Picking the Low Hanging Fruits of the pWnership Society, or Enron was a Proof of Concept

As the last of the air drained from the dot com bubble, the Boys Behind the Scenes were hard at work trying to figure out what vertical market would make the best new inflatable Big Thing.  They came up with a doozy.  After many hours spent pouring over this market or that, they hit on real whopper: They would inflate the housing market. 

Now, to anyone with a modicum of understanding of the principles of economic fundamentals, this would seem far to the east of any rational mode of thought.  The inflation of a core commodity is, without question, one of the most asinine things you can do to a consumer-driven society, and despite being a refined product, housing IS a commodity.  Shelter is requisite for any society, just like food, water, air, and in the case of  modern day society, oil.  And if the Boys Behind the Scenes know anything, it's economic fundamentals.  Hence the "No one could have foreseen this" ploy is off the table.  They knew the theory quite well, so all that remained outstanding was the manner of implementation.  Gaming a core commodity is tricky, because you have to have a solid plausible denial in place in case the masses get wise to the con.  So they needed a proof-of-concept.  For this, they chose California, and the energy market therein. They would engineer a scenario where a series of refineries would shut down for "maintenance" in such a way that energy would become wildly inflated in that particular market.

Stick with me on this, because in these early experiments we see the trappings of the Neo-Feudal Age in which we live now.

The problem was the middle-class.  Despite years of wage stagnation and shipping jobs overseas, the middle class was still far too affluent.  Years of hard work and moderately sensible money management had created a large swath of people who, while not well off, were at least comfortable.  To put it another way, there was far too much money distributed amongst too many people to implement such an age.  That money, those resources, needed to be consolidated.  And most of that money was snugly squared away in home equity and retirement savings.  Thus, the first phase was to unseat that equity and get it back into play.

The plan to do this was encapsulated and presented to the masses in the form of the so-called Ownership Society.

The Ownership Society was rolled out in 2002, not long after the proof-of-concept, Enron, had proven beyond a doubt that commodities could be inflated by gaming the system without the need for open speculation.  Open speculation would come later, once desperation has set in.  First, however, that home equity and those retirement accounts needed to be put into play. The plan to do this was two-fold.  First, loosen the requirements for getting a mortgage.  Second, flood the market with "cheap money."   For the first step, the types of home loans one could obtain were expanded.  So called, Option-ARM loans, Interest Only, Negative Amortization loans were rolled out in force. Then the banks flooded the system with cash. Suddenly, people's homes turned into large ATMs.  Working for a living was deprecated, and everyone was buying a house on what amounted to credit card terms.  All you needed to do was sell your house, buy a bigger one, hold on to it for a year or so and in that time slap in a faux marble counter top and Roman bath, then sell it, and presto: Profit!  From this giddiness, a new type of house was born: the McMansion. Entire communities of McMansions sprang up nation wide.  The price of gas (and food) started rising stealthily  but no one cared.  They were to busy being chauffeured around by real estate agents looking for their next ATM.  With no proof of ability to pay, and armed with only your signature, you could walk into a loan office and they'd hand you half-a-million dollars or more, very few questions asked. Pastry and coffee were gratis.

Within just a few years, millions of homeowners had sold their cherished heirloom tinder box and traded it for a McMansion, while others had tapped their retirement savings to do the same, or to invest. They were deep in debt, but they were told it was the 'good kind' of debt.

Of course, there is no such thing as 'good' debt.  Debt is debt.  It is money you're obligated to pay back. Period. If you can't pay it back, your credit rating goes south, and you wind up living in a van down by the river, but I digress.

And while loan agents were writing mortgages at the speed of clicking the 'Fast Cash' button on the ATM, on the backside, these mortgages were being bundled and sold off to the highest bidder as stable, solid investments.   These AAA rated junk bonds were being scooped up at an alarming rate by individuals, business, cities, states and countries. That the money was flowing quickly from the budget was irrelevant, because it was all 'good' debt.

Despite being craven, the plan was very well orchestrated, indeed. It was attacking the middle class on a variety of levels, and the middle class wasn't aware of it in the least.  The Middle Class had been completely sold on the Ownership Society, and was in the process of fixing up their McMansions so they could flip it, go deeper into 'good' debt, and buy another, larger McMansion in the newest gated community being built just down the road.  Homes worth 80 to 150K were being sold for 2 or 3 times that much, for no other reason than that they were homes, and the equity was now liquid.

Then, in the summer of 2007, something happend.  An investment company called Bear Stearns collapsed.  Why?  Because someone somewhere along the way (or more likely, on purpose) had realized that a $100,000 house being marketed for half-a-million was silly.  And as it turns out, many investment companies had socked vast sums of capital into these highly rated "safe and stable" investment vehicles.

These 'vehicles', as it turns out, were neither safe, nor stable, and were, in fact, careening at top speed towards the approaching cliff.

The jig, as it were, was up.  The Fat Lady had sung, the bill had come due and it was time to pay the fiddler.  The only problem was that there wasn't a dime to be had to settle up that bill, because it was leveraged to the hilt in mortgages, bundled or otherwise.

So now the consolidation of capital could commence, unencumbered by home equity or personal savings.  A new phenomena emerged: the 'underwater' homeowner.  And pretty much anyone who had bought a house during this period of willful abandon fit into that category.  The ARM loans, armed with a balloon clause in the fine print, came due, and the whole house of cards came tumbling down, catching everything from investment firms to entire cities in its wake. Shortly thereafter, the stock market, also wildly inflated, crashed. Small and medium-sized banks began to fail, the party was over, and the mopping up could begin. The federal government threw money at a few of the big banks, Citi, Goldman Sachs and the like, and the individual home owner was left holding the bag.

Which brings us to where we are today, awash up to our ears in the 'good' kind of debt.

Today, 'most' homeowners are underwater on their mortgages.  Today, companies like Blackstone are buying up houses on the cheap.  Today, the average worker is beholden to The Man, with little to no hope of a comfy retirement.

And thus the Neo-Feudal Age was born.