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Color of Money: Debt isn't 'Junk' anymore. It's an American treasure.

Michelle Singletary on

WASHINGTON -- I recently saw the play "Junk," a retrospective of the 1980s, when Wall Street junk-bond kings were revered and then reviled.

It was a time when financial wunderkinds figured out how to use massive amounts of debt to go on buying sprees, leaving a path of devastation. Think of a plague of locusts swarming companies while wearing business suits and ties.

"Junk," by Pulitzer-Prize winning playwright Ayad Akhtar, had a run on Broadway and earned a Tony nomination in 2018 for best play. It's now showing in Washington. If you have a chance to see a production, you should go. At the very least, read the play, which is this month's Color of Money Book Club pick.

With some perspective, "Junk" is a look at not just conniving, greedy financiers, but also the legacy they left.

At the center of this story is Robert Merkin, seemingly a stand-in for the infamous Michael Milken. Remember him? At one point he symbolized the "decade of greed." Milken, now a philanthropist, is credited with being the mastermind behind high-yield, high-risk bonds, which became known as junk bonds. Milken pleaded guilty to six felonies connected to securities fraud.

In the play, Merkin stages a hostile takeover of a family-owned manufacturing company. He lies and cheats to secure a deal that destroys many lives.

 

You know the story -- corporate raiders, insider trading, rigged stock purchases, employees laid off and, finally, a company buried under so much acquisition debt that it ultimately collapses.

But there's another equally mesmerizing subplot to "Junk." In the middle of all this mess is another form of fallout -- the way the junk bond masters taught Americans to embrace the inevitability of debt. Like the locusts that devour companies, American consumers often take on loads of debt to the detriment of their financial health.

At the end of last year, total household indebtedness was $13.54 trillion, a $32 billion increase from the third quarter of 2018, according to the Federal Reserve Bank of New York's Center for Microeconomic Data. In the fourth quarter of 2018, credit card balances increased by $26 billion to $870 billion.

Auto loan originations for 2018 reached an all-time high, and some can't handle the debt load. More than 7 million Americans were 90 days or more behind on their auto loan at the end of 2018. "The overall performance of auto loans has been slowly worsening," the Fed reported.

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