I’ve been doomsaying the American economy for the last 3 years – predicting a burst in the housing bubble and predicting a failing of the credit markets shortly after that housing bubble burst. I’m not an economist, not even an Underwriter in the financial institution I’m employed at. Hell, I don’t even have a complicated understanding of financial modeling. My of my doomsaying, early on, was simply a matter of gut instinctuality – these 0% APR mortgages with no downpayment and the low-low interest rate platinum credit cards with the extraordinarily high limits that were being handed out left and right simply seemed too good to be true. I mean, on the one hand, how were banks making any money on 0% interest rates? (Answer: fees, fees, fees, and eventual rate adjustments due to any number contractually agreed to conditions) And how was it responsible for banks and consumers to expose themselves to historically astronomical individual debt loads without a corresponding astronomical increase to individual wealth? The more time I spent lingering with these questions, the more I sought to use my job to better understand the financial industry, markets, and the dynamics of lending and leverage – leverage, I later found, being the key to my argument.

The Bush Administration has brazenly stated through most of its two terms that American wages are up and consumer spending is strong, but that didn’t exactly jibe with what I was seeing. Certainly, people were spending like mad – as the extraordinary proliferation of new box store after new box store through the 00’s attested to. That said, I knew that NAFTA had hit the heartland hard, and that jobs in the lowest class of our economy – and the biggest chunk of our population – were not only shrinking in number, but shrinking in wages. Folks who formerly held unionized factory jobs were, in the wake of NAFTA-exported labor and manufacture, ending up manning registers at Wal-Mart – certainly a reduction in wages, not to mention in benefits as Wal-Mart denied its employees more than 30 hours a week of work to minimize their eligibility for health care coverage. Furthermore, I wasn’t seeing a uniform increase in wages among my middle class peers – most of us were holding steady at our income levels, and those of us who were changing positions were experiencing the moves laterally. Certainly, there were some spectacular stories of economic climbing, but… My concern were the exhorbitant salaries of celebrity CEOs – men who earned my annual salary in an hour or even in 10 minutes, and men who enjoyed even more exhorbitant “golden parachutes” when they were forced out of their positions for failing one set of expectations or another. It seemed absurd to me that a CEO could lead a company to billion dollar losses, get fired, and enjoy a severence – a severence! – whose face value was in some cases 5-or-6% of the total value of the company’s losses. Wages, I realized, may have been “up” for all of America, but that was largely because the superrich were growing exponentially richer while everyone else held stagnant or even substantially lost the values of their incomes. I argued this point three years ago, mostly to deaf ears; now, it would appear that the news media is starting to validate these concerns.

If wages are only up – spectacularly – for 2% of the population, yet spending has been remarkably high since Bush instructed Americans to “shop” in order to defend freedom and fight terrorism, I wondered what the hell was fueling our spending spree. Afterall, I made good money but, after bills and rent, wasn’t able to go out weekend every weekend, like so many friends and family members, and come home with flat screen televisions, new furniture, iPods and other gadgets… I came to strange realization when I lived in Madison from 2003-2005, going with my brother to Target every Saturday, that we were not the only consumers who made the same weekly trek – I saw a lot of familiar faces through those 18 months. What’s more, they weren’t buying just one or two modest items – they were loading up on DVDs, video games, junk food, toys, CDs… If I wanted to consume like these people, who certainly made at most what I was making and, taking into account their children, had less disposable income than I, I knew I’d have to get access to a serious line of revolving credit. Credit cards, I decided, in addition to auto loans and mortgages, were driving the economy. New statistics are baring this out.

Working in the banking industry for almost a decade now (much to my chagrin), I’ve observed that banks have something called an IGL – an Internal Guidance Limit – for corporate customers. What this means is that there’s a maximum that a bank will allow itself to lend to a given customer – usually determined by the customer’s overall wealth and its overall indebtedness (the two taken together determining it’s ‘leverage’ – or, debt-to-worth, which is used as a reasonable indicator of how able a customer is to pay back those debts), and also to qualitative factors such as health of the customer’s industry and how much exposure the bank already has to that industry. There’s wisdom in this for the bank: Lets say the bank lends a single corporate consumer whose net annual profits are something like $1billion four times that amount on terms that require most of that indebtedness to be paid back in 3 years. Let’s also say that the customer has loans from other banks on similar terms totalling more than $5billion – that means that the borrower has to repay a total debt of $11billion in a period where it’s only going to earn a total of $3billion dollars. It’s an impossible objective to achieve – not only because the borrower isn’t making enough money to repay the debt owed, but because the size of the debt is so great that the monthly and quarterly payments are so great that they’d cripple the customer’s ability to use it’s profits – it’s capital – to keep its business healthy and thriving. It’d be like a consumer having a monthly income of $2,000 and having credit card minimums of $1,500 – the consumer can’t afford to feed herself, let alone make rent and utilties, with those kinds of debt payments weighing her down. And IGL is good business not only because it presents the bank with realistic repayment likelihood, but because the bank takes a vested interest in promoting its corporate customer’s financial health.

