WINNERS AND LOSERS

Here are several memes about winners and
losers that I have cojoined.

Meme 001: The Marxists Have Won
2001.5.1

It is not just that the workers now control the means of production: they
*are* the means of production. According to Robert Fogel's ingenious and
completely plausible calculations in his superb _The Fourth Great
Awakening and the Future of Egalitarianism_ (U. of Chicago Press, 2000,
p. 297), two-thirds of capital in the United States is human capital, the
rest land and reproducable material assets.

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Meme 002: The Feminists Have Won
1.5.9

What women want is not equal pay or any other such equality as to be taken
seriously for their minds. I asked several women at my office whether they
were told when they were growing up not to act smart lest the boys not
like them. Those of my generation--I was borm in 1944 and among the first
boomers--invariably said yes. But those a generation earlier all said no.

Signals for sexual attractiveness, like everything else are partly innate
and partly learned. An attractive waist-hip ratio of around 0.70
universally sends a fertility message to men, but increasingly so does
high intelligence: marry me and you will have smart and intelligent
children. Female intelligence is rapidly becoming a sex signal. (It always
was for me.)

By no means do I claim that the professional feminists will go away any
more than at age 11, evidently well on the way to becoming a hardened
cynic, did I think the March of Dimes would stop merely because a vaccine
for polio had been developed.

Below is a newspaper item documenting the victory of the feminists using
demographics.

Many men pick brides for brains, not looks
By Cherry Norton, Social Affairs Editor
The Independent [England], 2000.5.27

A third of men now choose to marry "up", finding wives who have a
higher education level than them and more chance of success in the
job market. A new report suggests that a growing number of men are
choosing life-long partners based on their intellect rather than
their looks, and that they find cleverness attractive.
Cohabitation, marrying later, and the growing economic
independence of women have made it socially acceptable for men to
marry women who are likely to earn more money, the report's
authors said.

"When people are looking for the best possible spouse, economics
comes into it. High education attainment is one of the most
valuable characteristics, as it is a good predictor of being able
to earn a good income throughout life," said co-author Dr Brendan
Halpin, of the Institute for Social and Economic Research at the
University of Essex. "There are more and more married women in the
workplace and the wife's qualifications and potential economic
performance have become important factors for many men," he said.

The report, Who marries whom in Great Britain?, is based on data
collected by the British Household Panel Survey, an annual
questionnaire of over 10,000 people, which includes life histories
and marital choices of over 10,000 people. The findings show that
before 1924, less than 14 per cent of men married "up", 39 per
cent married "down" and 48 per cent married someone of the same
educational level.

The latest figures show that men are as likely to marry "up" as
"down", with 37 per cent marrying women of equivalent educational
status. People who marry soon after leaving school or university
are the most likely to marry someone of the same educational
level. But as the average age of first marriage has risen to
nearly 27, men and women are working and meeting more people from
different educational backgrounds.

Cohabitation before marriage may be playing its part in women
marrying men of lower educational level than them, Dr Halpin
suggested. Cohabitation involves less commitment than marriage and
people make "looser choices". "Once people are living together,
the relationship survives or fails on more personal
characteristics and different rules emerge," he said. The latest
figures show that 35 per cent of cohabitations turn into marriage.

Dr Halpin, who conducted the research with Dr Tak Wing Chan, from
the University of Surrey, said: "The findings suggest that men are
choosing to marry women of higher educational level, over and
above what would be expected from the [general] increased
educational level of women.

"With the closing of the gender gap in educational attainment, and
the gradual narrowing of the gender wage gap, brides may
increasingly be valued for their contribution to the family
income," said Dr Halpin. "We would expect women whose wage rate
has increased to have become more attractive to potential
husbands," he said.

http://www.independent.co.uk/news/UK/This_Britain/2000-
05/bride270500.shtml

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Meme 005: The Downtrodden Have Not Lost
1.5.22

While the Marxists have won--the workers now own the means of production
because they *are* the means of production--and the feminists have
won--intelligence is women is now a sex signal for fit offspring, there may
be losers as the economy becomes more and more dependent on intelligence.

Clearly, by every measure, those in the top quintile are ahead both
relatively and absolutely and those in the second quintile probably are
too. Those in the middle quintile may be losing relatively, but the
absolute gains are far greater than commonly acknowledged. This is because
the Consumer Price Index barely takes into account quality improvements.
Factor this in, from razor blades and even bread (does any remember when
bread would spoil after just one or two days?) to anything electronic, and
it's clear that those in the middle quintile have also won.

Those in the bottom quintile are so miserable and out of it that any
growth in their relative inequality does not matter, while their absolute
gains are real. Stephen Moore and Julian L. Simon, _It's Getting Better
All the Time: 100 Greatest Trends of the Last 100 Years_ (Washington: Cato
Institute, 2000), say that the poverty line today is what the average
American earned in 1970. I am not sure the downtrodden even care.

