No Money Down


Because of current events, Arthur magazine just posted the column I wrote for their upcoming issue, written a month or so ago, about what's happening right now. I figured I'd share it with you here:

I poked my head up from writing my book a couple of months ago to engage with Arthur readers about the subject I was working on: the credit crunch and what to do about it [see “Riding Out the Credit Crisis” in Arthur No. 29/May 2008]. I got more email about that piece than anything I have written since a column threatening to defect from the Mac community back in the Quadra days.

Many readers thought I was hinting at something under the surface–a conspiracy, of sorts, to take money from the poor and give it to the rich. It sounded to many like I was describing an economic system actually designed–planned–to redistribute income in the worst possible ways.

I guess I’d have to agree with that premise. Only it’s not a secret conspiracy. It’s an overt one, and playing out in full view of anyone who has time (time is money, after all) to observe it.

The mortgage and credit crisis wasn’t merely predictable; it was predicted. And not by a market bear or conspiracy theorist, but by the people and institutions responsible. The record number of foreclosures, credit defaults, and, now, institutional collapses is not the result of the churn of random market forces, but rather a series of highly lobbied changes to law, highly promoted ideologies of wealth and home ownership, and monetary policies highly biased toward corporate greed.

It all started to make sense to me when I attended Learning Annex’s Wealth Expo earlier this year–a seminar where teachers of The Secret, the hosts of Flip This House, George Foreman, Tony Robbins and former Fed Chairman Alan Greenspan [pictured above in banner from Learning Annex website] purportedly taught the thousands in attendance how to take advantage of the current foreclosure boom....

or if that's overwhelmed

Douglas Rushkoff is a guest blogger.


  1. Yeah, but it’s all the Democrats’ fault because they wanted black people to be able to own homes.

    (Paraphrasing TJIC)

  2. I find the intersection of inspirational seminar and get rich quick snake-oil vulgar and enraging.

    I can’t help but think less of my country when I see the endless stream of suckers who keep these shameful scams in business.

    I can understand where it is coming from. There are lots of people out there who aren’t poor, and grew up in solidly middle class households back when it was a lot easier to attain and maintain that status. But the boundless American Dream excess that they see on TV and that they figure is their due is beyond their reach. They figure their must be an angle . . .

    The hucksters supply it. Couched in what used to be called Babbitry. All-American rah-rah always-be-closing humbug.

    I believe in hard work, innovation, and entrepreneurship, but this . . . ugh. Enough.

  3. Alan Greenspan was involved in a positivity-style seminar? Ew. Just – ew.

    America’s greatest commodity is credit – very interesting.

    You state that to be in business today requires lines of credit, but isn’t it possible to delay gratification and build a business based on cash saved?

  4. Absolutely. It’s what my last book was about, “Get Back in the Box.”

    I posited the preposterous and radical idea that businesses actually do the thing they do as their way of making money.

    It met with some derision.

  5. Can’t Boing Boing get a better guest blogger to blog on economics than a guy that went to CalArts, and is a media theorist? I don’t mean any offense to you Rushkoff, but of the 3 major art schools in LA, CalArts was the one with all the dirty hippies, Otis had all the crazy PoMo’s, and ArtCenter had its rubber-stamps. Why not get an economist, that’s all I’m saying.

  6. SKR

    Maybe because an ontological examination of the economic and political status quo by a media theorist obviously well-read in business and economic theory can help cut through a lot of bullshit.

  7. As I understand this, a few of the wiser, but no more ethical institutions were quietly dumping these instruments in late 2006, while the loan and marketing departments were still in high gear.

  8. Concerning paragraph 15:

    I’m completely lost on the reference to home ownership being an old policy used to assuage returning WWII veterans. As far as I knew, home ownership has been considered a basic desire going back a long time in America. I always considered the confluence of soldiers returning home from a war and desiring to settle down with a family, combined with an economic upswing, to be the main factor driving up home ownership and the creation of suburbs as we know them.

  9. “Our monetary system is itself a shell game, with losers built into the very rules.”

    Actually, what you described sounds more like a Pyramid Scheme ;)

  10. @ AHAMAN85

    Really, you think so? At least he got the abundance of credit being the problem right. With which I’m guessing, is what those banker types would agree. The rest however is the “bankers are evil and trying to rob the proletariat” conspiracy theory BS.

  11. #8
    Home ownership may have been part of the american dream long before the end of WWII, but I think, in part, it was the government’s enormous investment in the GI Bill that made it possible for so many to buy homes after the war.

