If
houses go to heaven, then Classen Avenue, in the Cleveland neighborhood
of Slavic Village, has been the scene of a mass Rapture. Ted Michols
watched it all happen. A retired trade magazine editor, a bachelor, a
man who likes to sit on his porch and share the neighborhood with
passersby he’s known fifty years, Michols has lived his entire life in a
little square house his grandfather bought in 1923. It was the kind of
house that used to be good enough for everyone in Cleveland: 800 square
feet of domesticity in the middle of a pond of grass where a Virgin Mary
is flanked by floral suns of marigolds, and an American flag. He shared
it with his brother, another bachelor who died in 2005. Now he’s alone.
His old school friends want to know why he never followed them to the
suburbs. To them, Slavic Village is the Old Neighborhood, but no longer
the neighborhood they grew up in. “It’s changed,” they say delicately.
That’s Cleveland code for, “the element moved in,” which in turn is code
for “black.”
Michols stayed because Slavic Village is
Polish—unlike many urban neighborhoods, where integration is the period
between the arrival of the first black and the departure of the last
white, Slavic Village only changed halfway. At Seven Roses, the cabbage
and pierogi buffet on Fleet Avenue, the newspapers and lunchtime gossip
are about doings in Krakow and Warszawa. And staying in Slavic Village
meant staying in the parish of Immaculate Heart of Mary, where he had
been baptized.
“The one good thing about living here is you have a
lot of friends,” Michols said. “We were working on the sidewalk, about
10 people stopped and talked. You don’t get that in the suburbs. People
don’t talk.”
But he had fewer friends than before the housing
crisis. The house next door disappeared first. The couple who lived
there had paid $17,500 for it, in 1977. At that price, they should have
been sheltered for life, but “they liked to buy stuff,” Michols
observed, so they borrowed and borrowed against their equity until, in
2004, they lost it to the bank. A fireman picked it up for $25,000. Like
a slumlord, he painted it and rented to a woman on Section 8, who was
so clueless about housekeeping that Michols had to mow her lawn. From
owner to low-income renter, the house was moving down in the world.
Eventually, a corner of the foundation collapsed, causing the floor to
sink four inches. The tenant moved out, and the house was demolished,
leaving in the grass only the outline of its basement. The same thing
happened across the street, where an absentee landlord bought out an
owner, and rented to tenants who sold drugs. After they set the house on
fire, Michols went to court to have the place demolished.
Frugality
was easy for Michols. Having inherited his house, he’d never made a
mortgage payment. Having no children to educate, he never thought of
borrowing. So he was astonished by the appliance repairman who divorced
his wife and abandoned his house, owing $83,000. And by the speculators
who were paying double what the old-line neighbors knew the properties
were worth.
“Sometimes, we’d look at some of those homes and we
said, ‘This is going for $86,000? What is going on.’ The bank wasn’t
looking at applications.”
As the loans went bad, and the houses
emptied, the scrappers arrived, tearing out furnaces, aluminum siding
and water pipes right in broad daylight. To discourage scavengers, signs
reading THIS HOUSE DOES NOT HAVE COPPER PLUMBING were posted in
windows. But Classen Avenue became such a magnet for thieves they even
broke into occupied houses. A kid from down the street tried to burgle
Michols, but Michols chased him off. Only a neighbor who mowed the
vacant lots prevented Classen Avenue from reverting to pre-settlement
prairie.
Clevelanders have a saying: “Cleveland’s pain, the
nation’s gain.” It means, “A lot of shitty stuff happens here, but we
hope the rest of America can learn from our misfortune and avoid the
same crap.” The foreclosure crisis that would drag the American economy
into its deepest slough since the Great Depression arrived first in
Cleveland, and nowhere was it more severe than Slavic Village. The 44105
zip code, which covers southeast Cleveland, was the scene of more
housing speculation than any place in the country. Unfortunately, the
rest of America wasn’t paying attention.
Slavic Village was
settled in the late 19th century by Poles, Czechs and Bohemians who’d
been imported to break a strike by native-born workers at the Cleveland
Rolling Mill. They worked ten hours a day, six days a week, for wages
that kept them just a bit more comfortable than barnyard animals, and
built $400 cottages with even smaller mother-in-law cabins out back.
Slavic Village was sooty, it was overcrowded, but it was also one of
those self-contained ethnic ghettoes that perpetuated Old World
languages and customs for decades after
babeia and
diadziek
arrived on the ship from Danzig. The church where you were baptized,
the department store where you bought your communion dress, the high
school where you finished your education, the factory where you spent
your working life, the tavern where you spent your afterwork life, the
house where you raised your family, the hospital where you died, and the
graveyard where you were buried were all within a few miles of each
other. Unto the third generation, children grew up speaking Slavic
languages at home, hearing them during Mass at St. Stanislaus (Polish)
or St. John Nepomucene (Czech) and arguing in them at the Alliance of
Poles, the Czech Sokol Center or the Bohemian National Hall. The
storefronts on Fleet Avenue and Broadway were labeled with
poorly-emvoweled names: Stepke’s Hot Shop, Glinka’s Tavern, Divorky
Hardware. Nobody minded a small house, because the tavern, the church
and the social hall were extensions of the living room.
That all
changed after World War II, of course. Slavic Village’s children moved
to inner-ring suburbs such as Garfield Heights and Parma. (Parma is
Cleveland’s Cleveland, the butt of local jokes about pink flamingos and
bathtub Madonnas.