--------------

Meme 007: The Midtrodden Have Lost
1.5.28

Earlier I argued that the Marxists and feminists have won, that
those in the top three quintiles have won, and that the
downtrodden (those in the bottom quintile) have not lost.

But what I call the midtrodden, those in the fourth quintile, have
lost as we move more and more into the information economy, of
which globalization is just one not very large part economically.
The midtrodden are those who do have jobs, but not full-time,
full-year ones. They are willing to work and work when they can.
They rent and buy their cars on time, are maxed out on their
credit cards, and never get ahead. They have many of the
Protestant virtues, except those of planning. They are not very
good consumers: I would not spend $7.99 on a rotisserie and Coca-
Cola special, if I did not have much money!

Here are two New York Times articles from last year about them.

September 17, 2000

In a Working-Poor Town, Candidates Are Dismissed as Being Out of
Touch

By RICK BRAGG

CROSS CITY, Fla., Sept. 14 The Greyhound seems to carry more
people away from here than it ever brings back. Cindy Lamb works
the cash register at the bus stop, and, one ticket stub at a time,
she sells young people a way out of Dixie County.

"There's nothing for them here but the logging in the woods, or at
a sawmill," she said, making change at the Chevron station that
also serves as the bus depot. Her own son left to find work in the
Georgia carpet mills.

Outside, people buy gas $5, $10 at a time. Gas just went up 2
cents a gallon here, which is a lot, Ms. Lamb said, to a man who
watches his paycheck trickle much too fast into the tank of his
pickup.

People complain to her about hard times, low-paying jobs and high
gas prices because her counter is a way station in this town of
just over 2,000 people in northwest Florida. They blame the
federal government in a vague, distrusting way, but even in an
election year, a year when the nation will choose a new president,
there is little talk of voting for change, or of voting at all.

People here look at Al Gore and George W. Bush and see two men
born to the country club, men whose family histories jingle with
silver spoons. They appear, to people here, just the same.

"I don't think they think about people like us, and if they do
care, they're not going to do anything for us," said Ms. Lamb, 41,
who has lived in Cross City since 1969. "Maybe, if they had ever
lived in a two-bedroom trailer, it would be different."

"I don't think either one of those men running for president has
ever had to worry about where their next paychecks are coming
from," said Ms. Lamb, who said she was registered to vote but
cannot remember the last time that she did. "I don't think they
ever had to throw watermelons around in a field."

It is not just apathy, say Ms. Lamb and others here, that will
keep people away from the polls on Election Day in Dixie County, a
county with a tradition of low voter turnout, the lowest in
Florida in 1998 and 1996.

It is anger, over being ignored and, in some ways, left behind.

Poorer people here never felt any connection with Republicans.
But, as Mr. Gore has moved to the nation's political center,
people like Aundray Dogain who work in low-paying jobs know that
means they are being left behind. The disillusionment here with
the national candidates runs so deep that though the roads are
lined with political signs for local politicians, there is no sign
of Mr. Bush or Mr. Gore in Dixie County.

"They look the same to me," said Ms. Dogain, 31, who manages a
shift at the McDonald's in Cross City. She says she believes her
life will remain the same, no matter which political party wins.

It always has.

It was Mr. Gore, people here point out, who pushed so hard for the
North American Free Trade Agreement, which, they say, has led to
the closing of manufacturing plants around the country and sent
jobs to Mexico.

"Why vote? I don't want to waste my time," said Ms. Dogain, a
single mother who must feed, clothe and care for three children on
a paycheck that brings in little more than the minimum wage, which
is $5.15 an hour. "I don't even pay attention to those two, and
all my friends say the same thing. My life won't change."

She does not want charity, she said, just a candidate who seems to
be sincere when he talks about poor people.

Bill Clinton promised poor people health insurance, people here in
Dixie County point out, and a Republican-controlled Congress shot
his plan down. It was the last time people here remember a
candidate who at least tried to do anything that would help their
lives.

"I dream of having a bigger house, a better car, a piece of land,
but I don't think politicians are going to help me get that," said
Ms. Dogain, who owns her three-bedroom mobile home and drives a
1987 Dodge Caravan.

She hears Al Gore talk about continuing the nation's prosperity
and she cringes.

She hears George W. Bush talk about how things could be done so
much better, and she cringes again. She knows what the Republicans
mean when they talk about good times, and she believes that it
seldom includes a 31-year-old black woman who works in the heat
and grease of a fast-food restaurant.

"They use people like us to get votes, and they don't end up doing
anything good for us," said Ms. Dogain, who said she had not voted
in the past decade and would not vote on Nov. 7.

