Fox‘s Cavuto Report, Saturday morning, on the late news from Friday — no bail out of homeowners by Fannie Mae.
As usual, critics are muddying this with all sorts of irrelevant criteria — i.e. corporate tax cuts. Not that I think anyone should be cutting taxes for anyone — since we are weighed down with debt. But I don’t know the details about that issue — only that it is irrelevant to the bailout question unless you like class warfare in principle and think taxcutting is the same thing as debt forgiveness. It’s not. But don’t hold your breath for actual thinking. The demagogues will jump out on both sides.
A bunch of people (middle and upperclass for the most part, many quite young), acting in groups, who speculated in second homes leveraged to the hilt and bought on spec to flip, who were so greedy they couldn’t quit doing it when every paper in the country was screaming bubble, are now crying, ‘cos, hey, their Miami condo bought with no money down and a 50 year mortgage which they hoped would triple in value before the builders had finished, is not selling like they hoped it would.
Tough. Go get some real work.
On the other hand, I didn’t notice any weeping for the past two decades for people who scrimped and saved on small salaries, who owned no plastic and stuck their savings in the bank, hoping to be free some day to do the things they loved — only to find that thanks to money creation and almost nothing in interest, while the rest of the country lived high on the hog on faux (borrowed) money and speculation, their real savings had eroded steadily. That theft from the work-and-save classes by the borrow- and- don’t-pay- back classes (runs the gamut of the rich, the middleclass, the poor, banks, corporations and the government) is the real financial crime of the past decade…
Still, I agree, there were a lot of naive and ignorant people (e.g. single mothers without the time to follow the news) who panicked because they thought they were going to be priced out of the market and were scared into buying by unethical sellers and bankers.
I feel for them.
Caveat emptor doesn’t mean that you can’t hold people to professional standards of ethics.
But a government bail out with taxpayer money by Fannie isn’t the solution. That would be penalizing good decision-makers for bad decision making and rotten ethics on the part of subprime lenders. This may be framed in public as a bailout out of pitiful poor homeowners…. but.the reality is that bailing out the mortgage holders is simply a way of bailing out the banks which loaned the money. And created mortgage-backed securities, then sliced, diced and repackaged them with the risk so separated from the reward that no one had any idea what the derived securities really represented. These MBSs were then spread out from Hong Kong to San Francisco in bonds held by mutual funds, pension funds, hedge funds..you name it…..and they were given mighty high falutin’ ratings by the rating companies — Triple A, in fact.
Now, the Triple A turns out to have been junk a la Michael Milkin….
So, the bail out of the mortgage holders ultimately ends up being a bail out of guess who?
Banks and hedge funds…..who certainly knew better.
Sounds to me like a rerun of the bail out of investors in the Mexican crisis…or the bail out of bond holders in Russia….or the bail out of banks in the Asian crisis….or….it goes on and on..
My view: Bring out the lawyers. Encourage people who were actually snookered to join class-action suits against the exact institutions responsible (no socializing of the costs of this speculation spree via Fanny, please).
A bunch of institutions broke long-standing professional standards to turn into loan sharks. A little surgery to put risk and reward back together is in order. So, penalize the banks, brokers, newspapers, government officials and middlemen who cheered this on knowingly.
They’re crooks.
If the borrowers did wrong themselves, i.e. lied on their loan documents, though, they really should have known better. They’re crooks, too, petty crooks.
Sorry – you can’t blame that on naivety or Ben Bernanke.
And then, let’s get a public hearing about money creation at the Federal Reserve, and just how the Fed Reserve, Treasury, and the big banks work together.. …
Little crooks and bigger crooks — let them all go down together.
“In the late 19th century the coast of Angola was home to a flourishing export market that shipped African goods to Europe. On the one side of this market were European settlers who operated the export industry, and on the other side were African producers in the remote interior who harvested the goods required for export. Connecting these two groups were African middlemen who traveled to the interior to collect the goods and then carried them to the coast for export.In the 19th century this region was for all intents and purposes anarchic. Although Europeans had settlements with European laws and interior African communities had their own, largely informal institutions of internal governance, there was no government to oversee the interactions between members of these groups or their interactions with the middlemen. The problem this created was that middlemen tended to be substantially stronger than interior producers, posing the threat of force described above. Why pay producers for goods if middlemen could use their superior strength to simply steal them instead?
