Sea Level

 Near as I can figger out, this here banking crisis and extra added recession is caused by people not being able to pay their mortgages.

It's being represented as due to new creative financial instruments wrapping risky mortgages into financial instruments that were not supposed to contain them, and a whole bunch of people "using their houses as piggy banks," as one particularly obnoxious poster put it. There was this housing bubble, see, and everybody just went a little crazy from those low interest rates and high housing prices--and then it burst--so what do you expect? John McCain expressed his distaste for helping out 'foolish people," and who can blame him?

Shady instruments and popular folly definitely had something to do with this--but the fact remains that none of this would be happening if people could afford to pay their mortgages.

When I was deciding whether or not to buy a house, nineteen years ago, I looked at all the advantages built into the system. When you rented, it was just plain money poured down a hole. Buy a house, and what was interest was tax deductible, while what was not was equity. Such a deal! And improvements you made to the house increased its value, so money spend on central air or a new deck was practically not spending at all! Even though I was a freelance writer an life was uncertain (as events shortly afterwards were to prove), I felt I'd made the right decision. In fact, I really wished I had done it earlier when prices were lower.

But now it's foolish to get a mortgage to buy a home?

ARM's are bad, bad, bad, and Alan Greenspan deserves fierce opprobrium for going out and encouraging people to get them. And because they're tied to federal interest rates, when they started to go up, suddenly the payments went up too, and they couldn't afford to make the payments. Awful! 

Now if you turn on the water in the shower stall and hear a shriek from the cat, you turn the water back off, right? So when you raise national interest rates, and people with ARMs start to shriek and run to bankruptcy court, the solution seems to be to ratchet the interest rates back down again, the ARM's rates readjust, people are able to pay again, you wipe your brow and apologize to the cat.

Didn't Ben Bernanke (no fool) do just that? Certainly looked that way. Then why didn't it work?

Certainly there was an awful lot of irresponsible mortgage writing to people who couldn't vaguely afford them. I read about the Ninja mortgages--no income, no jobs or assets--and was appalled. But then the question is, why is this happening all at once? Shouldn't these Ninjas have been defaulting all along? Why the catastrophe? Because the shower metaphor was wrong: you were instead turning up the flame on the stove, and the cat caught on fire. Simply turning the knob back down will not solve the problem, and neither will apologizing.

Is this crisis one o greedy speculators, dodgy financial innovation and enthusiastic rubes? Is this just more Enron? Is it another New Economy?

Or is it a story of people unable to pay their mortgages?

I've said previously that I don't like the whole metaphor of the housing 'bubble' and its overtones of prosperity. It's become one of those commonplace metaphors that's a loose cannon on the level playing field of common discourse. This financial escapade was no bubble rising to heights of uneconomic transcendence--a better term was an economic polder. I know it has no chance of widespread adoption, because you have to know what a polder is. It's a Dutch word for an area of land reclaimed from the sea, still below sea level and protected by dikes. This irresponsible financial shenanigans didn't raise a glittering bubble to the skies, but unnaturally created solid ground to stand on against the overwhelming pressure of being below sea level.

A 30 year mortgage for more than you think you can ever repay of necessity involves faith, dreams and mythology. For many (including me) it went from owing nothing to owing everything, and while that's a more accurate description of the human condition, it's a bit of a blow to any sense of cosmic self-sufficiency  one might have. Plan for the next thirty years? Yeah, sure. 

What a person trembling on the brink of homeownership in America believes in, beyond their own courage, is the myth that things get better when you work hard here. (by 'myth' I don't mean falsehood, but cultural narrative, you know, Joseph Campbell, Mircea Eliade, Stan Lee.) And it hasn't always been false.

But as progressive economists have pointed out, that hasn't been true of the American middle class for a while. The appearance of prosperity has partly been fueled by one-income families giving way to two-income families, and the occasional layaway (and mortgage) receding in favor of a life of credit. Inflation and technology further obscure that perception, but the statistics are plain.

And the worse thing is not that the rich have been getting richer with respect to the middle class (that really doesn't bother most Americans) but that the risk and uncertainty haas been transferred from the rich to the middle class. As time has gone by, there are more and more economic wallops delivered directly to the middle class.

And since George W has gotten in, things have gotten a lot harder a lot quicker. Health care, climbing funicularly for decades, crossed a line where even large companies can't afford it. Skilled tech jobs vanished in the .com bubble--and not just the jobs, but the training itself was devalued. And the jobs lost in W's first recession didn't come back--or came back in Bangalore. And the media started talking about the 'jobless recovery'--and then stopped.

And energy prices shot up, and bankruptcy laws were restructured against the consumer, and credit card minimums doubled--the waters started rising. But after Alan Greenspan (him again) raised interest rates five times in 2000 to bring the economy to a halt just as the .com bubble was collapsing, he found he had to lower interest rates practically to zero to pull out of the nosedive. And thus was created the Housing Polder. And a bunch of people found themselves standing on solid ground below sea level.

And now, as the dikes of the polder crack, as the interest rates rise--as the grain prices rise, as the gas prices rise, as health care follows its asymptotic path towards infinity. 

AS the bubble bursts, and we wonder hoe ended up without security, without power, afraid to get sick, insulted by our news media, ruled by people stupider than us, and somehow below sea level.