I was halfway through college – and in China – when the financial crisis hit. I think I was too engrossed with studying the changing identities of China’s migrant youth and understanding the entire social-economic structure of the country’s capitol at the time to really probe into the cause of the collapse in America.
I remember walking with my mother through Pine Point Park my senior year of high school (2005-6) and going on a rather long oratory about how most students in my school seemed to believe that if they did just average – put average work into their studies, got average grades, got into an average state school – they would still be able to attain – indeed they were entitled to – the high income levels and materially comfortable (abundant) lifestyles of their parents. Their was one girl in my Advanced Physics class who declared that, if she could do anything, she would just sit and listen to music on her ipod mini all day. She did Physics to get the grade and went to some regional state university. I have no idea what she’s doing now. But the main point is, few people seemed really curious, or inclined to real intellectual investment in their studies and work. Just enough to get by – and that just enough would land them first-world comforts and security (a side note: I think this mindset still exists, but we hear it so little, because the people who hold it are also less likely to write blogs or travel as much abroad). I thought this wasn’t realistic and predicted a lot more jobs going overseas.
Needless to say, I wasn’t very surprised when the financial crisis hit two years later. But I never really inquired into/understood the way in which it was related to mortgages and CODs (in fact I’d never heard of a COD). Yet, watching The Big Short on Monday evening, most of it made perfect sense. Of course there are more aspects and angles to the story from both economic and sociological perspectives (why did so many people own houses they couldn’t afford? Why were real salaries already dipping? And how buying everything from cappuccinos to condos on credit become so commonplace?). But basically it made perfect sense: the housing market collapsed because it didn’t have a stable foundation, and people were making further economic decisions based on the assumption that it did, in fact, have a stable foundation.
Back to Kyrgyzstan… Thursday afternoon I was driving a college classmate back to her office after interviewing her on the new university English radio program I’m expected to record (for free) in the three weeks before I leave (err…). We both arrived in Bishkek in the summer of 2013 and have both noticed the startling acceleration of middle class and luxury consumption in the city. Two and a half years ago the most common ‘bling car’ was a big ‘ol black Mercedes sedan. Now near half the cars on the road seem to be SUVs and imported Toyota compacts have replaced the old Ladas as family car of choice. When E moved into our apartment complex four years ago it was one of the only modern and secure complexes in the entire city. Even two years ago it stood pretty much alone. Now there are perhaps fifty, along with a spat of new private house developments. But salaries in Bishkek are still relatively low (anywhere from $200/month for shopkeepers to $400/month for mid-level government employees, to $1500-2000/month for experienced tri-lingual experts at some of the iNGOs; salaries above that are fairly rare), and there isn’t enough commerce and trade in the city to account for all of the new houses and cars. My college classmate used to work in an organization that did micro-financing, and now runs an organization that helps startups and young entrepreneurs along with working in the office of a new American company importing foodstuffs. As she could probably give a better answer than I, I asked where, apart from corruption and remittances from workers abroad, all the money to buy these things was coming from. Because I couldn’t balance out Bishkek’s economy in my head.
Her answer: loans. In the past few years plenty of banks have popped up offering easy loans to Kyrgyz residents. And now people are buying ‘luxury’ trappings even when they don’t have cash on hand, because they suddenly seem within reach. The main problem though is that most people still can’t actually afford these things and ‘are behaving irresponsibly with their loans’ – i.e. not paying them back. As banks here actually borrow money (with interest) from bigger banks outside the country, interest rates in Kyrgyzstan are also quite high – anywhere from 15-25%. Which means that, while everything seems fine right now, there could be a huge crash in a few years.
Or not. Who knows?