Читать книгу Maxed Out: Hard Times, Easy Credit - James Scurlock D. - Страница 7

“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 Subway sandwich shop and one of those new old-fashioned ice cream parlors where the “small” starts at five bucks and the product is beaten to a pulp on a marble slab while you watch. The Louisville Slugger Museum is within walking distance, as are several gleaming high-rises occupied by large banks. But just around the corner from the hotel is another city: check-cashing stores, Popeyes Chicken & Biscuits with bulletproof glass, convenience stores with broken windows, and crack houses.

My destination is New Albany, Indiana, a suburb across the Ohio River. New Albany is strip malls and churches, and modest-size brick homes in cul-de-sacs, and white people. The largest employer is the UPS distribution center at Louisville Airport, where employees work at night sorting packages. The biggest news is still the Caesars Palace Casino, which opened a few years ago. When New Albany voted against gambling, the commissioners in the next county couldn’t believe their luck. Hell yes, they wanted a casino! So Caesars built their casino megaplex a few yards from New Albany’s county line and started wooing its citizens immediately. They had promised a boom in jobs and tax revenues, a quick fix to urban blight and the recession plaguing the burbs. But, according to the local paper, neither materialized. The neighborhood churches and service providers, however, were flooded with new charity cases who had somehow contracted all kinds of addictions, mostly related to gambling and alcohol, Caesars’ top-selling products.

The house I’m visiting is a two-story colonial in the middle of a development of similar homes with large yards. An SUV and a minivan, both American-made and both gas guzzlers to be sure, linger in the driveway like red herrings. The home belongs to Yvonne Pavey and her husband, who drives a truck for FedEx. Six months ago Yvonne disappeared without so much as a note. That morning she dropped her grandson off at school in her blue Mercury Tracer, bought six dollars of gas at the Wal-Mart, and was never seen or heard from again. Yvonne’s daughter Kathi immediately called the sheriff’s department. A few days later, when she discovered the truth about her mother, she called the man that both women had turned to for guidance over the years in matters financial and otherwise: Dave Ramsey. Kathi’s discovery was that her mother had secretly run up tens of thousands of dollars in credit card debt to feed a gambling addiction. Yvonne had disappeared the day before she and her husband’s credit reports—ordered by her husband on Dave’s advice—were due to arrive in the mail. The local police think that Yvonne panicked, drove thirty miles into the wilderness, led her car down a boat ramp into the Ohio River with the windows down, and drowned herself. They find a lot of cars in the river, apparently. When the water gets low enough, the police told Kathi, the antenna of her mother’s car will show, or a barge will scrape the roof and then they’ll send a truck to pull it out.

It’s worth mentioning that “debt suicides” are occurring in the UK as well. Dereck Rawson, a 51-year-old forklift driver who owed over £100,000, took his life and left a note to his sister saying “I can’t pay the bills and the credit card companies won’t leave me alone.” Father-of-two Stephen Lewis, 37, killed himself after running up £70,000 in debt on 19 credit cards. Most tragic, perhaps, is the indebted Wales student whose suicide has recently attracted a great deal of media attention.

Jon Ballew, Kathi’s husband, greets me at the door. He’s middle-aged but his buzz cut suggests younger. He wears a company polo shirt over a small potbelly and blue slacks. We sit down in the living room and Kathi joins us after leaving her two young sons to the jungle gym outside. She’s dressed like a young mom: shorts and tennis shoes. Unpretentious. As it turns out, Jon and Kathi were college sweethearts. Now he works at a brokerage firm and she works part-time at the local movie theater. They go to their neighborhood church and take the kids to pizza buffets. They used to play dominos with Kathi’s parents every Wednesday night. Kathi likes listening to Dave Ramsey. I like them both immediately.

Unfortunately, however, they do not have much to add to Yvonne’s story except their grief. They are hoping that the documentary I’m filming may help lead to Yvonne, even though they seem resigned to the police theory. They just want to know. They show me the “missing” flyer they have posted at every church and restaurant within a ten-mile radius. Kathi and Jon talk about how Yvonne got the credit cards even though she was an unemployed housewife, only later finding a job as a parking valet at Caesars Palace, a job that paid the minimum wage. They describe a constant stream of harassing phone calls from banks and debt collectors and, now, the threat of lawsuits. I am amazed by their composure. They do not blame the banks, or else they swallow their anger very well. They don’t want to make a spectacle of themselves; they just want to know where Yvonne has gone.

