American politics are like a geriatric old man pretending amnesia to escape indictment. In this somewhat rough-hewn essay initially written simply as a response to a fellow Brit in a comments page, I discuss the initial fault line in American politics which caused so many of America’s current woes.
From Andrew W (comment) ‘The US is the noisiest country in the world, and they speak English, so for better or worse, the rest of the anglosphere gets America continuously in the news every day, most of us from many perspectives - from organizations based both in the US and outside, Americans on the other hand get very little news on America or the rest of the planet from anything other than their personally preferred US news and propoganda sources. So we see an America inhabited by people with very narrow and very different and slanted perspectives on each other and on their own country.’
All true. But the problem is that most of the rest of Anglosphere is institutionally misinformed about most of American culture and politics. The very nature of journalism is the attention economy and storytelling, which plays best upon fear, loathing and anger. American news sells in the rest of the Anglosphere because much of the rest of the Anglosphere’s politics consists of grey men in suits. Plus, the class prejudices of cosmopolitan liberals in the rest of the Anglosphere’s urban centres contains a affluent and well-heeled sneering condescension, which is all too familiar to many Americans.
Take Trump and Obama as an example. Don’t get me wrong, I didn’t like Trump and on a personal level I greatly admired Barrack Obama, but on a political level, Trump was often demonised, his modest accomplishments knowingly undersold, whilst Barrack Obama made some incredibly cynical political moves, which especially in the areas of policing and education have led to disaster. Their is no hope in sight for America on either issue, nor is there likely to be for another generation- barring the introduction of a man or woman able to transcend the current toxicity of the American political landscape. Whatever the flaws of Trump or the accomplishments of Obama, the one doesn’t deserve to be demonised, the other lionised. It’s a portrayal as facile as it is disingenuous.
Ironically, history will remember that both men diminished the incumbent greatness of their country- they simply did it in different ways. Although they each saw themselves as leaders, both were victims of media ecosystem which is able to manipulate its politicians like marionettes. Still, the rest of the Anglosphere isn’t faring much better.
Anyway, my main point is this- just as Americans are misinformed about the rest of the Anglosphere, the rest of the Anglosphere is chronically misinformed about America. The Biggest Lie is the supposed American White Nationalism of the Trump movement. What this completely overlooks is that a huge portion of the American population were desperately fed-up with their institutional politicians.
Once one sets aside the heavily entrenched 50% to 70% who care about emotionally important but politically inconsequential (apologies to any American readers I may offend with this observation) issues like gun rights or abortion the data shows that a huge chunk of the people who turned to Trump, were the self-same voters who voted for Barrack and wanted Bernie on the Democratic ticket. The irony is, whatever the political pundits who always get it wrong said at the time, Bernie probably would have whooped Trump’s ass in 2016.
Here’s the thing. Let’s take the Myth conjured about the Great Replacement. Don’t get me wrong- it’s great branding by the Dems. They took a theory only really talked about by a tiny fringe of American White Supremacists in the process of dying out, as well as a few anti-Government types (although the New World Order was more popular in this more numerous circle) and they made it mainstream. Many otherwise sensible conservatives occasionally bring it up. Of course, they are talking about it in cultural terms- but the fact that they use the terminology means they’ve been beaten yet again, by the types of linguistic shell game for which the Left is famous.
Let’s try a thought experiment. In terms of true and legitimate refugee status, the citizens of Cuba, Nicaragua and Venezuela have more cause to claim asylum than others. The origins of asylum in both Britain and America were specifically political before WWII. One had to be fleeing political tyranny in order to qualify. But if the demographics currently wanting to enter America were specifically from these three countries- do you think the Democrats would want to welcome them with open arms? Hell no- they deny a problem even exists in these countries- when the fact that former citizens are no longer allowed to contact their families should raise genuine humanitarian concerns. Cynically, the Democrats know that people fleeing failed Socialist states don’t vote Left for at least two generations.
It was about Political Displacement all along. Although there may be still at least some mutual respect and affinity for the politically savvy across the aisles at a representative level in America, at the grass roots both American parties see the other side as an existential threat.
But here’s the thing you probably don’t know that you probably should. The 2008 Global Financial Crash had American political origins- it wasn’t a market failure in any real sense. Clinton wanted to increase minority home ownership. The bankers admired his convictions but said it simply wasn’t possible- mortgages are contingent upon the ability to repay. Clinton didn’t care- he promised them an S & L style bailout- he took away their risk and introduced perhaps the greatest single systemic moral hazard in human history.
George W. didn’t do anything to fix it. For a start, he liked the booming unlimited growth economics which it introduced to the housing sector. Plus, he didn’t want to look racist, or upset the Latino demographic, with whom he had made significant inroads. Of course, the financial sector does deserve its own share of the blame. They were completely irresponsible with the license for structural failure American Government had given them.
They created the ability to spread to endemic bad risk which had previously been limited to the public-private hybrids of Fannie Mae and Freddie Mac. They created CDO’s as a means of mixing perfectly good mortgages with crap ones. In reality, this seemingly useful financial instrument turned out to be the skeleton key which spread financial contagion across all of the world’s most advanced economies. The Credit Ratings Agencies didn’t fare much better, overseeing people who are also your best customers is a bad idea in general. But make no mistake- American Government caused the 2008 Financial Crash.
Why do you think only one guy ever went to jail? The fingerprints of American Government were all over the scene of the crime- and the evidence indicted both of America’s political parties. So instead, the bankers got a bailout at the American taxpayers expense, and evidence of the true culprits of the crime was buried under an avalanche of complexity and very real commercial interests desperate to evade their own very real collusive culpability.
And however much the rest of the world suffered for American government’s criminally negligent mistake, the American people suffered more. Homes were lost. Families split apart in the very real stresses which financial impossibilities introduce into a marriage. Businesses folded. Employees lost their jobs and their pensions after more than twenty years of service and paying their dues. Whole generations of men, young and old turned to suicide and drugs, leaving fatherless daughters and embittered sons. American Carnage, some have called it- and deservedly so.