Like with the pirates, instead of throwing in the towel and either accepting that they would be routinely plundered or stopping productive activities altogether, so that there would be nothing for middlemen to steal, African producers devised an institutional solution to the problem of force that allowed them to realize the benefits of trade with these bandits.
The institution they devised for this purpose was credit. The key to understanding how credit solved the problem of force and facilitated peaceful exchange is straightforward: you can’t steal goods that aren’t yet produced, but you can trade with them.
Here’s how the credit institution worked: Producers would not produce anything today but would instead wait for middlemen to arrive in their villages looking for goods to plunder. With nothing available to steal the middlemen had two options: return to the coast empty-handed after having made a trip to the interior, or make an agreement with producers to supply the goods they required on the basis of credit. In light of the costliness of their trip to the interior, middlemen frequently chose the latter
According to their credit arrangements, middlemen advanced payment to producers and agreed to return later to collect the goods they were owed. When they returned for this purpose all that was available for taking was what they were owed, so stealing was not an option. Instead, middlemen frequently renewed the credit agreement, which initiated a subsequent round of credit-based trade, and so on.
This simple arrangement performed two critical functions in allowing producers to overcome the threat of force that middlemen presented. First, it enabled them to avoid being plundered, as though they had not produced anything at all, but also to realize the gains from trade, as though middlemen did not pose a threat of violence. Second, it transformed producers in the eyes of middlemen from targets of banditry into valuable assets they had an interest in protecting. If middlemen wanted to be repaid they needed to ensure that their debtors remained alive and well enough to produce. This meant abstaining from violence against producers and protecting producers against the predation of others.”
This fascinating scenario answers one of the most common objections to libertarianism. That there would be no way by which a weaker group could protect itself from a stronger group intent on plundering it.
It demonstrates that people are capable of ingenious solutions to disparities in power on their own, if a huge state machinery does not get in the way.
I am going to file this away along with the earlier Rothbard post on Ireland in a new section which will contain vignettes of real world example of libertarian living. A picture being worth a thousand words usually. And one from history worth ten thousand.
Update: I found an interesting response from Dani Rodrik, “The Limits of Self-Enforcing Agreeements,”also at Cato Unbound,which I am linking here. I actually reference Rodrik’s work in my new book with Bill Bonner, in chapter 3, in a rather lighthearted way in wondering how much democracy is really correlated with economic success.
“The problem with self-enforcing agreements is that they do not scale up. One of the findings from Elinor Ostrom’s extensive case studies is that self-enforcing arrangements to manage the “commons” work well only when the geographic scope of the activity is clearly delimited and membership is fixed. It is easy to understand why. Cooperation under “anarchy” is based on reciprocity, which in turn requires observability. I need to be able to observe whether you are behaving according to the rules, and if not, I have to be able to sanction you. When the size of the in-group becomes large and mobility allows opportunistic behavior to go unpunished, it becomes difficult to maintain cooperation. Imagine that the pirates numbered in the millions and they could easily jump ship to join competing groups mid-voyage; would the arrangements Leeson describes have been sustainable?
Unlike in pirate societies or pre-colonial Angola, modern economies require an elaborate and ever-evolving division of labor—among owners of firms, managers, and their employees, among producers up and down the value chain, and between producers and providers of supporting services such as finance, accounting, and legal services. The complexity, fluidity, and geographic non-specificity of these activities leave too much room for opportunistic behavior for self-enforcing arrangements to work well. They require an external backstop in the form of government-enforced rules.”
Comment:
Just off the bat, it seems there are some problems with Rodrik’s argument. The first is that there is a mechanism for the complexity of economic variables to self adjust — it’s called pricing. Secondly, the need for rules does not necessarily entail a bureaucratic central government, such as we typically find today. Possible substitutes are many — local bodies that are loosely federated, non-government lawmaking bodies, canon law (for communities so disposed)…there are lots of possibilities, once we get out of our self-created rut of thinking in terms of leviathan..
“Anarchists will argue, of course, that you don’t need a government to do that. Private groups are perfectly able to provide security, defense and infrastructure. We won’t argue with them. We don’t believe we know enough of the matter one way or other. But one thing we do know is that both the anarchists and the statists are confused when they talk. They say state when they mean government, and they say government when they mean the rule of law. They confuse anarchy with chaos, and the absence of the state with the absence of law.
