Not anymore. Dean Baker, of the Center for Economic and Policy Research, calculates that it will take two decades to recoup the $6 trillion of housing wealth lost between 2005 and 2010.98 Which means that in real terms it might never be recouped. In the early Seventies, the United States had about 35 million homes with three or more bedrooms, and about 25 million two-parent families with children. By 2005, the number of two-parent households with children was exactly the same, but the number of three-or-more-bedroom homes had doubled to 72 million. As the Baby Boomers began to retire, America had perhaps as much as a 40 percent over-supply of family-sized houses.99 As Mr. Baker puts it, “People shouldn’t look at a home as a way to make money because it won’t.”100
Oh. So what does that leave?
The “financial sector”? In the
“financial sector” would never have got anywhere near that size if government didn’t annex so much of your wealth—through everything from income tax to small-business regulation—that it’s become increasingly difficult to improve your lot in life through effort—by working hard, making stuff, selling it. Instead, in order to fund a more comfortable retirement and much else, large numbers of people became “investors”—albeit not as the term was traditionally understood. Like homeowning, it was all very painless: you work for some company, and it puts some money on your behalf in some sort of account that somebody on the 12th floor pools together with all the others and gives to somebody else in New York to disperse among various parties hither and yon. You’ve no idea what you’re “investing” in, but it keeps going up, so why do you care?
That’s not like a nineteenth-century chappie saying he’s starting a rubber plantation in Malaya and, with the faster shipping routes out of Singapore, it may be worth your while owning 25 percent of it. Or a guy in 1929 barking “Buy this!” and “Sell that!” at his broker every morning. Instead, in both property prices and retirement plans, an exaggerated return on mediocre assets became accepted as a permanent feature of life.
It’s not, and it never can be. In Sebastian Faulks’ novel
The essential change seemed to her quite simple: bankers had detached their activities from the real world. Instead of being a “service” industry—helping companies who had a function in the life of their society—banking became a closed system.
Profit was no longer related to growth or increase, but became self-sustaining; and in this semivirtual world, the amount of money to be made by financiers also became unhitched from normal logic.
It’s one thing to have a financial sector that provides a means for wealth creators to access equity to advance economic growth. But, by the time you’re using the phrase “credit default swap” without giggling, by the time you’re trading not only in derivatives of derivatives but in derivatives of derivatives of derivatives (seriously), you’re several links unhitched from any tangible reality. Tom borrows money from Dick, who turns a nice profit by selling Dick’s debt to Harry, who covers himself against the risk of Dick’s failure to repay by insuring the debt with Nigel, who mentions it over lunch to Peregrine, who writes it up in his Moneywatch column as a sign that confidence is returning to the markets. Only when Peregrine brings it up with Ahmed, the affable imam who lives next door, does anybody rain on the parade. The Prophet Mohammed, among his many strictures, enjoins the believers to have no truck with the frenzied infidel trade in Xeroxed IOUs. Which may be why (in the financial sector’s in-house version of the demographic Islamization of Europe) the Age of Credit also saw sharia-compliant finance plant itself in the citadels of the West.
We’re in a worse state than Jonathan Swift’s banker—we cannot reliably say who has our bonds and therefore our souls. Thanks to the packaging, repackaging, subcontracting, and outsourcing of even routine mortgages, millions of home “owners” have no idea who really holds their property or the terms by which they can be expelled from it. And nor do the banks.
According to the Office of the Comptroller of the Currency, by 2010 the U.S. financial system “owned” more than 230 trillion dollars’ worth of derivatives—or about four times the entire planet’s GDP.102
