Reckless: How Debt, Deregulation, and Dark Money Nearly Bankrupted America (And How We Can Fix It) (2010), Senator Byron L. Dorgan, St. Martin’s Press; East of Eden (1955), a film by Elia Kazan; Crash Proof (2010), Peter D. Schiff, John Wiley & Sons; “Historic Overhaul of Finance Rules,” The Wall Street Journal, June 18, 2009; “A Conversation with Peter G. Peterson,” Charlie Rose, July 3, 2009; “The World Finance Crisis & The American Mission,” Robert Skidelsky, The New York Review of Books,” edition dated July 16, 2009; “The Dollar’s New Best Friend,” Gordon G. Chang, The Weekly Standard, June 29/July 6, 2009. Various from CNBC, The New York Times, The Wall Street Journal, The Atlantic.
Opinion.
In the Beginning, just before Economic Human, there was Homo sapiens.
I guess Hollywood’s a suitable dramatist of the early emergence of Economic Human. After all, myth/metaphor, including movie versions, is the angel of summaries. So: One evening last week I watched Elia Kazan’s 1955 film version of East of Eden, Steinbeck’s Update of The Beginning.
Excepting his stage drama/novella Of Mice and Men, Steinbeck for me hasn’t stood the test of time. The elephantine East of Eden is a slow, ponderous trudge along a roundabout route through a pointless modernization of Genesis, i.e., Adam, Eve, Cain and Abel outcast now in the timeless great land from Salinas to Monterey, a novelistic sprawl which despite that unrivaled landscape leads to a plain dull, not historically revelatory (and hence excusable), confusion about Who is Homo sapiens?, a damning failure for any ambitious man or woman of letters. But riding to the rescue, movie man Kazan, embittered then by the HUAC disaster, makes an almost wearily cynically lyrical re-rendering which makes East of Eden at least useful as the foundation for an up-to-date cinematic spin-off–In the beginning there was the Merde–by doing taxidermy only on the hind quarters of Steinbeck’s frozen-dully mammoth.
The Word from Kazan: There wasn’t an Eden because there wasn’t a Fall. Here, my viewers, he proclaims, is my explanatory redo to you from Warner Brothers, a modern update more Genetics than Genesis and lifted from evolutionary biology; anthropology; history; and many realistic plays, poems, novels, stories, paintings and symphonies. Steinbeck’s Adam Trask and his favored son, Aron, are boring innocents–unEarthly idealists–wondering unaware in a jungle of hidden, apparition-like predators. And so not surprisingly Kazan’s secret and true movie within his Hollywood Compromise is taken over by watchful and wary Kate (Eve) and Caleb (Cain) who, like us as well as Milton’s dramatic devils, are defiant; cynical; seductive; enterprising; clever; determined; stubborn; innovative; improvisational; tough; capable of love and betrayal; only somewhat trustworthy; and, sometimes at least, looking at any cost–emphasize cost–for a moated refuge under an eternal Southern sun.
In short, Kate and Caleb are engrossing. So: if with helpless self-delusion, this exiled vital mother and son, driven-out survivalist-Easterners, are in Kazan’s take looking for Indefinite Happy Security: put just as briefly but more essentially, The Mythical Garden itself. Worldly, wealthy, knowing Kate (a side of the archetypal unfathomable Eve played unforgettably by Jo Van Fleet who took an Oscar for it [re “unfathomable,” recall Freud, famous from trying to fathom his female patients, near The End exasperatedly, famously, asking, “What do women want?”], yes, Van Fleet’s side of Eve most different from that Ms. B. Stanwyck plays sublimely in Sturges’s The Lady Eve) lives in a mansion across the way from her prospering showboat-sized brothel and dresses to the serpentine nines cloaked in raven-black and fox-brown long dresses, her accessories shoulder draped circular Escher-like back-biting mink stoles and high-fashion designer hats with devil-horned dagger’d hawk plumes. Kazan offers just before “The End” a purely sentimental Steinbeckian denouement in which Caleb seeks the love of Adam, but it is silly and unrealistic, a concession to the sniffling audience. The earlier scene in which Kate promenades beside Caleb along a dirt path in old Monterey and looks up at him with shrewd approval as her long-lost son come to find her to learn her side of him is perhaps the high point of femdom filmdom. Kate alone is much of the truth of Kazan’s callously compromised retelling.
