[R-G] [BillTottenWeblog] Estate Sale

[Bill Totten]

by Lewis H Lapham

Harper's Magazine Notebook (May 2008)

It costs a lot of money to be rich. -- Peter Boyle


Not being expert at the interpretation of economic data, I'm never sure
which leading indicators point in what direction, but when every
morning's newspaper offers a further proof of the bankrupt American
dream, I'm prepared to believe that somewhere near at hand there is a
piper waiting to be paid. The voices of informed financial opinion in
New York and Washington (bond salesman, stock market analyst, investment
banker, currency trader, chairman of the Federal Reserve) act the part
of the alarmed chorus in an ancient Greek play, bearing witness to the
pride that goeth before a fall, generating the portents of doom - the
American dollar sinking to record lows against the euro, the capital and
credit markets reduced to a state of paralysis, hedge funds vanishing
into clouds of blown-back smoke, home mortgages abandoned in the Arizona
desert, banks drowned in pools of toxic debt, yet another American
corporate sweetheart (department store, hotel chain, record label) sold
to a syndicate of Chinese communists or into the seraglio of an Arab emir.

When the appalled bystanders find themselves momentarily at a loss for
words, they move downstage and run the numbers. The national debt pegged
at $9.4 trillion (up from $6.4 trillion in 2003), running expenses of
$16 billion a month for the wars in Iraq and Afghanistan (the eventual
cost projected at more than $3 trillion); $4 trillion borrowed since
2002 using homes as collateral, the value of American real estate
diminished by $1 trillion in a matter of months; losses of $600 billion
to be incurred by investors holding debt instruments backed by specious
credit, American assets in the amount of $414 billion sold to foreign
buyers in 2007, the Federal Reserve on March 11 2008, cleansing the
wounds of the New York banks with $200 billion in liquidity and then, a
few days later, allotting $30 billion for the salvage of Bear Steams.

The numbers speak to the scale of the speculative bubble risen to the
height of an Air Force weather balloon, but I tend to lose track of
their significance in the long rows of hollow-eyed zeros, and so I am at
least grateful for the clarification that appeared on the front page of
the New York Times on March 1 under the headline "DRUM-BEAT OF GRIM
REPORTS SENDS MARKETS TUMBLING". The previous day hadn't been a happy
one on the New York Stock Exchange (the Dow off 315 points in a spasm of
late-afternoon panic), and the Times rounded up several of the usual
Wall Street suspects known to have been present at or near the scene of
the accident. Most of the witnesses couldn't remember how or when the
tapping on the drum first came to their attention - the sound jaunty or
solemn, the drum muffled or accompanied by bagpipes - and so it was left
to Douglas Peta, chief investment strategist for J. & W. Seligman, to
discover the moral in the tale:

There is not any one news item that I can point to. We know that there
is paper out there that we can't trust. We don't know exactly who owns
it and how much. And we don't know how they are valuing it.

The observation embraced both the joys and the sorrows of an enterprise
dependent upon the manufacture of something for nothing. On the
summertime side of the proposition, when the fish are jumping and the
cotton is high, the paperwork slows down the momentum, gets in the way
of the oceanfront views. God forbid that any buyers out there (of
Florida sandcastles, credit-debt obligations from JPMorgan Chase) should
know exactly what they own - how much or how little of it, whether it
fades in strong sunlight or washes off in the laundry. When the autumn
leaves begin to fall the only intelligible paper that anybody is likely
to see is the arrest warrant and the eviction notice.

Which isn't to say that the confidence game is somehow un-American or
wrong. It is a national pastime as dearly beloved as baseball -
appreciated as an art and enjoyed as a sport - but the rules are
sometimes hard to explain to Baptist clergymen and bearded foreigners.
Our creditors in Europe, Asia, and the Persian Gulf (from whom we
currently borrow $2 billion a day to export the blessing of democracy to
Iraq) begin to suspect that the American modus operandi doesn't lend
itself to the trustworthy management of global empire. With what
collateral do we secure our credit rating as the world's AAA hegemon?
George Soros addressed the question at last January's meeting of the
World Economic Forum in Davos, Switzerland. Speaking for what was
reported as the consensus of sound judgment circulating among the
assembled finance ministers, Soros referred to the break in the American
housing market as "basically the end of a sixty-year period of
continuing credit expansion based on the dollar as the reserve currency.