The Drew Carey Show’s original theme was
“Moon over Parma” and in 2010, a radio host spoofed Jay-Z’s “Empire
State of Mind” with “Parma State of Mind.”) The suburbanites returned
for polka bands and pierogi-eating contests at Slavic Village Fest, but
when their parents died, the middle-aged offspring had no interest in
their childhood homes. They sold out to absentee landlords, who rented
to Section 8 tenants. By the 1990s, Slavic Village, which had never
actually been a village, was no longer entirely Slavic either. It was
more than 50 percent African-American. After the slumlords came the
speculators, the house-flippers. Ohio had some of the weakest lending
laws in the nation. Slavic Village, a neighborhood full of unwanted
dwellings, was ground zero for exploitation.
Between 2000 and 2010,
Slavic Village’s population dropped 27 percent, on its way down from its
all-time high of 70,000 to 20,000. During a time when banks were
willing to write mortgages to
anyone, for any amount of money,
there was cash to be squeezed out of empty houses. Here’s how one scam
worked, according to Tony Zajac, an aide to Slavic Village’s city
councilman, Anthony Brancatelli. When Zajac’s aunt was 89, her son moved
her into a nursing home. He put a “PRIVATE SALE” sign on her 10-room
house, offering it for $40,000. The buyer took out a $90,000 mortgage,
stating on the purchase agreement that she intended to use the balance
for rehab. Instead, she split the money with the mortgage broker and the
appraiser who had conspired to falsify the home’s value.
“They
took the $50,000 and split it to line their pockets with gold,” Zajac
said. “Three years ago, Aunt Mary and her son were sued by the lender,
Deutsche Bank. They falsify the income of the purchaser and they fly.
They leave the house once they got the money.”
Then there were
flippers. They paid old women $40,000 for their houses, then turned
around and sold them for $60,000 to suckers whose greed was inflamed by
“Get Rich Quick in Real Estate!” infomercials, and by the inflated real
estate market of the late 1990s, when properties were doubling and
tripling in value. Hapless bargain hunters purchased houses on the
Internet, only to find them boarded up and stripped of every metal
fixture. A California artist looking for a cheap home/studio bought a
Slavic Village house that turned out to be condemned. (After many trips
to housing court, he brought it back up to code.)
The lenders were
so aggressive they went door to door on the East Side of Cleveland,
pointing out loose shingles, collapsing chimneys, or sagging porches.
Money from a second mortgage could repair any of those defects, the
door-to-door brokers told the homeowners. They never mentioned the
adjustable rate.
Anita Gardner’s sons fell for that scam. Gardner,
who worked 31 years as a heavy duty machinist and welder at TRW, bought
a two-story house on the East Side for $21,000 back in the early 1970s.
It was almost paid off when she was diagnosed with Chiari malformation,
a brain disorder that left her too ill to work, or even walk up the
stairs to her bedroom. So she bought a one-story home, a converted
liquor store, and signed the old house—“My Buckingham Palace, a place
where I could cover the walls with my paintings and close off the
world”—over to her two thirty-something sons. When Gardner had moved in,
every house was owned by an autoworker or a steelworker with a wife,
four or five children, and a new car. Then J+L Steel, the neighborhood’s
largest employer, closed in 1999. The blue-collar workers moved out,
and the mortgage brokers began moving in, attracted by the remaining
residents’ financial desperation. Having lost their paychecks, these
dispossessed factory rats were told they still had a source of income,
in the houses they’d bought cheap and paid off with union wages and
frugality.
“This couldn’t have happened if people had good jobs,”
Gardner said. “Or why would they change their mortgage? They were
desperate for money. It was targeted. It was definitely targeted.
Mortgage agents were going door to door, calling on the phone. It was in
the air: ‘You don’t have to have credit. You can have nice things.’”
Gardner’s
sons fell for the pitch. Neither had ever been able to afford nice
things. The elder brother had served 11 years on a drug charge. When he
got out of prison, the only job he could find was delivering furniture
for Sears. The younger brother was a restaurant supply salesman. When an
agent from Countrywide Financial agent offered them a $70,000 mortgage
on their mom’s almost-paid-off house, they signed. Gardner suspects the
agent falsely inflated the home’s value in order to write a bigger
mortgage. Agents received bigger commissions for adjustable-rate
mortgages. The boys used the second mortgage for a shopping spree. A
black Hyundai Tiburon sports car. A new couch. A big screen TV. A
refrigerator in the garage, full of beer.
The monthly payments
began at $436 a month, but as the boys missed payments, it more than
doubled to $950, far more than they could pay on their small-time jobs.
When the past due amount reached $4,000, Gardner’s sons appealed to mom
for a bailout.
Gardner paid the arrears, plus an $800 transaction
fee, plus a series of six $1,000 “good faith payments” to return the
note to its original payment plan. A realtor friend negotiated with
Countrywide to buy the house back for $25,000 — which Gardner raised by
borrowing on her new house. The mortgage lending crisis ate up her life
savings.
“I’m out of money,” she said. “This is all my retirement
money. I have enough to live on, but all the money I had stuffed under
the mattress, it’s gone. Meanwhile, my mortgage on the new house jumps
from $600 to $900.”
Gardner evicted her sons—“they don’t deserve
this, they don’t understand what the palace is”—but two months after
buying back her house from Countrywide, she was informed that the
employee with whom she’d negotiated had no authority to cut a deal.
“Why
should we take $25,000 when we can get $70,000?” a Countrywide agent
told Gardner. “We will get the money from your son. We will prosecute
him.”
Countrywide sued Gardner’s sons, and began foreclosure
proceedings on the house. Desperate, she appealed to an organization
called ESOP—Empowering and Strengthening Ohio’s People. As a social
service agency in the nation’s foreclosure capital, ESOP was devoting a
large part of its resources to mortgage counseling. Having lived a
middle-class life, Gardner was a little put off by ESOP’s office. A room
in the back of a church, with two or three people working on mismatched
furniture, it reminded her of a sweatshop or a numbers runner’s den.