It is not just this election that has people uninspired, if not
angry. It is a series of elections.

In 1998, when Mr. Bush's brother, Jeb, won the race for governor
of Florida, only 31.9 percent of Dixie County's 9,898 registered
voters went to the polls, compared with the state average of 49.5
percent.

In 1996, when President Clinton won his second term, a surprising
48 percent of Dixie County voters turned out, but the county still
had the lowest average turnout in a state in which 67.4 percent of
voters turned out.

"My vote won't help me, it won't help my family," said Tracy Hunt,
25, a manager at the Hardee's restaurant in Cross City. "It
doesn't matter. That's the harsh reality."

"They say they care," Mr. Hunt said. "This is just to get in. This
time next year, it'll be a different ballgame."

To Mr. Bush and Mr. Gore, he said, Dixie County is a "faraway
land," of people who do not matter, and "too small of a town" to
even worry about.

Mr. Hunt's father is a foreman in a lumberyard and his mother owns
a small crafts business. He is divorced, and had to move back in
with his parents.

He is training for a new job in computers. Almost everyone in
Cross City talks about computers as if they are an employment
promised land.

The most angry and dejected people in Cross City are not people
sitting around waiting for welfare. That is not the help they
want.

They want jobs. They want new plants. They say they want an old-
fashioned politician who does not speak of the global economy as
an excuse for the lack of jobs.

Instead, they say they get politicians who lobby Congress for
legislation to send jobs away.

They are no longer even sure what they want from a political
champion.

They just know that they do not have one, and say they have given
up on ever having one.

"People here work hard," Ms. Lamb said. And while they survive,
they seldom prosper. She and her husband, a construction worker,
rent a house. They asked the landlord if they could rent to buy,
and he said he would think about it.

"It's old, but it's a good little house," she said. "I sure would
like to have it."

It is the real world that they live in, she says, a world that the
presidential candidates have no connection with.

"A lot of people don't care any more," Ms. Lamb said. "Life
doesn't get any better. The politicians don't bring any industry.
If you don't have the silver spoon in your mouth, you join the
Army or you leave."

"Yesterday, gas went up to $1.61 from 1.59. Those guys," she said
of the candidates, "don't worry about things like that. But it's a
lot."

It is an ugly thought, she said, but it crosses her mind now and
then. She thinks the candidates would be happier if people like
her did not exist at all.

"Then," she said, "they don't have us complaining."

----------------

From the Magazine, October 15, 2000

Where to Go When You're Broke

For people untouched by the New Economy, the Old Economy pawnshop
is their A.T.M. By BRENDAN I. KOERNER

The shelves at Spino's Pawn Shop in Waterbury, Conn., brim with
mismatched goods: stereos, vacuums, saxophones, crossbows, video
games, yellowing packages of Krazy Glue. The brothers who run the
place pay hard cash for what people drag in, though they draw the
line at anything that's alive; a fisherman once tried to pawn a
string of wriggling carp. The money that the Spinos shell out is
technically called a loan -- the interest is about 15 percent, the
item itself is the collateral. If the loan is not repaid within a
month, the Spinos sell the merchandise for two or three times what
they spent.

It's a healthy business -- particularly in the winter, says Scott
Spino, "when people are laid off and all the construction guys
come in here with their tools" -- but that's not all it is. In a
rusting postindustrial town like Waterbury, Spino's functions a
bit like a cash machine for people with nothing in the bank. As
good as times get, there are plenty of such folks to go around.
Forty-seven million households in the United States have annual
incomes below $35,000, and in the event of a layoff or a medical
crisis, 40 percent of American families would run out of cash
within three days. People like that, says Gene Spino, can't go to
a bank. "Can you imagine? They would walk in there and say, 'I
need $100.' And the bank would be, like, 'Security!' "

So who are these people and what exactly do they need the money to
cover? In a day at Spino's, 18 people came in the door to pawn one
of their possessions. A handful agreed to discuss their finances.
These are their stories.

Matt Cianciolo received a $25 loan for his 13-inch Sony color TV.

Cianciolo, 35, holds down two jobs, one at a plastics factory, the
other managing a nearby apartment complex. When he needs
additional money, he'll take on temporary handyman gigs. But
Cianciolo recently splurged on a used 1991 Plymouth Acclaim, and
the initial costs were more than he had planned for. "I put $1,500
down," he says. "With insurance and gas and all that, I needed
some money to get me through the week." Though not a frequent
pawner, he occasionally uses Spino's to scrape together a few
extra bucks. When a foreman can't pay him at week's end, "he might
give me some tools and say, 'Make a few dollars off this,' "says
Cianciolo. "I'll come down here and try to turn over a drill,
anything. I might get $10 or $15."
_________________________________________________________________

