America and China: The Eagle and the Dragon Part two: Requiem for a dream
Last Updated: 12:01am BST 02/07/2008
Once symbolic of optimism and certainty, America's credit-crunched suburbs may be facing a decline as dramatic as that of Detroit, itself once a beacon of industry. Mick Brown and the photographer Alec Soth continue their investigation into the contrasting fortunes of the US and China
Read part one of The Eagle and the Dragon
Telegraph Talk: more pictures by Alec Soth, with commentary by Mick Brown
The birthplace of modern America - one might say the modern world - is a huge disused factory building that stands on a busy six-lane boulevard in a part of Detroit named Highland Park.
As the birthplace of mass production, Detroit 'set the pattern of abundance for 20th-century living'
More pictures by Alec Soth with commentary by Mick Brown
Outside, on a scrubby patch of untended grass, is a sign posted by the Michigan Register of Historic Sites stating that this was the factory where, in 1913, Henry Ford began the mass production of automobiles on a moving assembly line. By 1915 Ford had built a million of his Model Ts; by 1925 more than 9,000 were being assembled in a single day.
Mass production, the sign reads, soon moved from here to all places of American industry 'and set the pattern of abundance for 20th-century living'.
It is a wonderfully evocative phrase that stops you in your tracks - the pattern of abundance for 20th-century living. From here came the principles of mass production that provided the goods that fuelled the consumer society; from here, the automobile that begat the roads and the freeways that carried people and goods from sea - as America the Beautiful has it - to shining sea, and then to the world beyond.
The Highland Park factory was known as the Crystal Palace because of the amount of glass used in its construction. But its windows have long been shuttered and boarded. What remains of the plant is now used for warehousing, with one part given over to a retail outlet for a company selling cheap shoes made in China. Highland Park - a city within the city of Detroit - is so economically bereft that it can't even afford its own police department - the county police patrol there instead.
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Ford built his prototype for the Model T three or four miles down Woodward Avenue on Piquette Street, in a modest brick building that is still owned by the Ford Motor Company, and is now used to store the company's medical records. Along the street is the Fisher Body Plant 21 factory that once made bodies for Cadillac limousines. It has been closed since the early 1990s, a rotting hulk sequestered behind a chainlink fence, catching the tumbleweed blowing down the street.
This area, known as Milwaukee Junction, was the birthplace of the Detroit car industry: Cadillac, Dodge, Hupp, Packard and Regal all had workshops here. To walk the streets around Milwaukee Junction now is to ponder the transience of all things. On the neighbouring streets many of the neat, wood-frame houses originally built for car-workers have been boarded up and abandoned. Others are little more than charred ruins. Arson has long been something of a local tradition in Detroit. Throughout the 1970s and 1980s, teenagers would take to the streets on Devil's Night, the night before Hallowe'en, setting fire to abandoned properties - a custom that was also taken up by owners trying to collect insurance on buildings they were unable to sell. In 1984 more than 800 buildings were set on fire. In an attempt to curb the practice the city renamed October 30 Angels' Night, and organised volunteer groups to patrol the streets.
It has become a commonplace to describe Detroit as the sick city of America, but it is sobering to reflect on just how long this has been so. Browsing the internet before arriving in the city I came across an article in Time magazine headlined 'Decline in Detroit', lamenting the rising unemployment rate, the rate of migration from the city and its declining tax base. 'Blight is creeping like a fungus through many of Detroit's proud, old neighbourhoods,' it read. The article was dated 1961.
Detroit owed its boom years to Henry Ford's moving assembly line. Between 1910 and 1940 the population of the city swelled with an influx of both blacks and whites from the South to work in the auto factories. During the Second World War, Detroit became 'the armoury of America', churning out vehicles and arms for the war effort.
Then came the long, slow decline. Racial tension had always been part of the city's make-up. Discrimination in housing and a viciously racist police force led to riots in 1943 in which 34 people died and more than 1,800 were arrested. During the 1940s and 1950s white residents erected a concrete wall, 6ft high and a foot thick, along the perimeter of Eight Mile Road to separate themselves from potential black neighbours.
The construction of the Davison Expressway, America's first freeway, which opened in 1944, paved the way for a series of Interstate freeways that carved through and around the city, destroying old residential neighbourhoods and opening up the suburbs to the white middle-classes. In 1967 Detroit exploded in another race riot, in which 43 people died and more than 7,000 were arrested, hastening 'white flight' from the city. In 1950 Detroit was America's fourth largest city, with a population of nearly two million. The population is now less than 900,000, 82 per cent of which is Afro-American.
This exodus of people and commerce to the suburbs resulted in a massive shift of capital, and a declining tax-base in the inner-city. While Oakland County, the wealthy suburb to the north, is one of the most affluent areas in America, Detroit itself is the country's most impoverished city - not only a synonym for urban decay, but a repository of all of America's most intractable problems: the decline of manufacturing and the threat of competition from overseas; racial tensions; a housing market decimated by the subprime mortgage crisis. More than a third of Detroit's residents live at or below the federal poverty line. Ironically, in the city that gave America the automobile, more than a fifth of households do not own a car.