But Gardner joined ESOP’s campaign against Countrywide, which had been
writing shady mortgages all over northeastern Ohio. Wearing a shark’s
head, Gardner joined a picket of Countrywide’s headquarters, where ESOP
members passed out the personal cell phone number of CEO Angelo Mozilo.
Busloads of protestors picketed Marzullo’s country club. (They were
followed, needless to say, by vanloads of TV cameras). ESOP blew up the
company’s fax machine with photographs of foreclosed homes. Finally,
Countrywide settled with Gardner for another $6,000. Buckingham Palace
was hers again, but the rest of her street was a cemetery.
“There was seventy-six houses on the street, and now only eleven are occupied,” she said.
This
raises a question. Which is the greater social ill: allowing people who
can no longer afford their mortgages to stay in their houses, thus
undermining the credit system by letting people to skip out on their
payments, or evicting people from houses for which there is no buyer,
thus undermining the property itself, and the surrounding neighborhood?
Ted Michols and Anita Gardner would say let the poor folks stay and look
after their houses. Vacant houses attract criminals. Michols called the
cops on a stripper trying to tear the aluminum drainpipe off a house at
11 o’clock in the morning. In a 150-foot radius around a vacant house,
property values go down at least $7,000. A vacant house reduces its
own
value even more, since it’s usually denuded of plumbing fixtures,
boilers, carpeting, sinks, toilets, heating pipes and any architectural
sconces that can be peddled in a second-hand shop. Yellow foreclosure
stickers and plywood windows are not warnings, they’re invitations.
After homeowners exhaust the equity, inner-city scavengers salvage the
last pennies of value out of a house, until the mortgage lender ends up
paying the city for demolition.
Jim Rokakis, who had been a
22-year-old city councilman when Dennis Kucinich was mayor, was elected
Cuyahoga County Treasurer in 1996. Holding that job, at that time, made
him the first politician in America to see the foreclosure crisis
coming. Normally, 2 to 3 percent of the county’s homes were in
foreclosure. But by the end of Rokakis’s first term, that proportion had
doubled. Cuyahoga County had the highest foreclosure rate in the
nation.
As a freshman treasurer, Rokakis was ignorant of the
mortgage industry’s scams. But once he learned that fly-by-night brokers
were writing inflated mortgages to buyers with no income, he convened a
conference on “Predatory Lending in Ohio” at the Cleveland branch of
the Federal Reserve. Rokakis hoped that Federal Reserve Board Chairman
Alan Greenspan might crack down on sleazy lenders like Countrywide.
Greenspan did nothing, not even after receiving a warning letter from a
federal reserve governor who attended the conference. So Rokakis
persuaded three Ohio cities—Cleveland, Dayton and Toledo—to adopt
anti-predatory lending ordinances. The ordinances were quickly
invalidated by the state legislature in Columbus, which passed a law
specifying that only the state could regulate banking. This, of course,
lured even more lenders to Cleveland. In 2004, Ameriquest Mortgage
Company, the nation’s largest subprime lender, established an office of
its Argent Mortgage subsidiary in Cleveland. Ameriquest had invented the
“stated income loan”: if a customer told Ameriquest he earned 100 grand
a year, Ameriquest would take his word for it. Why let the facts mess
up a bad loan?
“The amazing statistic about Argent is their first
year of operation, ’04, they led Cuyahoga County in two categories—loans
issued and foreclosures,” Rokakis said. “So the day they opened up,
they were in trouble. They were making these wild loans and they were
making loans that could not be repaid.”
By the time the crisis
peaked, in 2006, Cuyahoga County had 13,000 foreclosure filings—four
times its pre-2000 level. Unable to get the attention of Greenspan or
Ohio Gov. Bob Taft, Rokakis wrote an Op-Ed for
The Washington Post.
By then, it was too late for the nation to gain from Cleveland’s pain.
From its cradle in Slavic Village, the sub-prime lending industry had
spread throughout the entire nation, and was a year away from capsizing
the entire American economy. Wrote Rokakis:
“Let me
tell you about a place called Slavic Village and the death of a girl
called Cookie Thomas. You’ve never heard this story before—talk of
housing markets and hedge funds, interest rates and the Federal Reserve
has drowned it out.
Twenty years ago, the Slavic Village
neighborhood of Cleveland was a tightly knit community of first- and
second-generation Polish and Czech immigrants. Today, it’s in danger of
becoming a ghost town, largely because a swarm of speculators, real
estate agents, mortgage brokers and lenders saw an opportunity to make a
buck there.
You could say it was because of them that
12-year-old Asteve “Cookie” Thomas lost her life on Sept. 1, shot in
Slavic Village when she stumbled into the crossfire of suspected drug
dealers. The neighborhood wasn’t always a haven for criminals—not until
hundreds of foreclosures destabilized the community. Houses (800 at last
count) and then entire streets were abandoned. Crime increased as
vacant properties offered shelter for people who had a reason to hide.
Cookie
Thomas… haunt[s] me because [she] didn’t have to die. In a sense, [her
death] was foreshadowed in the late 1990s, when the dark side of the
real estate industry—the predatory lenders—came to Ohio, including
Cleveland’s Cuyahoga County, where I serve as treasurer They knew that
the state’s lax regulatory structure would give them virtually free
rein. This is when we first heard terms such as “securitization,”
“mortgage-backed securities,” “3-28s,” and “risk modeling.” These are
code words for Wall Street strategies that made the cycle of
no-money-down, no-questions-asked lending possible—the strategies that
have sucked the life out of my city.”
By 2006, the
year the crisis peaked in Cleveland, 903 of Slavic Village’s 2,944
properties were in foreclosure. Rokakis did secure passage of a county
ordinance that sped up foreclosure of vacant, tax-delinquent properties.
