For the first post on this topic, go here. James Cramer of thestreet.com created a buzz by telling people who purchased homes in 2006, people who are facing price declines of 20% to 30%, to walk away from them and default on their loans. According to Cramer, better to default, and preserve your credit cards and your car so that you can still function in this society. Not surprisingly, along with giving such unsolicited advice, he expects a 100% default rate on adjustible rate mortgages financed from February 2006 to January 2007.

Cramer, a former hedge fund manager (before they became ubiquitous) who has recast himself as a media personality, is highly visible on television (MSNBC), radio (a weekend syndicated program) and the 'Net (thestreet.com), so a lot of people heard what he said. At first, I was shocked by his blunt candor, and the alarming consequences for home prices and home mortgage lenders, but there may an explanation that provides some insight into the severity of the current situation.

Note Cramer's emphasis upon preserving access to credit card debt and car financing. As I have noted in the more sinister context of neoliberalism in the lesser developed world, if you are unable to access credit to consume, you run the risk of becoming superfluous, because economic efficiencies created by technological advances have sharply reduced the need to employ people to participate in the production of commodities, as I have observed here (click on the comments to this post over at Democracy in America) and here.

Accordingly, one can interpret Cramer's advice as an indication of the urgency of preserving the ability of people to consume with the use of credit. Or, to put it slightly differently, if people attempt the impossible, and stay in their homes, paying sharply increased mortgage payments after their initial adjustible teaser rates expire, they will destroy their access to any form of credit, and lose the ability to purchase things like cars, designer clothes, personal computers and flat panel televisions. They will have been, in effect, forcibly separated from most of the markets of commodity consumption in a capitalist system, reduced to purchasing goods required for their basic needs and some simple (measured in terms of low cost and ready availability) entertainment items, such as DVDs and video games.

Cramer is implicitly sensitive to the peril, recall his specific remark that people should keep their cars. He is expressly concerned about the undeniable fact that it is hard to live in the US without a vehicle, but he is also worried that people will be unable to purchase cars in the future if they allow their credit to be completely eradicated. He is willing to sacrifice financial institutions, brokerage houses and investment funds involved in the speculative and fraudulent excesses of the housing bubble, so that the other sectors of the economy can survive.

Cramer's willingness to openly do so reveals the severity of the economic crisis before us, but it remains to be seen whether it is possible to surgically abandon the malefactors of the housing bubble successfully as he seems to believe. It all sounds like another manifestation of containment, a term recently used by government figures and financial experts to depreciate the significance of the threat, a term that has now been seized upon by critics as a universal short-hand form of ridicule.

Labels: American Culture, American Empire, Housing Bubble, Neoliberalism