The American Dream is Dead by beth Ingalls

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These Economic Times Make One Thing Comments (1) Perfectly Clear: The American Dream is Add a Comment Dead Published: September 11, 2008 September Print Edition Please support our August advertisers. Their support keeps Moonshine Ink alive. The list changes with each refreshed page.

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by Beth Ingalls “It’s called the American Dream, because you have to be asleep to believe it.” ~ George Carlin Part I – Building and Buying the Dream “The American Dream” was just a phrase in a book before it became one of the most pervasive and enduring myths in our culture. James T. Adams, in his 1931 tome “The Epic of America,” wrote, “The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability and achievement… It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.” Timing is everything and dreaming was much more attractive than engaging in reality that year. 1931 marked the second year of the Great Depression and the unemployment rate in the United States, which had

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already surpassed 16 percent, would jump to 25 percent just one year later, leaving 12 million Americans without work. More than 5,000 banks were shuttered; a severe drought in the Midwest led to the beginning of the Dust Bowl and food lines stretched for city blocks. It would be several years before the New Deal policies of Franklin D. Roosevelt were put in place, finally offering some hope of eradicating widespread poverty. It wasn’t until the boom created by World War II that the economic engine of the United States would truly recover. People desperately needed a dream to believe in the early 1930s. Not surprisingly, the stock market crash of 1929 coincided with the Great Depression. The crash was preceded by rampant stock speculation and blind faith in the continuously rising markets of the ’20s. Similarities abound with the sub-prime mortgage crisis we are facing today. Among other things, economic amnesia and criminal lending practices have led us to the shaky ground we’re standing on. But somewhere along the way, Adams’ “American Dream” became distorted as well. Hard work might have eventually brought Americans what they needed, but it wasn’t bringing them all that they wanted. When hard work alone didn’t reward individuals with motor cars and homes, credit emerged to fill the gap. Paying for the American Dream It’s difficult for anyone under the age of 35 to envision a world without plastic money, proving that the credit card industry as we know it is relatively young. In 1951, Diner’s Club issued its first “charge card” for use at a variety of eating establishments. Soon banks got involved and began issuing their own credit cards, which could be used at a range of local businesses and also allowed customers to carry balances. This was a great convenience for consumers, but not a moneymaker for banks trying to grow their credit divisions, since the amount of interest they could charge was fixed according to state usury laws.

Nancy Costello, a licensed realtor since 1999 who works at Pacific Crest Properties in Truckee, believes that “since we’re only a tank of gas away from the Bay Area, we’re sitting pretty.”

George LeBard, Project MANA’s Executive Director, with their food program vehicle at the Parasol Center in Incline Village. photo by Claire Fortier

In 1966, Bank of America spearheaded a national credit card payment and processing system by creating a consortium of participating banks and trade marking their Bank Americard. This led to the birth of Visa. Master Card was created soon after. For the first time, a single card could be used at hundreds of locations all over the country, and with the establishment of standards around the use of the magnetic strip in 1970, the burgeoning credit card industry made cash-free spending acceptable and ubiquitous. But a major stumbling block remained. Since federal law said the interest rate banks could charge was governed by the state limits where a loan was made or a card issued, keeping track of and abiding by 50 different rates was a major headache. And in states where the rate was low, it didn’t make sense to extend credit to anyone but lowrisk clients. The Marquette Bank Decision made by the Supreme Court in 1978 fixed the problem by essentially deregulating interest rates and by saying that the location of the bank’s charter was irrelevant; it was where a lending decision was made that counted. States soon jumped on the deregulation bandwagon and the ones that acted first were rewarded. Delaware passed the most liberal lending laws in the nation and as a result, became home to 10 major financial institutions and 43 percent of the credit card loans generated in the country. Now that credit card companies weren’t constrained by low interest rate ceilings, it became profitable for them to offer credit to just about everyone, including high-risk clients. They could apply exorbitant rates not just to initial loans, but to late fees and annual fees as well, and raise them at will. The result? The credit card industry is a behemoth of almost inconceivable proportions, raking in profits of over $40 billion in 2007 alone and capitalizing heavily on those who need to borrow the most; low-income families, young consumers and people in economic crisis. At the end of 2007, American credit card debt had climbed more than 10 percent in just one year to reach $937 million. The American Dream Goes Global Episode 355 of the radio program “This American Life” is called “The Giant Pool of Money” and explains how we got to the housing crisis in straightforward terms. In 2000, the “global pool of money,” or all the money sitting in fixed income securities around the world looking for investment, was about $36 trillion. By 2006, that pool of money had