The empty houses went into the city’s land bank, which often sold them
to next-door neighbors, so they could expand their yards. (“If the
vacant lot is next to you and you can beautify it by putting grass and
cutting it and keep it nice, it adds to your property value,” Rokakis
said.) Others went to community development organizations. On a street
as gapped and rotten as an old tramp’s mouth, a group called Slavic
Village Development built vinyl-sided ranch houses to replace the
worn-out workingman’s cottages.
Slavic Village offers an
opportunity for an entrepreneurial developer. Broadway, the
neighborhood’s high street, is served by five-and-ten dollar businesses:
Walgreen’s, Wendy’s, soft ice cream stands, and grimy diners serving
city chicken. (The Cleveland dish of city chicken is actually cubed pork
on a skewer. It was invented as a poultry substitute by Slavic
housewives too poor to afford actual chicken, and is still served as a
white ethnic comfort food.) What Slavic Village needs is a strip mall
gathering every ghetto business under a single roof. It would include a
cell phone store, a discount dollar store, a Rent-to-Own center, a
Laundromat, a liquor store specializing in White Owl cigars and Night
Train wine, a Chinese take-out with three wobbly tables, and a
hand-lettered “NO MSG” sign in the window, a chicken-and-fish grill
where the food is served on a rotisserie that rotates through a
bulletproof window, an Instant Tax Refund Center where a man dressed as
the Statue of Liberty hands out flyers every winter, and a Currency
Exchange charging a 3% fee to cash checks for people trying to avoid
having their bank accounts garnished for child support and/or back taxes
and/or legal fees. The mall could also support a sneaker boutique
selling counterfeit Nikes (look for the backward swoosh) and
three-for-five packages of cotton socks; as well as a day labor center
that takes a 33% fee out of your wages, but doesn’t ask “Have you ever
been convicted of a felony?” on the application. A pawn shop is also a
possibility, although pawnbrokers have been thriving since the recession
began, so they might be able to afford their own building.
The
wonderful thing about this mall is that it could be pre-fabricated and
franchised out to every inner-city neighborhood and small town in the
United States. Just as toothpaste and soap manufacturers are trying to
profit from the economic stratification of America by developing
discount products for the formerly middle class, a single
poverty-pimpin’ conglomerate—we’ll call it PoorMart—could develop
thousands of these little malls, from Bridgeport, Conn., to Phoenix
City, Ala., to Stockton, Calif. After buying the properties in
foreclosure sales, PoorMart would hire non-union contractors to build
the stores, and recruit low-wage employees from Pakistan, India, Nigeria
and Iraq, arranging for work visas which would be voided at the first
sign of insubordination. PoorMart would fill a niche too small and
specialized for Walmart to occupy. As the Walton family earns billions
of dollars by selling shoddy goods to people who lack the money or the
transportation options to shop in department stores, PoorMart’s owners
would earn billions off people to poor to shop at Walmart. They’d earn
make billions more in interest and convenience fees from people too
broke to save up for a living room set, or wait six weeks for their tax
refunds. With its combination of retail stores and financial services,
PoorMart would transmutation the masses’ poverty into investors’ wealth.
As
the birthplace of the New Underclass, Slavic Village is the perfect
test market for PoorMart. Unlike most urban neighborhoods—even most
neighborhoods in Cleveland, where the Cuyahoga River separates East Side
blacks and West Side whites—Slavic Village is racially mixed. A cross
was burned when blacks began to infiltrate in the 1990s, but Catholic
parishes—like Ted Michols’s Immaculate Heart of Mary—and Polish
immigrants prevented unanimous white flight. Slavic Village’s
demographics have settled at 55 percent African-American and 41 percent
Caucasian. The white population has actually been growing, due to young
urban pioneers seeking cheap housing and “authentic urban experiences”
(i.e., Polish bakeries) they can’t find in the suburbs. When Slavic
Village Development built middle-income houses and townhouses on the
site of a closed-down state mental institution, it managed to attract
black and white buyers in equal numbers, by marketing to both races.
Councilman Brancatelli marketed his 4th of July fireworks show the same
way: he hires a country singer and a funk band, thus drawing a
salt-and-pepper crowd of blacks, elderly Poles, and tattooed white
families. While waiting in line for free ice cream and hot dogs before
the fireworks, I met a man who identified himself as “Bohemian,
Hungarian, Polish, Czech and Slovenian,” which used to pass for
diversity in Slavic Village. He believed his neighborhood’s worst years
were over, now that the city was demolishing the legacies of the
foreclosures.
“It’s cleaned up a lot of property,” he said.
“There’s a lot of vacant land. The crime went up, because there was drug
dealers in all the houses, but they’ve been torn down. It’s turning the
corner. Plus, once you’re a drug dealer, you have to have money to buy
drugs. All the scrap is gone. The drug dealers are moving out to the
suburbs.”
* * *
The housing
crisis that began in Slavic Village eventually bankrupted several Wall
Street houses that had overinvested in subprime mortgage-backed
securities. What was bad for Wall Street was even worse for Detroit. The
American automakers were already struggling in 2008. Their solvency
depended on SUV sales. Only big vehicles could generate the profits
necessary to pay health care premiums and pensions for millions of
retirees. But once gasoline prices crested at $4 a gallon that May, even
Americans stopped buying SUVs. In the spring quarter of 2008, General
Motors lost $15.5 billion. GM cut off medical benefits to retired
salesmen, engineers, and executives, but it couldn’t cut off UAW
members, whose contracts guaranteed health care for life.
Then, in
September, Lehman Brothers filed for bankruptcy. The stock market lost
30 percent of its value. Automobile sales dropped by the same amount, to
their lowest levels since the Iranian crisis of the late 1970s. GM
stock crashed to $3.36 a share—less than a third of its value just three
months before, and its most meager price since 1946. Drivers weren’t
buying cars. Bankers weren’t making loans. The auto companies had only
one place to turn for money: the federal government.
