The Society of the Owned: The Rage of a Middle Class
March 6, 2008 - 12:30pm ET
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Part Five of a series.
Something's happening out there. It's happening quietly in some places and not-so-quietly in others. It's happening around kitchen tables and in living rooms across the country, as Americans come to grips with new — or, to them, newly-revealed — economic realities. For some, it's just impossible to deny or ignore what most have known for weeks about the economy. Even the Bush administration — famous for simply ignoring reality (see part two of this series), as the president himself recently demonstrated by denying we're in a recession — is showing vague signs of concern.
Maybe someone in the White House has been reading the news over the last several days, and maybe even reading it to the president. (Though until a reporter asked him about it, Bush hadn't heard that gas might soon cost $4 per gallon.) But even the president might not have needed his news predigested this time, because even a perusal of the headlines in the last few days indicates that something — like that middle class anger in the last post — is building, and it's reaching a point where more and more people have almost nothing left. And, it follows, nothing left to lose.
Every other day, it seems there's a report on just how bad the economic news is, and particularly for precariously perched members of the middle class, who are landing on the ground of their new economic status with a resounding thud. First came the news that foreclosures were up 57% in January. That was followed news that last month bankruptcies reached their highest level since 2005, driven by (surprise, surprise) the huge increase in foreclosures
Personal bankruptcy filings climbed last month to their highest level since 2005, when Congress enacted laws aimed at discouraging such filings, and experts predicted more than a million Americans will seek bankruptcy protection this year.
...The numbers highlighted the rising toll of the U.S. housing slump and the credit crunch it precipitated. Those developments have brought the economy to the brink of recession and led to a surge in home foreclosures. In response, the U.S. central bank has cut interest rates at the fastest clip in more than two decades, but the economy has remained sluggish.
..."I don't see a problem reaching one million," said consumer bankruptcy attorney Brian J. Small of Thav Gross Steinway & Bennett in Michigan. "I would be surprised if...we don't exceed it."
Small said home foreclosures have been "the leading impetus" for the increase in personal bankruptcy filings. That's because by the time homeowners face foreclosure "they've already borrowed every penny that they could; they already spent everything in their savings. They're at the point where there's nothing left," he said.
What's interesting is that the borrowers Small describes doesn't fit the profile of the "typical" subprime borrowers who are, in some places at least, partially blamed for the crisis. Small goes on to describe people with "credit card debt between $30,000 and $50,000," who've "borrowed every penny that they could," which doesn't sound like people who can't get a loan that isn't a payday loan and couldn't get credit before subprime loans. (Though, when it comes to credit they may have more in common with those subprime borrowers than they know or would care to admit. That's something we'll explore a bit later in this series.)
If the people Smalls speaks of have nothing left, it's because they've had very little left for months now, and their spending shows it.
Ben Bernanke, the Federal Reserve chairman, told Congress last week that fighting off a possible recession in the United States was Job 1 for his crew. But a consumer-led recession has already begun, according to a new index that reflects how much money Americans can actually spend right now.
The new indicator comes courtesy of Charles Biderman, the founder and chief executive of TrimTabs Investment Research, a proprietary research firm in Santa Rosa, California. "The big picture is: The amount of money people have to spend, which includes money on real-estate transactions, is plummeting, and it started to break down in October," he said.
Of course, none of that's going to come as news to middle class Americans who learned not long ago that subprime isn't the only mortgage crisis. Many prime borrowers who opted for low down payments or mortgages with adjustable interest rates, or who refinanced their homes or took out home equity loans with adjustable rates, now find their rates increasing at the same time that home values are the lowest they've been since 2004; and at the same time that — in no small part, due to the subprime crisis — banks have $900 billion less to loan, and as a result are cutting off equity lines of credit.
Those who have jobs will lose ground, because rising costs are eating up their stagnant wages, but at least have a chance of not going into free fall — as long as they have jobs. January saw a loss of 17,000 jobs, and while the Bush administration pointed to 4.9 percent unemployment rate as evidence that there's no recession going on, the numbers hide the reality that Americans are looking longer for work, and many are just not finding it. Among the latter, a growing number are highly skilled and educated workers who can't find work, or can't find work that pays as well as their previous jobs, or comes with the comparable benefits. (For what it's worth, a college degree won't guarantee you a job in China either.)
February's unemployment numbers remain to be seen, but the ADP employment index says that the private sector dropped 23,000 jobs in February. Some economists take that as a sign of the labor market deteriorating even further, which is probably no surprise to anyone whose unemployed or underemployed and looking for work. But the real significance for middle class workers is in which sectors also lost jobs and which sector gained jobs.
Employment in the service-producing sector rose by a net 47,000 jobs, but employment in the goods-producing sector lost 70,000 jobs, the ADP survey showed. And factory employment fell for the 18th straight month, dropping a further 40,000 jobs.
