of users and non-users alike.
-- Drug Watch International --
Isn't it wonderful? I'm going to jail!
-- George Bailey, It´s A Wonderful Life --
How could an All American family headed by a squeaky-clean Building and Loan chief, George Bailey, possibly be involved in chaos and drug trafficking? With Zeta narcotraficantes in Mexico? With torture and murder?
Contrary to what Drug Watch International and the DEA imply, drug trafficking is not the worst crime against all people. I will amend that statement.
As for what that crime is, don´t look for it in state or federal laws. As I write these words, the worse crime is 100% legal.
* * *
This is the tale of one city. I won´t name it because it could be the tale of a nation.
Over a 30-ýear period my town´s soul was sapped, sold in a Bigger Fool game. What the residents discovered when the game ended: once lost, soul is never found.
It seems like yesterday when I arrived in my town in 1967. Friends driving in opposite directions would stop to chat for half a minute. They held up traffic but nobody honked, knowing that some day the tables would turn.
Today, if you stop in traffic to greet a friend, you take your life in your hands. Nobody stops. Besides, there aren´t any friends; only assets. As for tables, see below.
It took three decades, but the Bigger Fool game leached out all sense of community. Beating the system became the centerpiece of the system. As Bigger Fool trafficking ascended, a lottery mentality set in. You could see it in their eyes: free money. Why study or work? -- are you crazy? All you have to do is wait for Granddad to die -- which I guarantee will take a lot longer than you think.
Speaking of life expectancy:
The adage Ars longa; vita brevis ("Art is Long, Life is Short") endured for two thousand years. The trafficking analyzed here killed art and finished off the adage in short order. In the same way that graffiti is rap music without music, my town, once renowned internationally for its artists and creative people, became an art town without art.
Here is what we noticed first:
Nothing. Nary a bird nor hopper stirred. Without moving a blade of grass, millions of dollars were moving among distant bank accounts in New York, L.A., Dallas. Eventually, gated and walled communities with names of exotic birds sprouted like weeds. You want to go in? To get past the guard, take a tip from It´s A Wonderful Life:
No man is a failure who has friends.
Something else we noticed early: standing in line in the post office, you would spot a type of humanoid ahead of you who had never existed before in my town. His uniform was Ray-Ban shades perched on his forehead, and a windbreaker, even though there was no wind.
The jacket was opened to expose Mercedes car keys dangling seductively in the pocket of a La Coste polo shirt. The first time I saw one of those guys, I stepped up and did my civic duty: yep, the alligator was facing the right direction, away from the heart.
If you visit my town, here is what you will hear: nothing. 20 years ago, a Stepford Wife silence descended, perforated by an occasional tennis "Tock!"
Pre-Columbian Indians in South America believed that silence was the voice of god. In my town, silence is the hush of money.
To hear somebody, go to a restaurant or bar and listen to people at the tables around you. For that matter, listen to yourself. What you will hear are discussions about (1) me. 30 life stories are simultaneously ping-panging off walls with pictures hung too high, delivered with broadcast voices that are, alas, untrained.
Of course, as any woman will tell you, who wants to sit there and listen to some guy talk about himself? So, the conversation moves on, to (2) property. Houses, condos, apartments, land, office buildings. O.K., O.K. -- you´re right: there is another topic. (3) Movie stars. More on them later.
* * *
The term house flipping, not real estate speculation, is used here because it captures the inner essence of this form of trafficking.
First, in a town without soul, there are loads of houses, zero homes. Second, real estate speculation inevitably ends up as house flipping. After all, we all must live somewhere. Third and finally, speculators are attracted to risk; it is what keeps them in business. To the contrary, house flippers abhor risk -- usually a Bigger Fool is already lined up We will explore this point later.
House flipping has catastrophic consequences that far surpass anything the drug trade has conjured up. Twice in your lifetime, Dear Reader, house trafficking nearly pushed America over the brink into chaos.
And you thought Mad Max was just a movie.
(1) Economic Crisis I. The Savings and Loan collapse.
This is a very interesting situation.
-- George Bailey --
During the 1980s/1990s, 747 savings and loan associations went insolvent. Was George Bailey´s Building and Loan Association among them? It could have been: building and loan associations specialize in residential mortgage loans.
Total cost of the bailout to you, the taxpayers: $87.9 billion. Those megabucks could have built schools, roads, hospitals, parks. So, why didn´t they?
Put at the top of the list imprudent lending for real estate ventures during the real estate boom of the Carter years. U.S. mortgage loans soared from $700 billion in 1976 to $1.2 trillion in 1980. L. William Seidman, former chairman of both the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation, summed up: "The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending."
$87.9 billion? I give up: where did it go? Ask George Bailey.
On second thought, better not.
Anyway, in the world of house flipping, too much is never enough. So ...
(2) Economic Crisis II. The global recession of 2007-8.
Where's that money, you silly stupid old fool? Where's that money?
Do you realize what this means? It means bankruptcy and scandal and prison!
-- George Bailey --
George, hold your horses; you´re getting all worked up over nothing. It´s a new America out there. The polity, or oligarchy/democracy hybrid created by the Founding Fathers that governed America for over 200 years, went the way of all polities: Economic Crisis II replaced it with a full-fledged oligarchy. The change qualifies as The Second American Revolution -- revolution because it was a change of, not in, systems. (For more, see this blog, The Big Movida: The Third American Revolution).
What caused Crisis II? The majority report of the bipartisan governmental Financial Crisis Inquiry Commission highlighted Fed chief Alan Greenspan´s “pivotal failure to stem the flow of toxic mortgages.”
The New York Times summed up the Commission´s findings:
Though the report documents questionable practices by mortgage lenders and careless betting by banks, one striking finding is its portrayal of incompetence.
It quotes Citigroup executives conceding that they paid little attention to mortgage-related risks. Executives at the American International Group were found to have been blind to its $79 billion exposure to credit-default swaps, a kind of insurance that was sold to investors seeking protection against a drop in the value of securities backed by home loans. At Merrill Lynch, managers were surprised when seemingly secure mortgage investments suddenly suffered huge losses.
By one measure, for about every $40 in assets, the nation’s five largest investment banks had only $1 in capital to cover losses, meaning that a 3 percent drop in asset values could have wiped out the firm. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant “shadow banking system” in which the banks relied heavily on short-term debt.
“When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost,” the report found. “What resulted was panic. We had reaped what we had sown.”
The report, which was heavily shaped by the commission’s chairman, Phil Angelides, is dotted with literary flourishes. It calls credit-rating agencies “cogs in the wheel of financial destruction.” Paraphrasing Shakespeare’s “Julius Caesar,” it states, “The fault lies not in the stars, but in us.”
Of the banks that bought, created, packaged and sold trillions of dollars in mortgage-related securities, it says: “Like Icarus, they never feared flying ever closer to the sun.”
Toxic mortgages, home loans ... As Yogi Berra would say, Crisis II was déjà vu all over again. The Bigger Fool game not only went international, the Fool was as enormous as he was numerous. As foolish, too.
George Bailey & Associates: questionable practices? Come on -- no way! Jimmy Stewart and Donna Reed -- cogs in the wheel of financial destruction? Sounds sacrilegious.
How I wish Crises I and II were the only ruinous consequences of house flipping.
Coming soon: "The Chaos Whisperer. Part 2: Surf Nazi Economics."