After college, Jon married Kathi and went to work for the local bank. At the time there were only two banks in his town, and they sat across the street from each other. The focus was on building long-term relationships, which meant taking care of the customer, which Jon did very well. He treated people as he would be treated. He was empathetic and honest. He worked his way up to manager and the potbelly grew from long hours sitting at his desk. Jon was the quintessential small-town banker, the one we like to think still exists.

But a glance at Jon’s résumé tells me what’s happened to the banking industry over the last twenty years. The independent bank where he began his career has become, over the course of no less than a dozen mergers, one of thousands of branches in the JPMorgan/Chase/Bank One/First USA empire. With each merger Jon gained a new title and lost a little authority until, just before he quit banking altogether, Jon was nothing more than a cheerleader for mortgages, car loans, credit insurance, credit cards, and all of the other financial products that banks package. True, Chase’s long-time slogan was “The right relationship is everything,” but twenty-first-century banking is as much about building relationships as Wal-Mart is about building communities. The game is delivering credit (the enabler) as efficiently as possible to the maximum number of consumers and converting that credit into debt (the product). What’s really important, then, is being the low-cost provider. And to do that, you must maximize your economies of scale: You must get bigger and bigger and you must become ruthlessly efficient at every level of the company. This is why Wal-Mart is trying so hard to build a bank, and why the big banks are so zealously lobbying against it.¹

This also explains the wave of mergers and acquisitions over the past decade, the annoying ritual of having your cards replaced every other year so that you can advertise their new brand and logo. Ergo, the obsession with centralized decision-making and efficient customer “processing”—which, for the vast majority of us, translates into phone-tree purgatory and customer representatives with exotic Bangalorean accents. Ergo, the conversion of what we used to call “banks” into sales centers where we are hard-sold a credit card and second mortgage (otherwise known as a “refi”) the moment we try to open a savings account. But apparently these initiatives haven’t mustered up the desired response, for, at the end of the day, the banks always seem to raise fees—or create new ones—to make their numbers. There are fees for going over the limit (but only when the bank approves of you going over limit in the first place) and there are fees for paying early. Fees for paying by phone and for paying in person. There are fees for paying after a certain hour on a certain day. There are penalties for taking out too much debt and too little. By one estimate, the credit industry now collects $20 billion per year in fees that didn’t even exist twenty years ago. Familiar fees, like returned-check and late-payment penalties, have gone up nearly two-hundred percent in the past ten years. These fees, incidentally, cost the banks nothing. Similar scams have been gaining steam in the UK, where the banks are showing even less restraint. Consider a typical scenario: if you exceed your credit limit by £16, for example, most banks will charge you £39 for the privilege. They may also impose a £28 monthly “unauthorized overdraft fee” (though they have clearly authorized the overdraft by paying it) and, for good measure, would almost certainly levy interest at more than 30 percent per year—a total markup of more than 400 percent! No doubt shocked by the banks’ audacity, the Office of Fair Trading has ruled that no charges should exceed £12 from now on. So, to Wal-Mart, I say, “Bring it on!” They’ve never charged me a processing fee for running my Cocoa Puffs over the scanner. And they let you use the bathroom.

In fact, the banks now seem to be pursuing the opposite strategy of Wal-Mart: Be the high-cost provider—just make sure to pass that cost on to the consumer. The key is to sell as much fee-generating product as possible and lock it in over the longest possible period of time. That’s why, if you pick up the want ads, you’ll find that the number-one qualification to work as a bank teller is not accounting or math or analytical skills: it’s suggestive selling experience.²

Jon and I are sitting in his mother-in-law’s immaculate kitchen, talking shop over a cup of coffee. “I know for a fact,” he tells me, “that they’re not interested in anyone with a banking background or knowledge of how it works. They want people with retail experience, like people who have worked in stores at the mall. People who can sell, sell, sell.”

“Sell debt?” I ask.

Jon raises his left index finger and ticks off an exhaustive list of financial products he had to sell: car loans, boat loans, vacation loans, refis, credit cards, overdraft protection, etc., etc. He pauses at credit insurance, a profit workhorse that, unbeknownst to most customers, mainly protects the bank by guaranteeing payment of one’s unsecured debts in the event of a job loss, illness, or death.³ (A friend’s grandmother was recently convinced to purchase credit insurance on a card she never uses, presumably because the word insurance automatically appeals to Depression babies.) Jon tells me how he was sometimes encouraged to increase the value of a refi by suggesting that the customer go on vacation or buy a new car. The cost of the vacation and/or the new vehicle would then be folded into the refi, making the loan amount much higher. “There’s a lot more pressure to hit these numbers,” he says. “And the standards have gotten so low, it’s credit without good judgment.”

