Bad Money

It seems that Kevin Phillips is getting his wish– the US public is learning more about the complexities of 21st century finance than ever before, via This American Life podcasts (1 and 2), Bill Moyers’ show, the daily newspaper, even beauty parlor talk. Seeing Mr. Phillips on Bill Moyer’s Journal, I was inspired to take this book for a spin, and after 200 condensed pages, I’m happy I did. I’m looking down at the book right now, with 30-odd post-it notes marking sections I was struck by. Ready to be enlightened? Here we go!
For those without a lot of time, reading the 8 page Preface might get you to partial enlightenment. Or you can watch the 2 segments on Bill Moyers: September 2008 and November 2008
Phillips’ earlier work, American Theocracy, covered an interesting angle I might have to check out in further detail– the three most recent leading world economic powers had special relationships with key energy sources: Netherlands – wind & water, Britain – coal, and the US – oil. “The earlier two proved unable to maintain their global preeminence when a new energy regime emerged, and now Americans must worry.”
One of my favorite parts was Phillips pointing out the discrepancies between earlier American economic crises with this one. Today, we barely understand the baillouts happening, and are not meeting to discuss their impact on everyday American lives, but “Economic favoritism in Washington is as American as apple pie.” Federal policy favored manufacturers and railroads during the decades after the Civil War, instead of farmers. “Tariffs, railroad land grants, and tight money… all subsidized capital, not agriculture. Farm families, especially on the grain-dependent Great Plains, came to understand that they were fighting for their livelihoods. The leading histories of agrarian populism describe giant meetings, sometimes literally thousands of wagons gathered on the prairies, to discuss railroads, bands, unbearably low grain prices, free coinage of silver, and the need.. ‘to raise less corn and more hell.’ Economic pamphlets were passed from farm to farm, periodicals like the National Economist had hundreds of thousands of subscribers… Compared to early-twenty-first-century torpor and lack of serious financial debate, the nineteenth-century agrarian civic engagement had an almost Fourth of July quality. ”
Plunge Protection Team, created in 1988 by Reagan probably to more loosely define the backroom antics that occurred during the 1987 crash. Who are these people? What effect have they had on our economy by preventing bubbles from bursting completely?
“We are in an Age of Disappointment,” said Kevin Phillips in the November 2008 Bill Moyers’ Journal episode mentioned above. So absolutely true.
Dimensions of “Bullnomics”– exaltation of financial markets as rational and safe underpinning for public well-being, the conning of the American public with misleading stats that understate inflation, and the rise of Christian fundamentalism “God wants you to be rich”. I’m intrigued by the connection of “the preoccupation of Americans awaiting the Rapture… keeping another band of voters unconcerned about budget deficits, peak oil, and the deflation of the U.S. dollar. ” Tim Weber is quoted, “If Jesus may come at any minute, then long-term social reform or renewal are beside the point.”
Ordinary Americans are bearing more of the risk burden. Income instability grew even faster than income inequality. Jacob Hacker emphasized data showing that the chance a household would experience a 50% drop in income at some point rose from minimal in 1970 to 20% in 2002.
New York banks felt secure because they knew the Federal Reserve would bail them out, they knew they were on Helicopter Ben’s chopper route. Back in 2002, Ben Bernanke joked that if needed in a crisis, money could be dropped from helicopters.
What did the other failed empires do in their waning days? Spain issued some reforms, moved the capital briefly from Madrid, tried to get the other major regions to help foot the bill of the empire, tried to restore their military reputation. At the end of the Thirty Years’ War in 1648, Spain was no longer an empire. The Dutch (The United Provinces of the Netherlands) faced a similar problem, where they lived on interest income and rents, instead of continuing earlier commercial and maritime activities. From 1688 to 1713 they fought a series of wars that cost them both trade routes & serious debt obligations. Holland refused to pay more taxes despite having more wealth than before.
“It remains possible that four decades of US hubris, periodic military intervention, and overreach in the Middle East will be perceived as playing the same role for Washington as did the Thirty Years’ War for Madrid (1618-48), the 1688-1713 wars for Holland, and two successive world wars for Britain.”
“On the edge of the decline the Spanish had gloried in their New World gold and silver; the Dutch, in their investment income and lending to princes and czarinas; and the British, in their banks, brokers, and global financial network. In none of these situations, however, could financial services succeed in upholding the national preeminence that had been earlier built by explorers, conquistadores, maritime skills, innovative science and engineering, the first railroads, electrical dynamos, and great iron and steel works.”
The emergence of the Islamic nationalist bond market in Asia. Islamic bonds, or sukuk (securities made religiously acceptable by avoiding interest payments or investments in alcohol, tobacco, pork-packing, and gaming industries). Standard & Poors has estimated the potential of the Islamic finance market at $500 billion.
Russian scientific submarine placed a flag on the seabed at the North Pole in 2007, staking a territorial claim, trying to gain access to the oil beneath the shelf.
“The future United States from the start drew immigrants from England, Holland, Scotland, and Protestant sections of Germany, as well as Huguenots, Flemings, and Jews, so when the baton of economic leadership passed to the United States in the twentieth century, there was a notable continuum of financial and commercial custom… It is hard to see how any major twenty-first-century shift of power to Asia can occur without a major discontinuity unless a financial Anglosphere – the United States, the United Kingdom, Canada, Ireland, Australia, New Zealand, and perhaps the Netherlands – can remain a coequal power center for at least three or four decades.”
“The underlying question before us… is whether the housing and credit crisis expected to span the 2007-10 period constitutes the global crisis of American capitalism, in the sense of being the one that signals the Great Transferal to Asia.”
“Recent polls in the United States by Zogby / New Global Initiatives show an unprecedented 1.5 million Americans having already decided to the leave the United States and another 1.8 million calling themselves likely to leave. Emigration was also pronounced from declining Spain (to Spanish colonial America), from eighteenth-century Holland (to Dutch colonies, and by professionals and skilled workers to Britain and Sweden), and from declining rural and industrial areas of Britain in the first half of the twentieth century (to the colonies, the dominions, and the United States).

auth=Phillips, Kevin
sub=Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism