Kenneth Rapoza, Contributor Covering Brazil, Russia, India & China.
There is an advertisement beside an online article by CNBC real estate reporter Diana Olick that speaks volumes to the America of the 21st Century. We want it all, but we can’t afford it. Inches away from the headline that states most homeowners in the U.S. owe more on their house than it is actually worth is a 72-year-old man, topless, ripped with an anabolic six pick and the body of Arnold Schwarzenegger at 35. He’s selling Cenegenics, an ‘anti-aging’ treatment that costs about $1,000 a month, $4,000 to start.
Meanwhile, a new Wall Street Journal/NBC poll shows that 53% of Americans believe the debt and deficits should be cut significantly, but the same percentage agrees that taxes should not be raised on anyone. Similarly, 53% of Americans think that the influence of banks and corporations should be reined in, but that regulations on businesses should be cut back. In other words, as Henry Blodget of Business Insider said Wednesday on Yahoo! Finance’s Daily Ticker program…”Americans want everything.”
We have been told that for at least three generations. But the American “think and grow rich” mentality has run its course. Oprah Winfrey famously said in the 1980s about her stunning success in broadcast television that, “I believe you can have it all, just not all at once.” Barack Obama ran on “Yes, We Can!” In reality, maybe we can’t have it all, ever. The real world isn’t one of “yes, you can.” The real world is a world of “maybe, you can.” Anyone who wants to get up to date on what’s wrong with the U.S., read the articles about California, Courtney Love, and Elizabeth Warren in the November issue of Vanity Fair. They sum it up politically, emotionally and economically where we’re at, and have been for a long time.
During a three hour Acela train ride to New York from Massachusetts on Oct. 24, those stories had me thinking about the small town that made me, to the big cities that broke me. Those stories all asked the same question essentially: who do we think we are?
Deep down, the American family is more Beverly Hillbillies than Beverly Hills. We’re more Mayberry than Madison Avenue. That’s not a political geography of red states versus blue. It’s an apolitical socio-economic map based on income. Americans overwhelmingly live on about $53,000 a year from Red Texas ($48,000 median income) to Blue Massachusetts ($64,000). That kind of income is far from the other-worldly reality of Rodeo Drive and Park Avenue. In both Massachusetts and Texas, the poverty rate has gone up since 1979. In Texas, it went from 14.7% to 17.1% in 2009. In Massachusetts it went from 9.6% to 10.3%. Those numbers are fascinating considering that the one-percent of households have seen their incomes rise 275% since 1979.
It’s not that the Beverly Hillbillies can’t sometimes afford the luxuries of Beverly Hills, because they can. Many of them drive brand new cars, wear their Tag Heuer as a status wrist band and have all gone to the Caribbean and dished out the $150 for a 20 minute massage with hot rocks. It’s just that they borrowed 10 times for it. It’s not that the Madison Avenue crowd can’t afford to shop there, because they can. But most of them have borrowed even more to do so. Like Donald Trump, the only ‘billionaire’ who has to do a TV show to earn a living, are we really that rich? Or can we no longer afford ourselves?
What was the state of California thinking when it decided to pay its director of psychiatric services at the state’s prison system a cool $838,706 in annual salary? Why do Californians want state services, but don’t want to pay for them? As much as they claim to despise their government, including voting to kick one governor, Gray Davis, to the curb and elect Arnold Schwarzenegger, an A-lister with no policy experience, Californians share the state’s defining trait, writes Michael Lewis in the article “California and Bust”. The average Californian earned less than the average Texan did in 2010, at just $43,000, but they were leveraged to $78,000, not counting mortgage debt. Beverly Hillbillies trying to live like the one percent in Beverly Hills.
This year, California will spend $32 billion in direct employee salaries and benefits, up 65% since 2001. Meanwhile, state spending on education is down 5%. California’s affordable state college system used to be talk of every non-Californian strapped with Sallie Mae loans. Not anymore they’re not. In 1980, a Cal State student loan would be around $800 a year. Today, students have to borrow over $13,000, not counting housing.
As California tries getting over its Beverly Hills hangover, its public sector workers are paying the price. Down the economic ladder, middle and working class families will therefore have to dish out more financial resources to cover things the state can noo longer afford to subsidize. By 2014, Lewis writes, cities like San Jose — the 10th largest city in the U.S. — would have gone from 7,450 staffers to 1,600.
“There is no way to run a city with that level of staffing. You start to ask: What is a city? Why do we bother to live together? But that’s just the start,” San Jose Mayor Chuck Reed told Lewis. “I don’t know how far you have to go to get to one (employee), but it isn’t all that far off.” In fact, in Vallejo, Calif, they are just about there.
This is what deleveraging looks like from the state perspective. But the same process is unwinding in U.S. households, and in U.S. businesses. “Buy now, pay later” was a mantra of the 80s. Later is now. Okay, so freedom doesn’t mean free…
Freedom Doesn’t Mean Free
I grew up in a small coastal town called Westport, about an hour west on Route 6 from the Kennedy compound in Hyannisport, and 30 minutes east from the summer playground of the Vanderbilts in Newport, Rhode Island, a state struggling to pay its employees’ retirement obligations. Some cities in the state, like Central Falls — a mostly black and Hispanic municipality — already filed for bankruptcy this year.
Not far away, Westport is a town of beaches, cows and corn, million dollar summer homes to shotgun shacks ready to collapse on the people inside. The average income, according to the Bureau of Labor Statistics in Washington, was around $54,000 in 2010, or around $4,500 a month gross. The mean price for a home in 2009 was $368,000. If a person could put down 20%, and got a 4.5% mortgage, the loan with insurance would be close to $2,000 a month, nearly half gross average income. They’re not giving these homes away yet, even with the housing crisis still ongoing. It’s not easy. In the county where Westport sits, unemployment is over 11%, the highest in the state.
My childhood home is in a neighborhood called Greenacres, named after the popular 1966 TV show starring Eva Gabor as a New York uptown girl who goes country, and talks a lot like Arianna Huffington.
Darling, I love you, but give me Park Avenue.
That 11% unemployment in the region is mostly due to old manufacturing cities surrounding Westport. These are places an Eva Gabor would loathe to live. I live next door.
In the 2011 version of Greenacres, Courtney Love is the blonde in the penthouse suite, pining over her missing fortune as she spends the fortune she says she doesn’t have. Instead of moving down market where roosters roost, she goes hobnobbing with Lords in the English countryside, conscious enough to wonder if she belongs there. What comes through in the article is her inability to grasp reality. It smacks of emotional America in the 21st Century.
Going to jail for clocking a reporter at a 1995 Vanity Fair Oscar party? Who cares. She’d be out by now, Courtney says. It’s a mindset that says risk always brings reward. As if risk is not risky. You don’t need to invest on risk, because there is no risk; in fact there is only reward. Until there isn’t. First there’s the parties. Then there’s the hangovers. Then there’s rehab.
Nancy Jo Sales interviewed Courtney over a few days, following her to British balls where Courtney tries on the Queen’s English while flipping through Debrett’s New Guide to Etiquette & Modern Manners to make sure she gets it right. “I wasn’t brought up well,” Courtney tells Sales. This is a woman who dreamed of fame and fortune and got it. She went from Orgeon juvenile detention at 13 years old to the stereotypical route to stardom for tough girls, first you pole dance, then you write some songs, then you sing them, then you become a rock star.
We hold up the improbable and near-impossible achievements of the 1% as if they are doable just by hard work, a good attitude, and the right friends.
But Courtney’s friends invite her to parties in the Hamptons and to the Goodwood Ball. Earls put her up in castles with butlers. Let’s not pretend this is normal. Like a pre-tween Disney Channel sitcom where everyone’s got their own dance show or are exceptional students (possibly even with wizard powers), this is the life we actually have come to believe we can live. The truth is, it is probably just healthier to believe we can’t.
In 1996, I worked as a tour guide at The Breakers, Arthur Vanderbilt’s summer home and the largest mansion in Newport, RI. Anderson Cooper’s mother, Gloria Vanderbilt, played around as a child in this home. It’s not too far away from the Astor’s house, where Oracle CEO Larry Ellison has a home. On nice summer days, me and a good friend of mine named Heather would walk the sprawling weed-free lawn holding hands, dressed to the nines in our JC Penny tour guide income finest, and strolled towards the Cliff Walk over looking the Atlantic. Hundreds of people would come to visit the home each day, but even more would take the free walk along the sea that started near Easton Beach off Memorial Boulevard. Heather and I liked to walk up to the hedges bordering the Cliff Walk and whenever we would get asked by foreigners, standing on their tip toes to see more of the property over the bushes, “What is that mansion over there?” (the locals already knew), we would tell them it was our house. Some of them actually believed us because their reference to America was movies and soap operas where everyone either lived in a 5,000 square foot mansion or in a Malibu beach house. To the rest of the gawkers, we told the truth. But for a brief minute or two, surveying all that green, that gorgeous view standing beside a gorgeous woman, people believed it was all mine. I knew at 22, that was success. Like that One Republic anthem, I was young and I could become a millionaire. It was going to be a good life. ’69 was mighty fine, but ’88…. ’88 (Was) Mighty Great
Richard Abrams is probably the youngest kid in all of Westport history to ever own a brand new Corvette. One day, outside what was once the smoking section of Westport High School, Abrams pulls in with a brand new red Corvette. Not even the principal had a car that at the time cost around $35,000. I knew Abrams. I had been to his home. He was like the rest of us riff-raff, middle class kids from unglamorous hard working families who believed in the future. Only somehow, he believed harder than the rest of us and got a Vette sooner than later, with just a few months working at Westport Tire. Not wanting to be outdone, I got myself a 1985 Camaro Berlinetta with T-Tops, the best I could do. It cost me $6,500. My parents put $1,000 down. I paid off the rest bagging groceries at Stop & Shop and later washing dishes in a Rhode Island restaurant. Great car. Shitty job. But I felt like a brat packer, and I drove the same car Sonny Crocket drove in the first episode of Miami Vice…until he upgraded to a Ferrari. We have been outdone. But we insist on outdoing ourselves. On Oct. 28, the Commerce Department said consumer spending rose nearly 1%. That’s good news. But by comparison, incomes were unchanged because they rose 0.1% in September after falling 0.1% in August. Savings dropped to their lowest levels since December 2007 to 3.6%. Once again, we are spending more than we earn. All this, with the highest unemployment in more than 20 years.
