Bill Totten's Weblog

Friday, March 09, 2007

Housing Fetish

by Jim Kunstler (January 29 2007)

Martha Stewart was not an accident of history. She came along in the late 20th century as a kind of spirit guide to a society whose bad choices and misinvestments had led to the wholesale destruction of any place in America that people called home. And by this I mean the towns, neighborhoods, and city districts of our land, not just the individual dwellings.

By the 1980s, America had been converted, with monstrous efficiency, into what I have called a geography of nowhere, a panorama of identical highway strips, malls, big box warehouses, fried food out-parcels, and free parking wastelands - all serving the endless new subdivision pods of single family houses. The ultimate result was a landscape full of places no longer worth caring about.

The program was carried out ruthlessly by big corporations and their hand-maidens, the road-builders, the house-builders, and the brotherhood of traffic engineers, but it was fully supported by the public at large and their elected local officials on the planning and zoning boards. It was both an "emergent" economic ecology - a systemic response to decades of cheap oil and favorable geopolitics - and a consciously mapped-out attempt to create a kind of Utopia, in this case a suburban Utopia of Happy Motoring. Whatever it was, nothing like it had ever been seen before.

It had many consequences but one of the worst was the impoverishment of public space. From the social point-of-view, it turned out that housing pods and highway strips lined with strip malls were a poor substitute for main street towns or walkable neighborhoods. Under the insane dictates of single-use zoning, each individual was trapped in a car for hours each day, often in vexing traffic with other isolated individuals, and also often in the company of little children with a low tolerance to being trapped and vexed. Older children lacking drivers' licenses lost access to other social realms beyond the subdivision of houses. The adventurous ones assembled in the bosky berms between the WalMarts and the KMarts to smoke a variety of drugs, worship Satan, and torture kitty cats. The rest were relegated to the room at home with the one-eyed-monster, the television.

The case was not much better for the adults. By the 1980s, both parents had to be out of the house generating income to pay the mortgage and especially to pay for the multiple cars needed to service the family headquarters. Mom went to work not because Betty Friedan said that actuarial science was more fun than managing a house, but because wages were stagnant and Dad could no longer make the family's ends meet.

Out of this sad and desperate circumstance, Martha Stewart arose. The promise of Stewartism was that if the public realm was now inaccessible or meaningless, then one should make the most of the private realm. This was accepted as self-evident by enough people to make Martha extremely wealthy. Luckily for Martha, her job was at home. She didn't have to drive thirty-eight miles to a cubicle in the billing office of Ramjack Medical and spend eight hours each day minutely examining spreadsheets on a computer monitor.

As her wealth and success increased, Martha's resources for doing things in and around the house enabled her to spin a fantasy of uber-homemaking that America found irresistible - despite the fact that everyone else spent so much time away from the house that it was nearly impossible for them to emulate the goddess of hearth and home. Instead, they devoured her many publications and TV shows, finding consolation in all the beautifully portrayed scenes of Martha enacting the fantasy for them.

History is full of ironies and paradoxes, and one of them is that this avatar of home-making was relentlessly hunted down by federal prosecutors for allegedly scamming $40,000 on an insider stock sale, while true major league corporate CEO grifters walked off legally into their golden sunsets with hundreds of millions in back-dated stock options and other booty winkled out of feckless boards of directors.

It is also an ironic coincidence that at the exact time Martha Stewart went off to jail, the American home fantasy went totally off the rails. The systematic shut-down of America's manufacturing sector led policy-makers to insidiously try to replace it with a hyped-up housing industry. They kicked off the program by dropping the prime interest rate as close to zero as possible, making money extremely cheap to borrow. Everybody need a home, the logic went, including those who ordinarily wouldn't have qualified for regular mortgages that required substantial down payments, proof of employment, and other formalities. So the answer was to engineer a financing modality that would allow anyone to buy a house - and thereby ramp up the "homebuilding" industry into super-hyper-turbo-overdrive, which would incidentally generate even more potential house-buyers among the many framers, trimmers, plumbers, electricians, painters, real estate agents, and sellers of Corian countertops, who made good wages or commissions on delivering the "product". Meanwhile, the new housing pods in evermore remote locations, where there were no towns, could be accessorized with all the requisite service infrastructure - new highways, strip malls, Pizza Huts, WalMarts, Best Buys, and video rental joints, all of which had to be built by somebody, making for additional contracts, incomes, and potential house-buyers.

