How the Cleaver family destroyed our S&Ls; low mortgages, high CD rates, and money market funds allowed Americans over 40 to take the rest of us to the cleaners

Washington Monthly, Sept, 1990 by James Bennet

Nightmare from Pine Street

One defining characteristic of a capitalist democracy is that a lousy deal for one guy is by definition an incredibly sweet deal for somebody else. In this case, money swiped from depositors in the seventies went into mortgage-holders' pockets. Now, if you'd taken out a mortgage in the fifties and sixties, you were a) at least in your thirties by the 1970s; and b) a homeowner, i.e., probably on your way to being well off. "There's the unconscionable wealth transfer," says Bert Ely. "It's an intergenerational transfer. The young got screwed by the old."

Enter the Cleaver. The year: 1959. Ward and June take out a 30-year mortgage at 5.5 percent to buy the new family home at 211 Pine Street in Mayfield, U.S.A. It all seems innocent enough. As they play in the yard and listen to lectures in the living room from their accountant father, the Cleaver sons, Wally and the Beaver, develop the healthy sense of family values and abiding lust for homeownership that characterizes suburban Americans of their generation.

After a brief flirtation with the notion of joining the Peace Corps during his law school days, Wally in 1967 decides to straighten himself out, join a firm, and invest in a home of his own--a nice place, three bedrooms, two baths, a yard: $30,000. By now, mortgage rates have climbed a whole half percentage point, to 6 percent. It takes the Beaver, who spends a couple of years trailing the Grateful Dead around the country in an ultimately futile effort to rebel against his father, a little longer to pull himself together. But by 1976, with interest rates at 8.5 percent, he's ready to make his first major purchase since he sent away for that projector back during his halcyon Mayfield days.

Then inflation hits. By the late seventies, mortgage rates are at 18 percent--three times what Wally is paying. The Cleavers could cash in on their capital gains right there, refinancing their mortgages at a higher rate in exchange for cash up front from their panicking thrift operators. But why think short-term? After all, the prices of their homes are floating up with inflation (and possibly much faster). Moreover, the Cleaver men probably don't need the money, since chances are inflation is driving up their salaries as well. Cost-of-living adjustments are generally pegged to the Consumer Price Index--the largest chunk of which is determined by housing costs--so most of what the Cleavers are getting to protect them from inflation is in fact pure windfall. Wally, for example, is paying only about $250 per month for his housing--not to lease, but to own--while all around him rents are skyrocketing. (To say nothing of mortgages. As Benston says of his kids: "Their mortgage payments were twice mine. Their houses weren't any better--worse, in fact.") Not only that, but our friends ar deducting half their mortgage interest from their taxes, so their loans are really costing then only 2.75, 3, and 4.25 percent. All in all, not a bad reward for people who just happened to be in the right demographic group at the right time.