-- George Bailey --
My -- how times have changed since 1946, when It`s A Wonderful Life was released.
You didn`t lose your house, did you? Put that question to millions of families who were tossed into the street, 2007-2012.
Sure, your savings (assuming you have some) are still in Joe`s house, but they are also in other places -- credit default swaps, derivatives -- which are less savory and too fancy for their own good.
Come to think of it, these days Joe`s house isn`t so savory. There is other money in there than your savings -- in fact, megabucks if Joe`s place is being flipped. More on this subject below.
As for mean old Mr. Potter, he´s still around -- more fat, dumb and happy than when George Bailey faced him.
In fact, George Bailey and Mr. Potter no longer co-exist. Mr. Potter won. George Bailey is dead.
The metaphor is more than a metaphor. In 2007-8, America underwent a second revolution. The polity, i.e., the oligarchy/democracy hybrid moderated by a large middle class, which was created by the Founding Fathers in 1789, was destroyed. The polity was replaced by an oligarchy with democratic accessories -- hats, gloves. (For more on this subject, see this blog, The Big Movida: The Third American Revolution, Chapter 9).
In other words, Palindrome Bob and Megabucks Mary (see prior post) are in the driver´s seat. So, where are they taking you?
Answer: exactly where they are right now.
* * *
At the outset of this series we declared there is a more serious crime than drug trafficking. We also said we would amend that statement. Its problem is that it assumes two things are separate and distinct when they are not.
House flipping launders and folds millions of narco dollars daily -- perhaps hourly. At the same time, flipping creates a consumption fund to buy cocaine and narcotics at outlandish prices. Want to try cocaine? Try $200 for one night´s entertainment. Heroine? Hard core addicts pay $150-$200 per day.
Under the Fourth Reich now ruling America, economic sectors and functions, e.g., secondary and tertiary (goods and services), which once were separate and distinct, are being inextricably intermingled, coalesced. Drug and house trafficking are no exception. To separate them is a task comparable to unscrambling scrambled eggs.
Today, morphine and mortgages chaperon each other. Shakespeare caught the drift:
We came into the world like brother and brother; And now let’s go hand in hand, not one before another.
-- "The Comedy of Errors," Act V, Scene 1 --
Despite their inseparability, one vital distinction between drug and house trafficking can and should be made:
Did you ever wonder how successful capitalists obtained their initial stash to invest?
History shows two major sources: (i) the slave trade, of which the heyday is long past, and (ii) illegal activities.
Crimes, then. My town provides an exquisite and squalid case study.
* * *
I guess it was in the early 1960s when the stranger showed up. People told me he was a typical hippie. Unwashed, uneducated, uninteresting -- an UNman in the fullest UNcola sense of the word.
Well, look at him now. UNman, who didn´t have a pot to piss in, is my town´s Mr. Potter. A bank, an art gallery pushing Gaslight Motel retinal junk food, a tennis club, a restaurant featuring cookie-cutter shark meat posing as coquilles Saint-Jacques, a travel agency, an insurance company.
And a real estate -- make that unreal estate -- office. Flipper Maximus, UNman ended up owning a huge chunk of downtown. No sooner was the ink dry than he raised the rents, driving out small businesses that had formed community landmarks for over half a century. I watched the takeover: George Bailey´s Building and Loan wouldn`t have stood a chance.
The miraculous transformation of UNman beats the marvelous makeover of Lance Armstrong any day. There were -- still are -- rumors. A trip or two to Mexico. Or was it Colombia.
A woman who worked for him told me he sits around all day and talks about how stupid everybody is. His kids are like his dogs: untrained. Other than being supersized, his house´s most prominent feature is unflushed toilets.
What it comes down to:
UNman is still a stranger -- even to himself.
* * *
I know the following observation will offend many readers who believe crime doesn´t pay. I apologize. However ...
Drug traffickers today are engaged in the same primitive accumulation of capital that drove America to its economic heights in the twentieth century. You disagree? Look up Andrew Carnegie, Cornelius Vanderbilt and other 1800s robber barons who were magically transformed with time into wholesome "captains of industry" and patron saints of universities and public libraries.