Of course, most Americans didn’t realise just how deeply American politicians were implicated in this singular failure of limited imagination of risk. They thought that it was simply a matter of the American Political System failing to act appropriately as a Referee. They blamed the influence of lobbyists on politicians when America’s problems actually ran far deeper than that. But it was enough to make the American electorate consider everything from an inexperienced but apparently idealistic hopeful, to an aging socialist, to a bombastic and narcissistic reality TV star.
They were that desperate. They still are- and its getting worse, not better. Half the country seems to think the very thing that caused all their suffering and hardships is the solution and the other half feels so angry and betrayed by the Washington Political Establishment, they would probably vote for an Italian Porn Star if they thought she had any chance of fixing the endemic structural failures of America’s political and media institutions.
And rather than perform their well-deserved institutional mea maximi culpa, one side of the political aisle wants to blame it all on bad trade deals and immigrants, the other on the political of obstinacy of supposedly system-wide white supremacy. They should be on their knees begging for forgiveness for the damage they have wrought- both to the American people and to a system of American Government which had worked fairly well for over two centuries.
So his fingerprints are not just on asserted women and nursing home deaths, but also on one of the greatest manmade peacetime disasters in American history? Figures- that's like finding out Jeremy Corbyn was a paid consultant for BP at the time of the Deepwater Horizon...
Well, yes, there's Andrew Cuomo. But the Clinton years featured a whole gallery of people who represented the new Democratic Party, fused with Wall Street (as well as the media, Hollywood, and now big tech). That includes Robert Rubin, Tim Geithner, Jack Lew, and others who solidified the alliance, who were there in the Clinton administration, went to Wall Street in the 2000s, then returned to deal with their mess (?) in 2009 under Obama. This was one reason nothing was done about Wall Street under Obama. There are just too many people in the Democratic Party who benefit.
Contrast generationally as well with the US savings and loan crisis of the early 1990s. Back then, lots of people were charged with fraud and other crimes, with about half convicted. Policies were changed when Congress recognized its errors over the previous generation in reaction to the high inflation of the 1970s. People actually took some responsibility. That's the difference between the war generation and the their Boomer children, who took over in the 1990s. In 2008-9, no one took any responsibility. Instead, a smothering system of pre-emptive regulation was imposed on the view that, while no one was actually charged with anything, everyone was potentially guilty of something, ex ante.
I lived through Clinton and W and Obama. My family progressed through the Financial Crisis, that had the chairman of the Fed puking in his trash can, with no direct harm. I don't recall even a tax increase to pay for the banks' bailout either. I assume my grandkids will be stuck with that bill.
Explaining what happened and who contributed what to create a crisis is difficult and complicated. This explanation may have been accomplished. My question is, how to explain this sort of game of elites early and in a way that makes such a game quickly recognizable in the future when it is just developing and before damage is locked in?
At one point, here in the UK there was talk of the car loans possessing the risk profile of subprime lending. Although I don't know what steps were taken, it didn't seem to materialise as a significant disruption. That's the problem- whilst institutional memory is fresh, they are able to divert disaster before it manifests, but given it a few changes in senior leadership- both publicly and privately, and they will forget their institutionally inherited wisdom.
It's arrogance, hubris- the mistaken belief that they are too smart to get caught in the same trap as their predecessors. They should really familiarise themselves more with the engineering concept of probability and impact, and develop a certain healthy operational paranoia. If it can happen, it will happen.
That's the problem with the intellectually gifted- if the pandemic taught us anything, it gave graphic examples of leaders and experts who obviously believed their 'superior' intelligence gave them the ability not only to manage their own risk, but also the superpower of being to see all possible eventualities when they were skirting or outright breaking their own rules. Rules for thee, but not for me...
Mind you, I can't talk. When I was younger I was a real smart aleck, especially when I was in my cups. Although my landlord loved me dearly, he affectionately used to refer to me as 'the most intelligent idiot in the village'. He also said I was exactly like him- I just did it too often. My father said the same thing. I don't think I've ever had a nicer compliment in my life- I deeply admired both of them.
There is a sense, with each passing generation, that the larger than life shrinks.
GJ, that's (shrinking of the larger than life) your age speaking (echoing mine of course). As with all socio-economic disasters, 2008 can be traced back to, at least, the Great Deregulation of the Reagan-Thatcher years. That reaction against the sensible constraints on financial geniuses learned during the 1930s allowed the massive financialisation of the US & western World economies, without which the supreme improvisational genius of CDOs would have been impossible.
Of course, I don't disagree with you take. Financialisation of the British mainland economy in the late nineteenth century was one of the root causes of the decline of the British Empire and the same is true in the American sense. By WWII the industrial capacity of Britain had shrunk to one fifth that of Germany's and in the modern context America is not faring that much better, with Germany outproducing it by a factor of four.
But the 1992 Housing and Community Development Act with its provisions for affordable housing- rapidly expanding beyond all reason and prudence as time progressed, was a major contributory cause of 2008, because it built up a huge endemically bad lending book for those with low incomes and no feasible means of repaying with the public/private hybrids of Fannie Mae and Freddie Mac taking on huge levels awful landing.
It was a flawed strategy from the outset. For a start there is a great deal of difference between housing affordability and affordable homes, in that one only encourages the more realistic type by massively increasing the availability of building land for development, changing zoning laws to increase the provision of duplexes and the like and otherwise significantly reducing both the regulatory and legal costs of of building new homes. One great way of accomplishing this task is by simultaneously introducing both a planning uplift tax and reducing the amount of money local government can extract through property taxes- because this forces local bureaucracies to rely upon the rubber stamping of new homes as a revenue stream instead of the rent-seeking government which is currently more normal in America.
At the same time, if one really wants to provide affordable housing to low income workers then the answer is public housing, with the proviso that one would need to restore the ability of tenants associations and local government the ability to evict anyone causing hassle or disrupting the lives of other tenants. The best means of doing this would be by legislative fiat to designed to overrule and replace previous decisions by tort. There are plenty of examples of great public housing- one of the best is the Peabody estates in London. The only real problem is no one ever wants to leave these developments to buy their own homes, for the simple reason that both the housing and the community a more selective model of public housing offers is superior to anything the private sector has to offer, especially in terms of costs.
