October 10, 2008Re: Creating And Sustaining The Unsustainable.
With the stock market tanking and the economic system worsening on a daily basis, there are some thoughts I would like to get off my mind. They may be wrong, but they are the product of years, sometimes decades, of observation and experience. They are in part philosophical, in part empirical. Some have been mentioned here before, some not.
When the market was flying high at levels like 12,000 to 14,000 on the Dow, it seemed to me (and I would tell my wife) that this was somewhat insane and a more sustainable figure might be somewhere around 9,500 or 10,000. Why? Because for societies, and for most individuals, there is a sustainable pace of progress and then there is an unsustainable, shooting star kind of progress which usually results in what is called regression to the mean. For some reason, the rate of sustainable annual progress, if it were to be quantified, as it can be for some things, seems to range from three to five percent growth for entire economies, to somewhere between six and nine percent for stock markets. There are some individuals who either temporarily or permanently escape the norm, and assume temporary or permanent rocket trajectories because they are lucky, or talented, have come along at the time that is particularly right for them, or for other reasons, e.g., Bill Gates, Ted Sorenson, John D. Rockefeller, Babe Ruth, Pablo Picasso, Jascha Haifetz. But they are the few, the very few -- who set the example of fantastic accomplishment that all Americans are trained to aspire to and almost none can reach. But these are individuals, and their shooting star, or rocket, trajectories cannot be permanently attained by whole societies or institutions. For the latter, it usually has to be slow but steady. Today we are paying the price for a Wall Street system, a market system, a credit system, a housing system, that was (were?) on a shooting star trajectory -- which has now collapsed in what is likely a regression to the mean.
Before moving on to related economic matters, let me note that something similar or at least analogous, has happened in military affairs. With the close of the Cold War, which was won by relatively slow, but steady advance of one type and another over 45 years, the hubristic fools who run this country, the elitist closed establishment that runs the country, thought we were now a sort of rocket that had ascended so high that nobody could touch us. We could control the world; we could do anything we wanted because of our military power. Well, it ain’t so bub, is it?
Turning back to economic matters, the rocket philosophy took over the economy, starting with Reagan and continuing through Bush, Clinton and Bush. Reagan’s twin pillars, as said here before, were uncabined greed and militarism, and he got us on the road to disastrous non regulation, to inroads on and finally the repeal of Glass Steagall, to greed is good as a controlling philosophy, and to the totally unleashed, amoral (or immoral), and completely unregulated individuals and companies that were the incarnation of greed is good. Some Reaganites, feeling unable to refuse to recognize that his views have now led to disaster, now retreat to saying that at least he was the Great Communicator. What he was, was the great bullshit artist, who found a receptive audience in a body politic which did not shower itself with reasons that would cause one to believe in its intelligence, and that wanted to hear that people should be able to do whatever they want without let or hindrance, as the lawyers say.
The unsustainable had to be sustained as long as possible, of course, so we got ARMs and Alan Greenspan. Any fool could see -- let me repeat that, any fool could see -- that ARMs were a disaster waiting to happen. You did not even have to know, and for quite a while many of us did not know, that there was rampant cheating going on, e.g., false statements of buyers’ incomes, false statements regarding down payments, false appraisals. All you had to know is what lots of us did know: that the initially low interest rate would be reset later -- would inevitably go up, because of the historic fluctuation in interest rates. ARMs visibly were always an invitation to disaster, as they have now proven to be in fact. Yet the knowledgeable financial types -- the commercial banks, the investment banks, the mortgage people -- with greed unleashed by the philosophy of Reagan and his decades of disciples -- promoted these ultimately and foreseeably unaffordable mortgages, sold them by the millions to the ignorant, packaged them as securities to be sold to investors, invented a system of supposed insurance (credit default swaps) so huge, uncontrolled and unknown that nobody can say how large is the possible disaster we are facing, and made billions in hay while the sun of greed and dishonesty shined.
You know, although I think the election of McCain would be a disaster because he never met a war he didn’t love and has a dishonest streak a mile wide (as evidenced at minimum by the Keating 5 business, his putative embrace of Bush for awhile, and his current campaign), he and his advisers are right in saying that we need to find a way to keep people in their homes and paying mortgages. We will remain in big trouble so long as people, by the hundreds of thousands or millions, keep defaulting on mortgages. Better to take the loss in mortgage value at one blow -- it is always better to take a loss at one blow, as companies do when they write off a huge loss at one blow -- and move on from a resulting new starting point. The Chinese water torture is continuous torture, after all.
Than there is the sainted Alan Greenspan, the greatest saint we’ve had since Saint Ron. Believing that Wall Street would do no wrong and regulation could do no right, this avatar of the wing nut Ayn Rand aided a tech bubble that ultimately collapsed, covered up the economic effects of that collapse by aiding a housing bubble that has now collapsed, used his prestige to ward off all regulation of derivatives whose unregulated spread now threatens the world’s economy, and kept saying that Wall Street can be relied on to do the right thing. Now he tries to cover up his world class idiocy -- which became, of course, the conventional wisdom in a political and general society which regularly promotes idiocy to the status of conventional wisdom -- by saying that the problem was that, to his surprise, Wall Street, acted greedily, dishonestly, irresponsibly. Apparently this Randian genius has never heard of the word “history.” Or maybe he thinks that history shows that Wall Street always acts ungreedily, honestly, responsibly. Would it be too much to say he obviously is either a fool or a liar or both, instead of the genius people pretended he was?
You know, I doubt that Greenspan himself committed crimes and can be sent to jail, where he should be sent. But thousands of people who promoted the debacle did commit crimes; they deliberately perpetrated frauds in one way or another. The jailhouse doors should be opened for them by the thousands. We already have what, about two million people, in jail? A few thousand or a few tens of thousands more wouldn’t hurt. The possibility of jail is the only thing that the people at the top of this society understand. This is as true of the economic elite as it is of the political elite who gave us aggressive war and torture. This society is unlikely ever to change unless those responsible for its major disasters, which always are accompanied by, made possible by, crimes such as fraud of one type or another, are put in the slammer so that future potential culprits will know they better not engage in shenanigans or they too will face the slammer. Open wide the jailhouse doors, I say, so that the criminal culprits who bring disaster upon us can enter in their thousands or tens of thousands.*
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