She’s also Economic Human, a big-time investor in commodities futures. She’ll do well as a reminder of the stock from whence cometh that human.
This Mythical Mother Of Us All lets Caleb-Cain AKA James Dean, her favorite son, he in league with a canny and experienced banker (whom Kate knows most basically in his undisguised and unmasked self along with most of the local old boy pols and Rotary members and who, in her honest madam’s appraisal, is a good businessman and whose bank she uses) broker a sizable stash of her lurid cash into bean futures in 1917, contracting with many happy (and dumb?) farmers to plant beans for a price far below what Great Britain then proves willing to pay to feed that Desperate Isle’s Lost Youth in the tragic trenches of the Great War.
It is as motherly as she–this Kate, a fierce cunning feline, to say the least–could be to her troubled, searching son, Caleb, young but looking to be leonine, he asking above all, Who am I? Kate, like most any mother, funds his learning. But here it’s almost strictly business: The business of business. More than “tough love.”
So what about at least a sequel to Kazan’s close-to-100-year-old and very honest secular Scriptural economic update (it having been almost a century since his update set in 1917)? But there’s cold mystery in Old History, i.e., only twelve years beyond 1917 befalls the Great Depression and we know all about its long-gone wrath. Moreover, now we’re past other well-documented greater wars and dismal economies to find ourselves in the Great Global Recession in the twenty-first century. A modern scriptural update’s surely timely as well as wise, for as the very first imperative, we mustn’t forget, like we almost always disastrously do when we dramatize Economic Human, who we are and where we come from.
For such a sequel on things economic, we must board the Economy History Train at some arbitrary modern point, certainly beyond the well-documented Great Depression post mortems and those of the economic epidemics before and since, even the desperately crucial one which did in the Weimar Republic, and, mournfully mindful of our dismal record of ignoring the lessons of our past, enter the train at our present stirred-up and murky recession.
We’ll have to piece together an updated scripture for the Present. Naturally there seems in our early thrashing-about to grasp our present economic woes only a precious small committee of honest and revealing scriptwriters, voices barely audible in the windy blizzard of the usual Great Denial.
Dorgan establishes in Reckless the best-yet chronology of disastrous and corrupt events. He needs help, though, on global macroeconomics, so we’ll have Schiff, Skidelsky, Peterson and Chang help with that grand context.
I think you can easily sense the atmospherics of the following:
1. Late 1990s through 2008. On center stage are Greenspan and Bernanke and their cheap-money Fed policies. In a painful understatement, it’s necessary to see the Fed policies in the larger world, especially US-China. China is buying US debt on an enormous scale, hoarding dollars (among other reasons to prevent for now that country becoming a huge consumer culture), keeping its currency artificially low against the faltering dollar, becoming an overtime massively laborious exporter galore, and all this surely in part for internal political-control reasons as well as to avoid a repeat of the painful diminishing not so long ago of its own currency. The Chinese power elite likes this dynamic for now, though just this moment it is threatened because global macroeconomics is changing in the Recession. Meanwhile, in our unsustainable duet with China over roughly the last decade, most of the US financial/political elite has oh-so-quietly liked things just fine the way they are, because they’ve made a lot of money. Meanwhile, our rampant consumer culture has grown–import, import, import goods and export, export, export jobs and borrow, borrow, borrow money and don’t produce. And the reaction of much of the National leadership? Sh-h-h, lets make obscene amounts of money. Here, then, are varieties of Romanticism in the US Kate’d understand: Safety In Your Own Versailles; Globalism Grandstanding; Now I Can Join This Country Club. And so forth.
Enter now Senator Dorgan and his chronology of the hugely important developments stateside (mainly) in our serious attempt at Economic Suicide (only some of which I’ll summarize both to spare you a lot of detail and yet hopefully give you a sense of what he is doing in writing his book):
2. Late 1990s. US Court of Appeals invalidates Clinton’s committee to conduct oversight of hedge funds in the aftermath of the prodigious failure of the Long-Term Capital Management fund (Google, if need be–it’s worth it; ditto anything else you need more on in this shabby summary of mine). Now hedge funds neither must register with the SEC nor submit to many regulations.