Meanwhile the financial wizards "innovated" methods for dispersing the risk associated with iffy loans (made to people with poor prospects for repayment) by bundling the mortgages into odd-lots and repackaging them as tradable securities, which could be used to "leverage" other finance "plays" yet more exotically abstracted from the actual making-and-selling real things of value. At the same time, the wizards converted the mortgage insurance business into a casino of swappable risk, materializing more fees and profits for themselves out of thin air.

This extremely complex racket worked well for a brief period of time, namely the period when the price of houses steadily increased, year after year, promoting the expectation that rising house "equity" was a permanent condition of life, and that the dependable annual increase in value could be "put to work" in the form of borrowing more money against it. The supposed increase in value protected those trafficking in swappable risk, since increased value banished the risk of loss, and the notion of moral hazard disappeared into the dumpster of history.

The whole racket floundered when several things changed or went awry. One was the sheer saturation of markets. Sooner or later, everybody who might possibly buy a house, got a house. The racket had had the perverse effect of stealing demand from the future by making house-buyers of those who were not really ready to buy - for example very young adults with no savings or people with bad credit records. And not every immigrant from Bangladesh, El Salvador, or the Central African Republic could be positioned as a house buyer - even under the now nearly nonexistent lending standards.

The next thing that went wrong was affordability. If absolutely everybody's house rose ten percent in value every year for years and years - including every "pre-owned" raised ranch shitbox - then sooner or later every house in America would cost at least half a million dollars. And with wages stagnant among the ninety percent who worked outside the financial services industry, sooner or later no house would be affordable to that ninety percent majority under even the most supernaturally lax lending provisions.

The final problem would come when central bankers had to raise interest rates so that customers for debt would accept the risk of investing in a national economy that was increasingly seen to be based on the engineering of modalities to get something for nothing.

This is the point we're at now. The whole system was greatly underwritten by the final peaking of available energy, chiefly oil, which made it possible in the first place to sell so much real estate in the farthest-flung outlands of the American landscape, including not only desert and swamp, but also prime farmland. The housing bubble began to collapse at exactly the moment that the world reached its all-time oil production peak: the summer of 2005.

Now the house market is both saturated and wildly mis-valued. Most of the new houses were built in places that will be logistically unfavorable as motoring becomes less affordable. Many of them are too large to heat as home heating becomes less affordable. The houses are overpriced. Those who must sell must drop their prices. Many such sellers will have to sell for less than the obligations still owed on their houses. The speculators have necessarily fallen by the wayside, because speculation is not possible in a falling market. Those who expected to sell old houses in older places for a half a million dollars or more to buy new houses in new places will have to stay put. As prices fall, the few potential buyers still left will step back in anticipation of further price drops. This "death spiral" will be self-reinforcing and take years to play out. As it occurs, many of the creatively-engineered contracts will be welshed on. Lenders will choke on "non-performing" mortgages. Mortgage-backed securities will lose their credibility and turn into junk or worse (worse-than-junk being certificates with no value whatsoever, not even pennies on the dollar). Bets, plays, leverages, positions, and hedges based on the idea that all these loans would continue performing will be wiped out.

The final result will be a dashed American Dream - of a safe life in a happy home. Poor Martha Stewart will be seen as the goddess who failed. Well, she already has, really, having gone to prison and afterward retreated into her omnimedia fortress of corporate refuge (basically joining the enemy). As the middle class chokes and gets crushed under the weight of its unpayable debts and falling standards of living, Martha may be lucky to avoid getting eaten, along with a long list of other celebrity porkchops that an angry and grievance-filled public will turn on.

Finally, the idea that people could live happily ever after in "homes" devoid of any larger community context, or reality-based economic context, will fail. Perhaps we will even stop calling houses "homes" - as we have been conditioned to do by the realtors hoping to manipulate all our subconscious desires for safety, familiarity, and order in this world of chaos and sorrow.

Bill Totten


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