As factory jobs and goods-producing jobs disappear, the possibility of earning middle class wages for blue collar work goes with them. As one labor expert (sounding like the foreman in Springsteen's "My Hometown") said, "These jobs are going and they're not coming back." The only sector that's experiencing job growth (besides government, ironically enough, given the current administration) is the service industry — where wages are lower and benefits fewer — and even that growth is outpaced by job losses in other sectors, where does that leave the laid-off middle class homeowner whose mortgage payment just went up at the same time that the value of her home plummeted and her bank cut off access to the home equity loan that many like her would might otherwise draw upon?
In the leaner, meaner economy of the present — in which the job market as worsened for everyone, including those with college degrees, and some employers now require credit checks of applicants — some of them may find themselves competing with teenagers for jobs at fast food establishments.
So, there's a whole population who thought that in buying a home they'd at least bought their tickets to middle class stability, if not to the first stop on the way to building wealth. Now, they're finding that they're traveling in the opposite direction, their tickets punched for a very different destination. And their mortgage applications (much like their credit card applications) have turned out not to be membership applications for the ownership society after all. In fact, they own less, make less, and can't get any more. They can't buy, borrow, work, or educate themselves up the economic ladder anymore.
You might think that all of the above would cause a good deal of anger in that population, and that it might be directed towards the top of the economic heap. You'd be half right. At least some of that anger is actually being directed sideways and downward.
Now that the supbrime crises has roused the very same administration that slept through its beginnings to the point of maybe even doing something about it, we must pause to debate the morality of a bailout, lest somehow the "wrong people" get help keeping their homes. At the local level, the terms of the dissent against foreclosure aid has grown more blunt,
As the Bush administration and Congress consider proposals to ease the home foreclosure crisis, local governments across the country have been lending money to imperiled homeowners and confronting some opposition
Some of these municipal and state efforts have met resistance from people who consider the assistance undeserved and adamantly oppose anything that resembles a taxpayer bailout.
...The goal of these programs is not just to keep people from losing their homes, but also to limit broader economic fallout, including plummeting property tax revenues and widespread declines in home values. Still, they pit what some government officials say are practical economic solutions for the common good against individual ideals of fairness and personal responsibility.
The opposition may be rooted in “this ancient notion of deserving versus undeserving, and you’re undeserving if you made a bad decision,” said Nicolas P. Retsinas, the director of the Joint Center for Housing Studies at Harvard University.
While the negative reactions have not stopped the assistance efforts, it has put some local officials on the defensive and forced them to try to sell the programs to the general public, not just to the intended recipients.
Yet, this dissent is happening against the backdrop of cities struggle to cope with vacant homes, foreclosed and abandoned by subprime borrowers, attracting crime, blighting neighborhoods and further destroying home values. Local budgets are impacted to the point where schools are bracing for cuts as the housing crisis eats away at funding. Meanwhile governors turn to Washington for infrastructure funding — to repair roads, bridges, and water systems — only to be rebuffed by President Bush, who prefers the same "wait and see" approach Alan Greenspan took to the development of the current crisis. (And who, by the way, wants to take millions of dollars from the states, for the federal government, in the form of mineral royalties that could fund infrastructure in the states.)
The hesitation to bail out subprime borrowers who were either "speculators" or "should have known better" is a reflection to some degree of the success of the ownership society myth. Even as they are drowning in the very same waters as subprime borrowers, prime borrowing members of the middle class cling to the conservative idea that some people shouldn't be rescued. Some people should be left to drown, and they can be identified by their lack of economic resources.
This is not happening to a few people who "deserve it." It's happening to all of us. There is no way to separate the lambs from the goats. If my neighbor goes into foreclosure and his house stands vacant, the value of my house goes down, and my neighborhood becomes a less desirable place to live, and perhaps a more dangerous one given the problems that come with having vacant houses standing in a community.
In the midst of the hand wringing over bailing out the "wrong" people, what's forgotten is that the subprime crisis has long since metastasized and spread to the suburbs, where families who believe themselves safely ensconced in the middle class, who've borrowed on the equity in their homes, find themselves sitting in houses now worth less than they're paying for them. And the "wealth" that their homes supposedly represented, which in reality was merely credit (debt masquerading as money), has disappeared, or become much harder to access.
One of the illusions of the ownership class, for those who aspire to join it, is that they ceased to be one of "those" people, who got themselves into trouble by living beyond their means — pretending to a class they don't belong to, getting ideas above their standing, etc. — even as they borrow against the credit-based "wealth" in their homes to finance everything from vacations to retirement to college tuitions.
What will happen when, or if, they realize that they never really joined the ownership class, and that they weren't even close?
Some already have, and next we'll look at what they're doing about it right now.
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