Thursday, December 06, 2007

Bye Bye Big Shitpile

Lately, Atrios has been blogging quite a bit about a phenomenon that he calls "Big Shitpile." Big Shitpile is a name for the clusterfuck created when financial institutions sell crappy loans, including adjustable rate mortgagtes (ARMs) and other subprime loans, to consumers and then sell the debt to various other entities that bundle the debt into huge packages. Now that consumers are finding themselves unable to pay the rapidly-increasing ARMs and home prices aren't increasing by ridiculous amounts every month, our economy has become, in Atrios' apt analogy, a pile of jenga pegs.

If you own a home, you've been inundated over the past few years with offers for loans that will allow you to "extract the equity" that you've "built up" (nice catchpharse, isn't it?) in your home and use it to pay for -- well, to pay for anything. Plasma screen tvs, vacations, SUVs, "debt consolidation," etc. Many Americans have used these loans to keep themselves living a middle class lifestyle, in spite of the fact that, even with two salaries, they weren't really earning enough to cover things such as savings, health care, retirement, their kids' education, their housing, etc.

And it occurs to me that home equity loans, offered during a period when home prices were rising faster than tulip futures in Holland, have allowed America's wealthy to skate by the impending revolution for some time. By that, I mean that as long as Americans could ignore the fact that they honestly no longer could afford a middle-class lifestyle, they could afford not to be upset at the actual decline in wages, at CEOs making salaries many, many, many multiples higher than the wages of their employees, at tax breaks that benefit the the Paris Hiltons and Jenna Bush's of our country at the expense of waitresses and UPS truck drivers, at the fact that our country, alone of industrialized nations, fails to provide health care for its citizens, etc.

That safety net for the uber-wealthy is drying up. If you're not in the top two percent, it's no longer ok to assume that you don't need savings to cover emergencies because you can always tap a home equity line of credit. You now need savings. So cut back on expenditures. It's no longer ok to assume that you can always replace outdated electronics by tapping into home equity. So get used to yesterday's technology. You can't afford a vacation this year and, in fact, you'll be hard-pressed to pay your heating bills. Welcome to the lower middle class. You've been living there for some time, but you were able to ignore that fact due to home equity loans. And some people benefitted quite a bit by your ignor-ance.

I expect people to begin to wonder why they don't belong to a union. To look a bit more intensely at claims that our health care system is "the best in the world." To wonder why the CEO at their company should make hundreds of millions while their own wages stagnate. To begin to demand that the uber-wealthy pay their fair share of taxes. To ask why corporations are allowed to control our media.

It was a nice ride while it lasted, corporatists. But nothing, including the housing bubble, lasts forever.


report from the heartland said...

Consumerism is the true religion of our land and when people finally face the fact they can't buy their way to obliviousness (aka, happiness?)... well, I actually don't think their consciousness will be raised. They won't blame the rich people, they'll blame the immigrants and the poor people. This could dovetail quite nastily into the anti-immigrant campaign the Republicans, if I read them correctly, will be counting on to stampede people into voting for them in 2008. In any case, I don't have quite the hopes and high opinion of the American citizenry that you do, Hecate. I hope I'm wrong. Thank you for a thoughtful post as always.

Sobeit said...

Most excellent entry this morning and it goes along with this video I just watched....

Hope this link to it works.


donna said...

I've been telling friends to get out of debt and start saving for years. This was a train wreck in slow motion, and will keep playing out over the next few years as we slide into recession.

It will get worse before it gets better.