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CATT Executive Director Pat Davison, pictured here at CATT’s new Martis Outlook office space on Soaring Way in Truckee, is optimistic that the building industry will begin to rebound in 2009. photo by Beth Ingalls

News archives, Truckee, North Lake Tahoe, community • Moonshine Ink doubled to about $70 trillion because once poor countries, like China and India, were now filthy rich. Money managers immersed in that pool of money wanted low-risk investments with a decent rate of return. In the past, US treasury bonds provided just that, but Federal Reserve Chairman Alan Greenspan was set on keeping the federal funds rate at 1 percent and this just wasn’t enticing to investors. But mortgage backed securities, shares in bundles of thousands of mortgages sold on Wall Street, were. Investors liked the rate of return on the mortgage-backed securities and brokers and lenders all the way up the chain liked the profits they were making from the sales. They all wanted more. In order to satisfy the demand, lenders began developing new “products” like NINA’s, or No Income, No Asset loans, and began handing them out to people who never could have qualified even a year or two earlier. People with very little income and not a penny to put down for a deposit were signing on the dotted line. Qualifications became so loose with “stated income” loans, that according to Alex Blumberg in The Giant Pool of Money, there was a case in Ohio “where 23 dead people qualified for mortgages.” Because individual mortgage brokers were selling the loans to banks, who were selling them to big mortgage houses, which were then bundling them and selling them to Wall Street, everyone along the way was making tons of money. There was no concern about whether the loan went into default. The market was fueled by such high demand that home prices kept rising and the money kept rolling in. Until 2006. By then the escalation in home prices so outpaced income levels that even liberal lending policies couldn’t help. People couldn’t afford to buy anymore and those already in a home were facing skyrocketing rate adjustments or the simple reality that they had gotten in over their heads. The bottom starting dropping out and the Wall Street securities managers were the first ones to realize it. Once Wall Street began turning down securities backed by bogus loans, the banks were left holding bundles of unsold mortgages, and immediately ceased buying any more from lenders. That was all it would take for everything to collapse. And the end came surprisingly fast. Blumberg describes where we are now, “It’s not an out-and-out depression.

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"Balancing Act" An Ode to the Economy By Sara Smith Look at me, look at me, look at me now... It's a little bit scary and I'm not quite sure how I can hold up the house, and the bills, and the gas, I can still buy the milk but I sleep less and less. Now watch me, now watch me, I'll juggle my time... what's a little more stress? It's all going to be fine... I'll borrow some more, and add job number three, cut back on fresh fruit because nothing is free. I don't see the kids, and my time is too short; I can't take the stress of today's news report... but even with this now the house just might fall, and if that goes I'm certain that that won't be all. The dollar is sliding, it buys less and less... I'm riding it down but I'm doing my best.

Everything’s just kind of crappy. And not just in housing or banking but for the economy as a whole. It’s barely growing. There aren’t a lot of new businesses, new jobs. Unemployment keeps creeping up. We’re just sort of stuck, in neutral, for a while.” Neutral is an apt metaphor to explain the current situation for the upper middle class, but the vast majority of Americans are going in reverse. A recent PBS Money Track episode reported that two out of three of us are living from paycheck to paycheck and no one is saving. A recently completed Rockefeller Foundation/Time survey found that “The American Dream is slipping further from reach. Americans’ faith in their individual economic prospects is low…and their concerns about their personal economic security have more than doubled in the last year.” Part II From the Global Economy to the Local Economy Building the American Dream How’s the Construction Industry Faring? 2005 was a landmark year in the region economically, and as a comparison, is useful in gauging how far things have fallen. That year, there were 4,895 building permits issued in Placer County and 768 permits in Nevada County. The Town of Truckee issued its highest number since incorporation, a total of 513 residential and commercial permits. In 2008, as we near the end of the building season, only 112 total permits have been issued in Truckee. In July, the California Economic Development Department released numbers showing a 9.5 percent decrease in construction sector employment in the state between May 2007 and May 2008, equating to a loss of more than 84,000 jobs overall. Nevada County experienced a decline of nearly 13 percent. The Public Policy Institute of California, in a March 2008 report summarizing California’s housing crisis, found that statewide, building permits declined almost 50 percent from a peak in 2004. While we have reasons to believe we are insulated from the most dire effects of economic decline in the Truckee Tahoe region, a look at the numbers tells another story that is not particularly encouraging. The construction industry is the second largest private employment sector in both Nevada and Placer Counties at 13 percent and 15 percent respectively, and a good barometer of the overall economy not only because of its size, but because of the ripple effect it has on other businesses and local government revenues.

