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 at Arena Stage in Washington through May 5. 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 as 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.
"What is debt, but the promise to pay? From that promise, everything else flows,” Merkin says. “Debt is nothing that gives birth to everything."
In the play, fellow businessman Leo Tresler disdains Merkin's takeover tactics, although he too uses debt to finance deals.
"You know city councils and state governments will follow,” he says. “Then consumers. And then what? Then we're not a country anymore. And the only thing we'll be making in America? Debt."
Just like junk bonds allowed corporate raiders to buy what they couldn't afford, credit cards enable families to pledge future earnings to receive goods and services today. Americans have learned to leverage their own lives, often replicating the ruinous nature of debt.
But what about mortgages, you might ask.
Yes, most people can't buy a home without a mortgage, and it is a liability that can help families build wealth. However, a healthy hatred of borrowing might make people pause before buying a home they can't afford. The housing crisis that helped push the economy into a recession was fueled by supersize mortgage debt.
Right now is college-admission season, in which many parents and students will bury themselves in student loans. They'll justify the decision by telling themselves that it's “good debt.” They believe the loans are an asset.
Outstanding student-loan debt was $1.46 trillion in the fourth quarter last year, according to the Fed. And it’s becoming too much for a lot of those borrowers — 11.4 percent of those loans were 90-plus days delinquent or in default.
In a note about the stage setting for “Junk,” Akhtar writes, “The insinuation of the mid-1980s in costume and design must not be overdone. For the world evoked in the events depicted — the origins of debt financing — are not just a matter of the past, but represent an ethos and an ontology very much central to what we call the world today."
And what is central to American culture?
Businesses and consumers aspire to build wealth using borrowed money. But too often the borrowers end up crumbled under the weight of that debt.
We should all heed the moral of this story: “Debt is not an asset,” Tresler says at one point. “Debt is debt."
Note: I’ll be doing post-show conversation with Arena Stage’s Artistic Director Molly Smith at 4:15 p.m. following the matinee performance on Saturday April 27 in the Fichandler Stage.