The Mafia Model

In mid-2007 I finally revealed to the Spousal Unit that, over the past year, I had been developing an increasing anxiety over the state of the economy. By any measure available to the layman the economy looked healthy; robust even. High-end developments were blossoming like endless fairy rings on open meadows and newly deforested woodland. This meant construction trades and every sector associated with them were booming. The Mister was working for an architecture office as the job captain for the home office and resident code wonk for both branches of the firm.

But deep in my gut something was wrong. It just wasn’t adding up. In part, because the Mister and I kept looking around us and saying: You can’t build houses forever. At some point there has to be market saturation. Then what happens? Has a history replete with Tulip Mania and Beanie Babies taught us nothing?

We kept trying to have rational conversations on the subject with our social circle, but most of them were in the trades to some degree and didn’t want to hear it. And you know what happened to Cassandra. One theory was she didn’t bring cookies.

Someone once described me as having “a tinker-toy model of the universe” in my brain. I will chance upon a quandary and somehow, I can’t let it go until the pieces fit. They don’t have to fit perfectly or beautifully, they just have to fit. The effect is like having a hangnail in your consciousness. Or like those pop ditties with a hook that runs mercilessly through your head, and nothing short of a near overdose of prescription sleeping pills can shake it.

So at some point in 2006 I started cruising business and economic sites on the Internet. MSNBC, Wall Street Journal, Bloomberg and various political sites that included economic fora. I read, I researched and what I didn’t understand I plugged directly into a search engine. I wasn’t going to chance asking tenderfoot questions on an open internet forum. No0bi3s are often targets of derision and harassment, even when they ask sensible questions. I wasn’t inclined to add the humiliation of virtual swirlies to the very real anxiety I was already experiencing.

After a year of lurking and researching I knew just enough to be dangerous. And I had learned enough to know that the Mister and I had not been too far off base in our concerns. The way it looked, the housing market was probably going to tank and tank badly.

The pieces of my tinker-toy model had re-arranged themselves to the point that I could now future pace what was likely to happen in the broader economy when housing slowed down. In my head it looked like beautifully crafted concentric rings of Dominoes, with the housing market as the center starting point and staggered sectors like overlapping petals surrounding it.

When housing reached saturation, I theorized, all the trades associated with it would slow as building slowed. This only made sense. Framers can’t frame, plumbers can’t plumb, roofers can’t roof and electricians can’t…electrify, if they don’t have new construction. So the basic trades would be forced to cut employees. Interestingly, some of those jobs would not even show up as losses in employment because a number of the crews working in North Carolina consisted entirely of illegal aliens with an English speaking foreman. Yet the loss of those “non-jobs” would impact other sectors of the business economy.

The next ring of Dominoes to fall would be the businesses that supplied materials to the building trades, including the literal tons of heavy equipment used to clear the lots. Services like landscaping, painting crews, concrete and paving companies would find themselves with too much equipment, too many employees and not enough work to go around.

People buying new quarter million dollar homes see an opportunity to “try something new” with their “look”. For that reason, businesses providing everything from décor to guest room linens on to basic pots and pans would find fewer customers buying their (frankly overpriced) products.

Now because the Dominoes aren’t perfectly aligned, we have to move back to our first ring which has secondary effects on the wider market. Yes, the high-priced homes, the services and all the 2nd ring attendant purchasing have fallen because the market has stalled. But so have the 3rd ring blue-collar jobs supporting those trades and businesses. This means the laborers like linen store workers, paint mixers, people who make furniture, the lawnmower repairman; all these people have been forced to cut back on spending. The same holds true for 4th ring business supplying finished goods and supporting 3rd ring stores and laborers. Best case scenario for most, a reduction in hours with a tighter spending budget. Worst case: they have been laid off due to the slowdown in the housing market and have no money to spend.

And those ripples affect the “petals” food stores, restaurants, mid to low priced clothing stores, white goods (appliances) luxury items like electronics, toys and games and most surprising to me in hindsight, spending on healthcare.

In another way, the effect is completely un-like Dominoes. It’s more like being on the freeway, going home at 5 o’clock on Friday during a horrific thunderstorm. The freeway is packed with cars, covered in water, saturated. One car slows down to avoid hydroplaning. Then, traffic jam. Standstill. It’s that quick. And if you aren’t paying attention, it can be devastating.

So, early one Saturday morning in mid 2007 I call the Mister to the table and ask him to hear me out. I proceeded to lay everything out as calmly as I could. I explain that my main cause for concern was, once the trades and supporting businesses slowed down, so would new business construction; hotels, shopping centers, travel centers. These were businesses his firm looked to for clients. As a last hire, I was afraid his job wasn’t entirely secure. For that matter, based on the range of possibilities I had come across in my research I wasn’t entirely sure we weren’t in for an economic collapse.

The Mister gets a certain look when his brain is processing a chunk of novel information. It’s not exactly “deer in the headlights”. It’s more like a young indoor cat seeing a mouse for the first time. There is initially, a blank incomprehension; a vague fog, lasting from a few seconds to minutes. Then comes a danger assessment. Then cogs begin to turn; possibilities and strategies come into play.

And that almost instinctive understanding of strategy is one of the many reasons I love the Mister; his understanding of game theory is phenomenal.

We began to discuss possibilities in earnest. After a year of silent fretting, I am sitting at the table, practically vomiting stored up anxiety.  The Tinker Toy model in my brain is limited in its ability. I need concrete facts, pieces to fit into the model. No pieces, no clarity. Beyond that it’s down to conjecture. I suck at conjecture.

The Mister is now on his feet. He thinks best when he’s doing something. He goes to the kitchen and begins to clean. And as he comes to understand the depth of my fears surrounding an economic collapse, he uses a phrase so succinct and yet so descriptive that the clear genius of it is startling to me. “They won’t let America’s economy collapse.” he says, “It’s the Mafia Model.”

“What?” The incongruity of the phrase has kicked me out of my physical anxiety and back into my head.

“The Mafia Model. You know…. ‘It’s bad for business.’.” He turns to face me from the kitchen. “Back in the 30’s and 40’s the turf wars between the mob bosses had gotten out of hand. Drive by shootings, bombings, murders. Civilians getting killed. Finally, the Feds along with local police agencies started cracking down on them, interrupting their ability to do business. The mob bosses started losing money.”

“So they get together, decide that the all out wars are ‘bad for business’ and the way to make money is to make peace. Support each other. Syndicate”

“If America goes down, it’s not good for anybody else’s economic health. They literally can’t let it happen. It’s bad for business. And by the same token, we can’t let any other large economy go bust either.”

In a perverse sort of way, I found the thought comforting; even a little heartening. The economic ecosystem was in the midst of its own crisis. It seems they were being forced to take a lesson from that other struggling ecosystem: Adapt or Die.

And so far, the Mister has been right. Over the past 2 years I’ve been watching them; the world leaders, the financiers, the billionaires. Now, I see them clearly, as they are; all tethered as one, clinging to the side of a cold, heartless mountain of money, while the storm of a century rages around them.

As they struggle to gain purchase, I can only image that they pray fervently to what gods they comprehend. Because they surely know what we know; if one falls, the rest will surely follow.