Monday, October 29, 2007

The housing crash and the disappearing middle class, by gimleteye

The mainstream press doesn’t want to draw the connection, nor does Congress or the White House. State governments, local legislatures and lobbyists are all vested to the hilt in denial: that the downgrade by Moody’s of at least $50 billion in collateralized debt from AAA to junk is tied directly to a pattern of land development—suburban sprawl—that is a failed fiscal model torpedoing the middle class in America.

The biggest risk—and one that the mainstream press and Wall Street, both, should take into account—is that the coming recession will trigger a backlash against the bankers and financiers whose engineering did not, in fact, diversify risk (as derivatives were advertised to do,) but concentrated risk by raising the unquantifiable to exalted status.

It’s another way to say, we have been robbed.

We have been robbed in ways that are easy to catalogue; from liar loans and mortgage fraud, to lenders pushing toxic debt on consumers, to the wholesale conversion of local government to the purposes of the growth machine. Now the front and back cover of the catalogue are emerging like invisible ink revealed: massive uncertainty in world credit markets tied to the underpinning of sprawl--financial derivatives.

Yes, the stock market inches along near historic highs but it is an indicator increasingly irrelevant to most people.

The unease rippling through America is especially important to grasp with upcoming elections in 2008.

The Sunday New York Times Magazine disclosed a facet of the issue in its report how the base of Christian conservatives is no longer an anchor for the Republican party. Some evangelical leaders are apparently concerned how closely tied the religious right has become to corporate America.

There is an additional aspect, not covered by the Times: that is, the center of the religious right—organized in suburban megachurches—rose exactly in proportion to the false prosperity of a housing bubble that needed constant spiritual renourishment even as discomfort spread about the surrounding strip mall culture and economy pinning wage-earners to long commutes from home to work, while latch-key children languished at home.

The bursting housing bubble is fragmenting the religious right. It’s not a matter of evangelical convictions faltering. It’s a matter of home economics ruining families as lines of credit and home equity make fools of believers. It’s not just about church on Sunday. It’s about good believers of the middle class slowly coming to a boil over manifest inflation despite government assurances, it’s about vanishing home equity, and it’s about the growing fear that the middle class does not matter in a world where arks of privilege have stratified American society.

It’s in this context to consider two pieces of news: first, that Stan O’Neal—the CEO of Merrill Lynch—will be held accountable for the worst loss in Mother Merrill’s history, some $8.4 billion and yet will retire, according to press reports, with a $140 million payday.

The second piece of news is from the New York Times (Saturday, October 27, 2007), “As Housing in Florida Plummets, the Top Tier of the Market Just Dips.”

“Despite a record number of foreclosures and a raft of public auctions of unwanted houses, the upper tier of the real estate market in Florida remains relatively immune to the spreading disaster… As in other once-booming regions, in Florida the housing market seems to be not one market, but two. The lower end is littered with vacant houses and unfinished developments, and homeowners are struggling to meet their monthly payments as rates adjust upward. The luxury end has its unsold new condos and mansions lingering on the market, too, but as in New York, where the demand in pricey Manhattan is still strong, sales have fallen less. And Miami and other parts of Florida are continuing to attract interest among the wealthy.”

The Times points out that the upper tier of the market is being held up by holders of euros and other currencies, like the ruble. But there is little solace to the American middle class in the trashing of the value of the US dollar. In 2008, the “values voters” eagerly sought ought in churches by Republican candidates and Democratic ones, too, are going to be more sensitive to the value of currency than morals—which so many public officials wear on their lapel like pins of the American flag.

At the same time, the stratification of housing markets in places like Manhattan or tony vacation retreats in Florida appear to the middle class to be supported by the kinds of financial fraud that turned dreams of wealth into bankruptcy on Main Street and turned AAA rated paper to junk on Wall Street.

But it does not pass unnoticed by Main Street that Wall Street can walk away from its failures with hundreds of millions in net worth—or how speculators and bankers and developers in places like suburban Miami have squirreled away profits from developments at the edge of the Everglades foisted off as a public good.

These are the arks of privilege insulating the highest strata of society from the disintegration of the US dollar.

America’s political and economic elites have been perfectly happy with the arrangement that is inequitable to the foundation of democracy—a vibrant middle class.

If I were a betting man on the 2008 elections, I’d put my money on the ministers chasing the money-changers from the temple.

So much of what we grew up believing to be good and true of America has been distorted, chopped up and parceled out—all on the heels of a changing climate--a consequence of our own willful disregard of balance and equity.

It's hard to know what comes next.

6 comments:

Anonymous said...

Wow. Being that I am looking for a job, I went to www.conservativejobs.com. What a hoot!

Job Listing Search Results

There are 0 Job Listings matching your request of in - Florida -
_______________________________

That must be serious situation I can't get a conservative job in Florida. I wonder if I will have better luck looking under liberaljobs.com?

The middle class is drifting away.

The Narrator said...

Oh yeah right! A large percentage of the general public don't even know what kind of mortgage they have! If they were clued in enough to connect all the dots on the housing bubble they wouldn't have bought in the first place, or would have sold while the getting was good.

I don't know who they're going to blame. It's not that I don't know who is to blame, it's just that the media hasn't gotten around to finding a scapegoat yet. They might never get there. It's all to complicated and boring for the general public to figure out and too huge of a problem for the government to bail out. This is the great depression on Prozac!

Anonymous said...

The problem with the media is they are all corprate owned. They do not have your best interest in mind they have the corprations. So the only way to truly know what is going on and how to protect yourself is the internet.
Financial blogs are the best source of information out there. Dont trust the media to let you know till its way to late and the big boys have made there money and are sitting on a beach deciding what they can get away with next before the little guy is told by there media buddies.

PP said...

Great article. I will like to add that the middle class is also dissapearing everywhere in the world.
In Europe, we have less and less middle class, following the same path as here in the USA. Even in third world countries like in Africa, the middle class is shrinkening.
Everywhere in the world rich are getting richer and poor are getting poorer. The middle class is getting poor, and maybe this is the ultimate mechanism of capitalism ?
For us in South Florida, when you add to that our very bad real estate market and the local recession we are going to have due to th eporr quality of our elected leaders, we will be facing hard times very soon.
Only solution: get rich.
Best regards.
FD @ Condo Hotel Miami Beach - Condo Hotel Fort Lauderdale

Anonymous said...

I'm a christian. You're right. There is a change taking place.
Evangel. Ch. are not a very aware group financially speaking. They really have to get hit over the head and I regret to say this is happening now. The last election we were told to "Vote Christian"
Next time around hopefully, you'll see my brothers and sisters very very angry and asking lots of hard pointed questions that make the other half of the church ( and the pastor ) squirm. Trust me...the "Jesus Vote"
will not support a Rudy G. "Police State" if housing tanks and they loose their equity.

Karl said...

I liked your line about Christians chasing the money changers from the temple. (Reminds me of Ron Paul :)

Some of my Christian friends, even though not stupid, are naive. They haven't read animal farm, maus, perseopolis, or really anything causing them to distrust government and elites. My friend, died in the wool republican, says "anyone's better than hillary. she will stack the supreme court". And he can't see how there are hardly any differences in policy between the big government parties these days... and I guess he doesn't care about fascism or a national id card, guantanamo bay, etc. I'm trying to wake them up.

Well, the difference between kings and pawns is the kings know who the pawns are.