Thoughts on the American Dream

I've been thinking a lot about the American Dream and what it means. After all, we seem to be living in a time of, "I win, you lose". Is there such a thing as a, "win, win" and is that the American Dream?

Transcript

Season 1; Episode 4

Thoughts on the American Dream

I’ve been thinking a lot about the American Dream and what it means to the average person. After all, we seem to be living in a time of, “I win, you lose”. Is there such a thing as a, “win, win”?

Is that what the American Dream is all about? 

I did a little Googling and found out that the phrase, "The American Dream" was popularized by James Truslow Adams (a writer and historian) during the Great Depression in 1931. 

According to Wikipedia:

Adams defined it as, "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or 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".

So the original idea wasn’t about owning stuff. It was more about a way of life.

It wasn’t about what happens in Costco’s parking lot every Saturday when thousands of giant flat screen TV’s are lovingly loaded into the gaping maws of supersized SUVs.

And it certainly wasn’t about home ownership, the pinnacle of personal identity, personal success. What is now the keystone to the American Dream. 

So, what changed?

How did stuff become so important to so many people. How did home ownership come to define the American Dream. And is the American Dream a, “win, win”?

Now, I’m not big into conspiracies, mostly because I believe that the people we so often accuse of conspiracies are too stupid to pull them off, but I do believe in Newtown’s third law of motion, “For every action, there is an equal and opposite reaction.”

In other words, shit doesn’t just happen for no reason. 

So here’s what I think, metaphorically speaking.

Once upon a time, in the early 1930s, there was a very successful banker named Robert H Williams III, or RH to his friends, family and fellow bankers. RH’s father, RH II, grandfather, RH I, and great grandfather, RH, were all bankers. Before that, there was some talk of the Mayflower, the Declaration of Independence and even the Constitution, but despite sketchy records and hazy memories, that was the story and the Williams clan was sticking to it.

You get the picture.

RH lead the rather bland life of a banker, borrowing money at one rate and loaning the money at a slightly higher rate, making a steady, if not spectacular profit on the spread. His main concern was risk, which meant that RH rarely loaned money to anyone who actually needed it. Especially, if he couldn’t secure the loan with assets equal to or more valuable than three times debt to equity.  

All of which meant that most of RH’s business was conducted at his exclusive private men’s club (no jews, blacks, and of course, no women).  There he arranged loans to his already rich friends. Not only was The Club, (actual name - these guys where so creative), central to RH’s banking success, but also his main source of relaxation, a way to blow off a little steam at the end of a long and difficult work week. 

On most Friday nights, RH and his friends smoked imported Cuban cigars, drank very expensive scotch, and screwed very cheap hookers before returning home in the wee hours of the morning to their carefully tended Greenwich mansions, and Park Avenue Apartments in order to spend the weekend with their adoring, if somewhat lackluster and possibly inbred, families.

But one Friday night, something different happened. After the cigars, scotch, and hookers, RH found himself deep in conversation with another banker who had, in RH’s opinion, foolishly loaned money to people who wanted to buy homes. You see, at that time, the common man was still suffering the effects of the Great Depression. Many were still out of work. Home values had plummeted and generally life was tough. 

RH’s friend was complaining about borrowers being unable to make their mortgage payments and equally unable to resell their underwater property. And his banker friend was in a particularly sticky position, as his funds and resources were limited, making foreclosure a costly option. 

Wouldn’t it be great, they agreed, if there was a way to loan people money to buy houses, with little or no risk.  After all, didn’t everyone deserve to own a fine home? Well, maybe not everyone. And certainly not a home as fine as RH’s. But if there was a way to loan people money to buy homes with little or no risk, this might be an entirely new and very profitable line of business for RH and his banker friends. 

What to do. What to do.

So, next Friday, instead of Cuba cigars, expensive scotch, and cheap hookers, RH convened a meeting of all his wealthy banker friends to discuss a solution to this vexing issue. 

It wasn’t’ so much that they had any great ideas or telling insights. Remember, these guys called their exclusive private club, The Club. It was more about figuring out who could do something about the problem. In other words, who knew the right people in power, the people who could pull the strings and make things happen. 

Of course several of the bankers happened to have friends in high places, mostly because of trust funds, good breeding and Ivy League educations. One of RH’s fraternity brothers from Harvard was working for the current administration and had direct access to FDR himself, also a product of Harvard. 

And it turned out that FDR was looking for a way to drive economic recovery, to help people get over the devastating effects of the Great Depression and maybe even elect him a few more times. Like, four total. 

Now, I’m not saying that FDR’s efforts weren’t in the best interests of the average Joe, but I’ve noticed on many occasions that the average Joe often gets left holding the check, while a certain element of society dines and dances.  

Remember Newtown’s third law of motion. 

Now do you get the picture?

Several telegrams, a couple of trips to DC, some fancy private dinners and a few judiciously placed donations latter, President Franklin D. Roosevelt proudly announced the New Deal, which included the Home Owners’ Loan Act, which provided emergency relief for mortgage debt. Soon after came the Federal Housing Administration and a whole bunch of new laws and regulations, written by very smart, well connected young men, that made home loans an entirely new and very exciting business for RH and his friends.

Now, RH and his banker buddies could loan people money to buy houses with virtually no risk because not only did the bankers hold the title to the house until the loan was paid off, but the federal government hovered in the background backing the loans and making money cheap for the banks. 

Plus, and this is the cool part, most of the loan terms where twenty to thirty years. Imagine a loan secured by an asset of increasing value and backed by the federal government with regular monthly payments that went on and on and on for thirty years. Three decades! 

So now the common man could have the American dream of home ownership. Well, not exactly ownership. But close. Call it a thirty-year long-term rental, with title transfer at retirement (both yours and the note’s).

Next came the federal gifts of Fannie Mae and Freddie Mac and whole bunch of new laws and regulations that made home ownership even easier for the common man and even more profitable for the banks – if you can believe that. 

So the mortgage business trundled along, real estate prices rose and fell, the average joe won and lost, but the banks kept making money. Some years a lot. Some years not so much. 

But as long as the banks and our friends at the federal government kept pushing the American dream, life was great for RH and his descendants.   

Then during the 1990s, the US Congress passed legislation intended to expand affordable housing through looser financing. Why not make home ownership easier for everyone and make the banks happy in the process? 

Then parts of Glass Steagall were repealed allowing Wall Street to engineer all kinds of fancy new financial instruments, that it turns out, nobody really understood, such as interest only, variable rate mortgages tied to Libor, with 3 to 5 year arms, bundled into mortgage backed securities - whatever the fuck they were. 

But don’t forget good old Isaac Newtown. The law’s the law.  

Eventually of course, just like the Great Depression, the shit hit the fan and the good times came to an end, at least for the common man in 2008. Because, of course, it’s the common man that always takes it in the ass. Dream or no dream.

But thanks to the federal government and its cozy ties to Wall Street, the children and grandchildren of RH and his banker buddies, didn’t suffer even a moment of lost sleep. After all, their American Dream was guaranteed at birth. Unless of course they had invested their inheritance in Lehman Brothers’. But who would be that stupid. 

But despite the ups and downs, the wins and losses, the American Dream solders on. Owning your own home remains the keystone to a happy and fulfilling life, at least according to our Wall Street banker friends. Not to mention the opportunity to pack that good old center hall colonial with all kinds of cheap crap from Costco. 

So save for that downpayment, fill out your mortgage application, roll the dice and live the dream. 

It’s a “win, win” right?

Thanks for listening.