As a heterodox, and unlike either conservatives or liberals, I don't see government as either being inherently good or inherently, it can be either depending upon how carefully it is construed. I also don't see the main threat coming from either government or by large players in the market. Again the threat of coercive and predatory behaviour can come from either source. But by far the greatest threat comes when the interests of government and business are aligned and form a collusive pattern of behaviour, with finance inherently being the sector most likely to the one forming such alignments with government, for the simple reason that both government and finance stand to gain the most from such alliances.
Here's the thing. I don't know whether the failure of politicians is the result of bad thinking or bad advice from finance in this regard, but stoking the demand side of the equation, through funding affordable homes initiatives or help to buy schemes is almost diametrically opposed to a policy which helps people- for the simple reason that building new homes is a supply side issue not helped by stoking demand- when the demand side is stoked the increases which embed through scarcity costs not only create a form of guaranteed return asset speculation which makes houses more expensive, but it also inflates mortgage debt as an asset class- which in terms of housing increases price without adding value. It's great for the financiers and (on a superficial level) for government- because it makes the economy look as though its doing better than it actually us- but it just makes life harder for ordinary people because servicing the debt on their homes eats up a larger portion of their incomes.
It's not government or corporations we should worry about, but both, and alarm bells should particularly start ringing when they work together, as has been the case with American Finance and American Government for some time.
You're being stuck with the bill right now in a very different, cleverly roundabout way: a generation+ of artificially low interest rates and a flood ultra-easy credit that help bankrupt banks, corporations, and governments pretend they're not bankrupt. This is arranged by supposedly apolitical technocrats who keep yelling, "trust us."
What does that do?
Before we get to consequences, think about the role of interest rates. They're a charge for borrowing money. More deeply, they're information: they signal the correct discounting and risk for future gain and loss. When you mess with these, as happened in the 1920s, the 1970s, and since the 1990s, you end up in a fanciful dream world. Without the gold standard or direct money printing, the cost is extracted by more indirect means, like a generation or more of almost no growth, depressed investment, and a heavily financialized economy riddled with debt that diverts income for debt service and commits capital to serve as collateral for yet more borrowing. And it's up and down America's class structure.
First, artificially low interest rates rob savers of their proper due in the form of interest income -- this includes collective savings vehicles like pensions and insurance, in addition to individual savers. By making lower risk lending yield almost nothing (negative if you include inflation), some savers compensate by taking more risk on dicier investments, with greater risk of loss. Others are just left holding the bag of stagnant or shrinking incomes. Even conventional stock and real estate prices are sent through the roof, so much so that a normal income can no longer purchase long-term assets, like a college education or a home. Here is the plight of the Millennials.
Second, the "wealth gap" increases, dramatically. The inflation of asset prices largely benefits those who already own assets. In our society, that means the wealthy, yes (that's what "wealthy" means -- lots of assets) -- but what it really means is "the older," those who vote far more often and who have seniority in institutions. This becomes a self-reinforcing cycle when these beneficiary groups develop undue, disproportionate influence.
Third, productive investment is depressed, deprived of capital that is diverted instead into speculative manias, like the 1997-2000 tech bubble, the 2002-7 housing bubble, the Euro-area debt mania of the 2000s, and since 2012, the "everything bubble" in the US of ... well, everything (real estate, stocks, bonds, commodities, cryptocurrencies, all priced to madness). We have Warren Buffett admitting that his older "value" investing strategy doesn't work anymore, because there are no decently-valued assets left to be had. Instead, he looks for monopolies to invest in.
Artificially low interest rates prop up parasitic, destructive cottage industries like private equity (leveraged buyouts), and stock buybacks and supercharged dividends financed by issuing more debt. This amounts to leveraging and looting the whole capital structure by stealth.
The roots of this go back many decades, but the key turning points were the abandonment of the Bretton Woods gold standard in 1971 and the 1990s rise of Greenspan and his Federal Reserve to dominance. It reoriented the Fed away from banks and the "real" economy of goods and services, toward doing anything -- anything -- to prop up asset markets, fueling bubbles, refusing to admit their existence, then stepping in with more gasoline on the fire to "save the system," as in 1998 and 2008.
With the power to expand fiat credit indefinitely, the Fed has created a never-ending bubble that has deeply harmed most of America, benefitting only those plugged into financialized wealth in the form of inflated assets and those supported by these assets -- a rentier economy living off overpriced assets.
Excellent comment. I see it the same way and boy is it volatile. Remember the days when you could pop 10k in the bank and have 11k by the same time the following year? Caught the savers reliant on it for their pensions right out didn't it. Not to mention those that retired to Europe with favourable exchange rates, only to see the Euro gaining parity with sterling. The goalposts just keep moving whilst our efforts are based on today.
Geary, another magnificent piece, thank you - so important. The MSM could never publish it, and yet people need to know. A few thoughts stemming from working in a credit union with established immigrants: to a 1, the established immigrants worked hard and sacrificed to make a life from the one they uprooted. Many understood uprooting themselves might not benefit THEM but their children’s access to opportunity. These productive individuals formed credit unions to help finance homes for each other and newer immigrants - you dont default on your community/support network and you expect a premium rate because its that or nothing. Banks had hurdles too difficult to meet. They sweat blood and kids had paper routes, wives took in sewing or did housecleaning to make the payment. Those kids had work ethic returned in spades in terms of asset acquisition today.
Making credit union set up achievable was how governments helped new immigrants. Risk not on government. Those immigrants lament how difficult it was for them vis a vis the publicly funded support network available to todays immigrants. Tell you what, default rates are high in our new immigrant division. We have a forensic accountant and detective tasked to checking out “owned deposit” and job claims. A few try to buy property on their social benefits. Imagine if housing values stall, or correct?
I recall my own struggles with a new husband, coming from England. We did it all ourselves, and Canada wouldnt let my husband workfor 6months when we arrived. Of course he did so illegally. Another dumb policy. Hes been here since 1986 and has considerable assets, so maybe those headwinds and screenings worked to identify productive immigrants.
My brother's getting married in February to a woman from Sweden who he met online during the pandemic. Unlike so many, he submitted all of the relevant documents to the County Agency responsible for granting marriage licences with plenty of time to spare. He has repeatedly followed up by phone since, to no avail. Today he found out that they had deleted or archived the email! He immediately submitted the sent item from his folder, including a date & time receipt their end.