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News archives, Truckee, North Lake Tahoe, community • Moonshine Ink Truckee’s Building Division began to feel the effects of the declining construction industry over a year ago and took measures to offset a million dollar shortfall in the department, which operates as an enterprise fund. A combination of layoffs and restructurings worked, but more may need to be done after summer’s end evaluations. The Town has also had to adjust revenue projections downward because of a decline in sales tax. After a steady rise for years, including an 11 percent jump for the one-year period ending in March 2007, tax receipts fell by 1.6 percent. Total revenue for the year ending March 2008 was $2,884,218. Town Manager Tony Lashbrook, in an April memo outlining the 2008-2009 budget, noted that construction related sales make up 30 percent of the sales tax revenue generated within the town. The Contractors Association of Truckee Tahoe, a regional nonprofit trade organization with 265 member companies, is maintaining a spirit of “cautious optimism” as they look toward the coming year. CATT is predicting that “a recovery will begin in 2009 and be fully in place by 2010” according to their State of the Building Industry report issued in June. The report doesn’t mention the basis for the prediction. In the meantime, contractors are being forced to confront a 90 percent decrease in residential building activity in Truckee this year alone, plus the underbidding and out-of-state competition the slow market is creating. The report finds that contractors are adjusting as they can. Some contractors are looking for work in other fields. Others are turning to remodels in the absence of new construction and are spreading their jobs out to cover lean times. Those with money are still buying and building, but others are being shut out because of strict new financing rules, high fuel prices, defaults and a dormant spec market. Selling the American Dream How’s the Real Estate Market Holding Up? Nancy Costello, a licensed realtor since 1999 who works at Pacific Crest Properties in Truckee, believes that “since we’re only a tank of gas away from the Bay Area, we’re sitting pretty” and not subject to the same foreclosure and sub-prime pressure that many other regions of California are experiencing. She notes that while the Multiple Listing Service (MLS) does now include categories for Short Sales and Foreclosures, she hasn’t seen many of either in this market. The numbers, for the most part, seem to back up her belief. Nevada County ranks fortieth in the state in foreclosures with 62 defaults in July and ten auction sales. On the positive side, 32 homes sold in Truckee in July at an average price of $545,000, just a 1.83 percent decline in price from last year’s levels. With the exception of Kings Beach, where the average sale price of $383,750 was 40 percent less than 2007, most prices in the region have remained stable or even gone up. Properties have sold in Tahoe City and Homewood well above last year’s levels. In terms of foreclosures, Placer County comes in twelfth in the state with 244 defaults and 112 auction sales in July. Most home values have dropped significantly across Placer as they have in Kings Beach, except in high-end areas around the Lake. Costello sees the drop in home prices to roughly 2004 levels as the “big correction we’ve all been waiting for” and what was needed given the rapid appreciation the market has been going through for years. (In 2005, the median home price in Truckee surged over to $650,000). She credits our relative immunity in Truckee and Tahoe to the sub-prime crisis to the more personal nature of the market here. She encourages her clients to use local lenders that she knows and “trusts with her life.” Realtors tend to be optimists by nature. And Costello says she’s “had a kick-ass year.” But not all realtors are doing so well. In fact, while there are over 900 licensed realtors registered with the Tahoe Sierra Board of Realtors, Costello estimates that there are only about 200 active ones. She expects many won’t renew licenses this year, further shrinking the total pool. And even though it’s a buyer’s market, there aren’t many locals who can take advantage of it. The very factors that have kept the market strong in our region are the same ones that have made it so unaffordable for so long. The average person who was interested in buying a home in Truckee or Tahoe was priced out of the market years ago. Feeding the American Dream Who’s Hungry in Truckee Tahoe? In Truckee and Tahoe, as in the rest of the country, the divide between rich and poor is growing as the economy stagnates. With soaring gas and commodity prices, more people are struggling to put food on the table. George LeBard, Executive Director for the hunger relief agency Project MANA, is seeing the effects firsthand. Project MANA served 6,274 households in the region in the fiscal year, which just ended, a 24 percent increase from the previous year. LeBard has noticed that more people are in need for longer periods of time now. To make efforts more challenging, the availability and quantity of different staples and proteins, which they source during weekly trips to the Food Bank of Northern Nevada in Reno, are shrinking. Kaili Sanchez, who is in charge of food distribution programs for Project MANA at a variety of locations around the area, said “This is the biggest summer we’ve ever had since I’ve been working.” She took some time to chat after a busy Tuesday afternoon food pick up for clients at the Truckee community center. That day, more than 50 folks lined up to fill bags with bread, fresh produce, dairy products and even some special treats like cakes and brownies, as children frolicked in the gym and ducked in and out of the line around their parents. Much of the food is donated from generous local businesses like Save Mart, New Moon Natural Foods, the Treat Box Bakery and Safeway. In the summer, Sanchez can take advantage of the local Farmer’s Market as well. Her first priority is “making sure that they get nutritional food.” There is no pre-qualification process or bureaucratic red tape involved. People just line up, sign in and gather what they need to help them through the week. In less than an hour, the process is complete, and the Project MANA truck drives off to another

