October 09, 2008

Economics One Oh No

I saw "President" Bush yesterday in the Oval Office, after a meeting with the Slovakian president, answering a few questions about his riveting encounter with the Central European.  Bush had apparently assured the visiting dignitary that the "president" & his crack crew of economic advisors were coming up with something, in coordination with other countries around the globe, that would be "as best as possible."  That's certainly reassuring.  The Dow Jones has lost about 2,00 points over the last week since the current plan went into effect.  Why come up with anything new that's less than "as best as possible?"

I don't have a degree in economics or really much of anything in the way of formal training on the subject.  Alan Greenspan does have such credentials, but his ideological bent (he thought he should take his cues from the fiction of Ayn Rand) made him oblivious to the perils of unregulated derivatives trading, which lie at the root of much of what is going on these days.  I'm more objective; I don't have a religious faith in the "Free Market" as some sort of omniscient decision-maker for all things economic.  My commonsense take is that business is run by human beings, and humans tend to push things to the outer limits of the prudent and ethical unless there is some kind of arbiter and rule-enforcer.  We keep seeing that throughout history.  It's in the nature of competition: if you think you can't compete without cheating, then you are forced to a decision.  Either get out of the business or do as the cheaters do.  I find it interesting (as the "president" would say) that Congress is all for clamping down on major league baseball because of steroid use but doesn't see that this is simply the sports business version of regulating competition.  If the ball players think they can't compete with the players who are using steroids, then they'll find a way to use them too or quit the game.  Only a regulator can level the competition to get rid of the problem.

George W. Bush, Phil Gramm, John McCain, Grover Norquist, Ronald Reagan -- all have been idiots on this fundamental question of regulation.  It's not surprising, in Bush's case certainly, that mental habits engrained in religious thinking would slop over into his view of the business world.  In place of Divine Providence, he and his fellow Christers substitute the Free Market, and they accord the same mindless reverence to this fictitious "control" over outcomes. It is a form of Magical Thinking, and it connotes an extremely unrealistic view of human nature. This approach has now brought us to the edge of systemic financial collapse.  Without regulation (or even quantification) of credit default swaps and the other arcana of modern finance, no one can now say just how bad the situation really is.  Banks all over the world are failing, insurance companies are tanking, America's few remaining investment houses are on life support, and the U.S. Treasury is running out of options as fast as it's running out of money.  The "credit crisis" is mainly a function of incomprehension: no financial institution can accurately assess the situation to determine the solvency of any other financial institution.  And now General Motors, the fortunes of which determine what's good for the country, according to ancient wisdom, trades for five bucks a share.

This gargantuan mess was built up, piece by piece, byte by byte, by individual actors making decisions which were uncoordinated and unregulated by any government oversight.  The profit motive drove each decision and action, using the wide latitude available under a free market ideology.  Potentiated by computer speed and complexity, the deals were fed into complex algorithms and then elaborated through ancillary financial setups "derived" from some species of underlying equity asset.  All kinds of Casino Capitalism games were played using all of the complex interrelationships in Acronym World: MBS, CDS, CDO, all of them shorted, played long, tranched and sold all over the world.  All of this "costly nonsense" (Charles Dickens: Bleak House) was carried on in a mad frenzy, and the players who were best at the games made billions.  Every branch of the American financial world, representing 22% of American GDP (the largest sector of the economy), became intricately involved, from home mortgages to insurance companies to the mega-big investment banks, all as permitted by the repeal of Glass-Steagall, that archaic (and eminently sensible) regulatory framework from the Depression era, and the enactment of the Financial Services Modernization Act around the turn of the Millenium, which might be subtitled the Chaos & Financial Free-For-All Act of the New Gilded Age.  

So when the Ship of the American Economy went down, it took everything with it. Characteristically of a Gilded Age, it became conventional wisdom that greed was good in and of itself and no one need inquire about the social utility of all these rackets.  Bush seems now most determined to restore, or at least to do "what's best as possible" to reinstate, the system exactly as it was before the Crash of '08.  I think it's natural for humans to cling to the familiar when in a state of shock; it's the mind's first defense, to deny the reality of what's right in front of you.  But I don't see how anyone can put Humpty Dumpty back together again.  America's "prosperity" under "President" Bush was built on a Consensus Hallucination, the housing bubble made possible by one-time conditions that are not going to recur in our lifetimes.  The big investment banks are gone, either bankrupt or parted out to banks who want some of their lines of business. Lehman, Merrill, Bear Stearns had all gotten involved in the mortgage-backed securities hustle because the old bread and butter game of investment "advice" to the common person had died a slow death from Internet competition. Many commercial banks are going to fail and those which don't will become wholly owned subsidiaries of the United States Department of the Treasury, a form of "sovereign wealth fund" right here in the United States.

