It’s been almost chilling watching the events of the US economy these last few weeks. I’ve never been a hound of the money column, but there is something very simple that I do know. Something I learned from my father when I was seven: that if you borrow more than you make, you will not be able to pay back what you borrowed.
Many of you here are artists and therefor more artistically minded than economically minded (there are certainly exceptions, but I’m making a general assumption here). However, this is not an issue you can hide away from and hope for it to go away. The economic crisis is an issue facing everybody who lives here in America, not just the 9-5 worker but the freelance artists and entertainers as well.
So what happened?
Back in the 1930’s, America was going through another time so similar to our own. The 1920’s was a boom era (like the 1990’s). Consumerism and growth were explosive. American’s felt that the state of our prosperity would never come to an end. But like all graphs that paint the ever optimistic, ever forward picture, there was a glitch: people who have money always want more and people who make money will spend more money to make more, and essentially . . . they spent too much. It was an era of free market and deregulation. A time of perfect capitalism.
That all came to a screeching halt on October 29, 1929 when the stock market plummeted so fast and so quickly with no end in site that businessmen literally leaped to their deaths in despair. What followed was the American Great Depression–an era of history we are all well familiar with as one of the turning points of American history (along with WWII).
In response, the US government set in place a series of laws that increased regulation on banks and created laws to prevent a future depression.
Flash forward to the 1980’s. The Reagan administration. 50 years after the Great Depression. 30 years of incredible economic prosperity and ever-expanding global influence. America was one of the wealthiest nations on earth with one of the fastest growing economies, even in spite of the setbacks of the late 70’s and the last oil crisis. Yet because growth wasn’t at the same rate in the 80’s as it had been in the era of our highest rate of growth–the 50’s–the banks said, “You’re holding us back. All these stupid laws. Repeal them, and we’ll be able to make this country rich beyond your wildest dreams.”
And for a while . . . they were right. One by one, the laws dropped. Not swiped all at once with a hatchet, but picked out stitch my stitch so that we never even realized they were unraveling until the shirt had already fallen off. This deregulation allowed already larger companies to grow even larger, creating jobs within the US at higher wages while allowing them to produce cheap product overseas. It lowered the price of products and enabled a golden age of consumerism not seen since the 20’s.
Then came the building boom.
In the late 1990’s and early 2000, America saw an explosive building boom. Families that wouldn’t have been approved twenty years ago were suddenly getting five- and six-bedroom homes. They had stable jobs at companies rated highest on the Fortune 500. They had a 401k and health benefits. The American Dream seemed fulfilled.
And then it happened. The bubble began to burst.
It started in 2001, not a year after Bush was elected and Republicans won control of Congress and businessmen finally won control of our pockets. The last of the regulation laws were stripped away. Banks were now, essentially, free to do whatever they wanted.
Don’t make any money? No down? Don’t worry! We’ll put you in this $160,000 home, but you’ll have to pay four, maybe five or even six times that amount by the time it’s paid off, and if you need to move, well . . . that interest is paid off FIRST,and it doesn’t matter that you’ve lived here fifteen years and sold it at the same as you bought it, because YOU STILL OWE! Can you imagine? If you buy a home listed on the market at $250,000, you are paying over a million dollars in interest through the course of that loan???
But it wasn’t just in the housing market, because it wasn’t the people who built the homes who did this, it was the banks. It was the people behind the business that sold you furniture at zero down zero interest for a year, tucked behind the windows of the car salesman who doesn’t need to run your credit, in the back pocket of the electronics store or computer company who rewards for buying a lease or using your credit card instead of paying cash.
Why would banks do this? Why would they invest in people who can’t afford to pay for what they buy?
1) Interest: Because of high interest, the cost of the product you bought is usually already paid off before it ever defaults. In fact, the banks ends up making MORE money if you default, they repossess your car or home, and then turn around and resell it to somebody else. And they get a tax break for it, too, while you now OWE on your taxes!
2) Late fees: Ever had the credit card that you just paid off, but the check didn’t post until a day after it was due, and suddenly you’re hit with a $35 late fee, and if you don’t pay it, then you’ll have a late fee on the late fee the next month? Even if you send that check in on time, banks are sneaky. Don’t put it past them for finding ways to make that late fee off you, because it’s a big chunk of the money they make. They want you to be late.
3) Selling your debt to the lowest bidder: When you default on a loan, you lose your home, and still owe on the house. When a bank defaults on a loan, it just sells that debt to the lowest bidder and walks away, cash in hand, debt paid off. And what happens to the debt? Well, it gets sold off. From one company to the next to the next to the next. No one offers YOU the chance to buy your house back at a quarter of its selling price.
And perhaps this last is the worst sin of all. Because the money has to come from somewhere, and if the person who owed on the debt can’t pay it and the taxpayers can’t pay it, then who does?
And this is what happened: eventually, when you delay the risk of debt by constantly selling it off to another company that delays the risk of that unclaimed debt by selling it off again, it eventually comes back to bite you in the butt. The financial sector of the US economy has been running on fumes and fixed-books with numbers swiggled around to look like they’ve been turning profits when in fact they’ve been plummeting like a runaway mafia hit man towards the bottom of the sea.
The stock market crash of a few days ago has been the direct result of the deregulation of banks and the burrowing of high-paid lobbyist into the back pockets of Congress. If banks hadn’t been deregulated, Americans wouldn’t have been able to get into predatory loans that strip them of their money without giving anything in return.
And the scary thing about this is? Because of deregulation, none of the people who caused this will be going to jail. The last eight years have been one mass reform of bankruptcy laws that give the head men the means to retire with literally millions while penalizing the little and middle men for simply doing their jobs.
Eventually, the economy will turn around. But there’s a lesson here that Americans are learning the hard way–the lesson Europe learned long time ago: that a stable economy is one built upon the small, gradual growth of little businesses who make less and spend less but also lose less, instead of the wild, exhaustive growth of corporations that rise fast but fall hard, bringing down the entire forest along the way.
And that includes us, the artists and writers and entertainers, who rely on these institutions to make a living, as well.
