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Bad Collateral

     The wishes of the “green shoots and mustard
seed” crowd really hinge on whether the various organs of the suburban
economy can be jump-started back to life — the production
home-builders, the granite countertop outfitters, the mall and
strip-mall gang, the national chain discount retailers, all the people
who make Happy Motoring possible from the factory to the showroom, and,
of course, the banks who shovel money into these enterprises.
     All these organs of our now-former economy are gravely impaired,
and a realistic appraisal of them would have to conclude that they’ve
entered the zone of congestive failure. The choice we face really comes
down to this:
do we put our dwindling resources and “hopes” into resuscitating those
dying systems, or do we move forward to the next chapter of American
life, cut our losses, and make new arrangements more consistent with
the realities on offer from the universe? To take it a step further,
can we remain one nation, a common culture, without such a conscious
re-purposing of our collective spirit?
     The bizarre spectacle
being played out right now by President Obama and his team only adds
layers of mystery and mystification to this big question. On the one
hand, you have Mr. Obama giving a graceful, thoughtful speech on a very
difficult issue (abortion) at a very tough venue (the country’s leading
Catholic university), and presenting an excellent case for common
ground. It was a bold deed, unshirking, even brave considering what
have come to be the standard modes of pander or evasion in presidential
politics. I suspect that Mr. Obama did it as much to demonstrate his
willingness to face tough questions in general as to address abortion
per se.
       All this is to say why it is so dispiriting to see Mr. Obama’s
White House mount a campaign to sustain the unsustainable in the
economic realm. Everything they’ve done for four months involving money
management and enterprise policy — from backstopping hopeless banks,
to gaming the bankruptcies of the big car companies, to the bungled
efforts to prop up artificially-high house prices — amounts to a
gigantic exercise in futility. Worse, it gives off odors of dishonesty
or stupidity, since the ominous tendings of our system are so starkly
     Not least of the problems entailed in all this are the scary
political consequences. It’s one thing for a business such as a bank to
its another thing for the public to lose confidence in banking, or
their own currency, or the credibility of all the people who work in
banking, or the authority of those charged to regulate these
activities, or the courts and their officers who are supposed to
adjudicate misconduct in them. When faith in all these things starts to
go, all bets are off for even larger social constructs like democracy,
justice, and the destiny of a federal republic.
      The Obama White House has very quickly painted itself into a
corner on these things. The so-called bank “stress test” couldn’t have
backfired more completely. Rather than bolster confidence in our money
system and the people who run it, it only made the system appear more
obviously corrupt. It made the Treasury Department (and the White House
by extension) look idiotic for concocting it. Worse, the game of
allowing the banks to audit themselves, and cook their books under
newly jiggered accounting rules, only made them look less sound and
trustworthy, and their executives more venal and mendacious. The stress
test scam also virtually guaranteed that the banks will not get another
dime out of congress — even while it is common knowledge that they
will desperately need quadrillions more dimes in the months ahead.
      Who knows what the point of this ludicrous exercise was?
Observers in all corners of the media saw through it, and the public
has only been made more cynical, and is now so furious over related
stunts like AIG using taxpayer money to pay back swaps bets to Goldman
Sachs that there is a whiff of revolution in the American air for the
first time, really, since 1861. A lot of reasonable people see a good
chance that our society will sink into disorder if these trends
continue, and these fears could beat a path into radical politics, even
the frightful prospect of coup d’etat — not something that I advocate,
by the way.
      The president is playing with fire on all this. The old economy
is not going to recover, and so far he has not used his rhetorical
talents to articulate what the next economy is likely to be about. It
is reasonable to wonder whether he even really has a clear sense of it
— and, based on the fatuous utterances of his economic mandarins like
Larry Summers and Austan Goolsby, this team is really behind the curve.
       There are plenty of things you can state about the economy past and future with some confidence right now:
     — Cheap energy is over and our wishes for are
currently inconsistent with reality, meaning we have to live
     — We have to downscale and re-localize our major economic activities: food production, commerce and manufacturing, banking, schooling, etc.
     — We can’t hope to have a stable money system unless we allow a workout of unpayable debt to proceed.
     — Even if we can do this, universal easy credit is a thing of the
past. From now on, we have to save for the things we want and run our
businesses and households on accounts receivable.
     — Major demographic shifts are inevitable as it becomes necessary
to let go of suburbia and reactivate our derelict towns and smaller
cities (and allow our giant metroplexes to contract).
     — We have to face the truth that our major social contracts
cannot be met, namely the continuation of social security as we know it
and probably all pension arrangements. We’ll probably have to change
household arrangements to make up for these losses.
     — Health care will have to go through a revolution more
comprehensive than just changing how we pay for it. Like everything
else, it will have to downscale, re-localize, and become more rigorous.
     We’re not going to rescue the banks. The collateral for their
loans is no good and it will only lose more value. All those tract
houses on the cul-de-sacs of America and scattered on the out-parcels
of our tragically subdivided farming landscape will only lose value,
one way or another, in the years ahead. Right now they’re simply losing
inflated cash value — and that has been bad enough to sink the banks.
In the months and years ahead, they’ll lose their sheer usefulness as
the distances once mitigated by cheap gasoline loom larger again, and
the jobs vanish and incomes with them, and the supermarket shelves
cease to groan with eighty-seven different varieties of flavored coffee
creamers, and one-by-one the national chain stores shutter, and the
theme parks, and the Nascar ovals, and the malls, and the colossal
superfluous cretin-cargo of consumer nonsense that we’ve been
daydreaming in gets blown away in a hurricane of change that we were
not ready to believe in.

My 2008 novel of the post-oil future, World Made By Hand, is available in paperback  at all booksellers.

About James Howard Kunstler

View all posts by James Howard Kunstler
James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

One Response to “Bad Collateral” Subscribe

  1. PBR June 8, 2009 at 5:34 pm #

    The geography of nowhere is not exactly right as a sign of the times.
    After being chastized all over by Congress for living beyond their means, there is no reason to believe that banks even with a bail out can salvage America. If anything, it’s only a matter of time until they are feeling the benefit of trickle up economic failure. What goes down must go up – if there are only two directions…?
    If consumers have lost confidence, government hasn’t helped to instill it by making so obvious a preference for corporate bailouts over consumer bailouts.
    Why shouldn’t consumers be under the grip of a paranoia that can grow like a cancer?

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