The woes of Detroit have been inextricably linked to the woes of the car industry. Forty years ago, Detroit's 'Big Three' - General Motors, Ford and Chrysler - manufactured 75 per cent of all the cars sold in America. Fifty per cent were built by GM alone; now the Big Three cannot achieve that figure between them. GM has 23.5 per cent of the market, Ford less than 15 per cent. Sales and jobs have, quite literally, gone south - to Toyota, Honda and Hyundai plants in Tennessee, South Carolina, Alabama and elsewhere. Since 1999 Michigan has lost more than 120,000 jobs in the auto industry with manufacturers attempting to 'right-size' (in the preferred euphemism) their workforce and parts suppliers cutting back or going bankrupt.
Last year, GM posted a record loss of $38.7 billion - roughly equivalent to the gross domestic product of Bulgaria. It would be inconceivable for the US government to allow GM to go out of business, not least because of the enormous healthcare and pension funds - known as legacy costs - for former employees wrapped up in the company. Ford lost $12.7 billion and was obliged to mortgage its assets to stay in business.
The Ford Motor Company left Highland Park in the 1920s for its present site, the River Rouge Plant in Dearborn, a few miles outside Detroit. In the 1930s the plant employed more than 100,000 workers on 1,200 acres; today its workforce is about 12,000. The Rouge Plant forms the centrepiece for the magnificent Detroit Industry Murals, executed in 1933 by the Mexican artist Diego Rivera, which decorate a huge marbled lobby in the Detroit Arts Institute.
Rivera was commissioned to paint the frescoes by Henry Ford's son Edsel. A Marxist, Rivera viewed mass-production as a means towards building a socialist utopia, but his depiction of the Ford workers suggests he was deeply equivocal about the process itself. On the assembly line the workers strain their sinews as they grapple heroically with their task (superintended by besuited overseers, clipboards in hand); but the last image of this monumental frieze shows a line of grey, stooped figures trudging out of the factory and across the overpass outside the Rouge plant, as if bleached of life by their efforts.
The day after visiting the DIA I saw another image of this same overpass, this time in a series of photographs lining the walls of the offices of the United Auto Workers in Dearborn. These recorded the struggle of the UAW to unionize Ford in the face of fierce resistance from Henry Ford, beginning with the notorious 'battle of the overpass' in 1937, when union organisers were attacked and beaten by Ford's security staff, 'the FBI'. It would be four more years before Henry Ford finally recognised the union - and then only after the federal government had intervened and his wife had threatened to leave him.
At its height in the 1970s, membership of the UAW stood at 1.5 million. Now it stands at about 465,000. In the heyday of the auto industry, the bargaining power of the UAW, and the need to man the production lines in Detroit, made car workers among the best paid in America and set a benchmark for wages in other manufacturing industries. Now, in an attempt to cut their legacy costs, all the car manufacturers are pursuing a vigorous policy of 'buy-outs', with employees being offered up to $100,000 to leave and forgo their pension and healthcare packages, while new workers are employed at half their salaries.
Detroit in decay: in the background is the disused Highland Park factory where Henry Ford started mass production of his Model Ts
There was no mystery to the decline of the American motor industry; while the Big Three had concentrated their efforts on producing gas-guzzling SUVs and other big models, where the profit margins were - notionally - higher, foreign imports and 'transplants', notably Toyota, had been able to provide better, cheaper and, latterly, more fuel-efficient cars.
In a sense, to talk about the decline of the American car industry is a misnomer; what is really at issue is the decline of American 'badges'. Ford and GM are examples of how in a global economy attaching companies to countries no longer applies. Both are globalised corporations, and jobs that are lost in Michigan because of the falling sales of Ford and GM are gained elsewhere because of the rising sales of Toyota or Honda. The consumer benefits from lower prices and better cars. The losers are the shareholders - who likely have shared in Toyota and Honda too - and local workers.
In the UAW offices in Dearborn, Jerry Sullivan, the president of the union Local 600, took a phlegmatic view. He had worked in the auto industry for almost 40 years, he said. 'When I started out there were only American automobiles. Now there's car companies out there I've never even heard of. The problem is that people automatically think the quality of these Asian transplant cars is better. But that's not true at all. Our quality is right up there with them.'
In recent years, China has surpassed Germany and Japan to become the world's second largest car market after America. And in an attempt to offset losses at home, both Ford and GM have invested heavily in the growing Chinese car industry. In 1997 GM entered into a joint agreement with the Chinese manufacturer SAIC to create Shanghai GM. And in 2001 Ford went into partnership with Changan Automobile with a pledge to invest $1 billion in the Chinese market. Last year the Ford Focus was the bestselling mid-size car in China.
At the same time, China has muscled its way into the American auto-parts market. In 2005 about six per cent of parts imported into the US had been made in China - 'And not too well either,' Sullivan said. But while the US imported some $5.4 billion worth of motor parts from China it exported only one tenth of that amount. Now a Chinese company, Geely, was hoping to sell its own four-door saloon car in America - for less than $10,000. Sullivan gave a mirthless laugh. 'That happens and it'll put everybody out of business.'
In this equation between American workers and foreign competition, it is a struggle that America seems doomed to lose.
In the week that I was in Detroit a strike of 3,650 workers at American Axle, which manufactures truck axles, had led to lay-offs at GM and other plants. The workers were being asked to take a pay cut from about $27 an hour to $14, and to surrender future healthcare and pension benefits. The chief executive of American Axle, Richard Dauch, warned that if the company could not be competitive in its US plants, he would be forced to move the work overseas.