Somalia is stateless, but it is not entirely without laws; there is anarchy, but there is not yet complete chaos. Somalia may be an example of how spontaneous order can take root even when the state collapses.
The Law of the Somalis, written by Michael van Notten, goes to the heart of the matter. Van Notten, is a Dutch lawyer who married into a Somali clan and lived in the country for the last decade or so of his life. [9]
Van Notten points out what the BBC does not want to notice. Somalia might lack a state, but it’s not completely without government. The country still relies on traditional Somali customary law, which, he points out, would not be able to work if a central government and western style democracy were imposed on top of it. Somalia’s free market is not operating in suspended animation, or in a vacuum. It rests — in a precarious, wobbly way, it is true — on the traditional law of the Somalis. And it does have a government — even if it is only the government of the Somali clans.
Somali customary law and clan government follow natural law closely. And whatever fragments of a genuine free market operate there do so only because of the norms of behavior springing from this indigenous system.
Van Notten makes another interesting point. He suggests that the terrible problems plaguing Somalia don’t arise from the free market or the lack of central government at all. Instead they are the result of the constant attempts to impose government, albeit unsuccessfully.
“A democratic government has every power to exert dominion over people. To fend off the possibility of being dominated, each clan tries to capture the power of that government before it can become a threat.” [10]
And the fear of domination is only kept alive by incessant U.N. efforts to intervene and impose a Western style government in the country. Leave the clans alone, he says. Let foreign governments just deal with them.
The irony is, a real free market is not free at all. It is, and always has been, restricted: by laws, customs, traditions, morals, expectations. In Somalia or the West, you have to choose. It is either natural law or the law of the jungle……”
“Leveraged hedge funds are subject to leveraged losses and the same fate as the Bear Stearns funds, while real money investors can be forced by their investment mandate to sell non-investment grade paper.”
In other words, other hedge funds will go the same way as Bear Stearns. And not only that, some of the investors who’ve put money into what they thought were investment grade CDOs will be forced to sell them when credit ratings agencies downgrade them. What happens then, TJ?
“A vicious downward spiral could result, leading to the liquidation of other assets and positions, including the FX carry trade.”
It’s also known as a credit crunch – and it won’t be pretty….”
A piece I wrote two years ago sounds prescient now. I am posting it again today, because of the response I received about the Stormfront piece. I wonder if in an oblique way, the question I ask at the end doesn’t say more about where some of the anxieties on display about race and culture really have their root….
“June and downtown Baltimore is a few degrees cooler than the tropics but more stifling. There is greenery here but also more concrete and glass buildings, overheated asphalt, an endless twinkling stream of cars, and lightless parking lots. Not a bullock cart or rickshaw in sight to break the monotony.
Mornings, the sun beats down, late afternoon, a convectional shower or a muggy stillness. Near the water — sticky dimpled thighs, sticky floral shirts, and sticky wafer cones. The Harbor is all the rage. Again. We old timers remember the past and shake our heads. Not again. But the newcomers are believers. This time it’s different. This time — it’s for real.
Mencken’s tough old broad is moving on up. So they say, anyway.
“They” are quite a crew. Leading the cast — Streuver Bros., Eccles, and Rouse, fat from earlier gentrification schemes, now churning soil relentlessly wherever you look, like that sixty million dollar rehab of a shuttered Proctor and Gamble soap factory.
From Federal Hill on up, billboards announce the opening of glittering apartment complexes under the gritty eyes of the old ones. Everywhere, streets are cordoned off and the grind of bulldozers shatters the familiar buzz of traffic. Little Italy, Bayview, Locust Point, Butcher’s Hill, Brewer’s Hill, even Union Square, home of the old cynic, is back in fashion again.
“You want to buy where there’s building going on,” says Dave, nudging his gleaming white SUV around a grimy corner not too far from Druid Hill Park. Nearby, a couple of construction workers are swaying on a scaffold in front of the house, opposite a three-story brick row house with windows boarded up. Municipal notices are plastered like band-aids over the house fronts.
Dave is showing me a house on the outskirts of Reservoir Hill which is “hot, hot, hot,” according to the real estate web site where I first saw it. Dave is a broker officially, but actually, he tells me, he does this because it helps his own investing. He grew up in Baltimore and then spent ten years in California where he lived through the dotcom crash. Shortly after, he pulled his money out, clubbed together with some friends, and started buying property in San Francisco.
