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.