A Loss of Faith

There is one thing I really look forward to each Monday: reading James Howard Kunstler's latest thoughts on, to use his expression, the "converging catastrophes of the 21st Century."

Jim is an author, speaker and commentator who writes with such eloquence, sharp-edged wit, and breadth of understanding that it is hard not to come away after digesting what he has to say without feeling satisfied on so many different levels.

In this week's column, "Failure Beyond Finance," the author of The Geography of Nowhere and The Long Emergency goes to the heart of the current crisis.

     Events are driving us now, not personalities or even policies. Ben Bernanke, Hank Paulson, and the other characters in the headlines might pretend that they are managing things, but the truth is that problems in the financial sector have spun wildly out of control. The wheels are coming off and we are in that long sickening moment of sideways sliding motion when no attempt at steering will avail to avoid the crash. That it is happening at the very height of the Christmas season, when events have previously been controllable -- the season of manufactured Santa Claus rallies and $50 million bonuses -- shows how perilous the situation is.

      The reason the financial sector is crashing is really pretty simple: it created too many fraudulent securities. What has been conspicuously absent so far is any sense of accountability for what may go down as history's greatest swindle. It's really impossible to imagine that a bunch of low-ranking worker bees in the banking hives spun out all these bundles of collateralized debt obligations, mortgage-backed securities, and similar trash on their own without the say-so of their bosses -- a group that includes the current Secretary of the Treasury, Mr. Paulson, formerly CEO of the Goldman Sachs organization. And, of course, the questions naturally follow: what about those in charge of the ratings agencies that awarded AAA status to high-risk junk investments; and where were the banking regulators when outfits like Countrywide Financial, Washington Mutual, and Ditech were handing out miracle mortgages to borrowers without normal qualifications; and where was the Securities and Exchange Commission when the wholesale trade in creatively-engineered debt instruments ramped up to high volume, and what was the board of directors at Merrill Lynch thinking when it allowed disgraced CEO Stan O'Neal to back a truck up to the company loading dock and fill it up with $160 million in bonus-and-termination payments after O'Neal presided over at least $8 billion in losses?

     What we're also seeing is a crisis of authority on top of a crisis of capital, and it will probably lead to a crisis of legitimacy -- by which I mean a catastrophic loss of faith that this society can govern itself at any level. Leadership across the board has failed, in government, in business, in what used to be called the press, and in education. Leadership in every sector went along with the program, marveling stupidly at their society's ability to get something for nothing.

      The general public did not perform any more honorably -- due to whatever failure of civic norms they operate within -- and indeed the nation as a whole may deserve all the suffering it faces. But however bad the general public's behavior, or dark their fate, a failure of civic norms is ultimately a failure of leadership, which is about clearly stating the boundaries and terms of behavior. When anything goes, nothing matters. Since that was our leaders' attitude, the public did what it naturally does: it follows the example set by leadership.

      We haven't begun to see where all this will lead yet. Since what is happening is basically the evaporation of trillions of dollars in supposed wealth. At the very least we're likely to see an impoverished nation very soon short of money to buy necessities. Historically this is known as a ruinous deflation. The last time America went through such an experience was the Great Depression of the 1930s. Like this situation, it came at the end of an extraordinary expansion of credit -- loans largely made in that day for the purchase of stock "on margin."

     One difference between then and now is that in 1929 a relative small minority of Americans were involved in stock purchases. Today, a relative large number of ordinary citizens own overpriced houses bought using extraordinarily risky loans, and a large number of institutions such as pension funds, banks, hedge funds, and money markets own fraudulent securities based on these house loans, worth a fraction of their face value. Some other differences this time around: in the background is a "real" economy of depleting natural resources (oil, soils, aquifers, etc) and the systematic disassembly of an industrial manufacturing infrastructure. In the 1930s, many people could return to family farms and get by, even with little money. Today there are far fewer family farms.

     The nation is acting just now like a crowd of bystanders watching a car wreck that has nothing to do with them -- as though they were just occupying the Nascar grandstand on a particularly bad day. They'll discover soon that it's their own society that's hit the wall out there on the track. It raises the question, under the circumstances, as to whether the next presidential election will have any legitimacy.

Frankly, I wish I could write as well as he does.

