As indecent amounts of magical pretend money and the heroic brain strain of our best and brightest racketeers get behind the effort to get credit flowing again so our boom and bust economy will get back to booming and busting the question is begged: Why can’t we just pay for stuff?
I was given to think this over after reading a terrifying tidbit from the often hysterical and dogmatic but always enjoyable JH Kunstler. It’s planting season in America. Farmers take out loans for planting season. We can tear at our bodices and roll on the rug over the inability of software manufacturers to meet payroll but let’s imagine what will happen if farms can’t buy the seeds and equipment they need. To quote Bill McKibben “It’s nice to have microelectronics, it’s necessary to have lunch”. We are all in swoon about upside down mortgages and foreclosures and the ripple effect these hollow eyed neighborhoods have on our economy. We are all doomed to poverty if we don’t get a college education and we can’t get a loan to get one. How did we get this way? Why are we all mortgagecarpaymentstudentloancreditcard-ified? Because we are media lobotomized shopping drones whose hyper stimulation has driven all common sense from the form? No, it’s actually a bit simpler than that. It’s a conspiracy!
Before the mechanization, petroleumization and aggregation of farming, farmers didn’t need to take out big loans to farm because there weren’t a lot of expensive inputs to farming. You basically had the farmer and his animals and seed. Certainly this style of farming wasn’t all rainbows and unicorns and not many people got rich farming, but they made a living and they didn’t have the looming threat of the bank calling in their note and seizing their farm each season either. The industrialization of farming, the Green Revolution (totally needs a new name), made farming a profitable venture only if done on a highly mechanized, oil soaked and massive scale. Farmers who wanted to compete had to buy combines and fertilizer and pesticides and specific kinds of seeds that enjoy the fertilizer and pesticides and buy into the “programs” the providers of these inputs stipulated. As a result many independent farmers were “bought out” by larger interests (who benefit from government subsidies giving 75% of support to the largest 10% of companies and survived the lower food prices brought on by heightened production by producing at greater scale) As a result our food economy is now an incredibly centralized system of production. Cargill and ADM control 75% of grain production. Just four companies slaughter 80% of our beef. 10 cents of every food dollar spent goes to Nabisco/Philip Morris. Come at me with your efficiencies of scale arguments but, call me Stalingrad, save for the absence of a downward distribution of income this situation looks awfully familiar.
Look at what happened when our financial system; let’s face it, it’s just a bunch of guys and gals in suits playing with numbers; became too big to fail. When those things went belly up there was talk of imposing of Martial Law unless we leapt recklessly into the void to save them and we are now about $3 trillion poorer. What would our society be willing to accept if simple privation (let’s not get hysterical and say starvation) was a real possibility? I needed a Xanax when the store was out of oats and brown sugar the other day (food shortage!).
The changes in farming I’ve gone on too long about were preceded by the sudden availability of large scale credit. One shift could not have occurred without the other. Coincidence?
My parents bought their first house in 1968 for $21,000. I will not self flagellate too much but I need to note that it was a beautiful 1920’s bungalow 4 houses from THE OCEAN with rights to a private beach and marina. They had to put 20% down (yep, that’s a whole 5K) and they managed to do this while my father earned a salary of 11K and my mom SAHM’d. I imagine interest rates were around 8%. At this time my parents did not have credit cards. No one did. Fast forward to today. My home is a beautiful 1940’s cottage in a nice neighborhood devoid of aquatic activity. It cost 290K and we rocked that deal. We put 20% down (56K) our rate is 6% my husband makes about I’m not allowed to say K. So trust when I ask, why twice as much for a house relative to income?
In the late 70’s expanding credit markets allowed the demand for housing to begin to climb. After that it’s simple supply and demand. People who otherwise could never save enough to buy a home could now get into one and good things were supposed to happen. The actual result is it’s impossible to save enough to buy a home and financial difficulties that would have been unpleasant when actual home ownership occurred now have the potential to put your family out on the street and out a sizable investment. Insecurity is a tenderizing mechanism.
As you know if you watched the video I posted before this scintillating piece you understand the education necessary to enter the middle class in 1970 was 12 years all publicly funded. Today that number is 18 years, 6 funded privately. We are making less today than we did then and we’re on the hook for more education costs and the cost of higher education (the one we have to pay for) is going through the roof. Why? Starts with a C. The president told us last week that unless all our kids go to college, we’re screwed. Answer? More private loans! The answer in Finland would be different and they are waaay smarter (and happier) than us and its night time for 3 months there.
So the little guy (95% of us, sorry if that bursts your Ayn Randroid bubble) gets the 3 trillion $ shaft while Shittybank and Skank of America (thanks Bill) execs get the golden shower I mean parachute. These guys made an obscene amount of money driving this credit creating rig into a ditch. Merrill Lynch, the village idiot of investment houses, gave out $209 million in bonuses to 10 guys in 2008. You can’t give this albatross institution away, hell, you can’t pay someone to take on this worthless train wreck yet the captains of the ship got their no-no’s tickled to the tune of $209 million on top of their salaries! Some of the former heads of Countrywide are buying back the P.O.S loans they wrote from the government for pennies on the dollar and collecting a fraction of what they can recover from homeowners as fee. As a lawyer from The National Consumer Law Center put it “It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it”
Let’s look this one in the eye folks, the housing bubble sucks massively for us and will for years to come but it fracking rules for the masters of the universe and don’t for a minute believe they didn’t know exactly what they were doing. If I had a nut to bust, I would do so the next time I hear someone carping on about how “irresponsible” and “mismanaged” and “inept” these banks are. It wasn’t their money at risk and their pay is apparently linked to their ability to hold up a suit and warm a chair so why wouldn’t they feast merrily and toast each other and smoke money and whatever else rich people do whilst sailing on the Titanic? Except the Titanic was an accident.
a wonderful article that touches on some of the same themes...
From Automatic Earth: Debt Rattle: Look Beyond Your Dreams