Greenacres is the cause of this mess. It’s the Mayberry rednecks trying to be like the real money on Fifth and Park. Talk to most bank executives and they’ll still place the blame for the 2008 financial crisis on “irresponsible consumers” who bought homes they couldn’t afford and on Fannie Mae and Freddie Mac who gave mortgages to people who “shouldn’t own homes”, one New York bank executive told Suzanna Andrews in the article on Elizabeth Warren in Vanity Fair.
The cause of the crisis wasn’t investors who thought all risk always meant all reward, it was caused by the boring play-by-the-rules group in the middle that defines what America is to everyone looking over the hedges and peering into the neighbor’s yard. But inch by inch, we started pulling the threads out of the regulatory fabric that keep the middle class strong, starting in the 80s, writes Andrews, and accelerating with the fall of Soviet communism in 1991. There was no other model to turn to and this is what we got to make sure that, despite the protests, despite the concerns, the status quo may take down a few people, but it will remain. Although a Gallup poll in the fall of 2010 showed that 61% of Americans supported the Dodd-Frank bill designed to curb the all risk/all reward meme that triggered the 2008 meltdown and subsequent recession, over 2,500 lobbyists and big banks spent millions making sure the Consumer Financial Protection Bureau was toothless. As for individual banks, Andrews notes, JP Morgan Chase, which received $25 billion in bail out money, spent $14 million on lobbying efforts. Goldman Sachs, which got $10 billion in bailout funds from taxpayers, spent $7.4 million during the 2009-10 election cycle. They won. And the icing on the cake was President Obama’s decision not to appoint Elizabeth Warren, seen as anti-Wall Street, to the lead the Bureau.
At a time of record corporate profits, a time when 14 million Americans are out of work, when millions have lost their homes and, according to the Census Bureau, the ranks of those living in poverty nationwide has grown to one in six — that Elizabeth Warren could be publicly kneecapped and an agency devoted to protecting American consumers could come under such intense attack is, ultimately, the story about who holds power in America today, Andrews writes.
More than that, it assures change is unlikely. K Street is entrenched in Washington. Sure the Beverly Hillbillies are cutting their spending, but not for long. It won’t last. We’re trying to keep up with the Kardashians. As is Courtney Love, who is still complaining to Sales about being broke right around the time I pull into New York. In the end, Courtney, like the rest of us, is angry about things that might not matter — the right way to hold a tea cup, where her next million will come from — and sad about the things that should — like getting along with an estranged child and “trying to love myself” as she tells Sales.
A month ago, I had met Abrams in Westport. We joked about his Corvette and reminisced about our high school years. He’s holding onto the same job he’s had for more 20 years at a building supply company nearby. I’m impressed by the longevity. But he’s not all that flattered by it. I’m a world traveling reporter who lived in one of the richest hoods in São Paulo; red carpet treatment, heated swimming pool, palm trees and parrots. That’s gone for me. For Abrams, the good life didn’t turn out exactly as good as he had thought in 1988. Ironically, or not, he is living with his parents in Westport again. He returned to the place he first parked his Corvette. Only now, the Corvette is gone and he’s back at start, getting over his over-levered self.
See: Deleveraging: You Ain’t Seen Nothing Yet–The Economist Average Homeowner Now ‘Underwater’–CNBC
New WSJ Poll: Americans Want Everything–Business Insider
See online: Bankrupt And Broke, Americans Still Want It All