Having had occasion eleven years ago to attend the Forum's meeting at
Davos, I could recall the setting - prominent businessmen, important
politicians, visionary intellectuals, primetime journalists passing
documents to one another across the plum tarts and the coffeepots. The
remembrance of time past served to measure the lifespan of the American
imperium billed by the Bush Administration as the deserving heir to both
the glory that was Greece and the grandeur that was Rome. In 1997 the
United States was flush with money and long on self-congratulation, the
Clinton government fat with the promise of a budget surplus and an
as-yet-unexploded stock market bubble, no enemies of consequence on or
below the horizon, the euro five years away from being established as a
legal tender. Although for the most part unfamiliar with languages other
than their own, the American participants in the Forum seldom missed a
chance to preach the doctrine of enlightened globalism, awakening the
representatives of less fortunate nations to the need for "transparency"
in their financial dealings, to the sin of "crony capitalism" (as
practiced by the Indonesians and the Turks), to the dangers of "bandit
oligarchy" (as practiced by the Russians and the sub-Saharan Africans),
to the subtle but necessary distinctions between a "feverish" and a
"consumptive" capital market, between a "palsied" and a "suppurating"
trade balance. To replay the tape is to appreciate the worth of the
material as stand-up comedy.


Soros also had been present at Davos eleven years ago, which maybe was
why the report of his speech brought to mind the lofty and condescending
height from which, once upon a time and in a galaxy far, far away, the
liege lords of American finance looked down upon people whom they
regarded as vassals, bound both by divine providence and geopolitical
circumstance, to serve the new world order centered on the navel of the
universe in Washington. Or possibly it was a matter of coincidence. On
February 12, at the Council on Foreign Relations in New York three weeks
after reading the report from Davos, I attended a roundtable discussion
entitled "Sovereign Wealth Funds on the Rise: Should We Worry?" Owned
and operated by foreign governments, among them Russia and China as well
as Norway, Saudi Arabia, and the United Arab Emirates, the funds control
a pool of capital (currently $3 trillion, expected to rise to $12
trillion in another ten years) that waters the oases of the world's
credit markets. What was instructive was the attitude of the monied
interest in the room - the same kind of crowd that I'd encountered at
Davos, but one that had come to learn instead of teach. All present were
mindful of the fact that over the past several months the sovereign
wealth funds had supplied $60 billion of liquidity to a roster of
favored American financial institutions, among them Citigroup and
Merrill Lynch, that otherwise might have been exposed to the
embarrassment of having to sell the furniture, the silver, and the CEO's
daughter. The money, of course, was welcome, but was it to be accepted
as an unrestricted gift from Allah, or did it come with strings
attached? Did any of the attachments mean anything? If so, why, how, and
to whom?

The consiglieri seated on the podium, among them a representative of the
International Monetary Fund and a former deputy secretary of the US
Treasury, answered the questions with the reassuring news that, at least
for the time being, geopolitical terms and conditions didn't impede the
progress of the wire transfers. Nobody in Singapore was looking to
acquire Donald Rumsfeld's maps or Condoleezza Rice's piano. The
experienced investors, most of them Arabs, could be relied upon to do
straightforward business deals unencumbered by tactical or strategic
objectives; the Russians and the Chinese were learning how to behave
like gentlemen. Although it was true that the international funds
weren't subject to regulatory oversight, which meant that one still had
to contend with the problems of both opacity and corruption, at the end
of the day and all things considered, sovereign wealth money was better
than private equity money - not as volatile, less eager for a quick
profit, not subject to redemption. Nor was there much reason to worry
about undermining the national security. Except for a few fragments of
homeland defense (weapons-grade uranium, the runways at Ronald Reagan
National Airport) nearly everything in the American estate sale
(shopping malls, universities, telephone companies, movie studios) could
be sold to almost any buyer whose name the lawyers knew how to spell.
The discussion attracted the Council's equivalent of a sellout crowd -
sixty or seventy highend Wall Street lawyers and merchant bankers imbued
with the wisdom of the country's ruling oligarchy - and an executive
summary of both what was said and what wasn't said could have been
abstracted under the headings of two PowerPoints:

1. Goodbye to the sovereignty of nation-states. The world dances to the
music of money, and the only frontier that matters is the one that
separates the gardens of the rich from the deserts of the poor. The
Upper East Side of Manhattan belongs to the same polity as the 8th
Arrondissement in Paris and the Odintsovo district in Moscow. The yachts
moored in the Bay of Naples and the lagoon at Bora Bora sail under the
flags of the same admiralty that posts squadrons off the shore of
Nantucket and the Costa Brava.