Brendan I. Koerner is a Markle fellow at the New America
Foundation.
_________________________________________________________________

Cianciolo hoped to get a bit more for his TV, offering to throw in
the antenna for another $5. But it's tough to resell antennas in a
world of cable TV, so they aren't welcome at Spino's (neither are
items like VCR's and Walkmans, which have small profit margins).
Cianciolo walked away with his $25 on a Tuesday morning, confident
that it would tide him over until his paycheck arrived on Friday.
He wound up with cash to spare. The week's supply of cigarettes
had already been paid for -- he buys his Newports by the carton --
so Cianciolo's sole expenses were gas and food. He put a measly $5
in the tank and made a grocery run for some bare-bones provisions:
frozen dinners, a loaf of bread, a few bars of soap.

When payday arrived at week's end, Cianciolo drove down to Spino's
to reclaim his set for $30; he is one of the estimated 30 to 50
percent of customers who repay their loans. With his auto
insurance taken care of through September, Cianciolo aims to avoid
pawnshops for the foreseeable future. "At least, I hope to," he
adds.

T om Slekis received a $30 loan for two of his fishing poles.

Medical problems have dogged Slekis since 1979, when a car
accident left him paralyzed from the waist down. Since then, he
claims, he has gone under the knife 52 times; the bulk of his days
are spent shuttling to and from the hospital. A former
substance-abuse counselor, the wheelchair-bound Slekis, 44, is
currently too pain-ridden to work. "Man, this is the brokest I've
been in five years," he grumbles. "My job in life right now is to
stay healthy. That's it."

Slekis was bracing for yet another operation -- the amputation of
his left leg. With bills mounting and his cash flow near zero, he
needed some quick dough to cover the basics. "I don't pawn," he
insists. "Well, I used to, when I was drinking and drugging. But
that was years ago." One of the fishing poles was a fancy model
that Slekis claims is worth $100. When the Spinos offered him just
$30 for the pair, he grudgingly accepted. "Hey! We're eating
tonight!" he whooped to a friend, waving a 10 and a 20. He also
tried to score a few extra bucks by pawning some tackle, but the
shop declined. "Aw, come on," kidded Slekis, holding a Day-Glo
orange lure up to his ear lobe. "They make great earrings."   

The cash went quickly. His gas-guzzling Oldsmobile chugged nearly
$17. He plunked down $7.99 for the grocery-store special, a
rotisserie chicken and a six-pack of Coca-Cola. Cigarettes nearly
wiped out the remainder of the loan.

"Man, I'll be back," Slekis says. "That's a $100 pole there. I'll
never see another pole like that again." His short-term goal is
modest: get out of the hospital, pick up his poles and go fishing
for striped bass this fall in Long Island Sound. He has one month
to come up with the $36 necessary to get the poles out of hock.
Gene Spino is skeptical of Slekis's vows to return. "Everybody
says they're going to buy it back," he says. "Half of them don't.
You never see them again. But it doesn't matter to us."

S haron Johnson received a $20 loan for two gold-plated bracelets
and a set of silver earrings.

With summer vacation drawing to a close, Johnson, a 19-year-old
college sophomore, was looking to enjoy one last lark. She had
copped tickets to a concert at the Meadows Music Theater in
Hartford, featuring the bands Live and Counting Crows. The Dave
Matthews Band was slated soon after, and Johnson hoped to scam
tickets to that sold-out affair, too. She had waitressed all
summer at a local watering hole, but the tips were lousy -- too
many cheapskates drinking $1.75 bottles of Budweiser.

The bulk of her earnings went toward clothes and clubbing in New
Haven or Hartford. She needed something extra to finance her
concert outing. "I got a ride up there," said Johnson, pointing to
her beat-up Honda. "I just need gas and money for food. Burgers up
there are pretty expensive." Then, coyly, she added, "I guess it
wouldn't be so great if I said I was going to spend it on drugs,
huh?"

The jewelry was mostly junk, low-grade Home Shopping Network fare.
The Spinos rejected a watch before settling on the three other
pieces. When she demanded $20, they agreed. Sensing she had made a
blunder, Johnson grimaced: "I should have asked for $30, huh?" As
it turns out, the extra $10 wouldn't have helped much. A friend
tracked down a set of Dave Matthews ducats, but they were $65
apiece. Johnson was forced to borrow yet again, this time from an
acquaintance. Add in some $5 sandwiches and a tank of gas, and the
romp was scarcely covered by her pawn. "Twenty dollars doesn't get
you very far in this world," she says. Still, Johnson has no
regrets about hocking the jewelry. "I never wore it," she says.
"You saw that bracelet my grandmother gave me. It never even came
out of the box." The loot, she adds, is Spino's to keep. In fact,
she has already tossed her pawn ticket.

