Causes of the Great Recession Part 1 – How We Got Here

Why has the Great Recession occurred — what happened — and given what happened, what can we do to get ourselves out of it?

 

First, let us be clear about what this recession is — it is  a credit crunch brought about by the bursting of a huge real estate bubble. As was the case in the Great Depression, banks leveraged themselves based on irrational exuberance, aided and abbetted by government officials who were unwilling or unable to perform the regulatory tasks assigned to them by law. The proximate cause of the collapse was the creation of a huge, unregulated market in mortgage-backed securities without checks or balances to ensure that the commoditized debt that they represented was good enough to support the leverage to which the banks subjected them to. The derivatives (mortgage-backed securities) served as the reservoir out of which came a great gout of irrational exuberance. Like the Internet Boom of the later nineties, there was a belief that the market would continue to rise — that unlimited prosperity had somehow finally arrived. That great pool of credit was loaned out — and make no mistake, our economy runs on credit — those folks who believe that we can somehow turn the clock back to the nineteenth century (really the early nineteenth century) and return to the gold standard are completely out of touch with reality. Nobody pays cash on the barrelhead for anything these days — we are all recipients of the promises of net-30, net-60, and net-90. Without credit, there can be no flow of goods and services upon which modern civilization depends. Compounding the irrational exuberance, our nation undertook not one but two wars, both done on credit — for the first time in our nation’s history, we fought a war without actually paying for it — and we did it in such a way that far too much was put on the shoulders of far too few — later on I may cover the huge debt that we owe the people who were sent again and again to Iraq and Afghanistan, and who, to add insult to injury were forced to stay in theater after their tours were over — a promise broken on the level of forcing World War II bomber crews to serve on after they had completed the 25 missions that they had been promised would complete their tour of duty. So — there we were, awash in credit that came from the commoditization of our nation’s housing and commercial debt — mixed in with debt munged in from markets around the world, debt which had not been accurately rated and was completely unregulated thanks to the over-permissiveness of the Fed under Alan Greenspan. Greenspan’s faith in the power of markets to be self-regulating, coupled with his distaste for anything that smacked of thoughtful regulation, or really any kind of regulation. Above all, his and other regulator certainty that they knew how the markets operated, even these new, complicated financial instruments that were the product of advanced mathematics, computers, and highly trained academics using game theory and monte carlo simulations to game scenarios whose consequences that even the creators of the model could not with certainty predict the outcomes (except that they knew that the models allowed the people who commisioned them to make extraordinary amounts of money by taking advantage of doing things more quickly than anybody else could — the opposite of Benjamin Graham’s value investors by moving investments around in search of small incremental changes in value that in the aggregate would lead to huge returns through the sheer number of transactions that could be entered into.

To be clear, it wasn’t just derivatives, it wasn’t just bankers and regulators unwilling to do due diligence, nor was it a nation that didn’t look the gift horse of unlimited credit in the mouth, or even legislators who were unwilling to create and enforce the good laws that would have lessened, or possibly even obviated the present credit crunch, but all of these are contributing factors, all wrapped up in the irrational exuberance that is so addictive in our market-based system.