Outside the plant, a group of picketing strikers were warming their hands around a brazier, eating cheeseburgers that had been delivered by a passing motorist. A man named Pete Wilson told me that he had been working for American Axle for 13 years and the company had been making a profit every year he had been there. This was not simply about wages and conditions, he said; it was about the future for the working man in America. 'See, this world is like a chess game, and we're just the pawns. The bigger plan is they try to break us down so they can shut down GM, Ford and Chrysler and move the whole thing overseas. They just move on to the next phase, not giving a hell about our welfare and wellbeing, lifestyle and family.'
I asked Pete the question I had been asking everybody in my journeys around America - what did the word 'America' mean to him? He laughed. 'Crooks. They're out to take whatever you have.'
Wherever you go in Detroit, the subtext of race lurks just below the surface of daily discourse, as if even the passing of 30 years had not been enough to heal the wounds that the riots had inflicted on both sides of the racial divide.
In the suburbs, people exercised a reflex denial about having anything to do with Detroit at all. In a bar in Dearborn, I fell into conversation with a woman - white - and asked how long she had lived in Detroit.
'I don't live in Detroit'.
Dearborn isn't part of Detroit?
She gave me a baleful look. 'Am I listening to hip-hop? Are my pants hanging down my ass? Do I kill people?'
Her companion, who was also white, had grown up in the north-west of Detroit in the 1950s, in an area that was then Irish and Polish but was now, he said, 'primarily a minority area'. 'Back then, when you went out into the suburbs, people thought you were a hoodlum because you lived in Detroit.' He laughed. 'Which a lot of us were. There was a lot of pride growing up here.'
What did he feel now when he went downtown?
'I feel I'd better have a gun.'
Driving around Detroit one was forcefully struck by how the city had been irrevocably shaped - and continued to be shaped - by the car.
Detroit has the second largest amount of freeway lane miles of any metropolitan area in America, after Kansas City. And it is the only city in America without a rapid transport system - the legacy of years of resistance by the powerful lobby of the car industry that dictated that workers should drive their own products rather than taking public transport.
One of the city's most astonishing architectural relics is the Michigan Central Station, a towering, beaux-arts structure built in 1913. The last train pulled out in 1988. But like many of Detroit's great ruins it had proved too expensive to renovate, too expensive to demolish, and so had been left to stand, an enduring testament to the city's decline, and a reproof to its plans for regeneration.
There have been plenty of those over the years. The Renaissance Centre, a downtown skyscraper complex, was hailed as the world's largest private development when it was built in the 1970s at a cost of $350 million. Unveiling a plaque dedicated to the building's private financiers, Henry Ford II - the grandson of Henry Ford and chairman of the motor company - proclaimed that 'Detroit has reached the bottom and is on its way back up.' In 1996 the Centre was sold for $76 million.
Abandoned houses painted by a guerrilla artist
In the 1990s the city turned to tourism as a solution to its ailing economy, constructing two new sports stadiums and granting licences for the building of three casinos - the MGM, MotorCity and Greektown - that in 2007 together generated more than $1 billion in revenue, and which at least had the effect of bringing police patrols into the area, ensuring that daylight robbery only occurred inside.
But these developments have done little to alleviate the overwhelming impression of Detroit as a city of dereliction, poverty, crime and despair. The city's revival seemed to depend not on luring tourists for a day or two holed up in a casino, but persuading people it was a feasible place to live. As one downtown shopkeeper put it, 'the trouble is the infrastructure and services - garbage disposal, policing, upkeep - is so bad, that nobody in their right mind would want to live here. You call the cops and they probably won't even show up unless it's a murder. It's terrible.'
The Masonic Temple is one of downtown Detroit's great heritage buildings - an imposing stone edifice containing a theatre and banqueting suites, that bills itself as 'the perfect location for weddings, corporate events and private parties'. Across the street, an area of several blocks had been razed to the ground, leaving the shells of an abandoned hotel and apartment buildings standing like tombstones in a wasteland of rubble and garbage. Nearby, outside a convenience store a group of men were engaged in some unfathomable business; a fight broke out between two of them. They rolled in the snow, punching and kicking each other while the others looked on, seemingly too bored or stoned to intervene.
In a residential area in Highland Park, close to the old Ford plant, there were streets where only one or two houses appeared to be occupied, the rest abandoned, burned down or demolished. Grass grew on the sidewalks and on the vacant lots, as if nature was already busily reclaiming the city that man had neglected. It was a pattern repeated in residential neighbourhoods throughout the city. Exploring the side-streets around Highland Park I came across a row of newly built wooden homes, some posted with FOR SALE signs, in others the windows broken and doors swinging open - a testament to some developer's deliriously misplaced optimism. One internet site was advertising homes for as little as $250, listed as 'a great future investment'.
Evidence of the city's fraying infrastructure was all around; the plastic shroudings around utility poles, to deter thieves from stealing copper wiring; the pieces of plywood packed under the freeway overpasses to stop the spalling concrete crashing on to the cars below. And yet there was also something beautiful in Detroit's dereliction; an eerie stillness, as if entire neighbourhoods had stolen away quietly under cover of darkness.
The city revealed myriad astonishments: a whole street of wood-frame houses that a local artist had transformed into a surreal exhibit, miraculously unvandalised; abandoned houses scattered throughout the city that some unknown guerrilla artists had painted glowing orange - whether as a political statement or simply in an attempt at beautification nobody knew.
