December 09, 2009

The Good Guy, Bad Guy Narrative Never Gets Old

I acknowledge my debt to Karl Denninger for the graph above (which I think you can see in a separate window by clicking thereon), which he frequently displays on his Market Ticker blog as a Big Picture of American profligacy. I think it's particularly powerful in assessing whether the Little People vs. Robber Barons narrative actually gets at the heart of the American malaise or not. I tend not to think so. It is, of course, alluring and attractive to think that one's own economic woes are attributable to the machinations of the Powerful Few, the Illuminati, the Jewish Banking Cartel, the Overworld, etc. Hitler surely used this kind of rhetoric as a cover story for German debasement after the First World War. It was that dreadful Versailles Treaty and the House of Rothschild, not that atrocious war we started.

We grew up with stories like that. Cowboys & Indians, Cops & Robbers, playing Army where we killed Nazis and Japs. It's part of our mythology, and it forms an unconscious matrix through which we comprehend Reality. For example, lots of the current criticism of Barack Obama has to do with his capitulation to "Wall Street." Here's Robert Scheer today, disgusted by receiving an e-mail from Barack Obama asking for money to fight the cause of "Main Street:"

Barack Obama's faux populism is beginning to grate, and when yet another one of those "we the people" e-mails from the president landed on my screen as I was fishing around for a column subject, I came unglued. It is one thing to rob us blind by rewarding the power elite that created our problems but quite another to sugarcoat it in the rhetoric of a David taking on those Goliaths.

Robbing us blind. Creating our problems. That's how Scheer decides to look at the bailouts, the financial collapse, the Depression. Not as the inevitable result of societal decadence. We were good, honest, thrifty, industrious citizens, and we got taken. They took advantage of our simple, native virtue.

It is true, I will grant in a trice, that we allowed a small handful of super-powerful financial institutions to become "too big to fail." We did this because every president, Democratic and Republican, stopped enforcing the Sherman Anti-Trust Act. Because the SEC went to sleep on the job. Because a Republican Congress submitted a bill in 1999 to repeal the Glass-Steagall Act, which a Democratic President, Bill Clinton, signed into law. And a hundred other affronts to common sense and fiscal sanity. These errors and omissions did not begin occurring when Barack Obama was inaugurated, nor during the misrule of W, nor at any other politically convenient moment to start the clock running on "corruption." They have been part and parcel of the American experience (our "lifestyle") since around 1980 or so. That is what Mr. Denninger's Big Picture is meant to show.

From the post World War Boom through the 1970's, we did fine. Debt to GDP remained stable at about 150%. We then decided that living within our means was unnecessary. This applied across the board, at the individual and government level. If our flat-lining wages (a result of international competition coupled with the beginning of job "off-shoring") were insufficient to maintain us in what Dick Cheney called our "non-negotiable" lifestyle (was ever a stupider man more widely praised for his brilliance?), we would borrow the difference. Reagan took this method to heart, and federal deficits began exploding. We would crush the Soviets by massive increases in defense spending, and support it all by borrowing from around the world. The Soviets could not compete with that. Of course they couldn't. Why would they want to? It was the beginning of the end of the solvency of American government, too, after all.

America's materialist obsessions led to the proliferation of vast tracts of suburban (and "exurban") development, all financed on a thin sliver of equity and massive leverage, as debt to GDP went from a manageable 150% to a totally out-of-control, unsustainable 350%. We built big cars and financed them the same way. We were notorious for our energy inefficiency; when we began to run out of oil here at home (in about 1970 we hit Peak), we started importing increasing amounts, leading to big trade imbalances. Unconvinced that this mattered, Americans began building and buying SUVs, gas-hogging behemoths with the ride characteristics of a dump truck and the entropy profile of a Sherman tank. Houses got bigger and bigger, far more expensive to heat and maintain, and energy usage skyrocketed as every room in the house became the site of a power-surge strip connected to a display of electronics rivaling the control deck of Starship Enterprise.

We gave up on exercise, higher culture, public transportation (where oh where are our high speed rail connections?), and settled in front of the TV to watch Jen & Phoebe dumb-talk their way through another faux-crisis, eating cruddy food stoked up with high fructose corn syrup. Thus, we became a nation of fat, diabetic cardiac candidates, waddling to work as Greeters at our largest employer's Emporia of Despair, a crap merchant specializing in selling lead-based, melamine-enhanced junk.

Yet, in our own minds, we remained Exceptional. We felt entitled to live at a certain level, surrounded by what was largely an eye-offending opulence, engaging in the national pastime of vicarious battle through watching contests between steroid-riddled physical freaks on huge screens of flowing pixels, which we had substituted for "Reality" (at one time known as the "Outdoors.") We were running out of ways to borrow our way to maintained prosperity. The credit cards were maxed, the repo man was out front hotwiring the Escalade, so we looked to that one remaining piece of collateral, the roof over our heads. And it was here that the Banksters, who had already figured out to how to "spread the risk" (to the entire world, in fact), by "securitizing" credit cards and student and auto loans into "bonds," came to the rescue. Hell, they had to do something. The equities markets had peaked in the late 1990's, so the "investment banks," which used to be called "stock brokers," no longer had any "stocks" to "broker." So we came to their rescue, too. The entire mortgage industry could be used as seed money for a new way to gamble at the Wall Street Casino, and the basic bet (the mortgage, which was no bet at all because housing prices "always go up") could be hedged with side bets in the form of credit default swaps (betting the Pass/Don't Pass Line, in other words), and the circle was complete. Wall Street was rich again, the Booboisie could use recycled money from China to live like kings. How could such a scheme fail? Our houses went to work for us. When the loan came due, or you needed a new Lincoln Navigator, you tapped the always-growing equity to roll it all over, pocketing $50 k for toys at CostCo while you were at it.

It was a perfect system until it wasn't. We liked it so much that the Obama Administration and the Fed are working around the clock in feverish attempts to bring Shangri-La back to life.

But now we've turned on them. We've decided, despite that thirty-year history of increasing decadence and irresponsibility occurring on a society-wide basis, that it's not our fault. They tricked us! They told us we could have something for nothing. We could keep electing the same corrupt assholes who were shipping all of our jobs overseas and leaving us with a "service/information" economy (the Information being: we're broke), and it was okay as long as we could sign our name, or fog a mirror, in order to "qualify" for a loan that would put us in a house that would solve all our problems.

As I say: such a nice, convenient, exonerating narrative. Everything that seems to have happened over decades actually didn't start until the fall of 2008. Hey, it works for me. You go, Ben. Bring back my piggy bank, or someone gets hurt. When can I re-fi?

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