So standards are down and pressure is up. If you fly Alaska Airlines, your cocktail napkin doubles as an advertisement for the Bank of America platinum Visa card and the flight attendants interrupt your nap to hand you an application in case you didn’t get the hint. If you open any of those innocent-looking e-mails from people whose names, with their tinge of familiarity, just might be a long-lost college pal, you will be assaulted by rate sheets and urged to call now for a free quote or to claim the credit you deserve with no obligation. If you go to the doctor, you will find that Capital One would love to finance your next surgery. Fees have changed the way banks make money. But most people still believe in the good old days, when banks only lent you money if they thought you could afford to pay it back. We still see approved as a major validation. Getting a loan from a bank, even in the form of a high-interest credit card, means crossing the threshold into adulthood.

Why do we continue to believe this fairy tale? Because we want to and the bank tells us to. Any credit offer that holds back on the love and adoration of a prospective client does so at its own risk. The envelope must look important, the copy must inform us of our preferred status, the vice president of marketing must personally congratulate us for being a valued customer and praise our responsible use of credit over the years, perhaps reveal that we are on a special list, that we are platinum or titanium or centurion or platinum select or preferred or whatever platitude we may not have heard—yet. The bank is not just giving us credit—oh, no. We have earned it and they are simply acknowledging our greatness. Our destiny. They are our humble servants. Their admiration is limitless and the credit will be ever flowing. Okay, so there will be a credit limit, but, then again, it can always be raised if we call them and beg, and it can be broken if we pay an overlimit fee.⁴

For those of us who receive our first credit offer in high school or college, it is as though we are leapfrogging the threshold into adulthood and realizing our ultimate destiny: to be a member of the American upper middle class. The late author Hubert Selby liked to say that Americans are taught that they are born assholes and the goal is to become an asshole with money. Yet, thanks to the new banking system, we are all assholes with credit by virtue of our eighteenth birthday.

I recently discovered, courtesy of a banking executive’s deposition that was made available to me, what actually happens when a completed credit card application, er, invitation (priority processing!) arrives at its destination: a data entry clerk sitting amidst dozens of similar cubicles pulls it from a stack of identical envelopes, types in the name, address, and Social Security number, and presses a button that sends this information to a credit bureau, which returns a credit score in a matter of seconds. This score determines whether or not the application is accepted and how much credit is to be granted, within a matter of nanoseconds. If denied, a rejection letter is automatically generated, the applicant is referred to a “subprime” lender, and then the application is shredded (we can hope, anyway). If accepted, the clerk flips the full application (the personal stuff about your job and how long you’ve lived at your present address, yada yada yada) onto a scanner. Most of this information, however, will never be used or even seen by anyone at the credit card company. It is only saved, as the executive explained, to “get a jump on collections.” Which reminds me of a beer cozy I got from a little gas station on the way back from Vegas: “If you think nobody cares, try missing a couple of payments.”

By the end of our conversation, I am amazed that Jon has any positive memories of the banking business, but he does. Jon tells me of an older customer, probably Yvonne’s age, who was living on Social Security. She had run up over $20,000 in credit card bills. How she got the credit cards in the first place is probably more troubling to us than to her: When you are of the age of hot flashes and senior moments and your home is about to be foreclosed, you don’t dwell on details. What matters is that Jon convinced her to cut up the cards, refinance her modest house, and create a budget which she could afford by being vigilant and never wasting a nickel for the rest of her days. By doing this, he saved her from eviction and who knows what fate after that.

Jon had been her guardian angel and the woman had cried tears of gratitude. It was the kind of good deed that he had imagined doing when he became a banker. The fact that her problems had not been caused by drought or recession or widowhood but by Jon’s own employer did not seem to bother him. What mattered was that he had cleaned up the mess and saved a life. Then, a few months later, the woman called the bank’s credit card division and said there’d been a mistake, that she wanted her credit cards back. Maybe she’d grown tired of eating canned vegetables or maybe she was itching for a trip to Caesars. The bank didn’t ask. They mailed her new cards out the next day.

Jon smiles and takes a sip of his coffee. Maybe it’s not such a great memory after all.