Banks will argue that they have IGLs for consumer customers as well – you and me – and we could certainly argue that those IGLs have been substantially relaxed during the credit boom during the early part of the Bush Administration, and that those relaxed standards and aggressive attempts to take advantage of those relaxed standards have allowed individual consumer customers to be overleveraged by their debts and financially crippled for it; that this is happening over such a large swath of the American populace should have us all wondering how such mathematically brilliant people as bankers can be so fucking stupid. It’s one thing to bankrupt a single borrower; it’s another entirely to so indebt an entire populace that it collectively cripples their spending power, their quality of life, and, as a result, the strength of their economy and currency.

Why the hell didn’t these banks have IGLs to national or regional pools of customers? If a bank takes a corporate customer’s market’s health into consideration when lending, why not look at the health of a consumer customer’s local economy as well? If NAFTA has drained good-waged factory and farm jobs out of Lansing, Michigan, and the best thing Lansing’s got going for it as thriving Wal-Mart, wouldn’t it make sense to put a cap on the total amount of collective credit card debt you’re willing to lend to that community? If everyone in Lansing makes under $25thousand a year, everyone has maxed their $20thousand Visa limits, and everyone has missed at least one payment, jacking their 0% APR up to 25% APR, how the hell do creditors expect people to survive after their monthly minimums, let alone ever make good on their debt? And if a community of people – an economy – are collectively so burdened by their debts’ minimums that they can’t make ends meet, it’s inevitable that their economy will suffer for it, and as their economy suffers, jobs will be shed, and the jobless won’t be able to make their minimums at all… The whole problem just gets disasterously compounded.

Which is where we are right now. Economists have agreed that a recession began sometime between January and March of this year (though I’d argue it began in the second half of 2007), and most economists also agree that the Bush economic stimulus checks (called by my friends Bush’s “fuck all y’all money”) did little to bolster that recession. Banks have posted spectacular losses, and while the multinationals are staying afloat, smaller regional banks are already buckling under. It would appear that the bubble burst has been slowed, and economists seem to be saying that, thanks to Federal interventions in the form of slashed interest rates and bailouts of select financial institutions (Bear Sterns, Fannie Mae and Freddic Mac), the worst is over. Everyone is applauding banks as they tighten their credit requirements, stop those naughty lending practices, and get serious about responsible lending. The recession has apparently halted, and it’s only a matter of time before we’re back on track.

Um, what the fuck? I’m not an economist, but this madness just flies in the face of common sense – as did the crazy lending practices of the last 7 years. Banks may not be lending as much nor in the same way, but that’s because Americans are already spectacularly over-indebted. Since credit was driving the economy, and now people have maxed out their indebtidness, they’re not going to be able to spend anymore of that indebtidness – and since their incomes are going to cover those minimums, spending is going to decrease – as we’re already seeing. It’s that decreased spending that’s going to drive companies to shed manpower – as we’re already seeing. The more people are out jobs, the less they’re able to spend, further exacerbating the cutting of more jobs. The more people are out jobs, they less they’re able to make good on their minimums, let alone their total indebtedness, and the more likely it is that banks are going to continue to experience financial losses – not only are more people not going to be able to make their credit card premiums, but a whole new crop of mortgages and auto loans are bound to fail as well.

Maybe the subprime bubble has burst, but there are a few other financial products bubbles about to burst as well. The worst isn’t over – not by a longshot. This recession has only just gotten started. And now I’m not the only one who thinks so.

As we slog through it, I hope we’ll begin to really consider what happen. Certainly, consumer greed is a huge, huge part of the problem, and banks definitely took full advantage of that greed. It takes two to tango. But if I were a congressperson, or a bank CEO, I’d be looking closely at the idea of “responsible lending practices” and – hopefully – I’d see pretty clearly that it’s not just important to lend responsibly to an individual – it’s just as important, perhaps moreso, to lend responsibly to the individuals who make up a community, an economy.