They still stalled! He was not a happy camper- it took over an hour of begging, pleading cajoling and asking to speak to a senior manager, threatening to follow up legally. Later in the day, the phoned him back and said in this instance they had managed to find a solution. Meanwhile, the Swedish side worked impeccably, moving Heaven and Earth to accommodate their citizens.
I'll say one thing for the Swedes- their taxes may be higher, but everything runs like clockwork. There is something weird about Anglosphere bureaucracies- by government metric their are highly competent, but by objective external standards they do seem to make a surprising number of errors. They should learn from other countries- process should always take a backseat to efficacy. I think it's legislative fixation- the hyper efficient countries always seem to disregard the legal process if they can sense their citizens are operating in good faith.
With the England connection I can imagine you are fully aware of our history of Building Societies. Of course, in some ways financial deregulation was a windfall for ordinary British customers with savings, but in others it ended an institution which was a pure social good. I imagine your Credit Unions were the same.
Your comment about Swedish bureaucracy reminded about the old joke about how in heaven the police are British, etc, etc; I guess the bureaucrats are Swedish! :-)
And the Germans are mechanics! I think it is Bertrand Russel. I used to recite it on a regular basis in pubs during my twenties. It was also useful for being cheeky a little cheeky with British Police Officers when a little tipsy- they love that shit, especially when you display a little knowledge about the Policing By Consent model.
And ps: my group of immigrants were all refugees from eastern block socialist authoritarian govs. They HATE Russia, call it the USSR. They had farms stolen and 2elderly members actually spent time in a Siberian gulag for not handing over their farm willingly. They say they recognize signs in Canada we should be concerned about, assured outcome vs earned outcome, taxes on property and overtaxation in general on the populace and other shit i cant recall.
Forewarned is forearmed, hey? There was an interesting Ai Weiwei interview recently. Here it is- PBS: https://www.youtube.com/watch?v=OjYjhxGJ-sI&t=1281s . The interviewer tries to steer the conversation todays Trump and authoritarianism, but he is having none of it- he sees a far more familiar danger in the authoritarianism of the PC- echoes of the Cultural Revolution, I imagine.
> Of course, the financial sector does deserve its own share of the blame.
One of the few things that can sum to over 100% is guilt. If one man commits murder he might hang for it, but if 10 men conspire in a murder, they might all hang for it -- there's no 'distribution' of the quilt they are all 100% guilty. Same with the above. The government might have been incompetent in not overseeing what Goldman (etc.) were up to, but that doesn't lessen Goldman's quilt. Both are 100% guilty, tho some might say the former was incompetence and the latter outright crime still I say that there is no distribution.
Ray, government actually CAUSED the problem in the first place. Bankers used to have formulae for earnings and lending limits- roughly 3.5 x the primary earners, and between 1 and 1.5 x the secondary earners. Government forced the market to break this relationship- 2008 was just the first and worst of a very long line of interventions which were fundamentally unhealthy for society as a whole.
Think about what that means for hopeful young first-time buyers, Ray. To be fair, it is a form of stimulus- it creates mortgage debt as an asset class, paying for so many of their white elephants. But it also creates a roadblock for most kids to settle down, buy a home and start a family. No wonder they are so depressed, angry and anxious- they've been well and truly shafted.
A part of me thinks that they really are that stupid- with their help to buy schemes, but demand side doesn't work with the housing market. It is a supply side problem which the government also causes- because any real limitations set on the supply side actually means that, beyond a certain point, the scarcity costs are higher than the added price from demand.
But another part of me is more cynical. They know full well the consequences of their inaction- they simply prioritise the needs for a growing nest egg of older voters to outweigh those of the desperate thirtysomethings. The worst thing is the fact that scarcity costs are higher than the increase in demand means that the truly virtuous, productive part of the economics- the value, not the price- actually gets squeezed by the process.
Fewer houses get built even though demand is higher. If any of my readers are sceptical check out annual single family construction by year.
This part of finance sector might be what Adam Smith referred to as the vile maxim, but it is the politicians as a class who cause it, not the bankers... Government is the one with the monopoly on zoning and planning permissions- and they consistently bow to whatever lobbying pressure is brought to bear, be it social, environmental, or- the most powerful of all- NIMBYism.
> government actually CAUSED the problem in the first place
I don't dispute that, I only say that it does not lessen the guilt of Goldman, et al. Well .... maybe a little, tiny bit. Wolves will be wolves, it's not something we can pass moral judgement on. But banksters are criminals and parasites and I think they know that they are and I pass judgment on them. Mind the public might be more angry at the government for being asleep at their post.
> No wonder they are so depressed, angry and anxious- they've been well and truly shafted.
Sure. Most of my anger at the current regime centers on the prospect of the young. I think we're pretty well d'accord on all that.
> Fewer houses get built even though demand is higher.
Everyone knows a free trade is a voluntary exchange in which both parties are better off than before it takes place, otherwise they'd not do it.
Everyone knows that peace and prosperity are best served in a voluntary society with people acting in their own interests as well voluntarily helping out others. The only required laws are against others being physically aggressive, threatening, stealing or defrauding.
Centrally planned force causes an opposing force among those who believe they can think for themselves; it creates animosity and hatred, destroying the very notions of tolerance and diversity. The use of force denies a moral people because you get neither credit nor blame when acting under coercive force.
People flock to the US for liberty and equality under the law, not our ghetto public schools run by the government rather than funding students, not our limited working hours, not our minimum wage, not our tariffs, not our mass incarceration, not our never-ending undeclared wars against poor people, not our drug wars, not our TSA, not our border agents searching people 100 miles from all borders, not our massive deficits, not handouts...
Everyone knows monopolies are bad. Yet they pretend to want government monopoly, a monopoly based on their ability to use force rather than good ideas that convince us to trade freely. They can see all the bad actions and crimes committed by the US and other governments, while pretending more government will fix that.
A vote is only a tiny bit of power. You get one vote, for one person who will then vote on untold numbers of issues, which makes it impossible that who you voted for will then vote on those issues as you'd have done. Furthermore, half the country or more voted for someone else and so they got nothing about what they voted for.
Compare that to the the dollar you earned and want to spend. No business can take your dollar without your consent. Every dollar you spend is a vote for that specific good you want. Smart people prefer to be free to spend their dollars as they see fit, and moral ones will certainly contribute some with like-minded people to solve problems.