The primitive accumulation of capital via criminal activity is a fundamental process in the full sense of the word.* It is what makes little league capitalism big league capitalism.
Those shared roots of American oligarchs and South American narcotraficantes are the basis for the following prediction:
If you live long enough you will see the grandsons and granddaughters of Mexican drug cartel capos going to the same prep schools and living in the same guarded and gated communities as Obama´s grandkids -- and nobody will say a word. The reason is the oligarchy admits one and all. Its sole requirement for membership is money. Nothing else -- family lineage, education, ability, intelligence -- matters.
Drug trafficking is a source of capital formation; house trafficking, on the other hand, creates capital deformation. House flipping clearly robs from the rich and gives to the richer.** But more significantly, house flipping creates unreal estate, thereby pushing housing evaluations beyond the reach of most Americans. Unable to make their ballooning monthly payments and to pay inflated taxes, millions of people end up losing their houses.
From 2007-2012, 4 million foreclosures occurred. 6 million more are on the brink. Undoubtedly, many if not most of those ex-home owners are middle income people.
Did we just identify the bulk of the Bigger Fools?
It is not easy to get a handle on the damage which the post-2006 housing crisis inflicted on the middle class as distinguished from the other two classes. However, a highly probative clue is found in net worth (total assets minus deficits). The Pew Research Center concluded in August 2012 in an aptly-titled study, The Lost Decade of The Middle Class: "Net worth of middle-income families dropped 39% ... [from $129,582 in 2001 to $93,150 in 2010] as the housing market crash and Great Recession wiped out the previous advances. Over the 1983 to 2010 period, only upper-income families registered strong increases in wealth."
39%. Only a heavy-weight asset such as housing can account for such a great disappearing act.
Still think George Bailey, America´s favorite Good Guy and purveyor of perpetual Christmas, wouldn´t have aided and abetted the assault and battery of the middle class? I invite you to watch the 60 Minutes report, "World of Trouble." Decide for yourself.
It is crucial to note that the 60 minutes piece and others like it bemoaning foreclosures all follow the same pattern. They lament the house buyers´ inability to make their monthly payments. However, I have yet to see a single report which investigates how the ridiculously high evaluations were derived in the first place. To do so is verboten because it puts into question a central pillar of the Fourth Reich -- house trafficking and all that goes with it: inflation, corruption, a gimme-free-money culture, in short, the whole Surf Nazi Economics School (see Part 2 of this series).
The failure to face the real cause of the millions of foreclosures is shared by the United States government. It is why Vice President Joe Biden´s middle class task force, as Biden himself admitted, is a total failure.
Permit me to belabor the what-by-now-should-be-all-too-obvious conclusion. You will never stop the middle class decline until you stop house flipping. It is just that simple. Look at those Pew net worth numbers again. And look at all those "For Sale" signs as you drive down the road.
Paradoxically, the inseparability of drug and house trafficking makes the cure proposed in the next and final part of this series all the more profound, wide-sweeping. Because drug and house trafficking are inextricably linked, attacking and weakening one necessarily attacks and weakens the other.
But where to start?
Police raids and prison terms don´t work. History*** and common sense show a better way. Downtown crack dealers and uptown realtors, heroine and houses form a walking, breathing mixed metaphor. Only a mixed metaphor can portray its resolution:
House flipping is the weak link in the scrambled eggs.
* * *
Zuzu Bailey: Look, Daddy. Teacher says, every time a bell rings an angel gets his wings.
George Bailey: That's right, that's right.
House trafficking is the corner stone in the legal crimes characterizing the Fourth Reich ruling America today.
Part 1 of this series discussed how house flipping was the sine qua non of Economic Crisis II, the great world recession of 2007-8. It follows that house flipping was necessarily a major cause of The Second American Revolution inaugurated by Crisis II. That revolution put the nails in the coffin of what was in its day the envy of the world: the American polity (see above).