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News archives, Truckee, North Lake Tahoe, community • Moonshine Ink location. Since 2005, the total percentage of the population living in poverty in Placer and Nevada Counties has risen only slightly to 6 and to 8 percent respectively, but the number of children living in poverty has grown to almost 15 percent. There are thousands of children who qualify for free lunch programs who are not utilizing them, resulting in the loss of large sums of federal dollars which would otherwise be available. In researching this story, it became very clear that this may be an overall trend. Many people, especially ones who have been living a fairly comfortable middle class lifestyle, are too embarrassed or ashamed to ask for help. Glen Harolsen, Program Manager for the newly combined Placer-Nevada County Health and Human Services Department, says he has seen a “noticeable increase” in people applying for public assistance through his department this year. While he does not yet have the hard numbers, he estimates that requests for food stamps, temporary assistance and other programs have jumped about 15 percent. He thinks much of the rise is due to the lagging construction industry, but believes there are probably other variables as well. He hopes that the integration of the Placer and Nevada agencies will lead to greater efficiency and an economy of scale which will help with overall delivery of service, especially in these challenging times. Lisa Dobey, CEO of the Truckee Tahoe Community Foundation, sums up the current situation succinctly. “More demand, less money…never a good combination.” Dobey has noticed that the Foundation’s lower end donations, $1000 or less, “have just disappeared.” Fortunately, higher-end donations to TTCF, which contributes nearly 30 percent of donor resources to health and human service needs in the region, have stayed strong. That’s good news. In the meantime, the jolting economic wake up calls keep coming in rapid succession. With the Bush administration’s announcement of the government takeover of Fannie Mae and Freddie Mac, an event the Washington Post refers to as “seismic,” we are witnessing the bailout of the two biggest mortgage finance companies in the United States, most likely at huge taxpayer expense. Will the government respond in kind to hardworking Americans who just want some help building a life raft? The same Rockefeller/Time survey that highlighted Americans’ increased concern over personal economic security also showed that laying the foundation to help improve economic security isn’t rocket science. “Americans support major government investments that create jobs – including public-works projects (82 percent), new measures to improve energy efficiency (84 percent), and initiatives to expand access to highquality health care (77 percent). Americans also favor investments that make it easier for people to work – for example, paid family leave (68 percent) and government-funded childcare (66 percent).” Now that’s an American Reality we can all believe in. Gordon Gekko’s words from the 1987 film “Wall Street” still ring true…”The richest one percent of this country owns half our country's wealth…You got 90 percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market.” Resources for this story: Placer County Community Development Resource Dept., City-Data.com, Time.com, Public Policy Institute of CA,Wikipedia, State of CA EDD, CATT, ForeclosureRadar.com, DQ.com, California Dept of Finance, Town of Truckee, PBS Frontline – Secret History of the Credit Card, This American Life, California Food Policy Advocates, FDIC Bank Trends, RK Hammer, Rockefeller Foundation/Time, Historytoday.com, North Tahoe Truckee Community Report Card, Western Region Anti Hunger Consortium, Bureau of Labor Statistics, US Bureau of the Census, SEDD Regional Industry Cluster Analysis.

1 Reader Comment so far ...

1. wow What a profound and well-rounded article. So many of the ambiguities surrounding the economic crises are so eloquently defined and articulated in this article. I have recently felt betrayed by the American dream as a new mother, student of UNR, and facing an economic wall so profound that I can't even grasp life on the other side. I feel that I have to accept this as my lifetime situation. Though I do hold the hope that many Americans do for the restoration of the economy, it feels like a distant voice that is impossible to hear. I fear that upon graduation I will face an even slower economy, a lack of employment opportunities, and massive student loan payments. But as Sara Smith says in her poem, "The dollar is sliding, it buys less and less... I'm riding it down but I'm doing my best." I just keep swimming, just keep swimming, just keep swimming, swimming, swimming. :)

posted by: Emily Rademacher on Nov 10, 2008 at 3:44 PM

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