I wanted to visit Las Vegas for three reasons. One, the present banking system seems a lot like legalized gambling; two, Paul Krugman was becoming famous for his observation that “Americans are making money selling each other houses with money borrowed from the Chinese” and there was no hotter real estate market than Las Vegas, where homes had shot up nearly 50 percent in the past twelve months; and three, it is the home of Robin Leach, of Entertainment Tonight, Star Magazine, and Lifestyles of the Rich and Famous, three pop culture phenomena that social critics and college professors love to blame for setting off the chain of events (Cribs, Us Weekly, Paris Hilton, etc.), which will eventually cause the meltdown—financial, moral, intellectual, and otherwise—of our civilization.

I meet Robin Leach in an upscale Italian restaurant at The Venetian, a glitzy megahotel/casino with its own canal system and singing gondoliers. Leach is heavier than he used to be and sports a salt-and-pepper goatee, but thankfully he has lost none of his ebullience. As anyone who’s watched Lifestyles knows, Leach is not a pessimist. He believes in the greatness of capitalism and the reality of second comings. Wayne Newton and Debbie Reynolds, both of whom declared bankruptcy, only to reappear onstage in rhinestones, were two of his favorite guests. And then there’s Donald Trump, one of the generation’s most prolific debtors. A terrific marketer, according to Leach, and not a man to underestimate, by the way. When I ask him if he thinks that Lifestyles’ slow pans of The Donald’s penthouse and helicopters caused people to become a little materialistic, he bristles. Leach believes the opposite: that his show promoted classic American values. As proof he offers up the story of an older black man he met by chance in a liquor store in L.A. The man thanked Leach for inspiring his two sons to change from Burger King–loitering homies to Brown University grads. When I look unconvinced, Leach cuts to the chase: “Nobody would watch Lifestyles of the Poor and Unknown,” he crows. Case closed.

So it’s out to the suburbs for me, where the real action is. My producer has set up a meeting with Beth Naef, one of the city’s most successful Realtors. Beth sells dirt parcels and multimillion-dollar spec homes in what are commonly known as master-planned communities—those themed kingdoms of miniature castles and golf courses barely hidden behind low fences and superficial “gates.” A recent ad in Vegas magazine, squeezed between full-page glossy body shots of strippers, showcases nine of Beth’s shiny new trophies under a vivacious photo of herself and the headline “Passion.” Beth’s company, Prime Realty, operates out of a newish strip mall seven miles or so from the Strip, at the base of a series of hills that developers are carving into lots and selling at a mind-numbing pace. The road itself is still under development but already nurtures a series of familiar franchises and big-box stores. A constant dust storm is fed by a hundred construction sites, and cars bake in the sun, barely moving. The heat is oppressive. I wonder if a view of the Strip and the chance to see Barry Manilow five nights a week could really make it worth living here.

Luckily, Beth is as dynamic and charming as my producer promised. She’s middle-aged but seems far younger. The St. John’s pantsuit and gold jewelry practically scream “upscale Realtor” but I’m a sucker for her tomboyish bent and easy grin. As it turns out, she’s just moved into her new office, which she’s designed to feel like one of the “custom” homes she sells. Or so she says. It feels more like an upscale Marriott Hotel than a place to raise children or fart on the couch. It’s too clean. The surfaces are too hard and too polished, the fabrics too industrial, the colors too neutral. It’s the kind of place you can imagine yourself leaving the moment you enter. You know that the perfectly placed throw pillows and pashminas aren’t there for your comfort. You know better than to leave an impression anywhere.

Today is slow, meaning that Beth has time to talk. Her days are either feast or famine, she tells me. There is simply no knowing when buyers will suddenly outnumber sellers and vice versa. And this clues me into a simple truth. Her clients are not buying a home: They are investing in a home.⁵ Timing is everything. If they don’t call, this does not mean that they aren’t there: It means they are waiting on the sidelines for the right moment to reenter the game. While they wait, the number of Realtors grows. Beth knows that a lot of her competitors are trying to build their own businesses by outpromising her but she seems more annoyed than threatened. She can afford to relax a little. What she can’t do is get too comfortable.

Beth is, in her own words, “blessed.” Six years ago, a newly single mother of two little girls, she stumbled onto the opportunity of a lifetime. A national real estate developer had just bought several hundred acres of desert overlooking the Strip and was looking for sales agents. Beth got a job as a receptionist at the sales center, but her potential as a Realtor must have been obvious to the developer. Within six months she’d gotten her broker’s license and most of the listings in “Seven Hills,” a brand-new development meant to evoke the serenity of the Italian countryside.

