"That's why I wish again

that I was in Michigan

down on the farm…"

Those are lines from a Laurel & Hardy movie, where the two were in prison and being serenaded by the prison glee club.

We remember them from a childhood spent watching old movies on television. In fact, our head is so stuffed with trivia from movies made in the '20s, '30s, and '40s that we feel out of place in the modern world. Hollywood fantasies from two generations ago are where we belong.

Now, of course, the singing groups in wide horizontal stripes have disappeared. At any rate, a friend of ours who was released from a federal pen recently, reports that what bothered him most during his three-year stay was the radio.

"You couldn't get away from the thing. And it was never tuned to the classical stations, never even NPR, but to horrible, loud noise…24 hours a day. Talk about cruel and unusual punishment. I thought I would go crazy.'

We had our own encounter with horrible, loud music on Saturday night when we went to Edward's first theater production…(more about which below).

But now, back to Michigan…by way of California…Irvine, CA, to be exact.

Irvine has had the good fortune of being home to what must have been the go-go industry of the last five years - lending money to people who couldn't pay it back. Two of subprime's leading lenders have their headquarters there - New Century Financial and Ameriquest Mortgage Co. And as recently as nine months ago, Irvine was booming. Office vacancies were near a three-year low…and home prices were at an all-time high (anybody who couldn't find a job in Irvine just wasn't trying). People were bullish on the city.

But aw shucks…here cometh the decline in subprime, and all of a sudden Irvine is feeling a little down in the dumps. Before, you could barely get a reservation at a good restaurant. Now (if you believe the press reports) you can walk into the best places anytime.

And everyone has reservations about Irvine's future. More than 3,000 people have been laid off by the two hometown lenders, office vacancy rates are expected to double this year, and house prices are down 17% in the last nine months.

Meanwhile, in Michigan, a bigger, older industry is in trouble - automobiles.

A total of 305,000 jobs have been lost in the state since 2001. Naturally, people who live in Michigan are losing their homes too. According to theory, this is no cause for concern. When one industry dies, another arises to take its place; that's just progress. Unfortunately for the poor lunch-bucket proles of Detroit, the new industries are arising in India, China and Korea - not in Michigan.

So people are loading up their Chevrolets and setting off to the see the USA.

More than 65,000 people left Michigan during the 12 months from July '05 to July '06. For the first time since the Great Depression, Michigan is officially a "poor" state - with income below the national average. Where are the new jobs that are supposed to make the next generation of Michiganers rich? Why…they are in Seoul…or Shanghai…or Mumbai! And what, then, can the poor folks around the Great Lakes do? Learn to speak Chinese and get jobs washing the cars of Chinese billionaires? Send their daughters to do the washing for Indian auto magnates? Start a website of auto memorabilia and Motown remembrances…and get rich from the Google revenue?

We don't know…so we'll keep moving.

Still, an interesting little note came up in our look at Michigan. It seems a lot of people who are losing their homes are not very happy about how it happened. A little item in the New York TIMES tells a typical story…this one about a couple in Washington State that needed to refinance a mortgage loan. They went to a mortgage broker, who got them a $267,200, 30-year loan at an 8.5% fixed rate with NovaStar Financial.

But when the couple got to the closing, the documents showed a change - to an adjustable-rate mortgage with a higher initial rate, of 8.62%, that would reset in two years.

"They reluctantly signed the documents because they had pressing commitments to pay debts and home renovation contractors. It was only later that they discovered that their mortgage broker was paid a commission of $5,344 by NovaStar to put them into the riskier and more expensive loan. That commission added $200 to their monthly mortgage bill."

Like a lot of people, they must feel abused by the credit industry. But what can they do to get even…short the mortgage lenders stock? Go to court?

No, it's simpler than that. As they go out the door, simply pour motor oil onto the carpet, stop up the sink drains and turn the water on.

Which makes us wonder if what the collateral lenders are getting back isn't worth even less than we thought. And if the sub-prime hole could turn out be deeper than people expected.

About which, more tomorrow…

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.