One person, at least, was determined to put a positive face on Detroit's problems. When I began my conversation with Martha Reeves, a city councillor, by asking what had gone wrong with Detroit, she immediately upbraided me: 'What do you mean by wrong?' Detroit, she insisted, was 'a prospering city'. Over the past six years, the mayor had cut the city deficit from $360 million to $125 million. Corporations were occupying new office buildings downtown. Abandoned buildings were being demolished, and the city was considering plans for a land-bank, which would make 40,000 abandoned and vacant properties available to community groups for non-profit, low-income housing.
Reeves is better known as the lead singer of Martha and the Vandellas, one of the leading lights of another of Detroit's great industries - Motown records. Motown was founded by Berry Gordy in 1959 in a modest wood-frame house in a middle-class residential neighbourhood on West Grand Boulevard. Gordy lived upstairs and converted the garage into a studio - 'Hitsville USA'.
The grandson of a slave, who worked on the production line at the Ford Rouge plant making Lincoln Mercurys, Gordy brought something of the principles of the car assembly line to making music: teams of in-house songwriters and musicians laboured to fashion a string of hits; a quality-control department monitored standards, while a grooming department buffed and polished the young artists to a high sheen, like a fleet of Cadillacs. Motown became America's largest black-owned company, but no pictures of the artists appeared on the covers of the first five Motown albums, Gordy reasoning that black faces might scare off retailers. He styled Motown as 'The Sound of Young America' and hits by artists like the Supremes, Marvin Gaye, Stevie Wonder and the Jackson 5 were one of the most benign aspects of America's cultural colonisation of the world. In his mansion Berry Gordy hung a portrait of himself, depicted as Napoleon.
The house where Motown was born is now a museum. On the day I visited, a party of tourists trooped from room to room, their faces brightening with every hit being piped through the building. The tour culminated in the cramped studio, where the guide invited four 'laydeez' to stand on the spot where the Supremes had recorded Stop! In the Name of Love more than 40 years ago, and tutored them in the chorus and dance steps while the rest of the party clapped along. It was the happiest I saw anybody in Detroit.
When Motown left Detroit in 1972 for California so did Martha Reeves. She lived in Los Angeles for 14 years, returning to care for her parents, and decided then she wanted to do something to help the city. It had been her initiative to rename the stretch of West Grand Boulevard where Hitsville stood 'Berry Gordy Boulevard'. She told me she would like to see some of the city's fine old buildings turned into museums celebrating the city's rich musical heritage.
Detroit, she went on, had had to deal with a lot. 'We've lived through riots, job loss, population exodus. But it hasn't been all to our detriment. And everything we're doing now proves we have to be stronger. We need more policemen, more emergency services; we need to have it so that when the fire department get called to a fire the hydrants are working.' She paused. 'But I'm positive about Detroit making a great comeback.'
I drove out once more to Dearborn. Michigan has the largest Arab population in America, more than 300,000 - many drawn by the prospect of work in the auto industry - and 30 per cent of Dearborn's population is of Arab descent. The streets around the Rouge plant are lined with shops and supermarkets bearing signs in Arabic; Dearborn has the largest mosque in America, and there is even a new Wal-Mart store offering more than 500 items targeted at Middle-Eastern shoppers, and a halal meat section.
Driving past a huge factory complex belching smoke into the lowering grey sky, I saw a vision so strange that I might have dreamt it. On the other side of the road, in a car-park, an Afro-American wedding party was decanting from a fleet of limousines. The groom wore a white Yankee Doodle suit and a top hat and carried a cane; the bride was dressed in an impossibly elaborate confection of chiffon and lace. Gathering her skirts she tiptoed delicately through the snow, followed by a procession of guests carrying boxes of food and drink, to vanish into a squat brick building, evidently hired for the reception. A sign above the door stated that it was the social club of the Yemeni American Association. A black wedding reception in an Arab club in the shadow of an auto plant. It was a scene that only Detroit could have conjured.
Nearby was a small bar, of the kind you notice everywhere around the Rouge: a single neon sign - JOHNNY'S BAR - over the door; no windows. A utilitarian pit-stop for thirsty workers. Inside, the air was thick with cigarette smoke, jukebox music, and a woozy camaraderie. The conversation followed a familiar course - cutbacks, rising prices, the prospect of a better life somewhere else.
'I'd get out if I could,' said a man named Randy. Where to? 'Tennessee.' He made it sound like the promised land. And do you think you'll go? He shrugged. 'Prob'ly not.' Somebody shouted, 'Turn the music down!' It was time for the lottery results, and all eyes turned to the television. Randy counted off the numbers against his ticket, then tore it up in disgust. 'Hey, Johnny - let's have another shot here.' He downed his bourbon in a single gulp, and gave a resigned, bitter laugh. 'These are the dinosaur days, man.'
It is tempting to speculate that Detroit defined both the beginning and the end of Henry Ford's industrial dream. In 1920 one third of all jobs in America were in industry; today only 11 per cent are. The decline of Detroit has been mirrored to a lesser degree by many cities - Cleveland, Flint, Gary - in the industrial 'rust-belt' of the North, all scrabbling to readjust, with varying degrees of success, to the new American 'information economy'.