Beth sold most of the lots in Seven Hills. Then, as Vegas real estate started heating up, she sold many of them again—this time with houses. As interest rates fell and property values rose, Beth noticed something very interesting: Her clients weren’t staying put, feeling smug they’d gotten in early and refinancing their mortgages at lower rates. They were selling and moving into bigger homes on bigger lots, sometimes in the same neighborhood. And they were making a killing. Prices in master plans like Seven Hills were skyrocketing. Developers couldn’t build new homes fast enough to meet demand, giving the homeowners a seductive taste of easy money. Many became speculators. And there was Beth, smack in the middle of a nationwide real estate boom that made the tech craze of the late nineties look like pocket change. And unlikely as it had to be, Las Vegas, with its scorching weather and monotonous landscape, was becoming the hottest real estate market in the country.

“What’s big in Las Vegas now,” Beth explains on a tour of Seven Hills’ larger units, “are home theaters, a wine room, elevators—because the homes are getting pretty darned big—two washers and two dryers, two dishwashers in the kitchen, huge kitchens.” In other words, what’s big in Vegas is bigness. When Beth started out, her clients were building 4,500-square-foot homes. Now a typical listing is 8,000 to 9,000 square feet. The largest home in Seven Hills is nearly twice that. “They’re just making them as big as they can,” Beth laughs. “And people want a gate. But more important, a gate with a guard. I had some wonderful lots for sale in Seven Hills that were clicker-gated. And people were, like, ‘But there’s no guard.’ What do you mean? The views are incredible! But people want the guard. I don’t know if it’s for prestige value or security, but people want that guard.” For the first time Beth sounds slightly exasperated.

Moving on, we exit the wrought-iron gates of Seven Hills. I am still wondering why it was named after, as Beth says, “someplace in Italy,” because none of the homes seemed remotely Italianate, and then there is the glaring absence of Vespas and Fiats, but whatever. We are headed to a newer development called MacDonald Highlands, an allusion to the lush rolling hills of my Scottish ancestors. Beth has scored her first listing at MacDonald: a $5.5 million spec home. Initially she wasn’t interested, but suddenly prices in the Highlands have surpassed those in Seven Hills. This makes no sense to Beth or probably to anyone else, either, save the speculators. They have jumped in again, but onto a different field.

The gate at MacDonald Highlands has a guard, which I now know is a major plus. He even has an official-looking badge and pants, though the stain on his shirt and the Taco Bell bag behind him probably won’t help Beth move real estate. There’s something very airport-security about the guy, but I’m guessing that airport screeners make more money. His only purpose seems to be opening the gate very quickly, which pretty much debunks Beth’s security theory—though, in his defense, we are white and in a big Mercedes. As Beth explains later, channeling Annette Bening’s character in American Beauty, it helps to drive what your clients drive.

There are no kilts or bagpipes at MacDonald Highlands, though it does seem to offer all of the amenities one would expect of a master-planned community. There’s the guard, of course, and a golf course, fresh pavement, themed street names, matching mailboxes, manicured lawns that look painted on the desert’s ubiquitous shade of ecru, and no doubt a laundry list of homeowner association rules (no garage sales, no pickup trucks parked outside, no “estate” sales, smarty-pants, etc.) that guarantee that everything will stay this perfect forever, or at least until you’re ready to trade up. As master plans go, it seems less cookie-cutter, more authentic even, though the Scottish name will gnaw at me a little, not least because the notion of two washers/dryers offends my ancestors’ thrifty sensibilities.

For the past twenty minutes I’ve been very curious to know what a spec house approaching six million bucks on the outskirts of Las Vegas looks like. As it turns out, the answer is a massive shoe box with huge windows and very little yard. Beth barely gives the exterior a glance before leading me past a massive oak door whose weight is, I have to admit, pretty impressive.

The home’s builder is a large man—Israeli, I think—who greets us in the spacious kitchen. He seems more than a little nervous. After all, nobody knows if the market has peaked. Homes are taking longer to sell. The big developers are offering incentives again—to buyers and agents. The word bubble is being tossed around at cocktail parties and has even appeared on the covers of respected business magazines. He needs to get this white elephant off of his hands, fast … Who knows how much interest he’s paying a bank every month it sits here, being big? Beth takes a yellow pad out of her bag and scans the Sub-Zero refrigerators and Viking stoves with a thoughtful eye.