In Pinckney,
Michigan, an automotive engineer named Tom Lavey watched the entire
congressional auto bailout hearings on CNN. Lavey had plenty of time to
sit in front of his television, because he’d just been laid off for the
second time that year. During the spring, he’d ended a contract job with
International Automotive Components, designing carpets for Ford cars.
In the fall, Lavey caught on as a contractor with Ford, where he had
worked early in his career. It paid a third less than he’d been making
at IAC, but in 2008, the Big Three weren’t handing out engineering jobs,
the way they had been when Lavey graduated from Eastern Michigan
University in the 1980s.
There’s a saying that when a boy is born
in Southeastern Michigan, his parents declare “What a cute baby. He’ll
make a great addition to the auto industry.” Lavey decided that himself.
From the time he was seven years old, he wanted to make cars. His path
was confirmed in college, where he saw a flyer listing the salaries of
various careers. “Manufacturing and Auto Industry: $30,000 a year” it
read. That was good money. It was security, too. How could manufacturing
ever go away? People would always need stuff. The auto industry had
supported his grandfather, who’d spent his entire career at Ford’s, and
it would support him, too. Right out of college, Lavey got a contract
job at Ford, and saved enough money for a three-month trip to Europe.
“From 1989 to 2008, it was fat in this town,” he said. “you’d get a contract, have two parts to work on.”
Throughout
the 2000s, though, Lavey saw signs that his dream career was not as
secure as he’d imagined. There were fewer designers on each job, which
mean the surviving engineers often had to stay in the office until eight
or nine o’clock. And the auto companies were outsourcing computer
assisted drafting to India and the Philippines. The draftsmen were
cheaper, but a pain to work with. You couldn’t talk to them face to
face. Because they were on the opposite side of the world, bad designs
took an entire day to fix.
Still, Lavey wasn’t prepared for the
brevity of his last assignment for Ford. The job lasted exactly a month
before it was eliminated during the financial crisis.
“Don’t worry,” Lavey’s supervisor told him. “This is a budget thing. We’ll have you back in January.”
Two weeks later, the boss called back, with more bad news.
“Guess what?” he told Lavey. “They got me, too.”
When
the chairmen of General Motors and Chrysler traveled to Washington to
beg for a loan (first by corporate jet, then by caravan, after
congressmen criticized the mendicant auto executives for flying when it
have would been cheaper to drive), the strongest opposition came from
Southerners who saw burying Detroit as an opportunity to bury the United
Auto Workers and the entire union movement. Sen. Richard Shelby of
Alabama called the American auto industry a “dinosaur,” and suggested
government aid would only delay its well-deserved demise.
“Companies fail every day and others take their place,” Shelby said. “I think this is a road we should not go down.”
The
companies that would have taken GM’s place—Mercedes-Benz, Hyundai, and
Honda—all have plants in Alabama, where they benefit from Southern
hostility to organized labor. None of Alabama’s plants are
unionized—perhaps one reason the state ranks 46th in household income.
Sen.
Bob Corker of Tennessee, who represented a Volkswagen and a Nissan
plant (as well as GM’s unionized Saturn facility in Spring Hill), tried
to force the UAW to agree to “wage parity” with the Japanese auto plants
as a condition of the bailout. His attempt to cut union wages to
non-union levels was mooted when President George W. Bush decided that,
like the banks, the auto companies were too big to fail, and sent them
$17.4 billion of the $700 billion Wall Street bailout money, enough to
keep them afloat for three months.
Bush was one of Detroit’s few
friends in Washington during that difficult autumn. Even as Two of the
Big Three wheedled with the Senate Banking Committee, the House Energy
and Commerce Committee unhorsed Rep. John Dingell of Michigan as its
chairman, replacing him with Henry Waxman of California. It was a clash
between liberalism’s most powerful wings—coastal progressives and Rust
Belt union brothers—and it was unfortunate, because between them, the
two have a solution for saving the auto industry.
If one
congressman had forever seen that universal healthcare could be a boon
to American manufacturing, it was Dingell. Rooted in the New Deal and
the Industrial Heartland, Dingell embodied the auto industry’s
traditions. Stocky, block-headed, with safety-glass eyewear, he looked
like he should have been inspecting the paint job on a Buick. Every year
since beginning his record-setting service in Congress, in 1955,
Dingell had introduced a bill for a single-payer national health
insurance system—the same bill his father began promoting in 1933.
By
2008, though, the political tide had turned against the old Detroit
champion. Dingell’s defense of the auto industry made him a stalwart
opponent of any regulations that might discourage GM from building
ginormous SUVs. He had tried to prevent California from adopting its own
auto emissions standards, arguing for a nationwide plan. Waxman, a
resident of Beverly Hills, he was more concerned with air quality in his
overpopulated state than with the plight of Midwestern factory workers.
The 82-year-old Dingell left the meeting at which he lost his
chairmanship on crutches, demonstrating both the infirmity of his state
and the industry he has defended so vigorously.
Waxman and Dingell
both needed to realize that health care, environmentalism and the labor
movement are inseparable elements of saving the auto industry.
Unfortunately, the Affordable Care Act that Waxman would help pass did
not relieve the burden of health care costs on automakers. GM had
already tried to do that on its own. During a two-day strike in 2007,
the company negotiated an agreement to transfer retiree healthcare to an
independent trust fund, maintained by the UAW. GM contributed $36
billion to the fund—70 percent of its liability to retirees. It was
expected to save the company $2.5 billion a year.