I've often thought the climate activists could do a hell of a lot more for the planet if they simply lobbied Amazon to add a search by warrantee/guarantee feature. One of my bugbears is that it is often quite difficult to find manufactured goods which are both reasonably priced and longer lasting.
I still have an extensive Blue Ray collection, even if I don't watch them as often as I once did. I used to buy fairly high end Blue Ray players, only to find that they always seemed to reliably breakdown roughly three months after the warranty ran out. I switched to the cheapest models I could find that would play them.
It's not so bad with smaller items, but in the UK in my area the bin services are such that you either have to occasionally pay for a skip hire or transport your goods to a recycling sorting centre yourself.
One of the things which Covid has taught us is that people often use political parties as a proxy for exercising power over others. I feel somewhat naive for not realising the extent to which the West had small and petty-minded people waiting in the wings to display their rather ugly authoritarian streaks.
Personally, I got double vaccinated. For me, it made sense both from a health perspective and because my mother is immunocompromised- she takes methotrexate for her rheumatoid. But I defend the right of anyone else to make their own personal medical decisions, subject of course to the expert advice of their own choice of doctor.
I'm triple vaccinated now, but I'd never force another to get vaccinated against their will. People love to be in factions and split (schism) and act differently for political/social reasons. We see this in comparisons of New York and California, just as the UK did with the EU, sports teams, religions, preferences for cheap eats or gourmet artisanal foods, and I'd guess many urban and rural divides, mountain people and lowlanders, etc.
The best very well may be 0. Calls for unity are always absurd in a highly corrupt political power game based on factionalism to divvy up money they take from others to benefit themselves.
It's why libertarians have a useful philosophy of liberty/equality/tolerance/diversity/peace/choice/voluntaryism/morality, but can never gain power because it doesn't impose solutions to fix your problems, impose ways to spend other people's money, impose ways to live your life, impose government schools on you, impose group morality...
I've thought about this type of idea as well. I think in general direct democracy, rather than representative democracy, would be better- provided there were absolute Laws to prevent the tyranny of others. The other thing I think would be required would be the generation of a small highly able scientifically literate public servant class who have to pass through a stringent set of psychometric tests and ethical evaluations to show they have both the ability to tie the world of ideas to the empirical and the empathy to understand that the electorate they serve doesn't have the cognitive preferences they do- particularly in the area of ingroup.
Reading Jonathan Haidt's The Righteous Mind should a requirement- it remains one of only a few books which has heavily influenced my worldview over the past two decades.
“ Anyway, my main point is this- just as Americans are misinformed about the rest of the Anglosphere, the rest of the Anglosphere is chronically misinformed about America. The Biggest Lie is the supposed American White Nationalism of the Trump movement. What this completely overlooks is that a huge portion of the American population were desperately fed-up with their institutional politicians.”
There’s a good chunk of America institutionally misinformed on this subject too.
“ The irony is, whatever the political pundits who always get it wrong said at the time, Bernie probably would have whooped Trump’s ass in 2016.”
I actually doubt that. But it’s a counterfactual and therefore difficult to prove either way (if not impossible).
"But here’s the thing you probably don’t know that you probably should. The 2008 Global Financial Crash had American political origins . . . ."
Absolutely TRUE, yet most Americans don't realize it. Peter Wallison's book "Hidden in Plain Sight" sets forth the best explanation.
Great reading recommendation, I will have to add it to a list which only seems to grow longer by the day:)
Yes. It was during the Clinton administration, when wonderful Andrew Cuomo was HUD secretary, that the fire was lit. https://theidiosyncratist.blogspot.com/2014/10/the-government-wants-you-to-buy-house.html
So his fingerprints are not just on asserted women and nursing home deaths, but also on one of the greatest manmade peacetime disasters in American history? Figures- that's like finding out Jeremy Corbyn was a paid consultant for BP at the time of the Deepwater Horizon...
Well, yes, there's Andrew Cuomo. But the Clinton years featured a whole gallery of people who represented the new Democratic Party, fused with Wall Street (as well as the media, Hollywood, and now big tech). That includes Robert Rubin, Tim Geithner, Jack Lew, and others who solidified the alliance, who were there in the Clinton administration, went to Wall Street in the 2000s, then returned to deal with their mess (?) in 2009 under Obama. This was one reason nothing was done about Wall Street under Obama. There are just too many people in the Democratic Party who benefit.
Contrast generationally as well with the US savings and loan crisis of the early 1990s. Back then, lots of people were charged with fraud and other crimes, with about half convicted. Policies were changed when Congress recognized its errors over the previous generation in reaction to the high inflation of the 1970s. People actually took some responsibility. That's the difference between the war generation and the their Boomer children, who took over in the 1990s. In 2008-9, no one took any responsibility. Instead, a smothering system of pre-emptive regulation was imposed on the view that, while no one was actually charged with anything, everyone was potentially guilty of something, ex ante.
I lived through Clinton and W and Obama. My family progressed through the Financial Crisis, that had the chairman of the Fed puking in his trash can, with no direct harm. I don't recall even a tax increase to pay for the banks' bailout either. I assume my grandkids will be stuck with that bill.
Explaining what happened and who contributed what to create a crisis is difficult and complicated. This explanation may have been accomplished. My question is, how to explain this sort of game of elites early and in a way that makes such a game quickly recognizable in the future when it is just developing and before damage is locked in?
At one point, here in the UK there was talk of the car loans possessing the risk profile of subprime lending. Although I don't know what steps were taken, it didn't seem to materialise as a significant disruption. That's the problem- whilst institutional memory is fresh, they are able to divert disaster before it manifests, but given it a few changes in senior leadership- both publicly and privately, and they will forget their institutionally inherited wisdom.
It's arrogance, hubris- the mistaken belief that they are too smart to get caught in the same trap as their predecessors. They should really familiarise themselves more with the engineering concept of probability and impact, and develop a certain healthy operational paranoia. If it can happen, it will happen.
That's the problem with the intellectually gifted- if the pandemic taught us anything, it gave graphic examples of leaders and experts who obviously believed their 'superior' intelligence gave them the ability not only to manage their own risk, but also the superpower of being to see all possible eventualities when they were skirting or outright breaking their own rules. Rules for thee, but not for me...