The U.S. trade deficit is shrinking, but that's because our consumption of imports is declining. And that leads to a reduction in dollars recycled to the U.S. Treasury from abroad, putting a dent in the Fed's ability to finance our "recovery."  As consumerism tanks, unemployment will rise.  The strains on the pension funds of state and local governments will become unsupportable without some high-yield investments to make their Ponzi methodology work.  Real property taxes, the bulwark of much of state and local government financing, will head south as millions of Americans with vanished equity seek reassessments.  That will lead to government layoffs and municipal bankruptcies.

There will be no quick fix, not at all.  Bush doesn't actually know what he's talking about, but if he did, he would realize there cannot be a return to "normality," only to a state of basic functionality commensurate with America's diminished wealth.  When the carnage is complete and the thrashing of the economy in its death-throes finally stills, I imagine we will see that the net asset value of the United States is about 60% of what it appeared to be at the height of the Bubble.  This is not a cyclical "correction;"  this is serious Attitude Adjustment.

October 08, 2008

Ambien for the Masses: The Presidential Debates

Lord Almighty, these are dull debates.  They're excruciatingly dull.  They induce a kind of physical pain after the first twenty minutes or so.  They don't seem to be about anything.

If you read around on the Internet on political issues, as I do a little too much, you're way ahead of these two guys on the main issues of the day.  You absolutely know that McCain and Obama are bullshitting their way through these seances.  I believe in concrete examples for serious charges, so here's one: both the Republican and Democratic candidate promise direct relief for homeowners in foreclosure or in arrears on their mortgage payments through a government program of buying the mortgages and renegotiating the terms with reduced principal and a better interest rate.  Gee, that's a helluva good idea.  That might stabilize the housing market somewhat and do something for, you know, the American people in general.

So here's a question the somnambulant Tom Brokaw might have intoned:  Where were you guys last week?  Why did you vote yes on a program to buy "troubled assets" from the other end of the financial food chain, the banks and investment houses holding the mortgage-backed securities?  It seems to me that used up the "available" (which is to say, "maybe borrowable") money to do much of anything.  Is Congress going to authorize another $1 trillion to work the people's end of the deal?

Social Security came up.  That's good; the question sent in from New Hampshire was pretty intelligent, certainly more informed than the debate in general.  What do you do when the Social Security fund goes negative, that is, current inflows are insufficient to pay retirees?  I don't think McCain or Obama understood the question.  They immediately went off on some tangent about the system needing "reforming," and McCain, in his truly imbecilic way, started bragging about the actions Reagan took back in the 1980s.  Yes, indeed: the FICA rates were increased sharply in the early 1980s (I should now: I was self-employed) to create a "surplus" to fund the Baby Boom.  Where's the surplus, Popeye?  It was all spent on the military, and the swiped money was replaced by "special" Treasury obligations and added to the national debt.  The caller in New Hampshire knew that.  What about Jack & Barry?

And, of course, not a single question on the linchpin issue: aside from saving a few billion here or there on this or that defense appropriation for some redundant laser-guided amphibious remote-controlled crawler tractor predator fighting vehicle, what are you guys going to do about the 750 military bases scattered over the globe and the $1 trillion spent annually on defense, wars, intelligence and "homeland security?"  Is it actually necessary or prudent for a country in decline to spend as much as the rest of the world combined in order to exercise a hegemony which the rest of the world resents and is increasingly hostile about financing?

