazz” around the time the war began and I present a segment of his poem in the sidebar above.
But my, how the Big Bad Humm has been silenced, just 6 years later. GM announced that it will close 9 plants, along with 2600 dealerships by 2010, laying off another 29,000 auto plant workers and who knows how many sales reps. Chrysler made similar announcements, sending pink slips terminating contracts with 1800 more dealerships. If these companies manage to make it through bankruptcy they will never be the same. The monstrosity we came to call the "Hummer" is now decidedly dead, along with all it’s SUV and muscle pickup brethren, a relic to those halcyon times when our national machismo was as big as our checkbook fed by home equity lines of credit. Jim Hightower had the best lick on this bellweather event: “The land of Mao, who vehemently denounced the material and moral decadence of the West, now owns one of the West's most decadent consumer products. Though the Hummer's Chinese name is "Han Ma," the marketing concept for this humongous armored chunk of ostentatious testosterone remains the same. Han Ma means "fierce horse."
Oh, how the mighty have fallen! I’ll quote another poet, Shelly's Ozymandius, referencing those two vast and trunkless legs of stone standing in the desert… What
would Shelly write today if he were a contemporary American and visited a gutted neighborhood in Detroit where foreclosed houses now sell for as little as $5000? The American Dream has become a national
nightmare.
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Ozymandias
I met a traveler from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert...Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed;
And on the pedestal these words appear:
'My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.
— Percy Bysshe Shelley, 1817
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During the Bush/Cheney years. We went about our lives with a growing disquiet in our gut, a jabbing dissonance yammering at us on the news each day as some new outrage crossed the
wires—torture, domestic spying, defense contractors tossing $100,000 bricks of war money about, a Republican congress getting us all ready for the great fleecing of America as they passed
the “Bankruptcy Reform Bill.” As a nation, we were steering right for the iceberg, at high speed on a starless night at sea. The band was playing, people were dancing, champagne
flowing—what was that thump? Oh…Look at the pretty ice cubes all over the upper deck! You know the rest of the story. The rich folks have already taken to the life
boats and the rest of us are locked below decks in steerage—a good name for the low end accommodations, for we have been complicit in the collapse now underway by our
complacency and inaction, like so many cows in a pen waiting for their turn at the slaughterhouse.
There’s an old line from the Godfather series that speaks to us all now as we look around and
witness, slack jawed, the decline of America—“this is the price you pay for the life you choose.” For so many Americans the price seemed no obstacle just a few short years ago.
They had bankers lined up in their outer hall, competing to lend them the big bucks on that jumbo mortgage. In 2005, a house sold for ungodly sums of cash, and people bought at a
furious pace, thinking that if they didn’t get in now they would lose out on all the fun at Home Depot. “Flip That House” was the order of the day, and the economy was largely running on
artificially created equity and rivers of credit.
Now the Big Bad Humm is gone. The Dynamo of the American economy has slipped into
reverse. We just went through two consecutive quarters with a net decline in GDP. (Negative 6%. each quarter) And if you were to take out the equity loans that were driving the economy
before this period we would see that the engine has really been sputtering for some time. Calculated Risk presented a graphic that shows just how much of our GDP home equity
made up…(Red shows GDP without Mortgage Equity Withdrawals!) So much of the “growth” from 2001-2006 was all from the re-fi party American’s threw, and the party is over.
The equity is gone folks. It continues to melt away, week after week. More and more “homeowners” are underwater, and have now become “debt owners.” The housing decline still
has a ways to go, and just how eager will banks be to lend when it’s over, now that there is no collateral out there worth anything to prop up a loan? Don’t look for a speedy recovery to
the malaise that has gripped the nation. Ameriquest, the biggest sub-prime loan seller in the nation, stated that it believed 90% of its loans are headed for default. Next come the Alt-A
and Option ARM loans to better borrowers. The default rates there are already spiking to record levels, and this will rip through the heart of middle class America like a scythe between now and 2012.
Much of this paper remains hidden in the accounting spreadsheets of the big banks, explained away by “internal models.” Well, model this—count the money you’ll be collecting
from a person who defaults and walks away from their home loan. To call it a “non-performing” asset is a gross euphemism. No matter how you slice and dice it, you have an enormous
loss. The Big Bad Humm of the US mortgage industry has become a big bad debt. It can’t be ciphered away by accounting tricks. Look at the pipeline of pain still out there between now
and 2012 as all the Alt-A loans reset to higher levels in the next few years. It’s frightening. The graphic clearly shows that the market distress has really only just begun. We’re through
most of the sub-prime defaults, now the wave will tear through households further down the trough, people who once had good credit, responsible jobs, and who now face the nightmare of foreclosure.
NY Times economics editor Edmund Andrews made a compelling confession of his own journey into the tar pit of the Alt-A mortgage game.
“I am here to enable dreams,” said the real estate pro who helped shoehorn Andrews into a loan for half a million when his income after a hefty alimony obligation was just $2700/month.
No matter what obstacles they encountered during the underwriting review, the realtor had a clever dodge. It gave Andrews his dream home, a place to join with his new fiancée to live out
their planned partnership, but Andrews chronicles the increasing stress that money worries brought on, and shows how the couple relied on credit cards and balance transfer checks,
accumulating ever increasing debt, just to make ends meet.