Why A Strong National Government Matters

I have a lot of sympathy for the folks who have turned out for the “Occupy …” demonstrations. Most of the people who have shown up have genuine grievances — many boil down to the statement, “I did all of the things I was supposed to do, and here I am barely keeping body and soul together.” This is the point of congruence that exists between the Tea Party and the Occupy Wall St. protesters — the sense that people are being punished even though they had followed the rules. I agree with the Tea Party folks that taxes ill spent are taxes that should not have been collected in the first place. Where I disagree with the Tea Party is that government is an unmitigated evil. Anybody who says that is simply ignorant of history. In the first place, the founders of our country sought to create a strong national government in the wake of international and national events that took place in the decade following independence and the birth of the nation. They viewed it as an absolute necessity that the federal government had to have the power to collect taxes and fight wars in order to protect the nation. Go back and read the preamble if you have any doubts on the score of the desire on the part of the founders for a strong national government — lines like “provide for common defense, promote the general welfare, and secure the blessings of liberty” speak to the desire of the founders to build a real nation capable of caring for its borders and ensuring the welfare of all of the people within those borders is patently clear.  The attempt to “strangle the beast” is not only futile and wrong-headed — it flies in the face of the wishes of the founders that we enjoy all of the blessings of a vital national government that protects the rights of the individual and and is built on the sense of responsibility that is born out of freedom and pride in belonging to the national polity that was and is the United States of America. The concept of the self-made person who does not build on the resources and acts of those who have come before is a myth best codified by Ayn Rand — but it has no reality as John Scalzi has said, Atlas Shrugged is  ” …a totally ridiculous book which can be summed up as Sociopathic idealized nerds collapse society because they don’t get enough hugs… Indeed, the enduring popularity of Atlas Shrugged lies in the fact that it is nerd revenge porn.” The idea that the extraordinary individual stands above and outside and indeed has no need of society is blind and ignorant of the amazing support that society lends in the shape of culture and laws and infrastructure that we all rely upon to have the amazing lives which we have even in these terrible times. Think — the crime level is lower than at any time in history — more children live that are born than ever before — each of us has the chance at a life that the richest person of two hundred years ago could simply not have attained no matter their wealth. Yet, at the same time, there are still major problems with the way that our society is structured. The fact that real wages have stagnated for the majority of the population of the United States suggests that things are broken.  It’s time for us to become a bit more rigorous in our approach to defining the root causes of the Great Recession, because in this case, the problems of our national body politic and the problems embodied in the collapse of our economy are related.

Certitude/Rectitude

Maybe the most amazing thing about Abraham Lincoln is that while he died over 150 years ago, his words are still relevant and true today. One of my favorite Lincoln quotes is this one:

“Sir, my concern is not whether God is on our side; my greatest concern is to be on God’s side, for God is always right”

What is so great about this quote is that it is inherently humble — it does not trumpet that we are righteous simply because we have God on our side, instead, it suggests that following God is a balancing act which requires humility and attention on our part — God is always right, while we are fallible.

One of the things that I have noticed about the “faithful” on both sides of the aisle is that they are so certain that their side holds a complete lock on the truth that they forget about the essential fallibility of the human condition. No one person, no one group, no one way holds perfect truth. The real promise of democracy is that we can put together the bits and pieces of truth to build a more accurate picture. Scientists know this is the only way to go from a hypothesis to a proven theory. What I see today is too many people who are certain in their belief — so certain that they cannot accept facts when presented to them. Too many people brandish their deeply held beliefs to support views that do not stand up to the facts. Too many people are willing to discount what is actually happening in the world because they have not taken the time to learn and understand what is going on around them. The people who tell you that the science on global warming is not an established fact among scientists are applying a religious view of the world (ie people of faith generally believe in a general canon) to a group that applies a different standard of evidence — that things must be empirically proven, and that there is room for different interpretations of fact, but that there is no room to derive theses that cannot be supported by fact. As Jon Huntsman has said so well, when 98 out of 100 climate scientists see evidence that tells them that human-caused global warming is real and a threat to the way of life we lead now, there is no questioning the facts. There is room for a certain amount of interpretation, but not for a rejection of fact — it’s time to stop allowing people to spread lies in the guise of imitating the scientific method. To put it another way — what you believe is your own business — what can be proved as fact is not susceptible to whether or not you believe that it is so…

Let’s Get Real

 

