Time BombThe only nation that can destroy America is America, and never let it be said Americans don’t have a can-do attitude.

I read this article by my old co-blogger Barry Ritholz and I laughed, and laughed and damn near cried:

There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God’s sake, do not give us the worst of both worlds — do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.

That’s not capitalism, its not socialism, its not regulation, and its sure as hell isn’t what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

We have entered into a fit of Orwellian madness: The American Capitalists, long the globe’s leading advocates for free markets, have become near Socialists.

I don’t think it’s too hard to explain. Ideology is part of it, but the folks from the Chicago school were always the useful idiots of the movement, so caught up in the beauty of their pretty models and meaningless numbers that they never noticed that the models didn’t correspond to the real world in any meaningful way. Rather what happened was simple enough—there was a lot of money to be made by getting rid of regulation of financial institutions, privatizing government operations, offshoring production and engaging in various highly leveraged financial games with no oversight.


So the money spigots were turned on, the politicians were bought, and the rules were changed. This was possible simply because the people who lived through the Great Depression were mostly gone, so the folks who knew why the rules were there and understood that they were meant to stop a repeat, couldn’t stop their repeal. Since almost no one learns from anything other than swift kick to the nads, and since politicians are required to be greedy in order to be successful in the US, gravity took its course. Crony capitalism, where profits are privatized, losses are socialized and rules are made to go away if they interfere with the bottom line and are created if they help it, took over the US.

What was hilarious about it was all the lecturing of every other country about transparency when even back in the 90s it was widely known by those who cared to know that corporations were cooking the books on a large scale (about 10% more profits were reported in the 80s than the economy could support, about 20% more in the 90s). And that’s before we get to the government cooking the books on statistics like inflation.

So Barry’s absolutely right when he notes:

Books will be written about this period of time, and our descendants will wonder in awe as to how this was allowed to happen. Tulips got nothing on us! Its not just the total dollar value of the losses that have exceeded all other global fits of financial madness combined, but rather, how so many warning signs were so blithely ignored by so many and for so long. What was wrong with these people, the authors and historians will wonder. Did the antibiotics in the food supply drive them mad? Did the High Fructose Corn Syrup compromise their ability to think? Some form of viral plague? Roid rage? What else could have created such a mass delusion amongst not just the populace, but their leadership and institutions?

Of course, it won’t just be about a financial disaster, it will be about the loss of huge amounts of land to global warming, the food crisis we are unleashing, the lack of drinkable water, the hundreds of millions (conservative estimate) of deaths caused by environmental changes. But it’ll all start with our own financial meltdown, larger than any other financial clusterfuck in history.

There are two ways to become really really famous, they say. You can do something really really amazing. Or you can really, really fuck up. I guess we chose #2. Easier.

As Barry points out, what makes this so surreal is the bullshit that is flying around:

Indy Mac goes belly up, having lost $900 million this year alone. Its shares fell 87% in 2007 and then its value dropped (on top of last year’s collapse) another 95% this year-to-date. The stock fell to 28 cents yesterday. Some estimates of the total bad loans made by this somewhere in the neighborhood of $30 billion dollars — and the Office of Thrift Supervision blames a senator who is investigating how much of the FDIC’s $53 Billion this is going to eat up, with Wall Street estimates ranging from 15% to 30%. The towering incompetence of OTS is incomprehendable, but it is their colossal gall that is truly stupefying.

This is "Heckuva Job" level competence at the OTS, in other words. But it’s all "heckuva job" level competence. Virtually everyone in the entire regulatory and political system has been complicit at best and actively malign at worst. The best of the worst were the Chicago School fools, the neo-liberals and the Washington Consensus killers (and I do mean killers, look at how many people died in Russia due to their ideologically driven ineptitude). At least they believed they were doing the right thing. The worst were the men and women who cycled between regulatory bodies and industry, reaping huge salaries and bonuses which will make them rich for life; men and women with no real moral compass or purpose beyond the pursuit of money and power and to hell with anyone who gets hurt in the process.

They did great by all of this. At worst they’re multi-millionares. Millions of Americans will lose their houses and live on the street. Thousands, tens of thousands will die because of this. We’re looking at the real possibility of a Great Depression and a huge decline in real living standards for the population, something not seen in the US in almost 70 years. But people like Greenspan whose ideologically driven malign incompetence and refusal to do their fucking jobs properly created this problem will be just fine.

So, to recap. What’s happening was completely predictable, because it was predicted. It was caused by greed and ideological driven dismantling of the regulatory framework set up by the New Deal, and the solid refusal by those whose job it was to run the regulatory system to do so even when it was their duty. It was aided and abetted by a money feedback loop between legally corrupt legislators and those who wanted to no longer be regulated and it was allowed by a population who had grown fat and happy and forgotten the lessons of the Great Depression.

Welcome to the new America. Made in America. By Americans. And high fructose corn syrup.

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  3. Putting America Back to Work: What a Principled Government Would Do
  4. Kickoff to Financial Regulatory Reform
  5. Superfusion: How China and America Became One Economy