The solution? Refi into another mortgage to squeeze the last bit of “equity” out of the house
and retire the debt. May I point out that going into more debt is never a solution to a debt problem? That obvious fact aside, Andrew’s journey led him to a place where he was soon 8
months behind on his Alt-A mortgage, still waiting for the foreclosure axe to fall. Banks have been slow to act, because taking the house to foreclosure means they have to admit the loss
and take responsibility for the asset, at whatever state of value it may now be. This is why it is estimated that another 600,000 foreclosures are being held off the market by banks. Denial
is always the first stage of the grief process.
The Debt Vultures
On a personal level, people all across the nation are now facing the ugly, stubborn facts of their own distressed financial situation.
The Business Insider reported on the heart of the problem: “Americans built up a lot of spending power over the last three decades, but it wasn't
because they started earning more money. As today's chart starkly illustrates, credit card debt has exploded, making up for more modest gains in median household income. As you
can see, for the very first time in history, credit card debt is creeping down, though it has a long way to go. And of course, this doesn't even include all the home equity loans Americans
used in place of the ATM.” Here is their chart:
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Debt relief specialists have now replaced all the re-fi loan brokers in our foyer, competing for
the opportunity to negotiate away our collective credit card nightmare. Recently some of the biggest names in this industry have run afoul of the law. The NY Times reported that
Nationwide Asset Services and Credit Solutions of America are being sued by state prosecutors for unfair and deceptive practices. The suit alleges that the companies signed up
thousands of debt strapped customers, charging a fee of 15% of the debt to be negotiated up front. They tell customers to simply stop paying their credit card and loan bills, and instead
accumulate money in a special account that they will use for the fees and as a fund to “negotiate” with lenders and reduce or eliminate the debt. In some cases, after collecting
millions in up front fees, from thousands of customers, fewer than 60 people were actually helped!
The NY Times reported: “Credit Solutions used to send customers a 60-item list of ways to
raise money. First is “refinance home,” followed by “get a second mortgage” — the two things
that got many people in over their heads in the first place. Among the other tips are: “Baby sit
,” “Sell plasma,” “Ask for raise,” “Get off the station before your usual stop and walk,” “Cut
down your drinking,” “Drink tap water,” “Buy frozen.”
Consider what you have just read—the advice to get a 2nd mortgage or equity loan was bad
enough, but this debt management firm advised customers to literally give blood as a way of raising cash for their negotiation slush fund and debt service fees! Talk about bleeding the
borrower dry! The image of a vulture on a fallen carcass in the desert is too kind a way to describe these companies.
Consumer complaints are piling up, earning some of these shady firms a grade of “F” when it comes to customer satisfaction. Just like the day trader ads during the stock market boom,
the re-fi ads during the housing boom, now we have debt management ads out to take your money. Face it folks—if it’s in your face 24/7 on radio and TV advertisements, it’s more than
likely a scam. People are launching these debt management firms, signing up a big user base, then selling the company for profit. The people are in the debt management “program”
that promises relief, but not immediately. It may take many months or years for the program to conclude, and that leaves plenty of time for the owners to sell and slip out the back door.
Few customers ever find real debt relief in these schemes. They simply default and give gobs of money to the debt relief firm that they could have pocketed themselves!
So Americans are finally facing the awful weight of their debt, and for many default is the only reasonable action they can take. No one wants to declare bankruptcy, walk away from a
home, or default on a loan. Yet so many people are burdened in this never ending game of revolving debt at 29.99% that they now realize, at long last, what the bankers who set it all up
have known all along—it will take the borrower the better part of their productive life to ever come close to repaying the debt. This is why credit card accounts at big banks like Citigroup
and Wells Fargo are already seeing 10% default rates, and this is just the beginning.
So it is not hard to understand why the Big Bad Humm in America has been silenced, from
the auto factories of Detroit, to the abandoned housing tracts of Merced to the silent cash registers in the shopping malls. All across America people are struggling to down-scale their
lives and make ends meet. In doing so, a new definition of what is “normal life” in the U.S. is being forged.
Social guru James Kunstler summed up the realities now facing us in his May 18 post:
-- Cheap energy is over and our wishes for alt.energy are currently inconsistent with reality, meaning we have to live differently.
-- We have to downscale and re-localize our major economic activities: food production, commerce and manufacturing, banking, schooling, etc.
-- We can't hope to have a stable money system unless we allow a workout of unpayable debt to proceed.
-- Even if we can do this, universal easy credit is a thing of the past. From now on, we
have to save for the things we want and run our businesses and households on accounts receivable.
-- Major demographic shifts are inevitable as it becomes necessary to let go of
suburbia and reactivate our derelict towns and smaller cities (and allow our giant metroplexes to contract).
-- We have to face the truth that our major social contracts cannot be met, namely the
continuation of social security as we know it and probably all pension arrangements. We'll probably have to change household arrangements to make up for these losses.
-- Health care will have to go through a revolution more comprehensive than just changing how we pay for it. Like everything else, it will have to downscale, re-localize, and become more rigorous.
Kunstler’s assertion that Obama’s primary role should now be focused on how to manage this
inevitable contraction is so correct. Instead, the “powers that be” seem intent on resuscitating the old system that brought us to this collapse, at a cost of $12.5 trillion to date—money that
has slowed but not stopped the decline now underway. I have said all along that the days of “getting, watching, and doing what we want” were over in America. Our lives are now
becoming all about necessities, compromises, ways of managing debt and paying the bills. It will surely be a painful adjustment for many, but realize that we may become a nation of new
values, and new value centered activities after this is all over. That, at least for me, is the single ray of hope in this economic crunch.
Article by: John Schettler - May, 2009
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