But Ford's greatest legacy was the car and all that grew from it. As Christopher Leinberger, a professor of urban planning at the University of Michigan, points out, the nature of the American dream has always been driven by the underlying economy of the age. In 1800, at the time of the first census, more than 90 per cent of Americans were engaged in agriculture. 'The American dream at that point could be summarised by the Civil War expression "40 acres and a mule". In the post-war era, one-third of the American economy was related directly, or indirectly, to the building of automobiles - steel, cars, roads, petroleum, insurance. There was an expression that GM used "See the USA in your Chevrolet" - so as you travelled the roads of America in your car you were making yourself and the country wealthier'.
The car become synonymous with America's most cherished ideal - freedom: the freedom to go, to move, to be wherever you chose.
In the 1950s, at the behest of President Eisenhower and his Federal Highway Act, the freeway system that had started in Detroit spread across America, eclipsing the railway as the main artery of travel and transport. At the same time, the direct subsidies of the suburban road infrastructure shortened the commuting time between urban centres and suburbs, hastening the flight of people, businesses and investment from the inner cities.
More than just a place to live, the suburbs became the archetypal American dreamscape. The family home with the white picket fence; peaceful streets where the kids could play; a sense of community and belonging, a place of quiet adjustments and small consolations, away from the clamour and dangers of the city.
To novelists such as John Updike and John Cheever the suburbs were incubators of middle-class conformity, anomie and neurosis - a place of 'wide lawns and narrow minds' as Ernest Hemingway put it. But to millions of Americans they are, quite simply, home.
The growth of the suburbs was driven by planning laws, designed to eliminate urban overcrowding, that made it illegal to build mixed-use projects of high density - the characteristic of an old-fashioned Main Street - and dictated that development should instead spread ever outwards. The green fields were devoured by ever more housing developments (or subdivisions as they are called) of identikit 'McHouses', linked by anonymous strip-malls, blighted with corporate signage for chain motels, car dealerships and fast-food outlets, off-ramp 'office parks', and 'big-box' stores. The dreamscape has become one huge twilight zone of anonymous sprawl. As the writer Tom Wolfe once observed of the suburbs of Atlanta, the only way you can tell you are leaving one and entering the next is when the fast-food outlets start repeating themselves. And all of it utterly subservient to the automobile, utterly dependent on the readily available supply of cheap fuel. While other developed nations have reduced or held steady on their oil consumption since the oil shocks of the 1970s and 1980s, America's consumption has actually increased by 21 per cent - while domestic oil production has been on a steady downward trajectory since its peak in 1970.
The world burns 85 million barrels of oil a day, and the US alone consumes a quarter of that amount - of which more than half goes to road transport: the US has the least fuel-efficient cars on the roads, the lowest energy taxes, and the longest daily commutes of any industrialised nation.
It is an arrangement that James Howard Kunstler, the author of The Long Emergency: Surviving the End of Oil, Climate Change and Other Converging Catastrophes of the Twenty-First Century, describes as 'the greatest misallocation of resources in the history of the world. America took all of its postwar wealth and invested it in a living arrangement that has no future.' A future imperilled yet further by fuel prices exceeding $4 a gallon - enough to occasion rising panic in a society where cheap fuel has always been regarded as an entitlement.
Fisher Body Plant 21, where Cadillac limousine bodies once rolled off the production line
But if the inexorable rise of fuel prices was one affliction on the suburbs, there was another that struck even deeper into the heart of the suburban dream of home-ownership - the subprime mortgage crisis, which swept across America at the tail-end of last year, shaking the country's economy to its very foundations.
The subprime crisis was largely the consequence of a series of smoke-and-mirror innovations in finance through the 1980s that enabled mortgage lenders to generate more loans by packaging up their debt and selling it on in the form of bonds known as mortgage-backed securities (MBSs), which would, in turn, be repackaged and sold on the financial market as collateralised debt obligations (CDOs). These financial innovations enabled lenders to evade much of the regulatory framework that had been in place since the 1930s when the Roosevelt administration halted bank runs with government guarantees. Passing on the risk meant that lenders could afford to become less cautious about whom they lent money to. Poor or middle-income borrowers - many from ethnic minorities - who would never have previously qualified for a mortgage or would have been regarded as a bad credit risk, suddenly found lenders falling over themselves to offer them loans. These were mostly in the form of adjustable rate mortgages (ARMs), usually offered at deliberately low 'teaser' rates, often as little as two or three per cent, but rising to as much as 15 per cent after two or three years. What this meant in effect was that the most risky loan products were being sold to the least sophisticated borrowers. By dicing and spicing the debt of high-risk borrowers, clever - or naive - financiers were able to sell rubbish as triple-A securities. And some of the world's supposedly most savvy banks - Morgan Stanley and Merrill Lynch included - were among the buyers.
In 1997 subprime mortgages accounted for three per cent of the mortgage debt in the US. By 2006 that figure had risen to more than 20 per cent.
The easy availability of credit helped to fuel a booming house market. Home ownership increased from 64 per cent in 1994 to an all-time high of 69.2 per cent in 2004; in the 10-year period running up to 2006, American houses prices increased by 124 per cent. With house prices soaring, borrowers felt confident in taking out second mortgages or borrowing money against the rising values of their house to buy an SUV or plasma TV - using their property, as the phrase had it, 'as ATM machines'. In short, it was a case of people buying houses they couldn't afford, and using them to spend money they didn't have.
Then the bubble burst. As the cost of their repayments rose, and the value of their houses started to fall, so many subprime borrowers found themselves caught in the squeeze. By the end of 2007 the 'delinquency' rate of subprime mortgages was running at 21 per cent, and some 1.3 million homes in the US were subject to foreclosure filings - an increase of 79 per cent from 2006 - with predictions of a further million expected in 2008.