------------------

Meme 022: Midtrodden: Trailer Owners and Conseco Are Haunted by Risky
Loans, 1.11.26

[Remember what I said about the midtrodden, that they are the Americans
who are harmed by the cognitive revolution in the economy. I argued, in
different memes, that the feminists and Marxists have won, but that the
downtrodden (the bottom quintile) have not lost. Here's another piece
about the fourth quintile. Nearly all trailer dwellers are White, though
this article does not go into this aspect of the matter.]

Trailer Owners and Conseco Are Haunted by Risky Loans
NYT November 25, 2001
By ALEX BERENSON

LAURENS, S.C. -- The trailer is white and narrow, a starter
model with black shutters. It sits off a wooded road
outside this rundown town, which missed most of the last
decade's boom but is catching every bit of this year's
bust.

The trailer is deserted but not empty. Dirty pans fill the
sink. Trash overflows a blue plastic bin. Tiny shoes, a
broken stroller and a small book titled "God's Gift to
Mothers" are strewn across the stained green carpet. A baby
doll lies lost on the floor.

The trailer was financed by Conseco (news/quote) in 1998
and repossessed by Conseco in 2001. This is how easy money
looks, three years later.

Most of America never noticed, but the 1990's were good
times for trailer homes, a k a manufactured housing. From
1991 to 1998, annual sales of manufactured homes more than
doubled, to 374,000 from 174,000.

One company, one man and one accounting rule drove that
growth.

Green Tree Financial, a Minnesota lender, financed more
than 40 percent of all manufactured homes sold in the
United States during the industry's peak. Lawrence M. Coss
ran Green Tree as chairman and chief executive, taking home
$200 million in pay during the boom.

The rule, a rarely used accounting convention called "gain
on sale," encouraged Green Tree to make as many loans as
possible and allowed it to report more than $2 billion in
profits that never existed.

To meet the surge in demand created by Green Tree, home
manufacturers opened scores of factories. Thousands of
dealers, who sold the homes, set up lots nationwide. In the
South in particular, manufactured homes proliferated, and
in South Carolina, the epicenter of the boom, they made up
more than half of all new homes sold in 1997 and 1998.

In their rush to lend, Green Tree and its rivals made loans
to borrowers who had little chance of paying them back.
Tens of thousands of those people have already defaulted
and have been evicted. Conseco alone has repossessed 25,000
homes so far this year, after a record 28,466 in 2000. By
the time the industry's hangover ends later this decade,
hundreds of thousands more low- income borrowers will lose
their homes. They will wind up with huge debts and ruined
credit because their homes are worth far less than what
they owe.

Green Tree is now Conseco Finance, the lending arm of
Conseco, the financial company based in Carmel, Ind. Mr.
Coss, who did not return calls seeking comment, retired in
1998 and owns a ranch in River Falls, Wis. Gain-on- sale
accounting has been relegated to the dustbin of finance.

The manufactured housing industry, meanwhile, is
foundering. Only about 180,000 new homes will be sold this
year. Factories are closing as quickly as they opened
during the fat years, and tens of thousands of jobs are
gone. Dealers are shuttering, too. In South Carolina alone,
the number has fallen to less than 400 from a peak of 620
in 1998.

"Greed overcame logic," said Walter R. Young Jr., chairman
of Champion Enterprises (news/quote), the largest maker of
manufactured homes, a publicly traded company based in
Auburn Hills, Mich. Builders and dealers share the blame
for expanding too quickly, Mr. Young said, but without
Green Tree and other finance companies, the boom would not
have been possible.

"You always have to follow the cash," he said. "Loose money
fans it, and everything got carried away."

The future of Conseco, which makes loans and sells
insurance mainly to middle- and low-income consumers, is
also in doubt. After buying Green Tree in 1998, the company
went on its own binge under Stephen C. Hilbert, its
well-paid chairman. Conseco's spree peaked in 1999, when it
financed $6.3 billion in new manufactured homes, 41 percent
of the national total. But facing mounting losses from bad
loans and a plunging stock price, Conseco's board forced
out Mr. Hilbert in April 2000 and soon replaced him with
Gary C. Wendt, the former chairman of GE Capital. Mr.
Hilbert did not return calls.

This year, Conseco has cut back sharply on
manufactured-home lending. But Conseco is still saddled
with $26 billion in loans on trailer homes, including more
than $20 billion from the days of Mr. Hilbert and Mr. Coss.


Many top Wall Street investors, including Carl C. Icahn,
the onetime corporate raider, have sold Conseco's stock
short, betting that it will fall. Losses on the trailer
loans, along with problems at Conseco's insurance business,
will bankrupt the company by the middle of next year, the
short-sellers say.

