An article in Asia Times, “Shopping ‘zombies’ offer US hope,” supplies middling analysis (the author believes the depth of the subprime mess has been dimensioned, which means the bad news has already been reflected in prices. That’s a long winded way of saying that now is a time to buy. That perspective is not shared by yours truly and Tanta at Calculated Risk)
Nevertheless, the piece contains an arresting metaphor, and that alone makes it worth reading. It’s quite long, and I’ve cherry picked the most interesting parts.
Note the author, Julian Delasantellis, hails from the state of Washington, so he can’t be charged with foreign snobbery.
From the Asia Times:
Like salmon driven upstream by instinctual forces beyond their control, there is something deep down, probably at the core of our DNA programming, that forces pundits to make predictions for the new year in early January. Here’s my economic prediction for 2008. The American economy may very well come to resemble scenes from the two Dawn of the Dead movies.
And that’s the good news.
First made in 1978 by horror maestro George Romero, as a sequel to his 1968 classic Night of the Living Dead, remade by Zack Snyder in 2004, Dawn of the Dead tells the story of the human race under siege from hordes of recently deceased risen zombies, ambulating about with no higher brain functions, only existing to feed lustily on the rapidly decreasing numbers of actual people still around.
In both the 1978 original and the 2004 sequel, a hardy group of human survivors seeks shelter and security in an abandoned shopping mall, barricading themselves from the zombies until some salvation for the human race can emerge.
But the zombies still come. They mill around aimlessly in the parking lot, (making them fine sporting practice for the survivors, with their high-powered rifles filched from the mall’s sporting goods stores, shooting away what used to be the zombies’ brains) occasionally attempting to overcome the survivors’ improvised defenses to gain access to the mall. The survivors are astounded, but then they come to realize their mistake in seeking shelter in a shopping mall. The zombies, even with most of their brains decayed or shot away, still carry an inherent memory of the malls as a place that once held a central focus of their lives.
As one of the survivors put it: “They’re after the place. They don’t know why, they just remember. Remember that they want to be in here.”
Mindless zombies haunting shopping malls as if by instinct, for reasons they barely know. You don’t have to wait until the end of the world to see that – you can see it all the time, including during the recently concluded holiday shopping season, in any American shopping mall. And that just may be the salvation of the American economy after all.
We’re now coming up on what I consider to be the first anniversary of the starter’s pistol of the subprime crisis, HSBC Holdings’ February 5, 2007, announcement of the problems at its Household Bank subsidiary that first alerted the financial world to the putrescent swamp that US housing finance had fallen into over the past few years….
Here it is also important to look at the bigger picture. According to the Case-Shiller Real Home Price Index, US home prices fell about 3.4% in 2007. Even with the declines seemingly accelerating to around a 10% rate by the end of the year, that should be looked at in the context of a 52% rise in prices since 2001.
In other words, if you bought your home before, say, mid-2005, and unless you borrowed away the appreciated value of that home with home equity loans, your home can still be your piggy bank. You can still head to the mall with the other zombies.
It’s true that every month about a quarter of a million Americans are losing their homes through foreclosure, and that number should continue through 2008. The subprime “teaser” mortgage resets should peak in April, then taper off into mid-2009. Still, if one is expecting the American consumer to go into spending mourning over the fate of his poor foreclosed brethren, one has not spent all that much time with American consumers lately.
Just before Christmas, the US television network ABC had on its Nightline news program the most insightful broadcast report I’ve seen yet on how American society is adapting to the subprime crisis. Far from being a dour and foreboding account of sad homeowners gathering their paltry belongings in preparation for foreclosure, the report showed happy, giddy prospective homeowners on big tour buses, on an excursion, organized by a Stockton, California real estate agent (who provided the snacks and drinks), to view recently foreclosed properties.
The atmosphere on the buses was more approbation than Armageddon, more game show than Gotterdammerung: “You wanna get a good deal off someone else’s life-wrecking misfortune – come on down!”
“It hadn’t crossed my mind,” one prospective homeowner replied when asked if he was giving any thought to the misfortunes of the previous homeowner. “I look at it as more or less an opportunity.”
An opportunity to then join the zombies at the mall’s home furnishing store, no doubt.
The other side of the subprime crisis coin is what the subprime securities did to the balance sheets of America’s proudest and most austere names of commercial finance.
Through much of the late summer and autumn, I elaborated on this site how it was then being revealed how some of the bluest names of American blue-chip finance, names like Bear Stearns, UBS, Merrill Lynch and Citibank, had treated subprime-related and originated debt securities not as the highly speculative investments they have now revealed themselves to be, but as hot dogs at the quintessentially American “sport” called competitive eating, greedily stuffing as many subprime securities down their fat portfolio gullets as their trading desks could find…..