2. Geoeconomics trumps geopolitics. It is the value of the American
dollar that imparts meaning to the principles of the American democracy;
loss of confidence in the former depreciates the character of the
latter. Democracy works toward an idea of equality, capitalism moves in
the direction of inequality, which is the preferred travel destination.

At the end of the discussion the expressions on the faces of at least
some of the gentlemen in the room registered trace elements of regret.
The departing company clearly was glad to know that the foreign shills
were still in the game, but there was also the humiliation of America
having to cut back on the royal elephants and the pretensions to empire.
One gentleman in particular looked so dispirited as he was putting on
his topcoat that had I known his name or where to find his hat, I would
have pointed him to the light at the end of the tunnel, assured him that
the redeployment of the world's wealth wouldn't entail the giving up of
his customary table at Le Cirque. Even if America were to be
reclassified as a Third World country, he would discover that Third
World countries are by no means as unpleasant or as dangerous as they
can be made to seem by the editorial writers at the New York Times. The
girls are good-looking, the golf courses up to the standard of those in
Palm Springs, the nightclubs trendy, the secret police efficient and
courteous, the income spread between the haves and have-nots in line
with the one to which he was accustomed here at home.

The United States has been ridding itself of its First World status for
as long as it has been privatizing its critical infrastructure (aka the
common good), at the same time despoiling the natural resource embodied
in the health, welfare, courage, and intelligence of its citizenry. Over
the past eight years, under the absentee landlord economic policies of
the Bush Administration, the stepped-up rate of disinvestment has
resulted in the Third World confusion and mismanagement for which the
American guidance counselors eleven years ago at Davos rebuked their
economic inferiors - bandit oligarchy, gangster capitalism,
nontransparent finance, palsied capital markets, and a suppurating trade
balance.

Although not touched upon at the Council on Foreign Relations, the
question that remains to be discussed is the one about putting the
preferred spin on the story. The going gracefully into the imperial
twilight with Britain and France wouldn't sit well with the parties of
the nationalist right. We do better with the production of Super Bowl
halftime shows than with the staging of historical ceremony; our
cathedrals don't come furnished with the tombs of museum-quality kings.
As an advanced industrial nation along the lines of Holland or Germany
we would run into trouble with the paperwork. From advanced industrial
nations the bankers in Hong Kong and Mumbai expect sincere proofs of
"accountability" as well as earnest attempts to strengthen the currency
and occasional repayments of outstanding debt. The requirements aren't
configured to match the irrational exuberance of the freebooting
American spirit. Accountability is a concept poorly understood both in
Washington and Wall Street, our economy is a faith-based initiative,
we're not in the habit of honoring our debts, and we're low on creditors
willing to believe that our word is as good as Barack Obama's can-do smile.

Our liabilities become assets if we can recast the United States as a
developing nation that contains within its borders the excitements of an
emerging market. On first looking into an emergent market for fabulous
risk-free wealth, the foreign investors don't yet know what anything is
really worth - how much oil is under the sand in Utah, if the chi-nook
salmon will return to the Sacramento River, who holds the mortgage on
the Brooklyn Bridge. The circumstances favor the sunny side of the
American street, allow for the freedom of entrepreneurial maneuver, and
encourage imaginative interpretations of what constitutes an exploitable
natural resource. Together with its expressions of interest in such
things as the Lincoln Memorial and the Marine Corps Band, the foreign
money can be counted upon to assign value to commodities that the
natives believe to be worthless. The seventeenth-century princes of
Europe maintained private menageries stocked with Spanish and Italian
dwarves; it's conceivable that the Arab sovereign wealth funds might
wish to collect, as rare specimens of an exotic breed, ornamental
American CEOs prized for their capacity to turn gold into lead.
Priceless objects unavailable for purchase with MasterCard, capitalist
action figures embodying the treasure of the Christian West, to be as
proudly displayed as the peacocks in the gardens of Doha and Riyadh.
_____

Lewis H Lapham is the National Correspondent for Harper's Magazine and
the editor of Lapham's Quarterly.


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