By then the reverberations of the subprime crisis were being felt on Wall Street and beyond. As the value of the underlying mortgage assets declined, so corporate, individual and institutional investors faced catastrophic losses, eventually forcing banks and financial institutions at the high end of the food chain to suspend all trading in MBSs and CDOs. The most conspicuous casualty was Bear Stearns, one of America's largest global investment banks, which collapsed in March despite attempts by the Federal Reserve Bank of New York to save it. The company was sold to JP Morgan Chase for $10 per share, a fraction of the price at which stock had traded for before the crisis.
A month later, the International Monetary Fund, in its Global Financial Stability Report, warned that worldwide losses suffered by banks and other financial institutions from the global credit crisis could surpass one trillion dollars. As Hillary Clinton put it in a campaign speech in Pennsylvania in March, America's economic crisis was, at core, a housing crisis - and the housing crisis was 'at heart, an American Dream crisis'.
There is hardly a corner of America that remains untouched by the subprime debacle; but the city that by the end of 2007 had claimed the dubious distinction of having the highest number of foreclosures per capita in the US was Stockton, California. A city of 290,000 people, in recent years Stockton has itself become a dormitory suburb for the San Francisco Bay Area, and the Silicon Valley towns of San Jose, Mountain View and Palo Alto, some 60 miles to the west.
In the last quarter of 2007, Stockton posted one foreclosure for every 31 households. And the area with the highest rate of foreclosures in Stockton was Weston Ranch. A huge housing development begun in 1990 on a stretch of farmland south of town, and which has sprawled over the years to encompass some 7,000 properties, Weston Ranch is a prime example of what is known in property parlance as 'drive until you qualify': if you can't afford to live in a community close to your work, you hit the freeway, driving until you reach somewhere where the land for building is cheaper and the houses therefore more affordable. Many of the residents of Weston Ranch are 'drive until you qualify' buyers; most are minority groups, cherishing the dream of self-improvement and a foothold on the ladder into the middle-classes.
Driving around the estate on a balmy Sunday afternoon it seemed, at first glance, like the epitome of the suburban dream - neat homes in a variety of cookie-cutter designs, each with their own garage and a front lawn running down to the pavement; children riding bicycles, families picnicking in a neighbourhood park. Only at second glance did one notice the proliferation of signs pitched on the lawns, and sounding a rising chorus of desperation: BANK OWNED; FORECLOSURE; MAKE OFFER; and, tied to a lamppost, WANT OUT? GIVE ME A SHOUT! WE BUY HOUSES.
On Woodhollow Avenue, the Gutierrez family - Manuel, Jodie and their two daughters - were removing the last of their belongings from the home where they had lived for past eight years, but which was now in foreclosure.
They had moved to Weston Ranch from the Bay Area where, Jodie said, it would have cost them $500,000 'to buy a house in the ghetto'. They had paid $205,000 for their new home - almost $20,000 over list price, on a mortgage of $1,200 a month.
Jodie worked in sales and account management. Manuel worked as a produce manager in the Bay Area, an hour and a half commute on the freeway. He would leave home each morning at 3.30am. A hard haul, but it made sense. Jobs in the Bay Area paid $5-10 an hour more than locally. 'But now, with the price of gas…'
The Gutierrez family, who foreclosed on their mortgage in Stockton, California
Three years ago their home had been appraised at $500,000. They refinanced, investing $40,000 to custom tile the hall and kitchen. Then Jodie lost her job - her company, she said, was 'feeling the hurt'. She found another one, and then lost that, too. With homeowners insurance, their mortgage rose to $2,400. A year ago they had put the house on the market for $400,000, but had been unable to sell it. Eventually, they went into foreclosure. They hadn't paid their mortgage for six months, and the house was now listed for a short sale at $179,000. They were living in rented property in the nearby town of Tracy.
'We put a lot of love, a lot of money into this house,' Jodie said. 'If you'd asked me five years ago if I'd have thought we'd ever be in this position, I'd have said no way. But things happen.'
'See my lawn?' Manuel said. 'It was always green.' Now it was overgrown and browned by the sun. 'I shouldn't say the love ran out, but the care ran out.' He shrugged. 'It's like, why try to fight something that you know you can't win?'
They were decent hard-working people, they said, but it was like that counted for nothing. When they started to get in trouble, Jodie told me, they had tried to negotiate with their lenders. 'But they talk to you like you're a piece of crap. They set up a plan to help us out. Next thing you know, they've sold our mortgage on to someone else. And when you talk to the new lenders, its like - we're in charge now...'
And then Bear Stearns collapses, Manuel said, and the federal government bails them out. 'And who do you think is paying for that? He shook his head. 'George Bush has ruined this country. We're the laughing stock of the world. And I hate to say that, because I'm proud to be an American.'
As we talked, Manuel's neighbour Mahmoud Ibrahim came over to join us. He was heartbroken, he said, that his friends were leaving. But with all the foreclosures Weston Ranch was going down fast. Family homes had been divided up into rental units, bringing a different kind of person into the neighbourhood. Some empty properties were boarded up; others had been broken into by scavengers. Things might look peaceful now, Mahmoud said, 'but come back at 10 or 11 tonight. We hardly used to see a policeman here. Now it's become a regular traffic area.'