First, Bear, UBS, Merrill or Citi do not belong on a “bluest of the blue” list. Second, eating contests pick their winners based on who can wolf down the most in a short period of time. It’s a one-off. A better analogy might be the process of force feeding ducks and geese to fatten their livers for foie gras. The process, at least in the US, is called “noodling”.
Still, as 2007 drew to a close, Wall Street seemed quite complacent with the prospect of around another $300 billion or so of American finance capital being wiped out of existence….
Am I saying that the subprime crisis is over, that its once again morning in America, that all Americans can once more, after morning services at the megachurch, settle down in front of the 50-inch plasma TV with rack upon rack of baby-back pork ribs to watch Dallas defeat all comers in the NFL playoffs?
Not in the least. If it turns out that the total subprime bill is substantially in excess of the current projected figure, say past $500 billion or more, the bloodletting on Wall Street will resume, as it will should a major financial institution actually shutter its doors and fail.
What I am saying is that for the first time since at least last spring, Wall Street seems to think that it can see the far side of the subprime crisis. Yes, there’s plenty of bad news now, and plenty more to come, but bad news is an essential component of rising stock prices – the time to worry is when the news is all good, not all bad. An old stock market adage is that bull markets climb a wall of worry. At least for now, Wall Street seems to think that it can at last see over the wall….
What about the American consumer and homeowner, the other main actor in the subprime drama? A backbone of conservative, free-market economic theory is what is called the “rational expectations” school of economic thought. This theory states that economic actors, be they investors, business owners, farmers or consumers, keep tabs on the economic news of the day, make an informed assessment of what the news means for their individual future prospects and then act accordingly. They spend and/or invest more should they believe future prospects are bright and cut back if things look less promising.
If rational expectations were right there is no way we would have seen the roughly 3.6% rise in holiday retail spending that America saw for this just concluded holiday season. This was less than in the booming years of 2004-2006, but still, you only had to go back to 2002 to find a similarly “bad” holiday season. If you listened to many pre-holiday economic prognosticators, you might have thought that America was facing the worst holiday season since the soup kitchens and breadlines of the Great Depression, maybe the worst shopping season since the British burned Washington in the war of 1812.
Why didn’t rational expectations work? Why did Americans ignore all the bad news to once again be zombies at the mall?
One thing that the rational expectations theorists probably didn’t factor into their calculations as to why Americans ignore economic news is that Americans just hate economic news. Whenever it comes on the TV there is a mad, desperate scramble for the remote control to change the channel; anything, whether it be meetings of the local sewage treatment committee on the community affairs cable channel or Venezuelan soap operas, will get some viewing time in preference to actually watching economics news on TV…..
Please, there is a simpler answer. There is no such thing as economic news on TV. There’s a market wrap, which is just like getting sports scores. You might get an economic factoid thrown in like, “The markets were up today because the CPI release of ___ was lower than analysts expected.” If you don’t already know the game, the teams, and the players, they mean nothing.
So the reason that the news of the subprime crisis has not led to a greater contraction of US consumer spending is that most Americans have little or no comprehension or understanding of what the subprime crisis actually is….
As long as the US consumer has a job he is going to keep spending (“Saving? What’s that, oh, I know, it’s what the goalkeepers in soccer do!”) and as long as the spending spree continues there is a safety net as to just how bad the subprime crisis is going to hurt the American, and by extension the world, economy.
Americans feel more secure if they see the headline unemployment number still low….
In what is, according to some media reports, the bleakest time in finance history since the moneychangers were driven from the Temple, Americans keep spending. How can they not? As that the French are justifiably proud of their culture and cuisine, the Germans their engineering and manufacturing prowess, what is it that Americans can be more proud about than their continued willingness to exhaust 200 years of built-up treasure on cheap trinkets that they will dispose of and replace in six months? No matter what the politicians bleat on in the Iowa cornfields about the centrality of Jesus in American life, the country’s real unifying faith, affirmed no matter what race, color, creed, gender, or sexual orientation, is mindless consumerism.
In this, the nation’s 1,100 enclosed shopping malls are temples to this national faith, with the 500-store Mall of America, in Bloomington, Minnesota, the faith’s new Vatican, its shining food court on a hill.
With the consumerist religion flourishing as it is in America, it will take more than what we’ve seen from the subprime crisis so far to shake the foundations of the faith. A moral philosopher or theologian might question the value of the new creed to its believers’ souls; then again, isn’t the whole point of being a zombie that you’ve lost your soul?
No one wants to be a zombie; zombies are created because they have no will of their own and can be controlled. Delasantellis no doubt would think that also applies to the US consumer.