Perhaps, as I keep reminding myself, it has become simply impossible to discuss real solutions to real problems.  The ship of state, on its collision course with an iceberg, can be nudged slightly to port or starboard but no fundamental course corrections are permitted by the rules of "safe debating" or government as usual.  I think Obama and McCain end up in roughly the same spot from different points on the compass.  McCain is just a mediocre thinker, a Bircherite and knee-jerk reactionary who has bought into his own nonsense about being a "maverick."  Obama, struggling mightily to overcome the huge handicaps of being a minority with a Muslim middle name, is constrained by all the Trip Wires, Third Rails and No-Go Zones of modern American politics, and thinking through the daunting matrix of taboos anterior to saying anything makes his responses tepid and dull.   I am sure in a private conversation he would be very different and far more open about the reality the country faces.  He wouldn't be talking about sending "more brigades" to Afghanistan to "finish the job," for example.  (Seven years later?  Can we even remember what the job was?)  He ventured his true feelings when he talked about "guns and religion" as opiates of the masses and got burned for his honesty.  He was spot on; of course the appeal to the heavens for salvation, and the hunkering down with a semi-auto, increase during times of great economic stress.  But the First Rule of American politicking is that you cannot tell Americans they have problems of their own making or that their reactions are irrational. We are, after all, Exceptional.

So he's got my vote.  He will be more creative and dynamic as an actual President than he can be in this ridiculous charade we call the election process.  

One more debate to go.  I can hardly wait.

October 06, 2008

He-e-e-l-p Me! I'm M-e-l-ting!

True.  But as I have often thought, and then said, in some ways we should be reassured that Saint Thomas Aquinas was right: you really can trust the authority of your senses. Under what economic theory can a nation actually spend its way to prosperity?  If you base your economy on consumer spending, to the 70% level, and if the largest single sector of that same economy is "financialization," that is, money manipulation, isn't that economy bound to crash as soon as the citizenry runs out of money?

Of course.  We can make the problem as complicated as we want, we can listen to half-wits like Tom Friedman with his "flat Earth" nonsense, we can pretend that there are Cosmic Free Lunches and Perpetual Motion Machines, but our intuition rebels against such thinking.  If you keep sending all your money abroad, and can only get it back by borrowing it from the foreigners' intermediary, the U.S. Federal Reserve, pretty soon your capacity to borrow that money will be exhausted.  One way I would calculate the rate of depreciation is as follows: if the average rate of a good mortgage was about 5% per annum, then over the course of Bush's eight years in office, the cost of re-borrowing the money we send overseas adds up to about 40%.  If you compute the depreciation of the dollar against other currencies during that same period, you will find that it adds up to about 40%.  There are no great mysteries here.  Like 40 days and 40 nights of rain before the Deluge, or Jesus's 40 days in the wilderness, or the 40 years the Israelites wandered in the desert, this is simply one of those totemic numbers that spell the end of American dominance, for a while, for a long time, maybe forever.

Securitized mortgages were first.  Securitized credit card debt will be next.  The true unemployment rate, freed from Bushian propaganda, is about 14%, as computed by the reliable John Williams at Shadow Statistics, who refuses to buy into the pop-fraud computations of the Clinton era.  Inflation is over 13%.  160,000 jobs were lost last month, and if you consider that about 150,000 jobs per month are necessary to keep pace with new entrants into the job market, we're falling short by over 300,000 jobs per month.  Retail business is drying up, car sales are nonexistent, discretionary spending ist kaput.

Against this background, John McCain, the candidate for one of America's two principal political parties, wants to talk about Barack Obama's "association" with William Ayers, a radical from the Vietnam Era.  Quite possibly a nation that frivolous deserves what it gets.

October 05, 2008

Bill Maher's "Religulous"

I think Bill Maher probably owes a debt of gratitude to Michael Moore for devising the concept of the auteur-political documentary, distinguished by the direct involvement of the filmmaker in the Q&A sessions making up the bulk of the movie.  Maher's "Religulous" is better than Moore's agitprop movies because Maher has a sharper focus and a keener wit than Moore, and does not engage in the kind of emotional bathos Moore typically uses to win over his audience.  Bill Maher doesn't really use emotional content at all; his movie about religion, and about its clear and present danger to human survival, is aimed "more at the head than the heart," as Boris reviews the short drama about VD during the Napeolonic wars in "Love & Death." (Obscure reference for the cognoscenti only.)  While the professional reviewers attack Maher for his insensitive badgering of the pious, Bill is obviously angry at the overwhelming of political life in America and elsewhere by religious doctrine and he lets fly. To hilarious effect.