As with any corner stone, once set the rest follows. Equally true, however, something always precedes the corner stone, something that determines its location and direction:
As the classical economist David Ricardo observed, landowners and capitalists historically were bitter foes. The rent the capitalist paid the landowner came directly out of the capitalist´s hide. But the landowner could not charge too much, otherwise the capitalist would move on or go under. Thus, capitalists´ profits formed a built-in economic limit on property values.
In a preview of what was to come, Hitler´s Third Reich forged an alliance of big capitalists and landowners. Indeed, that arrangement remains a defining characteristic of Nazism. Under Hitler, however, the alliance was precarious and temporary because the underlying rent/capital antagonism was unchanged.
It took the United States to resolve the antagonism. In the process, America created something new in the world: the prospect of permanent Nazism. In the Fourth Reich´s merging and comingling of economic sectors and functions, the capitalists became landowners; the landowners, capitalists. Today, house flipping, which raises the perceived value of land and consequently rents, no longer cuts the profits of capitalists; on the contrary.
When all is said and done -- and it was -- who came out on top? Look around where you live and work. Vacant land is converted into housing developments and shopping centers, not the other way around. As George Bailey put it, somebody is pickng up some bargains.
As for unconverted agricultural land, they don´t call it agribusiness for nothing.
They also don´t call them robber barons for nothing.
The unprecedented melding of capitalists and landlords is the socio-economic and political basis of the chaos whisperer. That melding accounts for the foam at the heart of surf Nazi economics, the ideology of the Fourth Reich (Part 2) governing America today.
There is another issue involved here, however. Backwards and forwards, coming and going: the foam is simultaneously cause and effect of our post modern world. Pure process, no reality, the newly-found core of materialism turns out to be ... immaterialism incarnate.
And you thought blue sky wasn´t worth anything. Bells are ringing all over the place. Looking down from on high, angel George Bailey must be flying in the aisle. Gosh, golly, gee-whiz. It´s a wonderful life.
A wonderful death, too. Funny thing about that.
* * *
Before concluding this discussion, how can the legal crimes mentioned above exist? Specifically, if house flipping is legal -- which it is -- how can it be a crime?
The traditional definition of crime: "A crime is an offence against a public law." If we go no further, the term legal crime is an oxymoron.
However, the same source proceeds to note that
"from the difficulty of exactly defining and describing every act which ought to be punished, the vital and preserving principle has been adopted; that all immoral acts which tend to the prejudice of the community are punishable by courts of justice [sic]. Crimes are 'mala in se,' or bad in themselves, and these include all offences against the moral law; or they are 'mala prohibita,' bad because prohibited, as being against sound policy which, unless prohibited, would be innocent or indifferent."
In brief, crimes are crimes for two reasons: (1) they harm society by violating its vital and preserving principle, and/or (2) they are legally prohibited. A legal crime is an act that is not legally prohibited but is prejudicial to the community, i.e., against sound policy.
If capsizing the U.S. economy -- and with it the Western world -- is not against sound policy, what is?
Coming soon. "The Chaos Whisperer. Part 5: The Cure."
*The relationship between criminal activity and primitive capital formation is by no means limited to the United States. For an early counterpart in Latin America in the 1600s, clik on Peruleros.
**Since 2008, the start of the Obama Administration, the share of the national income pie going to the wealthiest 20% of the population rose from 49.7% to 51.1% in 2011 However, the lion´s share of that increase was limited to the top 5%, which increased its share from 21.2% to 22.3%. (For U.S. government data, click here. Click on table H-2, "All Races.") If you expand the top 5% to the top 7%-8%, the limited nature of the beneficiaries becomes even more obvious.
***In Latin America drugs have been used for at least 5,000 years. (Historia de América Andina, Luís Guillermo Lumbreras, Editor, Universidad Simón Bolívar, Quito, Ecuador, 1999. Volume 1: "Las Sociedades Aborígenes," p.150). I wish anybody seeking to control cocaine and narcotics via laws and police busts the very best of luck.