The Next Wave

By David Glenn Cox

There is an old joke about a guy who fell off the eightieth floor of a

construction site. On the fortieth floor his friends called out, “Are

you all right?” The man answers, “So far, so good!” The experts and

pundits alike take turns trying to call bottom in this economic

cataclysm, for it is a choice career plum to be the expert who

correctly calls the bottom.

The problem is that this financial

catastrophe has been so well-disguised that it is almost impossible to

name it, let alone determine when it will cross the finish line. First

it was the sub prime crisis, then it was the banking crisis, then the

financial crisis. The experts stood on the corner taking turns shouting

“Now! No, now! No, now! This time for sure! Now!”

They are

trying to pick the winner of the Kentucky Derby without understanding

that what they are looking at is a sawhorse. This is not your father’s

recession, this is the twilight zone. Business will not just gradually

improve until we’ll all forget these difficult times. We are watching

the deconstruction of our economy. Chrysler is in bankruptcy; GM will

soon follow suit. The former automakers will close nearly three

thousand dealerships and lay off, permanently, almost 200,000 workers.


starts this month, here, in what should be the peak of the home

building season, were at the lowest level since 1945. In 1945 the

population of the United States was one half of what it is today; it

had twelve million men under arms and most of them far from home.

Lumber and building materials were rationed and in many cases

unavailable. So calling a bottom in this economy is like calling out to

the falling man.

Mortgage rates are falling but few are taking;

there is a pall of fear over the rational people in our economy. The

optimism and faith in our economic strength is today totally inverted

into a negative image of itself. Two years ago the foreclosures began

and each time the pundits claimed, “This is the worst of it.” And each

time they have been wrong. Two million homes foreclosed, four million

homes foreclosed, now eight million homes foreclosed, and before

Christmas it will be ten million homes foreclosed.

The first

wave were those living on the margins already, overstretching for a

dream just out of reach and flying too close to the sun. And there were

the speculators trying to make a buck the way their heroes on Wall

Street did it, without breaking a sweat and while using someone else’s

money. They also flew too close to the sun. The second wave were the

adjustable rate mortgages, ticking time bombs set to go off long after

the mortgage bankers themselves had passed the paper along up the


Now we have come to the third wave. “We’re about to

have a big problem,” said Morris A. Davis, a real estate expert at the

University of Wisconsin. “Foreclosures were bad last year? It’s going

to get worse.”

“We’re right in the middle of this third wave,

and it’s intensifying,” said Mark Zandi, chief economist at Moody’s “That loss of jobs and loss of overtime hours and being

forced from a full-time to part-time job is resulting in defaults.

They’re coast to coast.”

These are prime mortgages, these are

homeowners that once had equity, and their numbers are growing like a

tsunami. In the three months ending in February the number of loans

where the lender took possession of the property rose by almost five

hundred thousand homes. That is an increase of 30% in three months, and

these are not people who bought homes they couldn’t afford or were

trying to flip for a profit. These are people whose jobs have vanished,

who in many cases have lived in those homes for years. Homes that they

can no longer afford because they no longer have jobs.

In dollar

amounts more than $717 billion in loans are now in the distressed

category since February. The Obama administration is offering an aid

package in which the lenders make all the decisions, worth $75 billion.

It is like sending a ten-pound bag of rice to Sudan and claiming we’ve

solved world hunger. It is a rescue for maybe one in ten while the

failure of the other nine negates any benefit; it’s pissing on a forest


Each foreclosure costs the banks $50,000, and the

accelerating number of losses threatens to swamp the bailout. There is

a certain irony in trying to save the banks while ignoring the people

who, without assistance, then swamp the banks with further losses.


government’s stress tests for the banks concluded that the banks need

another 75 billion dollars, pushing their overall losses above a

trillion dollars by 2010. But they aren’t just bank losses; they are

our losses, our neighbor’s losses. Our family and friends’ losses,

plummeting towards the ground at a remorseless speed.

The losses

accelerate as the speed increases as the pundits try to calculate. But

do they understand what it means when spending at grocery stores falls?

How do you factor into the equation what it means when prime borrowers

are losing their homes and Americans are eating less? That sound of a

whistling in our ears and the sight of the approaching earth growing

larger by the second should scare the hell out of us.

When the

bottom is reached, who will care? The time to act to save the falling

is now! The administration’s band aids and coppers for the poor might

make for good press releases, but when that giant splat comes, and come

it will, what will they matter? What will it matter where the bottom is

if there is no way out of it?

Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.