* * *
The
$17 billion bailout did not provide a new job for Tom Lavey. Americans
still weren’t buying cars. They had no equity left in their houses, and
since new housing starts had crashed from 2 million a year to 500,000,
hordes of construction workers were without jobs. Out of work for the
first time in his adult life, Lavey joined the “99ers”—the hard-luck
Americans eligible for 99 weeks of unemployment. As a bachelor, he had
no family to support, but he was nonetheless grateful when his landlord
cut the rent in half. He could have paid the full freight with his
unemployment check, but that would have meant eating a lot of meals at
his mother’s house. Lavey kept busy in his machine shop, where he made
screws, nuts and binocular housings, selling them to a science supply
company for just enough money to cover his cell phone bill and fill his
gas tank.
“Working in a shop, I got laid off for a week at a
time,” Lavey said. “But this was the first time I was told, ‘Get out and
don’t come back.’”
He wouldn’t be invited back in for almost two years.
* * *
When
Nick Waun came home to Michigan after a tour of duty in Iraq, he
intended to finish his economics degree at the University of
Michigan-Flint. But first, he needed a job to pay for school. Waun was a
fourth-generation factory brat—his great-grandfather had been a
Sit-Down Striker, and growing up, he’d listened to his father and
grandfather talk shop. In 2007, it wasn’t easy to get a job in an auto
plant, but Waun was a veteran. More importantly, he was a legacy. He had
an in.
“Hey,” his aunt asked. “You want to go work for General Motors?”
(A
family recommendation is pretty much the only way to get a job in an
auto plant nowadays. The United Auto Workers may as well be a hereditary
guild.)
Waun was hired to work on the line at the Lake Orion
Assembly Plant, at $28 an hour, an astonishingly high wage for a 25-year
old. He bought a house in Lapeer, a village in Michigan’s Thumb, a
protuberance east of Flint whose anatomical nickname is derived from its
resemblance to the loose digit on the mitten-shaped Lower Peninsula. At
night, Waun built Pontiac G-6s and Chevy Malibus. During the day, he
went to school in Flint.
Waun belonged to the final class of
middle-income autoworkers. If he’d hired in even a few months later, he
would have been offered half the money he was earning, and fewer
benefits. In 2007, as part of the same national agreement in which the
UAW took on retirees’ health care costs, the union also agreed that
non-assembly workers could be paid $14 an hour. This arrangement became
known as the tiered wage system. The veteran auto-workers were called
Tier Ones, while the ill-paid new hires were Tier Twos. The UAW hoped
Tier Twos would become Tier Ones as soon as the companies’ fortunes
improved. The next year, of course, GM and Chrysler went bankrupt. As
part of its pre-bankruptcy concessions, the union agreed to freeze Tier
Two wages until 2015. During the bankruptcy restructuring, GM was forced
to eliminate the Pontiac nameplate. (With Oldsmobile already dead, GM’s
brand ladder had been reduced to three rungs: Chevrolet, Buick and
Cadillac. Buick survived because it had become to Chinese party
officials and software tycoons what the Mercedes-Benz is to Hollywood
producers and Brooklyn rap stars: the car that says, ‘I’ve made it,’ or
however they say ‘I’ve made it’ in Mandarin.) With Pontiac in the brand
graveyard, Waun was laid off for a year while the Lake Orion plant was
retooled to build Chevy Aveos. When he was called back, GM gave him a
choice: he could stay in Lake Orion as a Tier Two, or he could continue
earning $28 an hour at the plant in Lordstown, Ohio, 220 miles around
the bend of Lake Erie. The reason: Lake Orion would be building the Aveo
and the Chevy Cruze, compact cars that sold for less than $20,000. GM
could only make a profit if 40 percent of the workers assembling those
cars earned $14 an hour. Because of Waun’s low seniority, he would have
to take a pay cut.
Waun took the transfer, which came with a
$30,000 bonus. He dropped out of college 18 credits short of a degree,
and rented a $450 a month trailer in a mobile home court across the
turnpike from the plant. Lordstown was home to a lot of GM gypsies who’d
been forced out of their home factories.
Even before he was
jerked around by General Motors, Waun had been a rabble rouser. During
his freshman year in college, he was a campus radical who thought a
student should sit on the University of Michigan’s Board of Regents.
Neither the Democrats nor the Republicans would nominate him, so he ran
on the Reform Party ticket. At 18, Waun was the youngest candidate ever
to appear on a statewide ballot in Michigan—one-upping fellow Flintoid
Michael Moore, who had only run for local office. As an autoworker, Waun
labored in GM’s two most militant cities: Flint and Lordstown. The
Lordstown plant had opened in 1966, and was immediately staffed with
Viet Nam veterans, who were, as we saw in Decatur, Ill., the most
uncompromising labor activists of the late 20th century. Lordstown built
the Vega, Chevy’s crappy attempt to crash the small car market. The car
was scheduled to debut in 1970, but that fall’s UAW strike delayed its
introduction. The little Vega was supposed to be America’s greatest
weapon against Japan since Little Boy. To rush the heavily-advertised
car to dealers, GM
doubled the speed of Lordstown’s assembly
line. A “speed up” had caused the Sit-Down Strike. Lordstown’s workers
responded by slashing upholstery, keying up paint jobs, denting quarter
panels and even breaking off keys in locks. Finally, they went on
strike. The estrangement of these young, multi-racial workers became
known as the “blue-collar blues”; their rebellion was a “Worker’s
Woodstock,” drawing comparisons to the anti-war matches at nearby Kent
State University.
As a scion of both these Up the Company
traditions, Waun began a campaign against the tiered wage system. It
wasn’t just about economic fairness, although that was certainly part of
it. Tiered wages were accomplishing what those Southern senators had
tried to write into the auto bailout plan. Non-union, foreign-owned
plants were now setting the pay scale for American autoworkers. Not only
did Tier Twos earn half as much, they had lesser benefits, bigger
co-pays for health care, and a 401k contribution, instead of a pension.