"June of 2002 looks to be very hairy," said M. W.
Montgomery of Rocker Partners, a hedge fund that has sold
Conseco's shares short since the fall of 1999, when they
traded above $20. "It's becoming clear to everybody that
this game stops then, if not sooner."

According to Conseco's own projections, it will produce
only about $800 million in cash from its operations next
year - yet it has $1.4 billion in debt and interest
payments and dividends coming due. The bears say that the
cash flow estimate is optimistic. Even if it proves
accurate, Conseco, which already has more than $6 billion
in debt and preferred stock, may have a hard time finding
enough money to make up the difference. On Wednesday,
Fitch, a bond rating agency, lowered its rating on Conseco
Finance's debt to CCC, indicating "that default is a real
possibility."

In an interview on Tuesday, Mr. Wendt said the company
could easily meet its debt payments next year, by selling
assets if necessary.

"These short-sellers have one thing in mind - the
destruction of the company," Mr. Wendt said. "We have a
company that employs 13,500 people, and we want to continue
to have a company that employs 13,500 people."

Mr. Wendt received a $45 million bonus and stock options
for 10 million shares at $5.88 each when he joined Conseco
in June 2000, and will receive 3.2 million shares if he
remains chairman through June.

Last week, to bolster its case, Conseco presented investors
in New York with a four-hour discussion of the company's
finance business, focusing on its manufactured-home loans,
which make up 60 percent of the loans on the company's
books. The company said it had toughened its standards for
new loans and had increased its reserves to cover potential
losses on defaults.

Bruce Crittenden, chief executive of Conseco Finance, said
the trailer home business was becoming more profitable. The
interest rates that Conseco pays are falling, while the
rates it charges borrowers have remained high, increasing
the profit on each loan it makes.

"I believe in our model," Mr. Crittenden said.

But
investors are unconvinced. Conseco's stock closed on Friday
at $4.48. That is down 92 percent since Mr. Hilbert agreed
to buy Green Tree in April 1998, costing the company's
shareholders $18 billion.

For much of the last decade, Green Tree
appeared to be one
of Wall Street's great growth stocks. Its profits jumped
sixfold, to $301 million, from 1991 to 1997. Its stock
soared thirtyfold.

But Green Tree's profits were a mirage, made possible
because of gain-on-sale accounting.

Like many other banks and finance companies, Green Tree
used a process called securitization to resell its home
loans to outside investors. Green Tree grouped thousands of
these small loans into a pool worth hundreds of millions of
dollars. It then divided that pool into a series of bonds
and sold them, promising to pay interest on the bonds from
the interest it collected on the loans.

Green Tree typically charged borrowers 12 percent to 13
percent interest and promised to pay its bondholders about
7 percent. The company, in the middle, made a profit on the
difference.

Trailer home borrowers, mostly near the bottom of the
economic ladder, often default on their loans. It might
seem odd that bond investors, who generally value safety,
would buy bonds backed by such risky collateral as
trailers. But in a securitization, losses from defaulted
loans are not spread equally. Instead, the bonds are
divided into "tranches," and one tranche must be repaid
before payment on the next can begin. The bottom tranches
are risky and pay higher interest, while the tranches that
are repaid first are very safe.

Securitization provided Green Tree with ready access to
capital from the bond buyers, and that enabled it to
finance as many loans as it wanted. At the same time,
gain-on- sale accounting allowed Green Tree to record
income from every loan that it made.

Normally, banks record profits on loans only as they are
repaid, whether they securitize the loans or hold them on
their books. But when Green Tree finished a securitization,
it calculated how much money it expected to make as the
loans were paid back in the future. Then the company
recorded that amount as profit, even though it would not be
paid for many years. Essentially, Green Tree decreed that
its loans would be profitable and put off worrying whether
its forecasts had been right until later. Other financial
companies that specialize in subprime lending also used
such gain-on-sale accounting, but not to the extent that
Green Tree did.

The combination of gain-on-sale and securitization meant
that as long as Green Tree could find more borrowers, it
could report higher profits, said Mr. Crittenden, the
president of Conseco Finance.

"When you're running a gain-on- sale shop, it's based on
volume," he said.

Mr. Crittenden joined Green Tree at the end of 1995, as the
company expanded into home equity and credit card loans. He
took over manufactured-housing loans in January 1999, after
Mr. Coss retired. In September 1999, in response to
pressure from investors, Conseco stopped using gain-on-sale
accounting, switching to the more traditional method of
booking profits only as the company is repaid.

Seeking new borrowers under Mr. Coss, Green Tree went to
places like Pensacola, Fla., where it opened an office in
1995 to service trailer home dealers in southern Alabama.
Employees had a difficult time finding enough loans to
make, said Tammy Weakley, who worked as a loan processor in
the Pensacola office from 1995 to 1999.