“Then I moved back here,” he smiles wolfishly. “It was dirt cheap compared to SF.”
But even the dirt is expensive now. The Housing Authority of Baltimore pimps burnt-out shells in drug-shadowed ghettos for a small fortune. A hundred grand gets you a dank, rotting hieroglyph, a skeleton with gouged out eyes and a deadline — two years and two hundred grand more in rehab work to be completed as specified. The city is getting tough with delinquent landlords, finally. All down St. Paul Street and Calvert, near the railway station, there are notices to repair… or else. Last time round, the city sold the boarded up homes to individual investors, but it didn’t work. One rehab wasn’t enough to pull up a block, so the little guys gave up and became absentee landlords. It wasn’t worth it to them. Then the drug gangs moved in and the middle class fled. This time around, the BHA has got wise. The houses are being offered in blocks to scare away the small fry and get in people who mean business. Eight shells on North Avenue in a package. A block near the Greenmount cemetery. Even the shadiest of neighborhoods have catchy little monikers — Sandtown, Old Goucher, Marble Hill.
And people are buying. Greenmount Avenue, once the bright line between the drug havens and respectable Baltimore, is now porous. It’s not just the city which is buying and improving housing stock either; Johns Hopkins University, bulging with massive donations, is throwing its turgid coils past Greenmount, pushing the drug line back. The Hospital area used to be a war zone. Today, North Broadway is another hot neighborhood, a future prospect for hospital employees. South, near the Bayview campus, modest row-houses are nearly two hundred thousand; further north, near the main campus, in what used to be the student ghetto of Charles Village, small row-houses are over 200, the bigger ones between 300 and 400 and on the main thoroughfare, Charles Street, half a million. Charles Village is no ghetto anymore. The old dormitories have been rebuilt stylishly, a Xando’s and Ruby Tuesday at the corner, dark green awnings plump and cool in the heat. Hopkins has cleared a flourishing corridor through the city, but elsewhere? Who knows.
There is no Xando’s on Druid Hill Drive for sure. Litter floats across the street. A surly looking man slumped on the steps of a house blows smoke out of the corner of his mouth and narrows his eyes at us. The SUV gleams temptingly. I give a nervous glance back. “Think it’ll be okay?” “Oh yeah,” says Dave. I wonder how many times he has been down this street to show the place. In the ad it was a graceful neglected marvel, painted a delicate teal with a decorative tin roof inside and five fireplaces. Reservoir Hill and the fringes were once the home of the great merchants of Baltimore, and their streets have some of the grandest and most ornamental architecture in the city. Flourishes of woodwork, imposing marble mantels and floors, elegant spiral staircases, swirling wrought-iron work. In the 20s, Gertrude Stein once lived in a mansion here. Then things changed. The residents became absentee landlords, the mansions were chopped up into apartment blocks, drugs took over, and the neighborhood fell into the shadows.
Until the last three years. Suddenly the poor cousin of Bolton Hill is selling for half a million.
Dave fumbles with the lock box and then pushes the door in. The place is dark and there is an overpowering smell of mold. He switches on his torch. “Watch your step.” The floors are crisscrossed with planks and the walls have been stripped down to the frame. The torchlight bounces off the wood and onto a black tendril of exposed wire. Through the fragment of a door, we can see what must be the kitchen area, although there are no appliances to prove it. The torchlight gestures toward the stairs and I follow. The contours of the stairs, still gracious, sweep us upward to the next floor.
“What do you think?” he asks as I look around at the torn walls, the gaping emptiness of the roof, the piles of plaster and rubble, the broken frames that lean menacingly toward us in the gloom.
“I know it looks like a lot of work now, but seriously, you could do it for maybe, eighty, ninety.”
A hundred plus ninety.
“Across the street is selling for two fifty,” he adds. How long would it take? “Three — four months.” He shrugs. “Maybe faster. Depends on who you know.”
Who I know.
I know Ralph, the handyman at my old condo. But Ralph is retired and likes to sleep in or play b-ball with his grandson. I wasn’t certain he was the right person to turn me a profit on a broken down mansion in Druid Hill.