If GM could threaten to cut Waun’s pay in half, whose livelihood was
safe? There was also a quality issue. After a year at Lake Orion, Waun
was named a team leader—just as the plant brought in a second shift,
composed partly of Tier Twos. Tier Twos were not supposed to assemble
cars. According to the agreement, that status was reserved for
“non-core” jobs, away from the line. But GM was putting them on the
line, and, unsurprisingly to Waun, they wouldn’t—or couldn’t—work as
hard as Tier Ones. Some were juggling two jobs to pay their rent, and
came to the plant exhausted. Others decided that $14 an hour was not
enough money for the hectic pace of auto work. They walked out of the
plant, declaring “I’m going back to Home Depot.” If a bolt wasn’t
torqued right, they’d let it go down the line, rather than making the
effort to tighten it. Such lax attitudes created tension with the Tier
Ones. Waun saw a resentful Tier One punch his Tier Two team leader. When
the Michiganders arrived at Lordstown, the lower-paid Ohioans refused
to speak to them, then taunted them by wearing t-shirts popular on
football Saturdays in Columbus: “Ann Arbor is a Whore”; “M Go Blow.”
“They’ve
already had problems with the Cruze, with steering wheels coming off,”
Waun said. “There’s been a couple recalls. I’ve heard it brought up at
the union, that it was sabotage by disgruntled Tier Two workers.”
Waun
filed a complaint against the Lake Orion agreement, on the grounds that
it had been approved without a vote of the local membership. If his
brothers and sisters had known about the Tier One/Tier Two clause, he
was sure they would have turned it down.
“The membership had no
previous knowledge that a 50% pay cut was under consideration until the
announcement on October 3,” Waun wrote in his complaint. “For the
previous 12 months, charging member Nick Waun had perused every local
newsletter, attended every local meeting, and frequently reviewed the
local website. Though negotiations with GM were reported on, there had
been no indication that significant pay cuts might be an issue at the
table.”
In a letter addressed to “Brother Waun,” UAW President Bob
King replied that the International Executive Board had not only
rejected Waun’s complaint, but that he had no standing to make a
complaint, because he had transferred his local membership from Lake
Orion’s 5960 to Lordstown’s 1112. Waun then appealed to the National
Labor relations Board, which declined to intervene in “an internal Union
matter.”
So Waun continued his campaign on the Internet. He
became a regular poster on factoryrat.com and autoworkercaravan.org, two
shoprat message boards. During a visit to Michigan, Waun participated
in a demonstration against the two-tier system that was attended by one
of the last surviving Sit-Downers. Bob King labeled him “the number one
troublemaker in the UAW.”
As I found out when I visited his
trailer in Lordstown, Waun had nothing better to do. Big and soft, with a
shaved head and oblong, half-framed spectacles, Waun lived in
conditions that identified him as a) the tidiest bachelor this side of a
wedding; b) a mustered-out soldier who still abided by barrack-room
standards of neatness, or c) a man who spends most of his nights in a
place he refuses to call home. Probably all three. The
only furniture in his living room was a folding card table, on which rested his computer and a copy of
Overhaul,
Auto Czar Steven Rattner’s self-congratulatory memoir of how he saved
Detroit, despite spending only one day there and knowing far more about
credit default swaps than internal combustion.
“I look at it like
camping,” Waun said of his austere life. “I look at it like when I was
in the Army. A lot of times we’d sleep in tents. A lot of times we’d
sleep in trailers.”
Waun couldn’t travel because he’d burned all
his time off visiting his aged parents in Michigan. Since his brother
lives in Seattle, Waun is the closest, so he used up a month-and-half
sick leave caring for his diabetic father. When his mother’s heater
broke down, Waun took vacation time to fix it. He couldn’t sell his
house, either, because it’s worth less than he paid for it. Nor could he
finish his degree: the school where he earned 90 percent of his credits
is in Michigan. Waun didn’t live where he worked. Nor did he work where
he lived. It was a familiar situation for a soldier, and it was
becoming familiar for autoworkers too.
“We’ve had guys who’ve had
nervous breakdowns,” he said. “They’re facing divorce. We’ve had three
suicides. They just couldn’t face moving down here. A number of guys got
into drugs. Now they’re in rehab.”
Waun took the transfer because
had he stayed in Lake Orion, he would never again have earned $28 an
hour. GM has promised to promote Tier Twos to Tier Ones, but given the
economic structure of the auto industry—in which companies must pay
grand retiree benefits while trying to make a profit on fuel-efficient
cars—and the prevailing wages at non-union competitors, Waun believe the
company is using the system to permanently reduce its labor costs.
“We’re
trying to prevent it from becoming the future,” Waun said. “The Tier
Two was sold to the membership in 2007 as a temporary fix to their
problems. Now that they’re out of bankruptcy, the dog is dead, but the
tail is still wagging.”
The tiered wage system was not just bad
for the Tier Twos, he believed. It was bad for the UAW. The union is
trying to organize Southern plants, but who needs a union that can’t get
you any more money than you’re earning now? It was bad for all American
workers, because the UAW “set a standard for wages in the industrial
world, and industrial America. At $28.12 an hour, people can feed a
family and buy a used car, buy a decent house and maintain a certain
standard of living.” It was bad for GM, because the auto plants would
only attract less skilled, less committed workers. “There are more
minorities and women among the Tier Twos. A lot of the white males
refused to work for the wage. They just quit.” And it was bad for the
auto industry, because those workers would build cars as shoddy as any
Vega that came out of Lordstown in the early ’70s. “People aren’t going
to have a vested interest in the automobile. You’re going to end up with
cars like my Aveo out there. After 50,000 miles, the rear axle came off
and the odometer broke.”
I visited Waun late in the evening. It
was his early morning, since he worked Third Shift, midnight to eight,
at the building across the highway that was his only reason for leaving
the trailer. Our interview ended as his clock-in time approached. Before
I left, he gave me the phone number of a co-worker named Nadine, who
had suffered even more from the tiered-wage system: she’d been forced to
take a 40 percent pay cut.