Beth, I realize, has a great poker face. This drives the Israeli man nuts. He peppers her with questions, asking for some clues, but she won’t commit to anything: whether the asking price is too high, whether the market is overbought or oversold, whether she likes the house, even. All she promises is to take some notes, design a glossy brochure (Entertainer’s Dream! Sunny Delight! or some such Realtor euphemism), and wait for someone to bite. She turns the conversation to the home that she and her husband are building in Seven Hills. They had planned to do a concrete roof, she says, but the more she thinks about it, another $11,000 for the tile roof doesn’t sound so bad. She asks the builder for his opinion. He takes us out onto the patio and points upward. Rubber. It’s cheap, looks fine, and no one notices anyway.

Beth casts a thoughtful pose—she is a great listener—then leads me on a tour of the mansion, taking notes on the yellow pad as she points out the important features. There’s the home theater (good) and the view (pretty good) and the sunken poolside bar with the built-in barbecue (very good, very now). The architect knew the formula. He penciled in two of everything that you would find in a home of half the size and he made the rooms twice as large. But then there is also the design (not so good) and a smaller-than-expected master bath (bad) and, finally, a bizarre wall treatment in the foyer that is supposed to resemble marble but looks more like the side of a frat house after a party (very, very bad but fixable).

After sharing some parting words and nervous laughter with the developer, Beth and I get back into the Mercedes and Beth’s face softens a little. I can tell that she is underwhelmed. One of the negatives of a hot market is that expectations get out of control, she says quietly. Five and a half million dollars does seem pretty steep for a giant shoe box with an elevator, at least to my amateur mind, even if you can see a bunch of lights at night. Then again, if home prices rocket up another 50 percent in the next twelve months, it’s probably a steal.

But then I realize that what we have just walked through is not a home at all: It is an investment—or, to steal an analogy from the tobacco industry, it is a debt-delivery mechanism. Houses—homes, if you want to get quaint—used to be the savings vehicle of the middle class. The mortgage was a sort of layaway program guaranteed and closely regulated by the federal government. The obvious advantage to home ownership as opposed to putting money in the bank or under a mattress was that it protected you from the ravages of inflation—and, by default, destitution. But no longer. Now an entire, increasingly unregulated industry exists to ensure that the house is not a vehicle for saving but for spending and even for speculating. Armed with euphemisms like “Release the hidden value of your home” and fueled by Americans’ gratitude for credit and our short memories, this industry has become hugely profitable and almost unfathomable in size. The total amount of mortgage debt in the United States is now greater than the value of all the stock markets combined. It’s a similar story in the UK, where consumer debt recently passed the £1 trillion mark for the first time. Along the way, familiar phrases like home ownership and American Dream—simple terms whose goodness once seemed self-evident—have become hopelessly obscured. The goal is no longer to be free of debt, to own something of lasting value. The goal is simply to be free of “bad debt.” Debt that buys you a bigger house is “good,” because the home will always appreciate and you are simply leveraging your earning power to generate the maximum profit. “Bad” debt is the credit card junk and the other high-interest, unsecured balances you’ve accumulated,⁶ but those can now be magically transformed into “good debt” by refinancing your home and using the proceeds to “pay off” those “bad” debts. Presto!

In reality, of course, there is no difference between good and bad debt. Debt, by definition, is nothing but a liability, a promise to pay. And, to put it simply, if you can’t afford an expensive house now, you still won’t be able to afford it when that same house becomes even more expensive.

Our last stop of the day is the office, where Beth has scheduled a meeting with a lending consultant. He is an older gentleman, maybe early seventies. He was probably born during the Depression. He has definitely lived through boom and bust and boom again. After admiring Beth’s new digs, he sits down with her and explains why mortgage debt is “good” debt: The interest is tax deductible!⁷ He knows that most people don’t fully understand the math of the tax deduction, but he also knows that most people hate paying taxes, which is his ace in the hole. He can whip out a calculator and quickly show them how buying a bigger house actually saves them money, because the more interest you pay, the more you can deduct! Sha-zam! It doesn’t hurt that one local bank’s new mortgage calculator encourages folks to spend up to 55 percent of their income on the mortgage, more than double what Realtors used to recommend. Bad credit or no credit? No problem! This consultant can fix his clients’ credit ratings in a matter of weeks, sometimes days, by paying the credit bureaus special fees to expedite the erasing of negative items.

Beth interjects with an interesting question. She’s heard that you should never cancel a credit card because it hurts your credit rating. True, says her guest. You want to show as much available credit as possible, though you should maintain at least a little balance, presumably to show the credit card companies that you enjoy paying interest.⁸ Beth nods her head to show that she either understands this rather counterintuitive fact or else she needs him to speed things up.

