Resetting the American Dream

By Andre Jackson
December 10, 2008

It’s easy to forget that numbers are a means to an end in business journalism. A key means, yes, but there’s a larger goal here. It lies beyond our reporting of the latest consumer confidence survey or jobless report.

The audiences we serve – should be at the core of what we do. People devour the content we produce to learn about the world around them, we all know that. What can sometimes get lost though is how to see the forest beyond the first line of trees.

That ancient idiom came to mind as I looked out the window of my Atlanta home recently.

The annual descent of leaves means I can now clearly see the homes behind mine that were only hinted at before through a lush layer of greenery.

For-sale signs are increasingly common in my neighborhood, and thousands of others. A growing number of those signs reflect real estate agents’ increasing desperation to move brick-and-mortar in a stagnant economy. The word “foreclosure” is more likely to be slapped onto for-sale signs these days, even in growing cities like Atlanta.

The forest-and-trees figure of speech characterizes well the economic story roiling beneath the surface today. Much of our journalistic effort is spent chronicling both the routine corporate reports and the screaming blasts of breaking business news. It’s hard to see the broader story when you’re busy explaining the latest bailout tactic or reporting on spectacular and sudden corporate failures.

As economic pillars sway, or even collapse, and the easy credit that had underpinned much of our economy recedes into history – at least for awhile – a perceptive question to pose is whether we’re in the early chapters of a wholesale rewriting of the American Dream. Or, as the aging Greatest Generation would have put it, will our national fad of keeping up with the Joneses make a forced transition to the thrifty way of living within our means?

It is a profound question, and one that provides fodder for many stories. The answers uncovered from vigorous reporting will touch audiences far beyond the regular readers of newspaper business sections and viewers of CNBC and Bloomberg TV.

Let’s start forming questions around where much of Americans’ wealth has resided for the past few decades – our houses.

The late Federal Reserve Governor Ned Gramlich noted in a 2005 speech that, “In our society, homeownership is the most common step one can take toward accumulating wealth.” For years, this proved true, rewarding millions with handsome, seemingly predictable gains in home prices.

Things rolled along fine until two demons of capitalism showed up a year or so ago.

The first was a periodic speed bump that slows the economy’s roll. High energy prices were a major culprit this time around. Economic jitters such as these are cyclical and unavoidable.

The second scourge of free markets is the tendency by some captains of industry to forget the first demon and overextend their businesses – in this case, with credit. In light of the current housing conflagration, historians will argue for years over how far was too far. The warning signals of trouble with the house-as-a-savings-bond theory sounded first with the rise in real estate foreclosures. The problem began among the economic outliers – those with the smallest incomes, shakiest credit history and lowest credit scores. In truth, even those a notch or two higher in the credit hierarchy ended up buying into costly subprime loans that, from a business standpoint, sought to compensate lenders and investors for taking on riskier borrowers.

From a consumer standpoint, the high-interest, loophole-laden loans allowed people to become homeowners who, in years past, would have been stuck renting or living in their parents’ cellar. The belief was that more people owning, rather than renting, would stabilize communities. That may be admirable public policy, but if lenders and policymakers aren’t careful, it has financial risks of the kind we’re now living through.

And it’s hard to argue risk didn’t increase when homeowners figured out they could leverage the equity from the appreciating savings bond they lived in. To quote Gramlich’s 2005 speech, “home equity, built over time, has also become an important source of cash for other investments, including educational expenses.”

To be fair to Mr. Gramlich, I should say that, before his death, he forcefully noted the problems with subprime loans, even writing the book Subprime Mortgages: America’s Latest Boom and Bust. In a 2007 speech, he urged greater regulation of the subprime industry to prevent the kinds of issues affecting housing markets today.

Home equity loans allowed us to throw a national block party for years, and fueled the consumer spending that keeps our economy afloat. You’ve seen the result: McMansions with all the trimmings, shiny SUV’s in freshly-paved long driveways and televisions large enough that neighbors can easily watch the latest infomercial from several doors down the street.

I won’t go into credit cards and their double-digit interest rates here, but I will say that wallet plastic, home equity loans and mortgages are all legitimate financial tools when used prudently. When that’s not the case, go-go times can turn into no-go years.

We all know the story of how credit markets reacted as the subprime crack radiated outward. Markets remain jittery and sluggish as of this writing. That’s slowing growth and frustrating even legitimate borrowers with solid credit histories.

The great credit meltdown can be categorized into two big buckets for purposes of tackling the story.

First, how will the clampdown affect those left holding large debts, or who built their lifestyle around unfettered access to easy credit? Both businesses and individuals are vulnerable here. The crash is the first chapter in rewriting the American Dream.

The second and subsequent chapters will come as our nation claws and hammers its way through, and out of, this credit crisis. There’ll be a reshaping of expectations by both lenders and borrowers for sure. The question is how deeply and profoundly the resculpting of credit – and the dreams it can buy -- will be.

Will we see lasting diminished lifestyle expectations by consumers? Will subcompact cars remain darlings while giant SUV’s lurk unsold on dealer lots? Will that old standard three-bedroom, two-bath ranch-style home make a comeback? Will Wal-Mart remain a hot shopping destination among newly value-conscious buyers? What will become of high-end brands and the retailers that thrived for years selling upscale goods? What about the credit card companies, now that consumers have a newfound love of the cash they once thought too bulky to haul around? How will marketers react to new expectations?

The questions are many, and can make for powerful stories that transcend the facts and connect with audiences across demographic levels. Telling this story well will land reporters on newspaper front pages, Internet home pages and at the top of broadcast newscasts.

More importantly, it can help fretful consumers make sense of the new financial realities that confront our world. We can help Americans to survive and make sense of the Great Resetting that we may well be living through right now.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism