Tuesday, 8 January 2008

People Get Ready

In another six months we may be digging out Robert Kuttner's prescient 2007 book The Squandering of America and shaking our heads in sorrow. As is so often the case in biped history, the really bad news may turn out to have been hidden in plain view.

Kuttner’s thesis is that our politico-business elites systematically have ignored the lessons learned from the economic meltdown of the 1930s and undermined the regulatory apparatus constructed in its aftermath to avoid a repetition. They have rationalized this dismantling of the financial safeguards for the usual reasons—herd-driven greed and the irresistible temptation of the possible—sort of like knocking off defenseless Iraq. Wall Street highwaymen saw that they could get away with holding up the financial system and walking off with a cool billion. So they did.

Now the speculative game is unraveling on all sides, led by the famous subprime mortgage debacle. But Kuttner argued that the spinout could come from a half-dozen arenas of irrational, over-leveraged, unregulated, speculative shenanigans—all made possible by the bipartisan abandonment of the government’s role as referee.

If he’s right, the casualties haven’t even begun to pile up. With hundreds of secretive hedge funds driving the credit, stock and commodity markets, all on borrowed cash, further disruptions are not only inevitable but likely to cascade throughout the system in a most unpleasant way, and not just for them.

Homowners are obviously on the hook now, but these guys also control our pension fund money. Given all the bogus hysteria over the alleged future bankruptcy of the Social Security system, it would be ironic if instead it was the private sector that went bust and left us destitute in our old age.

But don’t expect to hear much about this from McCain, Obama or Huckabee as they roam New Hampshire chirping about ‘change’ and defending us little guys. Politicians now need such obscene amounts of cash to compete that they live way too far up the GI tract of big business to be suddenly shining any useful torches on those pipes. Or as Kuttner phrases it in his subtitle, ‘How the failure of politics undermines our prosperity.’

Edwards, whose populist rhetoric comes closest to sounding an alarm, hasn’t caught on much, and given the influence all that money buys, it’s even harder to believe he would or could actually do what he says once elected. Real change may indeed be en route, but it’s far more likely to result from disaster on a massive scale than from the superficial, feel-good rhetoric driving this electoral process.

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