And so he travels the world insulting people of all faiths and creeds.  It's very, very funny, but the "cruelty" arises not from Bill's lack of piety but from his willingness to say exactly what you're thinking when he says it, no matter where he is.  He can be in a makeshift chapel at a truck stop in the Deep South and challenge burly truckers to debate the claims of inerrancy in the Bible, never mincing his words and never pandering.  In a conversation with a Muslim in Amsterdam, he can take on the claim that the fatwa against Salman Rushdie for writing "The Satanic Verses" did not chill free speech by telling the oh-so-gentle Muslim, "What you're really saying is, write something we don't like and we'll kill you," and then daring his interlocutor to prove otherwise.  In Florida he talks to a religious zealot, a "converted gay," who works to convert other gays to heterosexuality on the theory that homosexuality is (a) sinful and (b) subject to choice, since it's not genetic.  The preacher enthusiastically talks about a gay man and lesbian whom he converted so successfully they married and had children.  Bill then says they must have had a typically heterosexual marriage, with no sex.  Then Maher points out that if he saw this obviously gay "gay reformer" in a bar, he would instantly know he was gay, and the guy just smiles, knowing he was nailed.  They hug as they part ways and Bill asks him if he got an erection.

On and on, in a  bravura performance.  If you're religious, don't bother to see it since you'll dislike the tone and content intensely.  If you're "agnostic," like Bill, you won't learn anything new but you might be entertained.  Bill ends his movie with an apocaplyptic scenario, as he stands on the hill in Megiddo in Israel, where Armageddon is prophesied to occur.  He appeals to our rationality to overcome the dark forces of organized religion.

He's wasting his breath and he knows it.  But it makes for an interesting documentary and an opportunity to travel with him to England, Denmark, the Vatican, Israel, and all through the Deep South.  Maher notes that 16% of the American populace is agnostic and atheistic and wonders why they're not a more powerful interest group.  Among 24 nations of modern culture and civilization, the United States ranks 23rd in secularism, just ahead of Turkey.  I don't know what criteria are used to determine whether a nation is god-besotted, but that sounds about right.  It's nuts here, that's for sure.

Lots of people that Bill interviews around the world think we're near the End of Days.  Maher sees it as a self-fulfilling prophecy, since the inclination to think it's almost over tends to lead to indifference to things we might do to ameliorate the crisis.  I look on things somewhat differently from Bill, lacking his belief in the primacy of the intellect or rationality in such matters.  I think things look like End Times because human consciousness is formed most conclusively by the environment we live in: overpopulation, pollution, degradation, desertification of land and oceans, global warming.  These things work on us, dismay us, make us crazy.  Things look apocaplyptic because we're destroying the very planet on which we live and making it uncomfortable and aesthetically ruined as we go about it.  And in the vast thronging multitude, the Earth's six billion people, we find many, many religious people, perhaps always in about the same historical proportion, but the conditions of life and their sheer numbers (and the destructive technology they can access) exacerbate the peril, maybe past the breaking point.

Maher notes that 93% of the members of the National Academy of Sciences are either atheistic or agnostic (I don't know why Bill persists in that dichotomy; as Richard Feynman demonstrated beyond all doubt in a brilliant essay, there's no real difference.  An agnostic is an atheist who's having trouble coming to terms with the finality).  That makes sense.  Just as it takes a leap of faith to believe, it takes a leap of imagination not to believe.  Bertrand Russell in his 1927 essay, "Why I Am Not A Christian," (Google and enjoy - breathtaking) laid out the basic atheist arguments, the answers to the "proof" of a god.  For example: as to the "First Cause" argument, that if there is a world, then something or someone made it, since everything has a cause.  Thus, argues Bertrand, something had to have made God.  If the answer is that God always "just was," then Russell answers that the same argument can be made for the world: it always "just was" too, and it's no more unlikely than the Creationist story.  

There's no comeback to that.  God is the result of human psychological projection: since when we see something like a chair or house, we know that someone made it, our tendency toward the concrete (something like the use of "manipulables" in Montessori schooling) sets the limit of our ability to think about things.  We assume that a world in which humans live was made by a human-like intelligence.  What a coincidence!  Or - could it be we're looking through the wrong end of the telescope?

A certain kind of mind (I won't say "more intelligent") grasps what Russell is driving at.  And some people have minds, or personalities, which manage to live without hope, and are content with the basic absurdity of human existence.  It's the only thing we can really know, the essential meaninglessness of life, and we want to live according to what we really know because it feels better.  And we feel safer in a world of rationality than we do in one where religious irrationality rules mankind.  None of that is going to help convert anyone from one way of thinking to another, but a movie as grim and hopeless as Maher's (whether he realizes it's that way or not) needs to end with some hortatory uplift, so he gave it a shot.  Not in this world, Bill, but it's nice to have a spokesman.