The conversation turned to the economy.
The American lifestyle, Mahmoud said, was 'to borrow, borrow, borrow until they have too much and they fall in the hole, and they end up losing their lifestyle. Being from a different country, I know where to draw the line. I have about 31 credit cards. If I wanted to, I could charge up to a quarter of million dollars. But my balance is zero.'
Why so many cards? I asked. 'I don't know.' He shrugged. 'They just keep sending them to me.'
Mahmoud had worked as an electronics engineer, commuting to the Bay Area - a 197 mile round trip each day, he said. In the end the driving, and the rising price of gasoline had almost killed him. 'God gave me a brain, so I quit'. And what did he do now? 'I sit at home on my computer and play the stock-market. I get kicked in the buns sometimes,' he laughed. 'But most of the time I get lucky.'
Talking with the residents of Weston Ranch, I was struck by their feelings of bewilderment and betrayal. The banks, the mortgage companies, the promises of quick credit, of buying into the pattern of abundance - all of it was lies. The rich got richer and the middle-class striver got screwed. This was a wider anger, at the government, Bush. The hunger for change. The hope that somebody, somehow could get America out of this. The nagging suspicion that actually things would only get worse.
The suburbs had once been the repository of American certainty and optimism; now they embodied the fears for the future that resonated through every quarter of American life. 'The suburbs were the heart of the American dream,' says Christopher Leinberger, a professor of urban planning at the University of Michigan. 'That dream doesn't exist any more because we loved it to death. But we're still trying to live by it. And it's become a nightmare for millions of people who've seen their housing values go down, and the price of getting to work and just going about their lives go up dramatically.'
He foresees a gradual return to urban living. The 'McHouses' will be broken up into rental apartments or they will be abandoned, 'just like the centres of cities were abandoned in the 1960s and 70s'; the suburbs will become the new slums.
James Howard Kunstler takes a yet more apocalyptic view. He believes that on the current projections of oil supply America will see the beginnings of 'a major collapse' of suburbia within the next 10 years, which no amount of 'wishful thinking' about alternative energy supplies will be able to arrest:
'We are not going to run Wal-Mart, the Interstate Highway system and Walt Disney World on any combination of solar, wind, nuclear, biofuels, ethanol or used french-fry potato oil. The bottom line is that we will use all these things but we will be very disappointed in what they will actually do for us. The problem is too big. The design of our living arrangement is simply inconsistent with the energy realities of the future. But Americans are just not able to process this. If you look hard enough at America, what you discover is a shockingly infantile belief system, with two fundamental ideas that are deleterious to our future. There's a widespread belief in America that it's possible to get something for nothing, and that mentality has been very destructive to our society. The other idea that has become normative is that when you wish upon a star your dream comes true. These two things have become the basis of the new American ideology.
'More than half of the American public live in the suburbs. There is going to be a very strong expectation that they will be supported and that their troubles will be attended to. But what we're seeing with the mortgage crisis is that people who have made their stand in the suburbs are being hung out to dry, because there's nothing that can be done for them without bankrupting the nation.'
Kunstler predicts a future of economic disarray, political turbulence, 'and quite a high potential for social turbulence as a result'.
Riots at petrol stations?
'It could include that. One of the features of American society is how well-armed we are, and how fragile the civic bond is. Especially in the sun belt where you have an ethos of extreme individualism combined with the romance of firearms, and the belief that hyper-individualism ought to be defended by the liberal use of firearms. This is not a good recipe for civic cohesion.'
The huge, car-dependent metroplexes such as Atlanta and Houston are not scaled to the 'energy-diet' of the coming decade, Kunstler went on, and are doomed eventually to fail. 'Phoenix,' he added bluntly, 'will dry up and blow away.'
Heading south along the freeway out of Stockton, passing the ticky-tack homesteads dozing in the California sun, the advertising signs for Carl's Jr and Dairy Queen, it seemed almost inconceivable that the days of the suburbs should be numbered Americans pride themselves on their 'can do' philosophy that holds that no hole is so deep that you can't dig your way out of it. But America had not been in a hole like this since the Great Depression.
In San Bernardino, I turned off the freeway, following the road to Ontario. My destination was not signposted. But I had not expected it to be.
Tent City is a sprawling encampment of the homeless that was established by the city of Ontario authorities in July 2007 in an enterprising attempt to provide makeshift housing for people who would otherwise be sleeping in shelters, or on the sidewalks. Seventeen people had initially taken up residency, but as word spread the homeless began arriving from all over the state, and beyond. By March 2008 the camp had acquired a name, and a population of some 450 people.
Tent City is located close by the airport and backing on to a railway line; a sprawling, dusty shanty-town of tents and makeshift tarpaulin shelters, it resembled a scene from John Steinbeck's epic tale of the Great Depression, The Grapes of Wrath. Route 66, the road that in the 1930s had carried the dispossessed from the dustbowl of the Midwest to California in search of a better life, was three miles to the north.
David Busch became homeless when the family business went bust 15 years ago. Now he lives in Tent City
It was mid-afternoon, and a queue had formed at a mobile soup-kitchen drawn up on the road. I walked into the heart of the camp. People were busying themselves with sheets of plastic, pieces of wood. Outside some of the shelters the ground had been swept clean, and tape deployed to mark out a makeshift fence - creating a sort of parody of the suburban home. Beside one the Stars and Stripes hung upside down from a pole - the signal for distress.
