August 24, 2007


Smashing Capitalism! (Barbara Ehrenreich, 8/24/07,

Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys. The American poor, who are usually tactful enough to remain invisible to the multi-millionaire class, suddenly leaped onto the scene and started smashing the global financial system. Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.

First they stopped paying their mortgages, a move in which they were joined by many financially stretched middle class folks, though the poor definitely led the way. All right, these were trick mortgages, many of them designed to be unaffordable within two years of signing the contract. There were "NINJA" loans, for example, awarded to people with "no income, no job or assets." Conservative columnist Niall Fergusen laments the low levels of "economic literacy" that allowed people to be exploited by sub-prime loans. Why didn't these low-income folks get lawyers to go over the fine print? And don't they have personal financial advisors anyway?

Then, in a diabolically clever move, the poor - a category which now roughly coincides with the working class -- stopped shopping. Both Wal-Mart and Home Depot announced disappointing second quarter performances, plunging the market into another Arctic-style meltdown. H. Lee Scott, CEO of the low-wage Wal-Mart empire, admitted with admirable sensitivity, that "it's no secret that many customers are running out of money at the end of the month."

I wish I could report that the current attack on capitalism represents a deliberate strategy on the part of the poor, that there have been secret meetings in break rooms and parking lots around the country, where cell leaders issued instructions like, "You, Vinny -- don't make any mortgage payment this month. And Caroline, forget that back-to-school shopping, OK?" But all the evidence suggests that the current crisis is something the high-rollers brought down on themselves.

What Credit Crunch?: To Judge by Lenders' Teasers, It's Still Subprime Time (Nancy Trejos, August 24, 2007, Washington Post)
On this week, the Internet-based loan company LendingTree offered "Bad credit options" and a $425,000 loan for only $1,376 a month. And Countrywide Financial, the nation's largest mortgage lender, declared, "Bad Credit? Call Today. Refinance or Tap into Your Home's Equity" in an online ad from its Full Spectrum Lending Division.

No-money-down mortgages and subprime loans that cater to people with spotty credit are quickly disappearing as lenders tighten their standards in response to a rise in foreclosures. But you wouldn't know that if you looked at the ads that some banks and loan companies have placed on the Internet and in newspapers, including this one, often right next to the very stories chronicling the meltdown in the mortgage industry. So what's with the mixed messages?

"It's been a common feature of advertising," said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America. "They offer their products not around interest rates but among monthly payments, ease of access, among 'you're more likely to get a yes with us than with others.' I don't think that has changed in this environment."

Orders for long-lasting goods jump (Reuters, 8/24/07)
New orders for long-lasting U.S.-made manufactured goods surged a much bigger-than-expected 5.9 percent in July, the biggest gain since September, and a business investment gauge posted the first gain in three months, a Commerce Department report showed on Friday. [...]

U.S. stock index futures and the dollar rose on the strong economic news, while government debt prices pared gains.

Home Sales Rise, Factory Orders Up (JEANNINE AVERSA, 8/24/07, AP)
Sales of new homes perked up, while factories orders took off in July, raising hopes that the economy can safely make its way through financial turmoil that has shaken Wall Street.

The Commerce Department reported Friday that new-home sales rose 2.8 percent in July, after falling 4 percent in June. The increase in July lifted sales to a seasonally adjusted annual rate of 870,000 units. A second report showed that orders to factories for big-ticket goods jumped 5.9 percent in July, the most in 10 months.

Both reports were better than analysts expected. They were forecasting home sales to fall and were calling for a much smaller, 1 percent gain in factory orders. they're reduced to celebrating when GDP growth slows to 3%.

Posted by Orrin Judd at August 24, 2007 8:25 AM

Caveat Emptor!!!!

Posted by: genecis at August 24, 2007 8:45 AM

All right, these were trick mortgages, many of them designed to be unaffordable within two years of signing the contract.

Well, that's one theory. Of course, considering how much money the lenders are losing because of people not paying, it does seem a bit weird for the lenders to have evil plans to lose tons of money. Maybe I'm a bit crazy, but I'd prefer to blame incompetence and hubris, where both lenders and lent assumed that the value of the homes would always go up and that that would cover the mortgages.

Posted by: John Thacker at August 24, 2007 8:48 AM

Geez. So does Ehrenreich want to smash the state, too? What a mook.

Posted by: Twn at August 24, 2007 9:04 AM

I am not even remotely surprised that they're still pedding subprime loans. You have to figure that if Washington Mutual and Chase are making bags of money off subprime CREDIT CARDS, that those new owners of those newly cheap CDOs will make bags of money off those working poor.

Hate to tell Barbara Ehrenreich this, but those working poor have proven themselves to be a much more reliable set of payers than they're given credit for, as the LOWER delinquency rate for subprime credit cards currently shows.

Posted by: Brad S at August 24, 2007 9:52 AM

Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys.

Except on Election Day, when s/he toddles down to the polls and votes the straight Democrat ticket and shudders at the thought of those dreadful theocratic Republicans.

Posted by: AC at August 24, 2007 11:20 AM
Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.

Really? What revolution would that have been?

I've been reading Ehrenreich's malarkey every since my parents had a subscription to Time magazine when I was a kid. She is clearly an astonishingly silly person, but just in case anyone needs a reminder:

In 1974 [Ehrenreich] went to China as part of a delegation sponsored by the defunct New York newspaper The Guardian. [...] In May 1974, Ehrenreich arrived in Canton at the tail end of the Cultural Revolution, which she interpreted as a large-scale exercise in democratic participation. [...]

The article she wrote for the September 1974 issue of Monthly Review, a New York-based Marxist journal, did not espouse anything like armed revolution, but it did put forth a rosy view of events in China, and it makes for uncomfortable reading today:

The disappearance of the Little Red Book is by no means a repudiation of Mao's thought — quite the opposite. The Red Book was a shortcut to Mao Tsetung Thought; today there are no shortcuts. In the Movement to Criticize Lin Piao and Confucius everyone is urged to read the basic texts of Marxism-Leninism-Mao Tsetung Thought for themselves. Peasants, formerly illiterate old people, young students, workers, are reading and discussing "The Critique of the Gotha Program," "Imperialism the Highest Stage of Capitalism" . . .

The essay contains not a word about the purges, executions, and show trials that characterized the Cultural Revolution; most of those events had preceded her visit by a few short years. Ehrenreich admits today that she was "not very aware" of those aspects of Mao's rule.

Posted by: Matt Murphy at August 25, 2007 12:32 AM