And now the shit hits the fucking fan. The crazy thing, is that there are still investors, real-estate agents, and brokers out there with their heads firmly embedded in their own rectal stew. (warning, do not, ever click the previous link.)
And then we have inflation. The consumer price index went up by nearly a percent in November alone! What’s that little Timmy, a recession? Don’t you worry little guy, food is overrated anyway. Where’s your ethanol now, you greedy fucksticks?
And there are still some folks who claim they didn’t see this coming. They’re either filthy fucking liars or grossly incompetent. Let’s do some math, shall we? Historically, housing prices should reflect three to three and a half times the buyer’s annual wage. Now, take a gander at this. Back in 2000, the Chicago area’s average wage was $38k, and housing values were $132k. Amazing! The ratio between the two is about 3.5! More recent numbers? $41k average salary and $245k average housing values, a ratio of six. And this is just Chicago, where the bubble isn’t that bad! Ft. Lauderdale in Florida has a ratio of nearly eight. Long Beach in California is at at eleven and a half. It’s so bad in California, that even if house prices are cut in half, nobody should be able to afford them using things like fiscally responsible loans.
Did nobody stop and think to themselves, “Self, maybe we shouldn’t give that janitor over there a loan for a $500k house?” No, instead they thought, “Self, I could make a kickass commission and make it the bank’s problem!” Except it’s not just the bank’s problem anymore. Money, unlike idiots, doesn’t just fall from the fucking sky; except that it does, kinda. I could elaborate for pages on how the banking system works, but the durpa-durr version is this: banks just make shit up. You owe them money? That money is in their system now, and they can lend out this mystery moolah to other folks, or use it to line their adult diapers. No problem, right?
Wrong, cheese-dick! Our system is all about investing. With Paco’s $500k loan on the books, they want to find ways to turn that into $700k or more. So they buy stocks, bonds, parakeets, laxatives, or incontinent lap-dogs, hoping these investments will pay out their own percentage. Ideally, in five years for example, they make interest on Paco’s loan and also any increases in whatever useless shit they spent your money on. The companies being invested in don’t know this, though. They just know some rich dude gave them money to expand the company, so expand they did!
What’s worse–due to the ridiculous home prices–people believed the rapidly increasing appraised value as everyone flipped homes faster than your sister goes through the basketball team. Then they started to cash in! House recently increase in value by $250k? Refinance that motherfucker, and buy a goddamn Hummer to drive over your new driveway (recently paved with 100"-plasma TVs) while paying your new pool-boy in Thomas Kinkade paintings. Unfortunately brokers could only find so many creative ways to sucker crosseyed gravediggers into $500k loans, and house-flippers expecting 20% annual increases were running out of buyers. Only then did everyone ask, “Holy shit, dude… What the fuck? I mean, seriously? What the fuck were we doing?!” Except, by then, it was too late.
Now everyone owes $500k on a house worth $200k, and suddenly the gravy train has derailed into an Olympic swimming-pool of molten-hot magma. That crazy consumer exuberance fueled between 2000 and 2006? Dead. You can’t buy a Hummer anymore, Jack. My assault of links suggests everything is more expensive now and will be even more so in 2008, so Esmerelda can’t buy another imported Chihuahua; no, that bitch needs to fucking eat instead. People cooking a fucking can of beans over Sterno can’t afford expensive consumer electronics, cars, or stupendously overpriced ghetto shanties.
And now all these people are defaulting on the loan they knew they could barely afford, if at all, because they wanted the American Dream of homeownership so strongly it overrode their fucking common sense. That’s the “Subprime Meltdown” everyone is talking about recently. Just look at this fucking chart for a second and let it percolate. Until 2011, we’re in for a shit-storm of mortgage defaults. Banks hate foreclosures more than you hate the guy who tapped your college girlfriend while you were in Borneo, because all that money they said they had suddenly doesn’t exist. Worse, the bank can’t make further money on the phantom cash, and even worse, their creditors get all pissy. If enough people default, banks get eviscerated, and that ripples through the economy, stock markets, and your 401k–you didn’t think you’d escape, did you?–shrivels like a cock in Antarctica.
And then you have local governments. Thanks to realestate taxes, city and county treasuries thought they’d won the fucking lottery, and like all good bureaucrats, they spent every dime. With house prices being forced back down, tiny Tina has to read about the American Revolution off some ratty photocopies the teacher wrestled away from a mangy hobo on 95th St. So of course to make up for the unexpected shortfall they make up new taxes, or raise ones they already have. Genius! You’d think that since taxes are a percentage that as prices and wages go up, these increases are automatic, but apparently cutbacks are only for everyone else. So, right at the time everything already costs more, and people have less disposable income since their house/ATM dried up, taxes add more sand to the Vaseline.
And there you have it: the perfect storm for a global depression. So many countries (I’m looking at you, China) own US dollars, and our imports so far exceed our exports, that our suffering is their suffering. Every time the Federal Reserve lowers interest rates, we’re basically flipping-off our creditors and increasing inflation. Would you invest in an asset that’s losing value? What if you already did, and can’t afford to sell? We’re going down, but by God, we’re taking those effete, snobby fuckers with us. Unfortunately, their fall will be cushioned by the US’s body. The next five years are going to suck balls, and everyone’s doing to take turns at ball-duty. All you aliens out their enjoying this spectacle, I’m going to be sending you a fucking bill; there’s no reason for you to get off scot-free.