To meet monthly targets set at Green Tree's headquarters,
Ms. Weakley said the office would accept loans whose
borrowers did not meet the company's credit criteria,
especially near the end of each month.

"There was pressure," Ms. Weakley said. "The whole office
was pushed to the maximum." (Ms. Weakley and two other
employees in Pensacola have sued Green Tree, asserting that
they were sexually harassed by a manager there.)

The loan situation was similar here in South Carolina,
where dealers knew that Green Tree and other lenders would
approve almost anyone who applied, according to dealers and
people in the industry here. Many lenders made loans with
as little as 5 percent down, say, $2,500 on a $50,000 home.
Some financed loans with only $1,000 down.

"It was easy," said G. Mitchell Gault, a dealer in Mauldin,
S.C. "The lenders were greedy as hell."

Mr. Gault said he thought that lenders "cared more about
quotas than the quality of the loan."

Dealers, who could make $10,000 or more in profit on a
$50,000 home, were not shy about signing up borrowers. If a
would-be buyer could not come up with a down payment, the
dealer might tell him to bring in a used gun worth $200 and
buy it for $2,000, according to dealers and people in the
industry. That money would then become the down payment.

"Some of these people didn't deserve to be a homeowner, and
they were put in homes," Mr. Gault said.

William Ryan, an analyst at Ventana Capital in New York who
covers financial companies, said Green Tree cut loan
standards beginning in 1995. It made bigger loans, allowed
lower down payments and accepted buyers with spotty credit
histories, he said.

"These companies have a way of creating loan volume where
none exists," Mr. Ryan said.

Other lenders lowered their standards, too. But Green Tree
expanded faster than any of them. In 1992, it lent $1.2
billion to 43,000 borrowers for manufactured homes,
accounting for about one in five trailer loans made that
year, according to Securities and Exchange Commission
filings and industry statistics. In 1996, Green Tree lent
$4.8 billion to 143,000 borrowers. Three years later, Green
Tree, at that point owned by Conseco, made $6.6 billion in
loans, including $300 million on homes it had already
repossessed.

Gain-on-sale accounting enabled Green Tree to book profits
every time it securitized a basket of loans, and the
company's earnings soared alongside its loans during the
mid- 1990's.

But those profits were not based on actual cash the company
had taken in. They were an accounting fiction based on
Green Tree's projections of the payments it would
eventually receive, less its operating costs and its losses
on repossessions.

In 1997, the fiction began to unravel. In calculating its
future profits on a loan, Green Tree needed to estimate two
crucial variables: the odds that borrowers would default
and the odds that they would refinance and pay off loans in
advance. Either would make the loans less profitable.

During Green Tree's expansion, short-sellers had argued
that the company had underestimated the risks of prepayment
and default. They were right. In November 1997, Green Tree
began a long process of erasing most of the profits it had
ever earned with a $190 million pretax write-off. A $200
million write-off followed in January 1998.

"We think at this time our assumptions are appropriate,"
Dale Redman, Green Tree's chief financial officer, said at
the time of the second write-off.

Three months later, Green Tree sold itself to Conseco in a
deal then valued at $7.6 billion in Conseco stock.
Conseco's shares fell $8.63, to $49.13, after the deal was
announced, as investors worried that Conseco did not
understand the risks of buying Green Tree. During a
conference call discussing the deal, Mr. Hilbert, Conseco's
chairman, dismissed that possibility. "Wall Street
sometimes takes a day or two to be fully enlightened," he
said. The stock never regained its loss.

CONSECO quickly discovered that many of Green Tree's
borrowers could not repay their loans. In July 1998, the
company took a $549 million pretax write- off on Green
Tree, which was renamed Conseco Finance.

Hoping to prove that the new acquisition could work,
Conseco continued to use gain-on-sale accounting and
actually increased the number of loans it made. But as the
quality of the company's loans fell, borrowers defaulted
even more quickly, forcing Conseco to write off profits
almost as soon as it booked them.

Even after Conseco cut back last year on lending, the
losses continued. Write-offs became an annual event,
totaling $554 million in 1999, $516 million in 2000 and
$315 million so far this year.

Between them, Green Tree and Conseco have written down
Green Tree's pretax profits by $2.3 billion over the last
four years. Add $500 million in other "special charges"
related to Green Tree that Conseco has taken, and the
write-downs wipe out all the pretax profits Green Tree and
Conseco Finance earned over the last seven years.

"It's amazing to me how the shareholders of these companies
actually believe the earnings per share, and they don't
understand how that's accounted for," said Mr. Montgomery
of Rocker Partners. "The overwhelming majority of the
income which is being booked is a definite maybe sometime."