Nadine was a plaintiff in
Dragomier et al v. UAW,
a lawsuit filed by a group of Lordstown autoworkers who had been busted
down from Tier One to Tier Two. Nadine hired in at Lordstown in 2002.
After over a dozen years of working for banks and law firms, she changed
the color of her collar because she was tired of sitting in front of a
computer for 15 hours a day. Building cars was an eight-hour job she
could forget about when she went home. Hired as a temporary employee at
70 percent of the full-time rate, by 2008 she was earning $24.40 an
hour. That June, a union representative called in thirty-five temporary
employees, one at a time, and gave them all the same speech: “The
company is finally going to make you permanent. The only thing is,
you’re going to have to take a temporary pay cut. If you don’t, you’ll
be out of the plant by September.”
When Nadine appealed to an
official in the company’s labor-management department, the official told
her, “Take it or leave it. You do this or you’ll be out of a job.”
Had
Nadine turned down the offer, she would have been ineligible for
unemployment. So she signed. Right away, her life went to hell, inside
and outside the plant. As a single woman, Nadine had no one at home to
share expenses. She cancelled her cable and her internet. That left her
with just enough money to pay the mortgage.
“I am living like I’m
on unemployment or welfare,” Nadine said bitterly. “I’m struggling to
make my mortgage payments, to live. I’m losing $500 to $700 a week. I
can’t afford to do anything. At work, it’s ‘Oh, what are you doing on
shutdown? I’m going to Florida.’ ‘Oh great, I’m trying not to lose my
house.’ I have nothing in common with people I work with. After I put
gas in my car, pay late bills and late fees, I have $20 left to eat for a
week and a half. I still owe money on a foot surgery from over two
years ago. It’s devastated my life. I’ve lost friends over it. I’ve lost
family over it. I can’t socialize.”
GM promised to raise Nadine’s
pay when it added a third shift, but ended up filling those jobs with
workers from Delphi Automotive, a parts supplier that had sold some of
its operations to the company. Workers with
less seniority were
earning more money than Nadine, which “really raised my rage.” To add
insult to poverty, Nadine was still working on the main assembly line,
instead of the easier, non-assembly work supposed to be assigned to Tier
Twos. Whenever she got off the turnpike at Lordstown, her dread of the
upcoming shift generated “a horrible feeling in the pit of my stomach.”
All night, as she installed brake boosters, Nadine reminded herself that
her situation was not the car’s fault, or the customer’s fault. It was
the only way to prevent her acid anger toward GM and the UAW from
eroding her work ethic. Really, the only thing that kept her coming to
the plant every day was the lawsuit against what she knew was an illegal
contract. If she quit, she would lose her standing as an advocate for
all the Tier Twos at all the GM plants.
“The only reason I’m still there,” she said, “is that I know it’s easier to fight this battle from the inside.”
* * *
Tom
Lavey finally went back to work in the spring of 2010, designing floor
mats for Ford. He was a contractor, meaning his company badge was piped
with a green stripe, rather than the blue stripe that identified
full-time employees.
“I’m making more money than I did before the
layoff, but it’s not secure,” he said. “Even if they give you a blue
stripe, it’s not secure. A lot of people don’t trust the car industry
anymore. A lot of engineers left to go to Indiana to work at Navistar.
I’ve got a five-year-old car, and I’m going to drive it into the ground.
I’m check to check. That’s the way everybody feels deep down.”
* * *
In
Michigan, the 2000s are known as “The Lost Decade.” The Rust Belt was
the site of the nation’s first Great Recession, in the early 1980s. The
First was deeper than the Second — in 1982, Michigan’s unemployment rate
was 14.3 percent, a figure not even 2009 could touch — but it was
briefer, and it did not result in a permanent diminution of
Michiganders’ standard of living. Michigan was the only state to lose
population in the 2000s. In 2000, Michigan’s per capita income was 18th
among states. By 2009, it was 37th. The poverty rate, once fifth lowest,
was 14.4 percent — in the Top 20. Even the obesity rate ballooned to
31.5 percent, putting Michigan among the five fattest states, in the
same league of avoirdupois as Alabama and West Virginia. In college
degrees, Michigan fell from 30th to 35th, as half the graduates left the
state in search of work, like Okies with B.A.s and B.S.s, reversing the
migration from the South that had built it into a Megastate of the
mid-20th century. (By the early 21st, Michigan would be surpassed by
Georgia and North Carolina.) “There’s nothing for them here,” explained a
retired Oldsmobile engineer whose children had dispersed to Colorado
and California. The unemployment, the low education rate, and the
fissured, potholes roads inspired Michiganders to nickname their state
“Michissippi.” It may be even more backwards, as racial resentments
dating back to the 1960s prevent black Detroit and its white-flight
suburbs from acknowledging Michigan can no longer afford so many
municipalities. That’s one reason Michigan’s cities are more decrepit
and more destitute than any other state’s. Benton Harbor, Pontiac and
Flint are so broke their operations have been taken over by emergency
financial managers, appointed by the governor. Detroit is to urban
blight what Paris is to romance. In Lansing, the shopping center where
my family once shopped for groceries, graduation clothes, haircuts,
birthday cakes and garden tools is now anchored by a Laundromat, a Food
for Less, a dollar store and a plasma center—our very own PoorMart,
where a few faded Oldsmobiles and pickup trucks with “$500/OBO” signs
float on a lake of asphalt.
Excerpted from “Nothin’ But Blue Skies: The Heyday, Hard Times and Hopes of America’s Industrial Heartland” by Edward McClelland. Published by Bloomsbury. Copyright 2013 Edward McClelland. Reprinted with permission of the author.