When the consultant starts talking about building a relationship together, Beth finally cuts to the chase: What can he offer her clients? He responds that the only question on most people’s minds is “how big of a house can I get for the lowest payment?” So his job is to get them the biggest bang for their buck by hooking the biggest loan possible. How can he help Beth? By up-selling her customers into bigger mortgages and, by default, more expensive properties.

Beth wonders out loud how most folks can afford to buy a house these days. After all, the average listing in Vegas is now over $250,000. So later on I decide to call a mortgage broker I’m friends with in Los Angeles, where homes are really expensive. His chief assets are that he is attractive, enthusiastic, and very friendly. Like Beth, he also happens to live in one of the hottest real estate markets in the country. Locals are now saying that property in Southern California never goes down, even though that’s precisely what happened a decade ago. But for the moment they’re right. Home prices have been increasing by at least 20 percent a year for as long as anyone cares to remember.

Last year my friend pocketed $70,000, mostly in commissions. This year he’ll do even better. That’s more than double the median wage in America and far more than he made selling expensive jeans at the mall, his previous job. But, unlike Beth, his clients aren’t rich. Sometimes they aren’t even what we would traditionally call middle-class. His newest client is a cashier at Home Depot. She wants to be a homeowner—or, more precisely, a condo owner. The tiny slice of the American Dream she craves is priced just north of $400,000—a bargain by L.A. standards but unrealistic, given that her take-home pay is around $1,300 per month. In other words, she earns half the mortgage payment she would have to assume in order to buy the condo. It doesn’t take a calculator to figure out she can’t afford it.

Yet, the mortgage industry has created a product for her and the millions of other earnings-challenged Americans like her. It’s officially called the “stated income” loan, though mortgage brokers like my friend refer to it as the “liar’s loan.” And it works like this: The Home Depot cashier writes down whatever income my friend tells her the bank needs to see on her application (wink, wink) and both the broker and the bank promise not to verify it by asking for tax returns or paycheck stubs (nudge, nudge). If needed, she will find a “tenant” to mitigate her rent “shock,” i.e., the fact that her mortgage will be four times her previous rent payment, a fiction that he or she will put in writing for the bank (wink, wink). If she has no friends, or if she has friends who are unwilling to commit fraud on her behalf, friends may be appointed for her, probably by the mortgage company (triple wink). All the cashier needs to do is provide a decent credit score and her signature. The bankers will provide the money, and their sense of imagination/denial will reach new heights. “Who knew that cashiers at the Home Depot netted $6,000 a month?” they will ask each other incredulously at the water cooler. Must be one hell of a union!

But the application is just a bump on the road to the dozens of new products that make that monthly payment seem within reach. By far the most popular is the interest-only loan, in which the “buyer” pays only interest for the first two or three years at a very low short-term rate, then is “converted” into a traditional payment plan with a much higher long-term rate. In London, where prices are exorbitant even by US standards, things are even easier. You can get an interest-only loan for as long as you desire, as long as you repay the full amount by retirement. And, if your income isn’t sufficient to qualify, you can apply for “fast-tracking”—meaning that the bank won’t bother to verify how much you earn. There is also the “negative amortization” loan, in which the mortgage becomes larger every month because the payments aren’t high enough to cover the interest and principal. And then there’s the 125 percent loan, in which the bank lends the borrower 25 percent more than the value of the property. That extra money, I assume, can be used to make the mortgage payments the borrower could otherwise not afford. As Beth later explains with deadpan understatement, “These lenders are having to be very creative.” So are their ad agencies. NIG’s latest ad, for eample, asks ‘What if a mortgage could make you richer?”

Every one of these loans rests on a simple principle: property values will only go up. My friend’s client, for example, is betting that her condo will appreciate fast enough so that the equity she accumulates can be cashed out to make her future mortgage payments. Of course, cashing out the equity means that her total mortgage payment will have to get larger. She’ll be surfing decades from now, and that’s if everything goes according to plan. If the condo doesn’t appreciate in the double digits, or if interest rates rise, or if she can’t find a real roommate with real money, or if she decides to eat or put gas in her car, she’ll drown very, very quickly.

Officially, more than half of the new mortgages in California are some variety of interest-only loan and the average down payment has fallen from 20 percent to around 3. This means that the notion of home equity—the percentage of your property that actually belongs to you, as opposed to the bank—no longer exists for most new homebuyers. My friend tells me that nearly all of his clients are getting interest-only loans and estimates that 85 percent of them “have to” misrepresent their income. Similarly, in the UK, around 30 percent of mortgages taken out today are interest-only mortgages, compared with only 12 percent in June 2003. He assures me that the banks know this is happening. After all, with home prices increasing so rapidly in California, lying is the only way that most people can afford to buy a home. Does he understand that this will help no one, least of all the desperate souls being approved to assume thirty-year liabilities? Does he understand that these amateurs are surfing a tsunami?