And if it took longer? “Then you just sell it next spring.” That wolf smile again.
Next spring? The bottom might drop out of this thing by then.
“Don’t you think we might be in a bit of a bubble here?” I asked, as we gingerly picked our way through the debris and climbed down the stairs back to the front door. Outside, the sun was still beating down. “Naah. Way too much demand. This stuff goes on the market and it’s gone in days. Too many people around now.”
If so, they weren’t in Druid Hill. The smoker had left leaving his smoke hanging like a Cheshire smile in the hot air.
“People from DC, you mean?” Everyone was talking about them. That’s why the area around the train station was so hot suddenly. A few years back, you would have risked being shot if you’d been out there in the night. Now, someone had bought up even that raggedy old Chesapeake restaurant, fixed it up, and was trying to sell it. People were talking of trendy cafes and artsy shops. A place to eat after the theater. Night life. Station North, they called it now. And even four streets away, past the drug line of Greenmount, houses were selling steadily in Greenmount West.
Live Baltimore, the housing campaign, has signs all over Union Station in DC about it. Pictures of a solitary potted plant and the caption, “If you call this a yard, you need to get out of DC.” Designed by a Baltimore ad agency, the Campbell Group, Live Baltimore has been selling the idea to Washingtonians of all stripes but especially mid-level managers, administrators, librarians, people who work in DC but don’t make the big salaries that the law firms and businesses pay. A townhouse that would cost a million in DC is “only” half a million here. And with Penn Station connected at the umbilicus by the speedy little MARC train, Baltimore is now a DC suburb. Or so they say.
Too bad they forget to mention that the half-a-million dollar mansion is only a street or two away from an open-air market for drugs. Or that Patterson Park, now selling for a quarter of a million, used to be a row of flophouses. Or that the drug problem isn’t going anywhere soon. Or the school problem. Or the jobs problem. Or the race problem.
The Baltimore problem.
We got into the SUV. “Look — there’s always a risk,” he said, pulling out into the street. “Nothing’s guaranteed in life. But you can see this is for real. Everyone wants in on this. It’s not coming down anytime soon. Maybe never.”
“Didn’t they said that about the tech stocks too?”
He shook his head. “You really are pessimistic, y’know? A home isn’t a piece of paper. There’s value there. The people who saw that value and bought in five years ago, they had the vision.”
Five, ten, fifteen years ago, those Druid Hill houses couldn’t be given away. And the landlords boarded up the windows and let them sit vacant for years, eyesores that destroyed the neighborhood. I knew an artist who fell in love with one of those beautiful ruined ghosts and sunk his savings trying to breath life back into it. After ten years of smashed windowpanes, broken steering wheels, reefers and condoms tossed into his yard, he gave up, sold for a loss, and went to France. He had vision. I wondered what he was thinking now.
“You better buy now,” said Dave, as we swung back onto North Avenue. “Look at the construction.” He was right. Right across from Penn Station, land had been cordoned off for condominiums. “Station North Town homes,” said the sign. “Starting in the two hundreds.” They’d probably all been sold and sold again, though there was not yet a brick in place. That fast commute to DC was going to lure a whole new population into the city and landlords were ready for them. Yuppie analysts driven out of New York by the prices. Californian dotcom couples hardened by million-dollar sticker tags for modest bungalows. Baltimore looked cheap to them. Baltimore was cheap for them. They weren’t making Baltimore salaries. After 9/11, the federal government began hiring with a vengeance — computer analysts, accountants, engineers. In DC’s bedroom communities, in Virginia and Maryland, recession never hit. The defense giants, Northrop, Lockheed, Boeing, and the newcomers, Titan, CACI, began hiring as though their lives depended on it — which in a way they did — and the money was great.
The money is still great. You only have to skim the Washington Post’s online ads to realize where all the housing money is coming from. Bush has created the biggest government program since FDR.
And it’s all going to the middle-class and upper middle-class who want to put it someplace where it will grow, not crash and burn like the stock market. More and more money looking for a safe hideout. And what’s safer than land? What’s easier to understand? The primal urge to own your own dirt, to put a roof over your head. Land’s the only thing that lasts, Katy Scarlett….
Dave handed me a card. A mortgage banker. “She’s good,” he says confidentially. “Someone who’ll give you a fair deal. Not just looking for a commission.”