3. 1999. The Financial Services Modernization Act (FSMA). Last, hurried days of the Clinton Administration and of Senate and House sessions on Capital Hill. Passes 90-8 in the Senate, Dorgan among the 8. Main Capitol Hill pushers: Senator Phil Gramm and Congressmen Tom Bliley and Jim Leach. Repeals the Glass-Steagall Act, a 70-year-old postdepression safeguard whose removal allows the assembling of behemoth financial firms through consolidation and thereby sets the stage for–not yet broadly permits–considerable risky debt accumulation and the Last Hurrah of sensible risk management. Main outcome: Banks can become more than banks. “Diversify.” Take deposits and speculate (increasingly with consumers’ money in addition to corporate money), all under the same roof. (Think of the advent of Countrywide and imagine how Mozilo engineered an end-to-end subprime rip-off by creating massive origination of dubious mortgages [over 60% of ARMs were solicited by lenders] and selling them to Wall Street which greatly profitably passed them on in “securitizations” to dummies such as provincial German banks and thereby clearing the toxic assets off the books of the Wall Street banks so as to be able to repeat the cycle, with those banks in turn also becoming greedy enough to keep toxic securities on their own books as avarice overcame prudent risk assessment, hence contributing to the creation of a gigantic, insatiable, shuddering and groaning money machine to include the explosion in insane CDSs, and then think back to FSMA. Dorgan’s account of the Countrywide rip-off is one of the best parts of his post mortem.)
4. 1999. Gramm quietly inserts into the FSMA before passage an action loosening the regulatory power of the Commodity Futures Trading Commission (CFTC), a 206-page addition not surprisingly noticed by only a few on Capital Hill. (As we all know, they pass stuff there they haven’t read; see Mark Twain, for example.) When later massive speculation in commodities futures occurs, think back to this CFTC insert.
5. 2000. Election of George W. Bush and his ensuing eight years of a determined policy of “less government regulation.” Recall Bob Woodward’s comment late in that “Administration”: Bush wasn’t in command of the facts. I think clearly that meant ALL the facts, foreign and domestic. You have to believe the Economy was front and center here. Put elsewise: you can change “It’s the Economy, stupid” to “It’s the Financial Sector, stupid.” (Google doesn’t yet respond to “President Paulson.” Some future histories of our times, though, might change that.)
6. 2000-08. Lax (“business-friendly”) regulation by regulators in various agencies and offices, supported at crucial points by Capitol Hill. Dismaying volumes here.
7. 2004. Henry Paulson (one-time CEO of Goldman Sachs and future Bush Treasury Secretary) leads his investment firm and four other investment banks successfully to petition the SEC to weaken the “Net Capital Requirement” by increasing the amount of leverage-to-equity mandated for the ever-larger investment banks from 15-1 to 44-1. The decisive meeting is in the SEC basement. One newspaper covers the meeting.
These and other events of deregulation, especially Item 3, are crucial as stage-setters for the manic, systemically interleaved, massive and massively risky leveraging in the financial sector leading to the Great Recession. The other shoe dropping. Now behemoth financial companies (“end-to-end institutions” AKA “one-stop-shopping financial companies”) facilitated by Item 3 can gamble with the money of many more people and at much greater peril in which “greed” overcomes “fear.” Of course, these financial companies, having succeeded in corrupting the ratings agencies such as Moody’s to disastrously grant triple- and double-A ratings to subprime “securitizations” and other “innovative” virtually-unfathomable-to-all-but-insiders securitization instruments built flimsily on bad mortgages, now succeed in getting enormous amounts of money from the large dollar pools of institutional investors–pension funds, university endowments, etc.
8. Mid 2000s. The SEC, apparently on its own and quietly, voluntarily deregulates itself further to allow “over the counter” commodity futures trading on unregulated foreign exchanges, most notably the International Commodities Exchange (ICE) in London. In short, the SEC willingly permits this trading to become invisible to it as well as beyond its purview. And it does so just as Greenspan/Bernanke struggle to make sure one punctured bubble can be succeeded by another–no matter the piper must eventually be paid–so that dot com birthed Long Term Capital Management birthed subprime birthed the massive speculative run-up in commodities, most notably crude, and then…here we are.