Mind you, I can't talk. When I was younger I was a real smart aleck, especially when I was in my cups. Although my landlord loved me dearly, he affectionately used to refer to me as 'the most intelligent idiot in the village'. He also said I was exactly like him- I just did it too often. My father said the same thing. I don't think I've ever had a nicer compliment in my life- I deeply admired both of them.
There is a sense, with each passing generation, that the larger than life shrinks.
GJ, that's (shrinking of the larger than life) your age speaking (echoing mine of course). As with all socio-economic disasters, 2008 can be traced back to, at least, the Great Deregulation of the Reagan-Thatcher years. That reaction against the sensible constraints on financial geniuses learned during the 1930s allowed the massive financialisation of the US & western World economies, without which the supreme improvisational genius of CDOs would have been impossible.
Of course, I don't disagree with you take. Financialisation of the British mainland economy in the late nineteenth century was one of the root causes of the decline of the British Empire and the same is true in the American sense. By WWII the industrial capacity of Britain had shrunk to one fifth that of Germany's and in the modern context America is not faring that much better, with Germany outproducing it by a factor of four.
But the 1992 Housing and Community Development Act with its provisions for affordable housing- rapidly expanding beyond all reason and prudence as time progressed, was a major contributory cause of 2008, because it built up a huge endemically bad lending book for those with low incomes and no feasible means of repaying with the public/private hybrids of Fannie Mae and Freddie Mac taking on huge levels awful landing.
It was a flawed strategy from the outset. For a start there is a great deal of difference between housing affordability and affordable homes, in that one only encourages the more realistic type by massively increasing the availability of building land for development, changing zoning laws to increase the provision of duplexes and the like and otherwise significantly reducing both the regulatory and legal costs of of building new homes. One great way of accomplishing this task is by simultaneously introducing both a planning uplift tax and reducing the amount of money local government can extract through property taxes- because this forces local bureaucracies to rely upon the rubber stamping of new homes as a revenue stream instead of the rent-seeking government which is currently more normal in America.
At the same time, if one really wants to provide affordable housing to low income workers then the answer is public housing, with the proviso that one would need to restore the ability of tenants associations and local government the ability to evict anyone causing hassle or disrupting the lives of other tenants. The best means of doing this would be by legislative fiat to designed to overrule and replace previous decisions by tort. There are plenty of examples of great public housing- one of the best is the Peabody estates in London. The only real problem is no one ever wants to leave these developments to buy their own homes, for the simple reason that both the housing and the community a more selective model of public housing offers is superior to anything the private sector has to offer, especially in terms of costs.
As a heterodox, and unlike either conservatives or liberals, I don't see government as either being inherently good or inherently, it can be either depending upon how carefully it is construed. I also don't see the main threat coming from either government or by large players in the market. Again the threat of coercive and predatory behaviour can come from either source. But by far the greatest threat comes when the interests of government and business are aligned and form a collusive pattern of behaviour, with finance inherently being the sector most likely to the one forming such alignments with government, for the simple reason that both government and finance stand to gain the most from such alliances.
Here's the thing. I don't know whether the failure of politicians is the result of bad thinking or bad advice from finance in this regard, but stoking the demand side of the equation, through funding affordable homes initiatives or help to buy schemes is almost diametrically opposed to a policy which helps people- for the simple reason that building new homes is a supply side issue not helped by stoking demand- when the demand side is stoked the increases which embed through scarcity costs not only create a form of guaranteed return asset speculation which makes houses more expensive, but it also inflates mortgage debt as an asset class- which in terms of housing increases price without adding value. It's great for the financiers and (on a superficial level) for government- because it makes the economy look as though its doing better than it actually us- but it just makes life harder for ordinary people because servicing the debt on their homes eats up a larger portion of their incomes.
It's not government or corporations we should worry about, but both, and alarm bells should particularly start ringing when they work together, as has been the case with American Finance and American Government for some time.
No argument from me, GJ. Thanks for your reply.
You're being stuck with the bill right now in a very different, cleverly roundabout way: a generation+ of artificially low interest rates and a flood ultra-easy credit that help bankrupt banks, corporations, and governments pretend they're not bankrupt. This is arranged by supposedly apolitical technocrats who keep yelling, "trust us."
What does that do?
Before we get to consequences, think about the role of interest rates. They're a charge for borrowing money. More deeply, they're information: they signal the correct discounting and risk for future gain and loss. When you mess with these, as happened in the 1920s, the 1970s, and since the 1990s, you end up in a fanciful dream world. Without the gold standard or direct money printing, the cost is extracted by more indirect means, like a generation or more of almost no growth, depressed investment, and a heavily financialized economy riddled with debt that diverts income for debt service and commits capital to serve as collateral for yet more borrowing. And it's up and down America's class structure.
First, artificially low interest rates rob savers of their proper due in the form of interest income -- this includes collective savings vehicles like pensions and insurance, in addition to individual savers. By making lower risk lending yield almost nothing (negative if you include inflation), some savers compensate by taking more risk on dicier investments, with greater risk of loss. Others are just left holding the bag of stagnant or shrinking incomes. Even conventional stock and real estate prices are sent through the roof, so much so that a normal income can no longer purchase long-term assets, like a college education or a home. Here is the plight of the Millennials.
Second, the "wealth gap" increases, dramatically. The inflation of asset prices largely benefits those who already own assets. In our society, that means the wealthy, yes (that's what "wealthy" means -- lots of assets) -- but what it really means is "the older," those who vote far more often and who have seniority in institutions. This becomes a self-reinforcing cycle when these beneficiary groups develop undue, disproportionate influence.
Third, productive investment is depressed, deprived of capital that is diverted instead into speculative manias, like the 1997-2000 tech bubble, the 2002-7 housing bubble, the Euro-area debt mania of the 2000s, and since 2012, the "everything bubble" in the US of ... well, everything (real estate, stocks, bonds, commodities, cryptocurrencies, all priced to madness). We have Warren Buffett admitting that his older "value" investing strategy doesn't work anymore, because there are no decently-valued assets left to be had. Instead, he looks for monopolies to invest in.