    Giving the money directly to the people, in the case of the GI Bill, to those who served in the military, seems like a better way to grow the economy, from the bottom up, rather than the other way around.

  12. “The fiction is that the money just “vanished.” Financial newspapers and cable TV business channels say that the value of holdings has been “erased” by market downturns, but it hasn’t been erased at all. It’s on the negative side of one balance sheet, and the positive side of someone else’s.”

    This confuses me. If an asset declines in value, it means should I choose to convert it to cash it I will get less than I paid for it. If I bought my house for $1 and then it is appraised at $10 because similar houses are selling for that amount, and then it sinks to back to $1 because there is no demand for my house, the other $9 is not transferred to someone else. It remains unconverted and latent until I choose to convert it.

    Hence when the media says the Dow Jones lost $1.2 trillion, they are discussing the loss of unconverted money. And that money is gone until the dow goes back up to the same level.

    These paper losses make themselves known in the real world, because we base credit on assets and the ease of converting those assets. Back to my $10 house I could have got $9 from a bank under the loosey – goosey regime, but currently I can only get $0.90 (if that).

    By using your logic, for each dollar of depreciation that my car experienced someone is getting a dollar on their books. I’d like to be that guy, just sitting and making money off all those cars….

    Money isn’t a water balloon, it doesn’t squish from one side to another.

  13. The value of your car was in the accounts of the dealership, bank, manufacturers, government (taxes), insurance companies, and their employees the day you drove off that lot.

    The house was once worth ten dollars. To buy that house you made a 1 dollar down payment then borrowed the other 9. This money was in the accounts of the builder, the broker, the banks, the government, the insurance companies, all their employees, and the seller the day you unlocked that door.

    In both cases you are on the hook for the full cost regardless of the merchandise or properties current value. When you owe more on the car or home than their current value you’re upside down and screwed, because you’re still going to pay back the full amount. This is why the paper value only affects you until you can’t afford to make further payments or sell the house. When the property is foreclosed the current loan holder then takes on your upside down loan. This has turned into an avalanche.

    That money was not lost, it was made, created, and pocketed, and has been spent or reinvested many times since, by many people.

    At least that’s my understanding.

    An interesting angle here is these bundled loans, or securities based on bundled interest, etc. have been bought and sold so many times some people still own their home after defaulting on their loan, because no one knows who owns the property.

  14. #13 wolfiesma
    “…seems like a better way to grow the economy, from the bottom up, rather than the other way around.”


    Money attracts money — you have to spend it to get it. Money has a natural tendency to flow up the pyramid, not down it. “Trickle-down economics” is an illusion-slash-lie because the amount trickling down will never match or exceed the amount streaming up — unless someone punches some holes in the ceiling to increase the flow. That can happen through charity, taxation, regulation, or union demands — but it won’t happen magically. Wages will be as low as the employers can get away with because everyone wants their cake. Shareholders will get the lion’s share because they’re serving.

    Have I mixed enough metaphors?

    @14 Mindpowered
    “If I bought my house for $1 and then it is appraised at $10 because similar houses are selling for that amount, and then it sinks to back to $1 because there is no demand for my house, the other $9 is not transferred to someone else.”

    There’s no problem if you bought your house for $1, and sell it for $1 (well, you lose a bit to the continual inflation of said water balloon, due to the government printing more, um, water). The problem is when you buy the house for $10 in the middle of the bubble, then the value drops back down to $1 but you’re stuck with the mortgage. And your collateral (house) doesn’t cover it. And the payments are more than you can afford because someone got your hopes up with dodgy math.

  15. I can’t shake this feeling that I knew this was going to happen and I know what will happen next. The US WILL become a totalitarian Socialist government. The World economy WILL collapse. There WILL be a large scale war. Nukes WILL be used. The world WILL never be the same. I just wish there was another way. If I tell you this, my sincerest wish is that it does not come to pass and that this bad dream of mine is nothing more than a bad dream. Rome fell because of corruption and lousy politics. So the US will fall for the same reason. I think our only hope now is to wipe the slate clean and start over. Too many mistakes have consistently been made, too many bad people are in power.{D23E1901-728E-4A3C-99D1-7E80F74C3AE3}

  16. @17 – The US is heading toward totalitarianism (/authoritarianism), but away from socialism. There’s always the whole bloody revolution thing that’s supposed to come after the runaway capitalism, of course.

    (I’m way down in the middle of the green square. You can imagine how I feel about this election.)

