I don’t know whether it was a Ford, Dodge or Chevy, but I remember the truck was ridiculous.
All I recall is the pickup was designed to resemble a blood-red fist on wheels that could churn forests into mulch.
It looked like firefighting equipment that forgot the firefighting apparatus at the station in its haste to arrive at my uncle’s house. Uncle Bruce and I wondered whether my cousin Wayne’s new truck had enough diesel torque to pull Bruce’s small house off its foundation.
“Easy,” Wayne said as we gazed at the monster, sipping our beer, nodding our approval.
“Do you want to buy it?” Wayne added.
Why would Wayne want to sell his beautiful testosterone-fueled, shame-belching, ego-inflating toy? This was early 2007 and the price of diesel was climbing. I hadn’t seen the rise in gas prices yet because apparently diesel reacts quicker to crude-oil prices.
Wayne didn’t need the truck-beast to take him to his physical therapy office. And even though his business was doing well, he felt the pinch at the pump.
Fuel had been cheap, and trucks were becoming popular again. I had an old Chevy pickup as a second vehicle to haul a horse trailer. So, I confess a twinge of truck envy as I contemplated my cousin’s offer, even though he meant it as a joke.
As gas prices rose, I thought about people I had met several years earlier in the Poconos. I was a newspaper reporter covering the days after 9/11.
I found a large population of people from New York City who had moved to the Poconos to give their families a house of their own and their kids the hope of an idyllic suburban/country upbringing. But they kept their NYC jobs, fighting two and a half hours of traffic each way. On a good day.
A few people never returned from Manhattan after that dreadful Tuesday. That was the first story. But the real story was how these people had been manipulated by local real estate brokers into buying houses they couldn’t afford.
The real estate market in the Poconos was not strong in the era when the resorts were closing. Houses went unsold and prices were dropping. Then people started expanding their commuting radius from New York City. Housing costs were so cheap in the Poconos that prices could double or triple and still be considered inexpensive compared with the metro area.
Some real estate brokers, builders and appraisers did just that. They priced properties far above market value and worked with mortgage brokers to get them financed.
The gas price shock shook that region like many others across America in 2007 into ’08. Overextended homeowners looked to sell simultaneously. The blue-collar workers in the Poconos were stuck more than most because their house prices plummeted even further below their already inflated values.
This pain radiated from the Poconos, Las Vegas, South Florida and other overheated markets. The price of gas was not the only factor, but it was a significant one in pushing families into default.
I had started at InsuranceNewsNet in June 2008 and felt like I had another front-row seat to an unfolding disaster. Once Lehman Brothers collapsed and AIG buckled in a weekend that September, a cascade of shocks followed. In just a few days, markets were bleeding so badly that the money market “broke the buck,” a phrase I learned meant that the safest dollar was now worth 97 cents. The difference was more than three pennies — the cost was the confidence that everything was fundamentally OK.
That is all history now. Many of us looking back at those days can remember that sinking sense of anxiety that nothing was ever going to be the same. Eventually the phrase The New Normal confirmed that we were in different territory.
But 10 years later, where are we? Trucks and SUVs are popular again. So much so that Ford is going to stop making cars except for the Mustang.
The real estate market has been blazing for years. But prices are now outside the reach of first-time homebuyers. Sales of new and existing homes have been dropping since March. When the bottom of the market freezes, it locks sellers all the way up the chain. Those who have to sell will slash prices. Those who cannot sell will default.
Will that happen? In the old normal, maybe it would. The conditions are there. Leverage on Wall Street, margin debt, equals 3 percent of the gross national product — 1929 levels. Consumer debt hit an all-time high in the first quarter of this year. Mortgage debt is reaching the precrisis peak.
But It’s Different …
The economy and the various markets within it have confounded predictions and expectations for a decade. Eventually, reality catches up to all markets. Economics writers rediscover sage comments from previous crises whenever things look dicey. This one from Business Week commenting on Nov. 2, 1929, on the run-up to the crash, is often cited, although I have not seen the original:
“The psychological illusion upon which it is based, though not essentially new, has been stronger and more widespread than has ever been the case in this country in the past. This illusion is summed up in the phrase ‘the new era.’ The phrase itself is not new. Every period of speculation rediscovers it.”
How are your clients doing? Can they withstand a shock, whatever its source? I learned pretty quickly in 2008 the value of insurance products.
I did not trade up my trusty Subaru but kept maintaining it. When I took the car in for routine maintenance in late 2008, I got a ride with the dealership’s shuttle. I asked the driver how things were going in his world.
He was retired and working part time because he liked to keep busy. Even though his friends at the diner saw their 401(k)s become 201(k)s (first time I heard that joke), he was not worried. He said he slept easy because he had annuities that were paying him what he needed every month.
I sipped my coffee and nodded my approval at the impressive vehicle of his choice.