Artificially low interest rates prop up parasitic, destructive cottage industries like private equity (leveraged buyouts), and stock buybacks and supercharged dividends financed by issuing more debt. This amounts to leveraging and looting the whole capital structure by stealth.
The roots of this go back many decades, but the key turning points were the abandonment of the Bretton Woods gold standard in 1971 and the 1990s rise of Greenspan and his Federal Reserve to dominance. It reoriented the Fed away from banks and the "real" economy of goods and services, toward doing anything -- anything -- to prop up asset markets, fueling bubbles, refusing to admit their existence, then stepping in with more gasoline on the fire to "save the system," as in 1998 and 2008.
With the power to expand fiat credit indefinitely, the Fed has created a never-ending bubble that has deeply harmed most of America, benefitting only those plugged into financialized wealth in the form of inflated assets and those supported by these assets -- a rentier economy living off overpriced assets.
Excellent comment. I see it the same way and boy is it volatile. Remember the days when you could pop 10k in the bank and have 11k by the same time the following year? Caught the savers reliant on it for their pensions right out didn't it. Not to mention those that retired to Europe with favourable exchange rates, only to see the Euro gaining parity with sterling. The goalposts just keep moving whilst our efforts are based on today.
Geary, another magnificent piece, thank you - so important. The MSM could never publish it, and yet people need to know. A few thoughts stemming from working in a credit union with established immigrants: to a 1, the established immigrants worked hard and sacrificed to make a life from the one they uprooted. Many understood uprooting themselves might not benefit THEM but their children’s access to opportunity. These productive individuals formed credit unions to help finance homes for each other and newer immigrants - you dont default on your community/support network and you expect a premium rate because its that or nothing. Banks had hurdles too difficult to meet. They sweat blood and kids had paper routes, wives took in sewing or did housecleaning to make the payment. Those kids had work ethic returned in spades in terms of asset acquisition today.
Making credit union set up achievable was how governments helped new immigrants. Risk not on government. Those immigrants lament how difficult it was for them vis a vis the publicly funded support network available to todays immigrants. Tell you what, default rates are high in our new immigrant division. We have a forensic accountant and detective tasked to checking out “owned deposit” and job claims. A few try to buy property on their social benefits. Imagine if housing values stall, or correct?
I recall my own struggles with a new husband, coming from England. We did it all ourselves, and Canada wouldnt let my husband workfor 6months when we arrived. Of course he did so illegally. Another dumb policy. Hes been here since 1986 and has considerable assets, so maybe those headwinds and screenings worked to identify productive immigrants.
My brother's getting married in February to a woman from Sweden who he met online during the pandemic. Unlike so many, he submitted all of the relevant documents to the County Agency responsible for granting marriage licences with plenty of time to spare. He has repeatedly followed up by phone since, to no avail. Today he found out that they had deleted or archived the email! He immediately submitted the sent item from his folder, including a date & time receipt their end.
They still stalled! He was not a happy camper- it took over an hour of begging, pleading cajoling and asking to speak to a senior manager, threatening to follow up legally. Later in the day, the phoned him back and said in this instance they had managed to find a solution. Meanwhile, the Swedish side worked impeccably, moving Heaven and Earth to accommodate their citizens.
I'll say one thing for the Swedes- their taxes may be higher, but everything runs like clockwork. There is something weird about Anglosphere bureaucracies- by government metric their are highly competent, but by objective external standards they do seem to make a surprising number of errors. They should learn from other countries- process should always take a backseat to efficacy. I think it's legislative fixation- the hyper efficient countries always seem to disregard the legal process if they can sense their citizens are operating in good faith.
With the England connection I can imagine you are fully aware of our history of Building Societies. Of course, in some ways financial deregulation was a windfall for ordinary British customers with savings, but in others it ended an institution which was a pure social good. I imagine your Credit Unions were the same.
Your comment about Swedish bureaucracy reminded about the old joke about how in heaven the police are British, etc, etc; I guess the bureaucrats are Swedish! :-)
Noel
And the Germans are mechanics! I think it is Bertrand Russel. I used to recite it on a regular basis in pubs during my twenties. It was also useful for being cheeky a little cheeky with British Police Officers when a little tipsy- they love that shit, especially when you display a little knowledge about the Policing By Consent model.
And ps: my group of immigrants were all refugees from eastern block socialist authoritarian govs. They HATE Russia, call it the USSR. They had farms stolen and 2elderly members actually spent time in a Siberian gulag for not handing over their farm willingly. They say they recognize signs in Canada we should be concerned about, assured outcome vs earned outcome, taxes on property and overtaxation in general on the populace and other shit i cant recall.
Forewarned is forearmed, hey? There was an interesting Ai Weiwei interview recently. Here it is- PBS: https://www.youtube.com/watch?v=OjYjhxGJ-sI&t=1281s . The interviewer tries to steer the conversation todays Trump and authoritarianism, but he is having none of it- he sees a far more familiar danger in the authoritarianism of the PC- echoes of the Cultural Revolution, I imagine.
> Of course, the financial sector does deserve its own share of the blame.
One of the few things that can sum to over 100% is guilt. If one man commits murder he might hang for it, but if 10 men conspire in a murder, they might all hang for it -- there's no 'distribution' of the quilt they are all 100% guilty. Same with the above. The government might have been incompetent in not overseeing what Goldman (etc.) were up to, but that doesn't lessen Goldman's quilt. Both are 100% guilty, tho some might say the former was incompetence and the latter outright crime still I say that there is no distribution.
Ray, government actually CAUSED the problem in the first place. Bankers used to have formulae for earnings and lending limits- roughly 3.5 x the primary earners, and between 1 and 1.5 x the secondary earners. Government forced the market to break this relationship- 2008 was just the first and worst of a very long line of interventions which were fundamentally unhealthy for society as a whole.
Think about what that means for hopeful young first-time buyers, Ray. To be fair, it is a form of stimulus- it creates mortgage debt as an asset class, paying for so many of their white elephants. But it also creates a roadblock for most kids to settle down, buy a home and start a family. No wonder they are so depressed, angry and anxious- they've been well and truly shafted.