Comments

[Rick]

Check out Dr. Ron Paul's position on the Fed and the current mess.

[Rocky]

"We haven't begun to see where all this will lead yet."

Actually, if you are student of European history, you might come to the conclusion that the end of the line is a place like Auschwitz. If you read the chronology of the Krupp dynasty in William Manchester's "The Arms of Krupp" (on the inside front cover), you may notice an entry for 1944: "Krupp gases a Rothschild at Auschwitz".

As the article points out, we are certainly more leveraged as a society in 2007 than we were in 1929. But, we have not yet reached the point of lawlessness where the rich and famous are gunned down in front of their residences. Unlike 1922, when rich or politically connected German Jews were being gunned down in the streets of Berlin, Wall Street speculators are not yet being gunned down in front of 740 Park Avenue.

[Tim]

The writer hits it on the head. Across the board in virtually all aspects of American life there is a failure of leadership. Think of a sector: religion, education, finance, journalism, politics,etc. and what you see is poor leadership and a comatose public. The institutions and overall cultural milieu that produces these boobs needs to be examined and fixed.

[A Reader]

For anyone paying attention to the last decade, this is fairly obvious. What is NOT obvious is what to do about it in terms of asset protection and, maybe, making some advantage of the situation. So far, it seems the rich with political power are the only ones who will gain.

[Doug L]

Kunstler's web site also has a very amusing and insightfull entry called: Eyesore of the Month in which architecture and some of its alleged practitioners are regularly exposed for their most public insults.

[George L]

Why does it always seem that all the like minded find the same information at about the same time. 100 Monkey ? Kunstler is one of my favorites as well. Mr. Panzner is also one of my favorites as well!

[farang]

Good read. I've enjoyed his stuff before.

One thing that keeps striking me about this whole CDO business, is how it exposes the Libertarian "Let the market decide" as a pie-in-the-sky economic guideline or system. I just don't believe there is a single economic system, or political system, that has every answer for any occasion. I think Conservatism, Liberalism, Libertarianism and Socialism, all have their place in government, on different issues.

As much as I admire Ron Paul's low key delivery and blunt honesty, and his firm belief we have no reason to be in Iraq, I simply can not vote for him because of his approach to government oversight of business. I guarantee you, Ben Franklin and Thomas Jefferson would have said, and done, something about con men and bilko artists. Andrew Jackson may have had them shot. Go read "Why The US Bank Was Closed, by Andrew Jackson. It's on google, easy to find.

It's not like these flim-flam artists just materialized this century, you know?

So, bear with me, but if you take all the above articles, ride a train of American thought, they finally are realizing they need to cut back, scrimp a little and save, if possible, instead of taking on more debt. Hence the anti-property tax movements. (Fools, Georgia is just shifting the burden down the income chain. Try cutting back on new jails, prisons and more police).

I wonder: What if someone campaigned on a way to reduce average American's medical and health insurance costs??????
Yeah, I mean a European/Asian style health care system.
Why should Americans get treated less well than a Brit? Or Frenchman or Thai?

Remember what happened, and what policies were enacted, the last damn time America got fleeced? FDR, Yes? And while we are on that subject....the worst is still down the road, but headed this way like a guided missile. Written on the nosecone?

Social Security Benefits.

Target? Baby Boomers that have paid through the nose for Reagan's benefit hikes in the early 80's. Now we have an approaching Depression AND the first of the Baby Boomers reaching retirement next year.

Watch and see where the crooks try to strike next......they can't, and don't want to, pay back what they are essentially stealing every month.

I wonder, are there CDO's and ABCP's in my TRUST FUND Bush PROMISED to KEEP LOCKED???

Bwahahahahahaha, SURE he did. Man, this is going to get REAL ugly, real soon.

Jeez, glad I saw this coming 5 years ago, and bought foreign assets and hold foreign currencies and real estate. Not that I am wealthy, but I am not losing ground. And, I can live there much cheaper, maybe 1/3 the cost I would spend in US. For same lifestyle.

No, I take that back: I can't watch those American "Sell this Flipped House" tv programs where Americans were taught you could make a lifetimes earnings painting a bathroom, rearranging the furniture and putting a granite counter in your kitchen, then selling it for $200,000 more than it was worth to the first fool that would pay for "such splendor."