I’ll stop the chronology here. My summary is flimsy, and looking into this dismal stuff is just that, dismal. However, here are some speculative metrics. It appears to have taken about 9-10 years to get ourselves into this particular terrible mess with soaring national debt and a most painful economic cultural change needed, especially vis a vis China, i.e., we must somehow become savers and producers again. Put another way: We’re a nation of 300 million-plus and my own amateur assessment is that somewhere on the order of 2,000 to 10,000 US citizens–CEOs of financial institutions and hedge fund managers to royals of financial engineering, cadres of Pavlovian traders and ignorant/ideological/begging pols–largely did us in, not to overlook that many in the general population went on a shaky secondary-mortgage-fueled consumption binge to live beyond their means. At the same time, reports emerged with the identities and banking details of thousands of Americans with illegal bank deposits abroad they set-up for tax avoidance, data now being sought by the IRS from the Swiss and, I think, from other countries. Then you have to look at the Financial Sector. I include there house economists, academic and operational, and the Financial Sector worker spectrum of Cayne to Cioffi. Then there are the pols (see Dorgan’s chronology, especially the 90-8 vote). Then there are those in charge of huge pools of money, e.g., pension funds, who hired renowned-to-insiders hedge-fund types and were happy about the Quarterly Briefing Charts, notably those with fat ROI numbers; and who were likely ignoring the insane leverage ratios of the investment firms and feeling anything but guilty that trusting institutional investors were often being sold a disproportionate amount of illiquid assets as well as “toxic” ones. Then we come to the media–most of them are owned by mega corporations with, as they say, “interests”–and are not inclined to “blow the whistle” here and court trouble both because of extensive reports from focus groups and program ratings services about their audience’s grave ignorance together with various “political considerations” about their sponsors’ druthers and the care and feeding of influential pols–in short, the media is endemically cynical about the attention spans of its audience looking for tabloid entertainment far, far more than for investigative journalism. On one prominent cable news channel, the go-to economy guy was a TV evangelist in an earlier life–he’s best at showing computerized huge floor-to-ceiling graphs and charts of pointless economic obviosities; and you know that if some Economics Deity (probably a contradiction in terms) explained the stuff to talking-head pundits, they’d get it wrong anyway; more to the point, all three media dragons–the focus groups, the big bosses, and the people who program the news content before the smile school graduates read it–would see to it that no light shines on the growing mess.
If Ayn Rand had been right about self-regulation, you might say, Well, what’s the problem here? But she wasn’t. Not even close. See above, Dorgan’s chronology. For foolishness and perhaps mendacity as well, see also Greenspan’s epilog to his The Age of Turbulence plus, as another example, the award-winning economists who insisted the spike in crude prices a few months back was simply a matter of supply and demand.
Finally, and especially during the Bush years and among the comparatively few people culpable here, Silence Was Golden. Dorgan’s Chronology…it just wasn’t known to very many people even in near-real-time, was it? Things of enormous gravity happened not with a bang but a faint whisper in secluded places. All you have to do is look at the Chronology, incomplete and spotty as it is.
Regarding Obama’s new “Financial Regulatory Reform” package: That’s what the inclusion of a Consumer Financial Protection Agency is all about, it seems to me. Let the former TV evangelist rant on. Let the celebrity-worship hysteria roar ahead. Don’t make big speeches, for you’ll be wasting your time: There’s an old saying about casting pearls. Sleuthing isn’t our national pastime. Let’s at least hope some needed regulations make it through that place Mark Twain scathingly covered as a young reporter.
But Der Tag cometh. “My fellow Americans. We must put the toothpaste back into the tube….” That’s going to be a tough one.
Barkeep, another Bombay Sapphire martini straight up with two olives. Kate over there can pay for her own. But send one each to Kevin Phillips, Kevin Rudd, Paul Volcker and Byron Dorgan, the guy standing over there looking at the mounted buffalo head.