David Busch was standing outside his tent; a tall, rangy man in his fifties with tangled grey hair and faraway eyes. He was wearing a cardboard sign tied around his neck that read MORE LOVE. 'I'm a Ghandian,' he said. He pulled up two chairs, reached for a jug of wine and poured it into two plastic cups.
Busch described himself as a child of the suburbs. He had grown up in a middle-class family in Orange County. He had been working in the family business, wholesaleing soaps and toiletries, and when that crashed he had lost his house. That was 15 years ago, and he had been homeless ever since. In that time he had assumed the mantle of activist, organising protests, petitions and food programmes. 'Personally, I prefer wholefood.' Now he was trying to organise a newspaper for Tent City. I asked, what with? 'I've got a laptop and we can print it at the local Kinko's.'
In the Depression, the shanty-towns that sprang up to house the homeless were called 'Hoovervilles' - an ironic reference to the president of the day, Herbert Hoover. Tent City had already been described as a 'Bushville'. 'But I'd actually call it a Reaganville', Busch said. Franklin D Roosevelt's prescription for the Great Depression, the New Deal, had enshrined a progressive outlook in America, Busch went on, 'that government's better role was not just to business, but to also guarantee peoples' basic human needs, and rights'. But Ronald Reagan 'and his neo-con followers' had ended that, proclaiming that a smaller role of government in social programs would somehow magically 'lift all boats' through increased business prosperity.
'Tent City is proof that Reagan's daydream for America was wrong.'
Americans, Busch said went on, were living in 'a third world economy' with no health benefits, no unemployment benefits. 'America's focus has been on the Dow Index, rather than the human development index. How many prisons have they built in the last 25 years when they should have been building schools? To erase the poverty gap in this country would cost $150 billion - roughly one fifth of the military budget. And the American people have finally woken up from that 25 year daydream - to see bank failures, visible homelessness, home foreclosures, joblessness, lack of health-care, wars, and environmental disasters.'
Tent City was not, of course, a direct result of the mortgage crisis; its inhabitants were not refugees from suburban subdivisions - the homeless will always be with us. But its very existence at exactly the moment the tsunami of foreclosure was sweeping through the suburbs seemed a potent symbol of the ailments afflicting the American economy. A symbol, too, of how narrow the gap could be between a life of comfort and downfall. Imelda, a bright and, given her circumstances, remarkably smartly dressed woman in her early thirties, told me that until a few months ago she would never have imagined herself as one of the homeless. Then she had lost her job selling mobile homes. Unable to pay the rent, she moved in with friends. When that arrangement came to an end she found herself homeless. She had been living in Tent City for six weeks.
As we talked, a goods train slowly rattled by, laden with containers from the port at Long Beach. Tomorrow, Imelda said, she was going for a job interview. You had to live in hope. The goods train kept coming, truck after truck - it seemed like the longest train in the world. The containers bore the name China Shipping Company.
A week or two after my visit to Tent City I received an email from David Busch, saying that the Ontario authorities had moved in and started to evict anybody who was not a resident of Ontario. Around 200 people had been forced to leave. Busch and a fellow activist were staging a protest march along Route 66, 'on the famous "Grapes of Wrath" route', he wrote, to draw attention to the nation's housing crisis, wearing the signs around their necks saying "More Love".
The reference to The Grapes of Wrath had a particular resonance.
Leaving Tent City, driving down the freeway, I tuned to a satellite radio station, playing a miscellany of words and music. By a quirk of serendipity, they happened to play a clip from John Ford's film version of John Steinbeck's book - in which Henry Fonda as the hero Tom Joad bids farewell to his mother, pledging to dedicate his life to being an advocate for justice and the oppressed.
'Wherever you can look - wherever there's a fight, so hungry people can eat, I'll be there. Wherever there's a cop beatin' up a guy, I'll be there. I'll be in the way guys yell when they're mad. I'll be in the way kids laugh when they're hungry and they know supper's ready, and when the people are eatin' the stuff they raise and livin' in the houses they build - I'll be there, too.'
Tom Joad was speaking to all that was good and decent and true about the American character - integrity, justice and self-sufficiency, and to the vision of a better future.
My mind went back to Stockton. On my last day there, driving along the freeway north of town I had noticed another sprawling subdivision in the distance, a new development, sales flags flapping in the breeze.
I turned off the freeway and past a sign that announced I was entering Spanos Park. I followed the road past lines of McHouses, with their fake shuttered windows and tiled roofs, so new they might have just been taken out of their boxes. The air was filled with the smell of freshly sawn timber and tractored earth and the more elusive and poignant perfume of optimism in the face of prevailing disaster. At the furthest perimeter of the estate, the road ended at a high wall; beyond, farmland stretched away towards the dying evening sun.
A row of show-houses awaited visitors, three different designs: The Adirondack, the Catamaran, the Nantucket - each corralled behind the abiding symbol of the suburban dream - a white picket fence. I stepped up to the Catamaran and tapped the fence with my finger. It was made of plastic. A light glowed in an upstairs window, welcoming, reassuring - a beacon of hope. But there was nobody home.
Mick Brown, along with Andrew O'Hagan and Matt Frei, the BBC's Washington correspondent, will be taking part in a debate, 'America: A New Beginning?', at Lucas Theatre, King's College, The Strand, London WC2 on July 24 (tickets: 0800-404 7326; seminars.ie).