According to the Federal Reserve, 12 percent of young families—those whose head of household is 35 to 44 years of age—were more than two months behind on their debts in 2004, twice the percentage from 2001. It’s worth noting that, in 2004, home prices were booming. By 2007, will that number have doubled once more?⁹

The next afternoon, Beth offers to take me to the site where she and her husband are building their dream home. As we get in the Mercedes, talk again turns to how blessed she is. She has three girls whom she worries about spoiling. She owns her own business. She has a personal trainer. She is happily married to a man who also works in the real estate business—for a master plan called Alliante, which sounds suspiciously like the car that was supposed to make Cadillac hip. Her daughters are in Catholic school even though she says that the public schools in Vegas are terrific. (I think she has to say that.)

She and her husband recently sold their 4,500-square-foot house for close to a million dollars, doubling their money in a few years. They will move into the new 11,000-square-foot dream home in April, which reminds her of the roofing dilemma. She interrupts our conversation to call her husband from the car, meaning that I finally get to observe Beth sell something. She goes in quietly, as though she herself has not made up her mind yet, as though she is also weighing the pros and cons. But then she starts leaning toward the tile, thinking out loud. After all, tile looks nicer than concrete. And the large homes in Seven Hills are mostly doing tile. They can fold it into their construction loan (and tile will automatically increase the resale value of the house; that’s the real beauty of it: it’s kind of free in a sense, really) and the difference in monthly payment won’t be noticeable—well, everything is relative. When she hangs up, I ask her if she’s already thinking about flipping. “If I can make a profit,” she replies, “why not?”

When I finally meet Beth’s husband, a soft-spoken man who drives a matching Mercedes, he asks me if Beth has told me about the new house. When I reply in the affirmative, he mumbles, “Crazy.”

The home is little more than foundation and framing, but one can just begin to imagine angles, textures, places for windows and doors. In front of us, the sun is setting. The desert glows in rapturous oranges, yellows, and auburns through the beams. At night the air in Vegas turns cool and the desert can seem like paradise. Beth and her husband walk amid the sawdust and discarded soda cans and fast-food wrappers. They point at different areas, imagining rooms. I overhear Beth say something about how excited the girls are, but I know that it’s their mother who is most excited. She is living the American Dream. More important, she has apparently sold her husband on the tile roof.

Later, Beth will try to explain her own mortgage product to me. The bank calls it “loan to value” because it bases the loan amount not on the value of the land or even the land and the cost of the house, but on the value of the house after it is built. Beth calls it “a very ingenious way to get people to keep building expensive homes.” The result is that Beth was able to borrow far more than she could have with a traditional loan. Of course, the future value of a mansion that hasn’t been built yet in the middle of the desert, and in the midst of a speculative real estate bubble, is more than a little subjective. “I’m very lucky they had that loan,” Beth gushes, as though this were all an utter coincidence, the stars aligning to make her dreams come true, “though if that interest rate goes up by the time we move in, I might not be able to afford the house anymore.”

She giggles at the absurdity for a moment, but I catch a glint of hope in her eye—the glint of a speculator—before she adds, “I guess if you look like you make money, eventually you will, you know.”

¹In the UK, all the major supermarket chains offer financial products such as insurance and pension plans. Most offer direct banking through exclusive partnerships with major banks, e.g. Sainsbury’s/Bank of Scotland and Tesco/Royal Bank of Scotland.

²Okay, most of these jobs also require a high school diploma or equivalent.

³The banks get a commission from the insurer, or, in many cases, an affiliated company collects the premiums. Less than half of these premiums typically go to paying claims, versus one hundred percent for most forms of insurance.

⁴See addenda to “Terms and Conditions.”

⁵In March 2006, USA Today reported that 40 percent of home sales were for second homes, the vast majority of which were purchased as investments.

⁶Perhaps by furnishing the house, or maintaining the house, or, God forbid, paying the mortgage with cash advances.

⁷This is not the case in the UK.

⁸This is later confirmed on an episode of The Suze Orman Show. Suze says that lowering your credit card limits automatically lowers your credit score.

⁹Again, the UK is no different, although the problem appears to be growing at a slower rate. There, around 280,000 mortgages are one month or more in arrears. That represents an increase of 4 percent from the same period one year ago.