  17. In my scenario I payed $1 watched it go to $10 and watched it go back down to $1. I agree, if I buy my house for $10 and I’ve borrowed $11 and I can only sell it for $1 the chamber pot is emptied over my head.

    The issue I have is that the article implies that on the downward stroke someone is collecting the $9 difference. They’re not. It’s gone until my house goes back to $10.

    Re: My Car

    It had a given value when I bought it, and it has a value when I get rid of it. 98% of the time it’s a loss (unless I own a shelby cobra). As I drive it around and it depreciates, no-one is making money off the depreciation. I might get a tax credit but that’s it.

    However the passage I quoted, in context, implies through the miracle of shorting, for every dollar lost someone has gained a dollar back. It’s clearly ridiculous.

  18. “The world WILL never be the same.”

    Since we’re freaking out, might as well go all the way, there are already plumes of methane erupting from the ocean beds. We may have already pulled the Clathrate trigger.

    I think our only hope now is to wipe the slate clean and start over.

    Yeah, I’d say the extinction of 96% of all life is pretty clean.

  19. Who would have thought that running the Large Hadron Collider for such a short time would have such a disastrous effect on the Financial Universe?

  20. As the value of your home, and the others that were bundled together, rose the security that represented those mortgages was bought and sold at correspondingly higher price. As the value falls the security’s value falls leaving the investor with an empty account and worthless paper.

    If the government buys these securities, they won’t know what they are buying or what they are worth.

    Our old mortgage changed hands three or four times. We went with our current lender, because they continue to service the loan after it was resold.

  21. The big multiplier on all this was this was all done on margin, loaned money. As these loans go into default, there is less money to borrow, more defaults, less to borrow, and so on.

  22. Indeed. For fun play with these spread sheets,3,4,0,0,0,0,0,0,0,1,0,0,0,0,0.html

    And the thing is, as this death spiral continues in the financial industry, its starting to choke even those who have profited by it. Goldman Sachs has seen it’s share price halved, even those that took profits in USD have watched the value of their holdings decline against most currencies and commodities.

    In the next few months, the crisis will well and truly hit Main Street USA and one by one all sorts of businesses and people that thought they were immune will found out just how it affects them.

    From Florida teachers who couldn’t get paid, to Birmingha,m Alabama getting screwed on Muni bond insurance, to Vallejo going bankrupt in California, to Deutsche Bank being the slum lord of Cleveland to all those people running from money market funds, failing banks and auction rate securities… it’s all going to get a lot worse real quick.

  23. The economic system (considered as a whole) goes to places which the components of the system will never know (nor do they need to). Similarly to evolution, which is a process which does not occur to an individual, but to a species (considered as a whole).
    But in both processes, the individual will often find that their end is in a hole. But yet still remaining just a means to the system’s ends.
    That’s the way it is when we are each just one of billions.
    I think it’s glorious.

  24. Yup. Not many people know that Ayn Rand acolyte and newly retired Federal Reserve Chairman Alan Greenspan went to work for a company constructed for the single purpose of cashing in on home foreclosures. Keep in mind that this is the man who kept lowering interest rates and overtly encouraged the real estate bubble’s growth. This is the man who testified before Congress that there was no bubble. This sonnafabeotch built the boom, watched it deflate, and was in place with a bucket to catch the bargains after the bubble inevitably collapsed. And yes, bubbles always collapse.

  25. Mindpowered: I suspect that your phantom $9 problem has to do with accounting methods.

    While it’s true that both you and a corporation are faced with the same issue– an asset that rises and then declines in value– an individual handles that very differently than a corporation would. Every asset a company has is accounted-for on the balance sheets. When the asset declined in value from $10 back down to $1, the accountant has to do something to reflect that change. I suspect the accountant would take a writedown on the “lost” $9. That writedown affects the bottom line, which is the basis for taxation. So by accounting for the ‘lost value’, the corporation gains a tax break. This would seem like no biggie until you think about what the corporation might have done with that $9 before it was written down (use it to generate more money by lending it out or borrowing against it).

    I think.
    Is there an accountant in the house?

  26. It is also important to remember the value of these securities was not the value of the collateral property, but the 40 Dollars the poor shlep was going to pay over the life of the loan for that 10 Dollars they borrowed to buy that 1 Dollar home.

  27. You know how we all talk about corrupt third world politicians siphoning money into their own pocket? Iraq was a huge party, and the politicians in the American government is about to do it yet again.

    Well, it’s not my money as I don’t live there. I should probably keep my nose out of it, but I just hate to see thieves profit and say nothing.

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