A part of me thinks that they really are that stupid- with their help to buy schemes, but demand side doesn't work with the housing market. It is a supply side problem which the government also causes- because any real limitations set on the supply side actually means that, beyond a certain point, the scarcity costs are higher than the added price from demand.
But another part of me is more cynical. They know full well the consequences of their inaction- they simply prioritise the needs for a growing nest egg of older voters to outweigh those of the desperate thirtysomethings. The worst thing is the fact that scarcity costs are higher than the increase in demand means that the truly virtuous, productive part of the economics- the value, not the price- actually gets squeezed by the process.
Fewer houses get built even though demand is higher. If any of my readers are sceptical check out annual single family construction by year.
This part of finance sector might be what Adam Smith referred to as the vile maxim, but it is the politicians as a class who cause it, not the bankers... Government is the one with the monopoly on zoning and planning permissions- and they consistently bow to whatever lobbying pressure is brought to bear, be it social, environmental, or- the most powerful of all- NIMBYism.
> government actually CAUSED the problem in the first place
I don't dispute that, I only say that it does not lessen the guilt of Goldman, et al. Well .... maybe a little, tiny bit. Wolves will be wolves, it's not something we can pass moral judgement on. But banksters are criminals and parasites and I think they know that they are and I pass judgment on them. Mind the public might be more angry at the government for being asleep at their post.
> No wonder they are so depressed, angry and anxious- they've been well and truly shafted.
Sure. Most of my anger at the current regime centers on the prospect of the young. I think we're pretty well d'accord on all that.
> Fewer houses get built even though demand is higher.
There's an insight. As always you make me think.
Everyone knows power corrupts.
Everyone knows a free trade is a voluntary exchange in which both parties are better off than before it takes place, otherwise they'd not do it.
Everyone knows that peace and prosperity are best served in a voluntary society with people acting in their own interests as well voluntarily helping out others. The only required laws are against others being physically aggressive, threatening, stealing or defrauding.
Centrally planned force causes an opposing force among those who believe they can think for themselves; it creates animosity and hatred, destroying the very notions of tolerance and diversity. The use of force denies a moral people because you get neither credit nor blame when acting under coercive force.
People flock to the US for liberty and equality under the law, not our ghetto public schools run by the government rather than funding students, not our limited working hours, not our minimum wage, not our tariffs, not our mass incarceration, not our never-ending undeclared wars against poor people, not our drug wars, not our TSA, not our border agents searching people 100 miles from all borders, not our massive deficits, not handouts...
Everyone knows monopolies are bad. Yet they pretend to want government monopoly, a monopoly based on their ability to use force rather than good ideas that convince us to trade freely. They can see all the bad actions and crimes committed by the US and other governments, while pretending more government will fix that.
A vote is only a tiny bit of power. You get one vote, for one person who will then vote on untold numbers of issues, which makes it impossible that who you voted for will then vote on those issues as you'd have done. Furthermore, half the country or more voted for someone else and so they got nothing about what they voted for.
Compare that to the the dollar you earned and want to spend. No business can take your dollar without your consent. Every dollar you spend is a vote for that specific good you want. Smart people prefer to be free to spend their dollars as they see fit, and moral ones will certainly contribute some with like-minded people to solve problems.
I've often thought the climate activists could do a hell of a lot more for the planet if they simply lobbied Amazon to add a search by warrantee/guarantee feature. One of my bugbears is that it is often quite difficult to find manufactured goods which are both reasonably priced and longer lasting.
I still have an extensive Blue Ray collection, even if I don't watch them as often as I once did. I used to buy fairly high end Blue Ray players, only to find that they always seemed to reliably breakdown roughly three months after the warranty ran out. I switched to the cheapest models I could find that would play them.
It's not so bad with smaller items, but in the UK in my area the bin services are such that you either have to occasionally pay for a skip hire or transport your goods to a recycling sorting centre yourself.
One of the things which Covid has taught us is that people often use political parties as a proxy for exercising power over others. I feel somewhat naive for not realising the extent to which the West had small and petty-minded people waiting in the wings to display their rather ugly authoritarian streaks.
Personally, I got double vaccinated. For me, it made sense both from a health perspective and because my mother is immunocompromised- she takes methotrexate for her rheumatoid. But I defend the right of anyone else to make their own personal medical decisions, subject of course to the expert advice of their own choice of doctor.
I'm triple vaccinated now, but I'd never force another to get vaccinated against their will. People love to be in factions and split (schism) and act differently for political/social reasons. We see this in comparisons of New York and California, just as the UK did with the EU, sports teams, religions, preferences for cheap eats or gourmet artisanal foods, and I'd guess many urban and rural divides, mountain people and lowlanders, etc.
The worst number of political parties is one, closely followed by two...
The best very well may be 0. Calls for unity are always absurd in a highly corrupt political power game based on factionalism to divvy up money they take from others to benefit themselves.
It's why libertarians have a useful philosophy of liberty/equality/tolerance/diversity/peace/choice/voluntaryism/morality, but can never gain power because it doesn't impose solutions to fix your problems, impose ways to spend other people's money, impose ways to live your life, impose government schools on you, impose group morality...
I've thought about this type of idea as well. I think in general direct democracy, rather than representative democracy, would be better- provided there were absolute Laws to prevent the tyranny of others. The other thing I think would be required would be the generation of a small highly able scientifically literate public servant class who have to pass through a stringent set of psychometric tests and ethical evaluations to show they have both the ability to tie the world of ideas to the empirical and the empathy to understand that the electorate they serve doesn't have the cognitive preferences they do- particularly in the area of ingroup.
Reading Jonathan Haidt's The Righteous Mind should a requirement- it remains one of only a few books which has heavily influenced my worldview over the past two decades.
“ Anyway, my main point is this- just as Americans are misinformed about the rest of the Anglosphere, the rest of the Anglosphere is chronically misinformed about America. The Biggest Lie is the supposed American White Nationalism of the Trump movement. What this completely overlooks is that a huge portion of the American population were desperately fed-up with their institutional politicians.”
There’s a good chunk of America institutionally misinformed on this subject too.
“ The irony is, whatever the political pundits who always get it wrong said at the time, Bernie probably would have whooped Trump’s ass in 2016.”
I actually doubt that. But it’s a counterfactual and therefore difficult to prove either way (if not impossible).