Thursday, October 30, 2008
It is now evident that not only has this remorseless process commenced, but that it is also reaching people beyond those being foreclosed out of their houses:
Left academics would say that the socioeconomic life of the US will subtlely display more and more features of sub proletarization, as more and more people in the lower middle class and even the middle class find themselves forced to migrate internally within the country (an economically generated group of internally displaced people?) and live under conditions of financial insecurity. Analogizing them to global migrants is a stretch, demeaning their struggle for survival, and, yet, many Americans face a future of insecurity in all aspects of their lives.
It is easy to blame them as being greedy, stupid and gullible, and no doubt many were, but the fact is, they wanted something that they have been induced to believe that they should be able to achieve as Americans, and they were afraid, during the peak of the speculative mania, that, if they didn't buy a house, that they would never be able to do so. Financial institutions ruthlessly exploited this combination of fear, greed and lack of knowledge to destroy their financial futures, just as mutual funds and brokerage houses did during the stock market bubble of the turn of the century.
At the heart of it all remains the reality that the standard of living for many Americans has declined since the last 1960s. It has been artificially preserved, temporarily, by the creation and marketing of exotic forms of credit, such as the infamous home equity loan, that enabled them to live in a manner consistent with societal expectations. For example, the Sacramento Bee recently reported that the length of the average car loan is now almost 6 years, and that car sales have fallen in the last two years because of, yes, the bursting of the housing bubble, and the lack of any trade in value for vehicles purchased with loans over such a long period of time.
In other words, consumption at all levels has been subsidized by access to readily available credit. This is the portentious social change encapulated within the seemingly bland term that is now ubiquitous, the credit crunch. Going forward, money must be lent according to the remorseless calculations of risk that were suspended during the stock market and housing bubbles. As a society, we will be forced out of the universe of liberalized access to credit into an alternative one with pay as your go features, and it will be an agonizing exodus for many.
This is where the action is on the left, among those people who are losing their jobs and homes after being forced to substitute credit for the lack of increased wages. With access to such credit diminishing, they face a challenging future, one that may make them amenable to a more left view of the world. The overwhelming grassroots hostility to the bailout is a slight, but encouraging sign.
Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.
Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.
If Nouriel Roubini is correct in his assessment that the US faces two years of negative GDP, we can be certain that there will be even more unanticipated opportunities. To exploit them, though, we will have to display the willingness to confront a President who skillfully knows how to retain left support in the absence of left policies.