Maxed Out: Hard Times, Easy Credit. James Scurlock D.
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that debt is our friend—a magical tool that allows us, in the words of Napster’s new ads, to “own everything and have nothing.” No less a fiscal conservative than President Bush has dismissed the federal debt as “numbers on paper.” His vice president has flatly stated, “Deficits don’t matter.” But the apathy prize goes to two-term Florida senator Connie Mack, who was hired to give Bush ideas on reforming the tax code in 2005. Here’s a recent exchange between the senator and the New York Times:
Interviewer: Where do you suggest we get the money from?
Sen. Mack: What money?
Interviewer: The money to run this country.
Sen. Mack: We’ll borrow it.
Interviewer: I never understand where this money comes from. When the president says we need another $200 billion for Katrina repairs, does he just go and borrow it from the Saudis?
Sen. Mack: In a sense, we do. Maybe the Chinese.
Twenty years ago, when the federal debt passed the trillion-dollar mark, politicians, including Ronald Reagan, as well as economists, including Alan Greenspan, warned of dire consequences. Seven trillion dollars later, borrowing more has become the solution to every conceivable problem. Take Social Security as the largest, and perhaps most insidious, example: In order to reduce deficits, the past four presidents have borrowed $1.5 trillion from Social Security and the “trust fund” now holds nothing more than a very big IOU. In effect, we’ve been surfing, borrowing from Social Security to pay off the interest on the federal debt every year. In the 2000 and 2004 elections, George W. Bush promoted an idea called “private accounts.” In theory, every American would own their Social Security account. The account would contain real money so it could buy real investments, i.e., not IOUs. In theory one could also borrow against it, of course. The trouble is that since the Social Security Trust Fund has no cash, no one can say where the money would come from to fund these accounts. The Chinese again? Probably. But Bush hasn’t told us yet. He has, however, loudly warned working Americans not to count on Social Security. (Note to cowboy: Keep strummin’.)
The media never really took the president to task on the math of private accounts. It was the AARP7 that killed the idea, and, ironically enough, they hated it because private accounts would have reduced the amount of guaranteed benefits to their members, not because it would have indebted their future members.
Pete Peterson, one of the smartest financiers among us, has correctly pointed out that “benefits” like personal accounts are simply deferred taxes if they’re not paid for. Yet neither the anti-tax president nor his adversaries once questioned whether borrowing the trillions of dollars needed to fund private accounts was a good idea, much less possible. After all, Americans have accepted the surfing lifestyle in all of its absurdities. We have watched advertisements that say “Pay off your high credit card debts!” and we have called the 800 numbers and attached our homes to new loans in order to pay off our credit cards, then bragged to our friends that we are “debt free.” We are encouraged to rent things we used to own—including music and, paradoxically, the down payments on our homes. We have accepted this new bargain that we will never be out of debt as inevitable, preordained by the God of our choosing. We have forgotten the feeling of solid ground as we have taken on larger and more treacherous waves. We have ignored the greatest investor among us, Warren Buffett, who has derided our “sharecroppers society.” He sounds old, cranky, and un-hip.
Until we wipe out. Until we lose our jobs, until we get divorced, until we discover that our health insurance doesn’t cover thousands of dollars of “extras,” or until our home doesn’t appreciate at the anticipated rate. Until we can no longer surf. And then the “debt hell,” as a consumer advocate I interviewed calls it, kicks in. The fees pile up. The interest rates increase. The bargain we accepted ceases to be a bargain. It becomes prohibitively expensive. We learn that we are not middle-class at all. We are poor. We own nothing.
And then, just maybe, we finally ask, “Well, how did we get here?”
1Number one is Utah.
2The chain finally began accepting credit cards in February 2005. Et tu, Waffle House?
3Trent Lott, the former Senate majority leader, is among those suing the insurers.
4In the UK, a similar picture exists. Collectively, Britons owe 140 percent of their post-tax income – the average household is in debt to the tune of more than £8,000 excluding mortgages. Total debt in the UK is rising by £1m every four minutes.
5Ironically, mark-to-market was developed to prevent companies from hiding losses by compelling them to adjust their portfolios to market prices on a daily basis.
6Short for Fair Isaac Corporation.
7The American Association of Retired Persons, which offers a wide range of special products and services to the over-50s and is the largest lobbying group for seniors in Washington DC.
“I think that there is a natural fascination that we all have in how rich and famous people live. People always want the larger than life. It’s because those people still want to dream so they want to look upwards. They don’t want to look behind them. They want to escape in a fantasy that says, ‘Yes, I will be king for a day’ ‘Yes, I will be queen for a day.’”
- Robin Leach
It is not yet fashionable to be in debt. I have no doubt it will be—soon. The must-see reality show will be The Biggest Debt Loser and Paris Hilton will be replaced by a maxed-out debutante who’s learned how to take the bus and make homemade Christmas presents. But, for now, those brave souls who openly admit their financial troubles must shoulder a stigma just below that of a heroin addict and just above that of a registered sex offender. In other words, no one is bursting out of the closet just yet. So the stories I find in the public domain are the freak shows—the cases extreme or titillating enough to gather at least local news coverage. There is the Marine sergeant who used her military credit card to pay for a boob job; the college student with a weak spot for Mustangs and porn who shot and killed his family at point-blank range over a $5,000 MasterCard bill; the adolescent drag queen named Visa D’Kline; and, of course, there is Michael Jackson, who has managed to max out a $300 million personal credit line buying exotic pets and playing with his nose. In the process of filming my documentary, which I am calling Maxed Out, I will meet all of them, with the exception of Michael Jackson. But more on that later.
For now, the challenge is to find average Americans who are swimming in debt. I know they must be all around me, but where exactly? Who would be willing to talk to me? It’s an all-too-familiar catch-22: you don’t want the people who want to talk to you. There are too many publicity hounds, not to mention those with scores to settle, Web sites to sell, reality television careers to launch.
I ask Dave Ramsey for help. After all, he fields thousands of calls a week from normal people all around America. And for a long time I receive no response. But then, out of the blue, his publicist, a very nice woman named Beth, e-mails that she’s found a family with a story to tell. As I read on, I fear that this story may be too dramatic, too severe, too tragic. Yet, this family’s story—like all debt nightmares, I will learn—started small and compounded itself month after month until it had a momentum that was impossible to stop. Debt is a self-perpetuating prophecy. Once the snowball gains enough speed, you cannot reverse its direction.
Downtown Louisville, Kentucky, reminds me of a Chris Rock joke: “There are two malls in every city: the mall where the white people go and the mall where the white people used to go.” I’ve booked a room in the part of town where the white people, like me, go. It’s an old place, past its heyday but serviceable. Across the street is the city’s attempt at bringing more folks like me in from the suburbs. It’s called “Fourth Street LIVE!” There’s a Hard Rock Cafe, a franchised steakhouse, a Borders Books, and a food court with—what else?—a