Were there any fair deals left? The real estate web sites consider Baltimore “fair value” now, not overvalued but not undervalued anymore, either. But the old-timers aren’t so certain. They’ve lived through the winds of gentrification twice before and each time things have sunk back. Of course, there’s more money coming in now — from the federal government, from private developers, from the city. But if you look closer, you begin to wonder.
SCOPE, the city program offering rehab properties, sounds like a public-spirited effort — Selling City Owned Properties Efficiently. What could be wrong with that? But what the efficient part only hints at is the raw truth that the city makes a profit when it sells those properties through the commercial agents. The city makes money; the realtors who get to broker the deal make money. But the homeowners who buy and then put in the mandated hundred or two hundred thousand dollars worth of work are spending money and spending it on spec., because there’s no guarantee that prices are going to keep going up, although that’s the chorus from everyone — the banks, the realtors, the mortgage brokers, the newspapers. And if prices fall 5%, or god forbid 20%, as they did after the last few spasms of gentrification, what happens to that two or three hundred grand you owe on a gutted shell that no one can live in but on which you still have to pay mortgage and taxes?
Shells for a shell game….
The greater fool theory is in full throttle. People trying to buy and sell before they get left holding the bag. With New York Times bestsellers salivating over an impending real estate crash, the hot potato jumps from hand to hand quicker and quicker, buyers flipping before the ink gets cold on the deal. And they’re making money. Baltimore properties are up on average around 20% a year over the last few years.
“I wouldn’t want to put much money down,” I say hesitantly. Not to worry, I didn’t need any money down, it seemed. 100% financing — hadn’t I heard of it?
Apparently anyone with a pulse can get a loan. Appraisers boost house values — appraisal fraud is at an all-time high — but it keeps everyone happy; the banks make loans based on the inflated values knowing that the loans aren’t any good, only it doesn’t matter because they’re going to get sold off in packages as securities; the buyers borrow money they don’t plan to return because they’re going to turn a quick profit by selling fast; the investors — many of them foreign — buy the packaged securities because with the dollar falling American real estate looks cheap.
An elaborate, delicate house of cards teetering on disaster.
“I don’t have much of a credit history,” I falter. His eyes shift away. “But I do have savings.” They brighten.
In this intricate leveraged game, cash — real hard cash — is in short supply in America, even though, ironically, it’s an excess of liquidity in international markets that’s driving the assets boom at home.
“That helps,” he says. “The more you can put down, the more house you can buy.”
But how much house do I want to buy? A single woman, I don’t really need a house, but if rents go the way prices are going, I might soon be as priced out of the rental market as I am out of the housing market. A house isn’t a home to me, really, but a hedged bet on the market. Commodities are not something a novice can easily get into, and aren’t commodities taking a beating this quarter anyway? Gold has been up for some time, but might be on its way down. Your average savings account isn’t paying more than three percent. Bonds — too much complicated math. Short of buying jewelry or stuffing the mattress, land’s the answer.
So, how much land does a man need? Tolstoy once asked the question and answered it. Six feet. Enough to die in.
But the American mortgage industry has no use for parsimonious solutions, however elegant. Six feet of house will not get them interested in you. You have to borrow beyond a certain amount, and in most cases you’ll be slapped with a penalty if you pay back too early. Seems like they need to make the loan more than you need to borrow the money.
Having savings doesn’t help either. They don’t want to know you have the money to pay them back. They’d rather have proof that you’re used to the drip-drip of intravenous credit. They want you brain-dead and hooked up to their monthly payments. They need you playing their lethal little game. They need you to be one more sweaty little Sisyphus, shoulder to the rock.
And with the dollar plummeting, you don’t know how not to be. If you don’t buy, you risk being left behind as prices thunder away, pulverizing your savings into the dust. If you buy at these inflated prices, you know you’ve gifted over a chunk of your savings to someone who bought before 1999 and you’d be doing it just when the market has probably topped out and is ready to fall. To those who have, more will be given; to those who lack, what little they have will also be taken away. So says the Gospel somewhere, and the Bush government is working overtime to prove it. In fact, the current housing boom is the biggest re-distributor of wealth since the New Deal, only this time it’s from those who haven’t homes to those who have.