As the losses mounted in the first two years after the
acquisition, Conseco's stock plunged almost 90 percent. On
April 28, 2000, with the company's shares at $5.63, Mr.
Hilbert quit. He received a $72 million severance package,
including the right to use Conseco's private jet up to 20
times a year. All told, Mr. Hilbert's pay from 1993 to 2000
was $530 million.

Mr. Coss did not do quite as well. His pay, tied to Green
Tree's reported profits, totaled about $200 million from
1993 to 1998, including a $30 million severance package.

If those write-offs seem ugly, the reality on the ground is
worse. In their rush to win borrowers, Green Tree and other
lenders began offering 30-year mortgages instead of the
15-year terms that had been standard at the beginning of
the 1990's. By 1997, the average Green Tree loan had a term
of about 25 years, up from 13 years in 1987.

The longer mortgages lowered monthly payments slightly,
enabling lenders to make more loans. But they greatly
increased overall interest costs. On a typical $50,000
mortgage with a 13 percent interest rate, the monthly
payment on a 15-year loan is $633, compared with $553 for a
30- year loan. But the longer loan costs a borrower an
extra $85,000 in interest over the loan's life.

In addition, the principal balance on a high-interest
30-year loan shrinks very slowly during the first few
years. After five years of payments on a $50,000, 30-year
mortgage at 13 percent interest, the borrower has paid more
than $32,000 in interest but still owes $49,000 in
principal.

Yet unlike conventional houses, which often appreciate,
manufactured homes quickly lose their value. After three
years, the wholesale value of a manufactured home is about
half its retail price.

As a result, borrowers face a difficult squeeze. They are
not building equity, and if they sell their homes, they
will probably find that they receive less than the amount
they owe on their loans.

Mr. Gault, the dealer, said demand for new homes had
collapsed partly because homeowners who would like to move
to larger trailers could not. "They started going 30 years
on these single-wide homes," he said. "Once you live in a
home two or three or four or five years, you want to
upgrade and you can't upgrade. You're upside-down in it big
time."

Because their homes are worth less than they owe, the
owners have few options if they lose their jobs or face
unexpected expenses, said Mark Tesh, credit counseling
director for a nonprofit family counseling center in
Greenville, S.C.

"A lot of times," Mr. Tesh said, "those folks are better
off just filing for bankruptcy, so they can just start
fresh."

He said his clients were often financially unsophisticated
and focused only on their monthly payment, not the risks of
signing a 30- year note on a wasting asset.

"A lot of folks that get into the mobile home scenario,
they get into it initially because it's more affordable,"
he said. "They honestly don't realize that a mobile home is
going to depreciate. Most of them learn the hard way."

Mr. Crittenden Conseco said the move to 30- year mortgages
made sense because the quality of manufactured housing had
improved in the last decade. Trailers and conventional
houses now share many materials and construction
techniques. "This asset has a 50-year life minimum," he
said. "The manufacturers have done an outstanding job with
the quality of these homes."

Conseco, Mr. Crittenden said, also works closely with
borrowers who face financial difficulty, including
regularly granting loan extensions and sometimes even
accepting reduced monthly payments. Tighter loan standards
may also reduce defaults.

Still, Conseco projects that it will eventually repossess
about one in five of the new manufactured homes it
finances. On loans made on repossessed homes, which are
aimed at even less creditworthy borrowers and can carry
interest rates of 18 percent, Conseco figures on default
rates of 50 percent, Mr. Crittenden said.

Those projections may comfort Wall Street, reducing
investors' concerns that Conseco is underestimating its
risks. But they offer little comfort for borrowers
struggling to make their monthly payments.

Bonnie and Mitchell Turner, who live near Laurens, have
given up struggling. In August 1999, the Turners bought a
repossessed double-wide trailer with financing from
Conseco. They wound up with mortgage and insurance payments
of $618 and additional lot rent of $250.

The extra payments seemed manageable with Mrs. Turner
working as a waitress and Mr. Turner as a carpenter. "I
just wanted a house, my house," she said. "A place to
retire in, hopefully."

But within months, the furnace failed, costing $1,500 to
repair. Now Mrs. Turner has lost her job, and Mr. Turner's
monthly take-home pay has fallen to about $2,000. With four
children, the family has food and clothing costs, car
payments and electricity bills that total almost $1,500.
Even with their old rent of $380, the Turners' finances
would be stretched to the breaking point. "The $618 is
killing us," Mrs. Turner said. "We just can't do it."

The Turners, who stopped paying their mortgage in August,
are waiting for Conseco to repossess their home. Mrs.
Turner said she hopes the company won't foreclose until
after Christmas.

"If my hindsight was my foresight," she added, "I would
never have purchased it at all."

http://www.nytimes.com/2001/11/25/business/25GARY.htm

[I am sending forth these memes, not because I agree wholeheartedly with
them, but to infect your thinking. Ponder them and spread them.]