The problems we face as a people and as a nation are grave and serious. Our leadership and our legislators are for the most part a pretty feckless bunch. IT’s time to demand a better quality of leader. I don’t agree with a lot of the things that Peggy Noonan says, but four years or so ago, she wrote what I believe was an illuminating op-ed piece where she chided our senators for being overly focused on what they can do for their state – she reminded them that we do not call a senator a “state senator” – instead each is the “US Senator from the State of XXXX”. It ought to be the same with congress. It’s certainly the same with the US President. Party affiliation always comes after the affirmation that the man or woman represents all of who are citizens of these United States.  Maybe its time that we all see ourselves as Americans first and realize that affiliations are not the automatic dividers that we make them out to be. Let us be clear — divisions have always existed, and will always exist – and if you think that the first generation of men and women who built  our nation were kinder and gentler, a reading of any US newspaper of the late eighteenth and early nineteenth century would dispel that notion with astonishing rapidity. The rough and tumble of public discourse has always involved ad hominem and straw man attacks. With the advent of fact checking websites, we have a chance to hold people accountable that was not possible before. And yet, the tide of blind allegiance is higher than it has been in a long time. The haste of the Tea Party and Radical Left to throw the baby out with the bathwater, to search for the perfection of black and white absolutes at the expense of getting along in the real world is driving our nation to a very bad place. When congress can place balancing the budget above disaster relief, or uses it as some kind of cosmic shell game where dollars and people are in balance something is deeply wrong. The original Republicans were a different breed than today’s Republicans — Lincoln believed that the government should do everything it could do to help people — he would not recognize these people who seem to have more in common with 19th century Dickens characters (Gradgrind). Moreover, these supposed Christians have forgotten Jesus Christ’s first dictum — Love thy neighbor as thyself. It’s easy in this world to seek out those who are most like you, but the heart of the Christian idea all men and women are equal, that all have worth. Equal valuation of a person’s spirit leads in the end leads to equality before the law. Eisenhower had it right when he explained that we were a nation built on Judaeo-Christian values. We are also were and are a nation born of the Enlightenment — any attempt to deny the value of scientific methods and thought is a denial of the depth of the men and women who struggled to create a nation from a fractious and stubborn lot of colonials, each with his/her own idea of the shape that  this new confederation should take.

 

Republicrats and Democans

Did you ever get the feeling that, except for superficial differences, Republicans and Democrats have the same emphasis on ideological purity over commonsense solutions?

Do you wish that Republicans would follow their supposed creed and butt out of your personal business?

Do you think that a little fiscal conservatism might serve to control the Democrats desire to redistribute wealth that they had no hand in producing?

Do you wonder how each side can point fingers at the other while little to nothing gets done?   Do you worry that the US appears to be a supertanker headed for a reef with no one at the helm?  More importantly, do you wonder why it is that neither party seems to believe that it is their responsibility to persuade the populace that their views are valid, but that we are supposed to simply toe the party line — the political version of the old General Motors mantra that “what’s good for GM is good for America…” Why is it so difficult to see that we need safety nets, but that people need to have ownership of their lives at the same time — that the government is often stunningly bad at taking care of our needs, but that no one else but that good government regulates the markets to ensure that people follow the rules?  Both liberals and conservatives have important and useful things to say. Each also has a limited and warped view of human nature, and pursues ideological purity at the expense of commonsense. It’s past time for a new whig synthesis.

a single step…

The journey of a thousand miles begins with…

OK, enough of the portentous (or pretentious) beginnings. I suppose that I am like most people who start a blog in that I feel that I have something to say, and that maybe someone out there might want to hear what I have to say.

This blog is designed to be an outlet for my thoughts concerning politics, history and values and where I see the world today. As such, I expect that there will be many tangents along the way. My goal is to put together a coherent political philosophy based on what I know and feel is an accurate reading of what is best and worst in human nature.  I have come to feel that we in the US are very lucky to have the heritage of history, politics and ideas — that our nation is a culmination of several important trends in Western thought. I also see a group of people who seem bent on rejecting the ideas that the United States was built on in place of ideas that have no real merit or application.

Unfortunately, this group of people makes up the greater proportion of our political leadership today.