Not that many homeowners, unless they’re ready to retire, can directly cash in their inflated assets by selling. For a conservative minority, the housing boom has only meant another reason for the city to raise property taxes, forcing some of those on fixed incomes out of their overpriced digs. But for the vast majority of homeowners, the new boom has turned their homes into an ATM card through refinancing and home equity loans that allow them to tap the appreciation for new credit. And the creditors are lining up to give the junkies their fix.
It’s predatory banking and it’s no different from what sleazy credit card companies do when they mass-mail plastic purchasing to penniless immigrants, students in debt, grandmas on fixed incomes, the struggling poor, and those on the verge of bankruptcy. They want you to go under. And when you do, they want to be there to collect.
Loan sharking of the worst kind. But at least you could easily pick out the old-time loan sharks. They were the polyester-suited, gold-chained hustlers on the corner, charging you 20 percent as they forked over a billfold with their greasy pinkie-ringed paws. But today’s loan shark is camouflaged as your neighborhood banker in wire-rimmed glasses and button-down shirt, ready at your elbow with a no-money down, 100% financed, adjustable rate mortgage under 4%. There’s even negative amortization. That’s right. They’re willing to pay you to borrow money. Your monthly payment is kept artificially low because not only are you not paying the principal you borrowed, you’re not even fully paying the interest. So the amount you’re borrowing actually keeps rising. And the more interest rates rise, the bigger that amount becomes until at some point the bank decides to pull the cozy rug from under your feet and your monthly payment skyrockets to cover both P and I. That’s when all those $30,000 wage-earners brandishing $300,000 plus homes bite the dust. All over the country, it’s already beginning. Foreclosures are up dramatically this year. In Allegheny County in Pennsylvania, officials talk about a Depression era level. If it hasn’t brought prices down any, it’s only because these days the banks are holding back and selling through the realtors not just to recoup costs, but at profit-making prices. It’s only because at swanky auction houses like Alex Cooper in Baltimore, properties that go to auction are frantically bid up by greedy speculators and their shills who want to keep the game going.
But somebody knows what everybody pretends they don’t — that someday this is all coming down. Otherwise, why have so many realtors sold their homes and begun to rent? Why have the bankruptcy laws been tightened up effective from October this year just as interest rates start the slow but inexorable climb that will make defaults cascade into an avalanche?
“You’ve got to believe,” says Dave, watching me finger the card slowly before I put it in my wallet. “This city is only going to get better.” He opens the door and I slide out. He smiles, the little sunbursts on his green and yellow shirt smile, even the SUV, opulently, extravagantly energy-inefficient, smiles. I feel the spoilsport I am.
I think suddenly about how the stock market “crashed” and nothing really changed — not so many jobs maybe, but no bread lines or gas lines, people still spending and living as they’ve always done. I think about all the doomsday predictions before the war, and yes, it’s a mess but the Middle East didn’t implode, nuclear war hasn’t broken out. I think about the dollar bears and how, this spring, the Euro has fallen instead. America acts and the world falls in line… for the most part, anyway. A Chavez here, a Kim Il there, a little grumbling, but no more. I remember someone saying, it doesn’t pay to bet against America. I wonder with a sinking feeling if I’ve been wrong all along.
Dave shouts out, “You’ll see!”
Then, just for a second, I do see. How it works, what it lives on, this country of perpetual optimism. As he waves to me from the car, he looks suddenly boyish, quintessentially American, puer aeternus despite the first bulge of middle age.
And it’s I who feels old suddenly and somehow cheated. Not because I didn’t buy a house four years ago, but because having grown up in the third world, in an old culture, I’ve never bought and could never buy what seems to ultimately drive this country and fuel its endless consumption, its bountiful credit — I’ve never made a down payment on that relentless waking dream in which it sleepwalks toward the future, the brittle dream that tomorrow is always better than today….”
Lila Rajiva, “Playing Monopoly in Charm City,” Dissident Voice
“In social insects, errors and randomness are not “bugs”; rather, they contribute very strongly to their success by enabling them to discover and explore in addition to exploiting. Self-organization feeds itself upon errors to provide the colony with flexibility (the colony can adapt to a changing environment) and robustness (even when one or more individuals fail, the group can still perform its tasks).
With self-organization, the behavior of the group is often unpredictable, emerging from the collective interactions of all of the individuals. The simple rules by which individuals interact can generate complex group behavior. Indeed, the emergence of such collective behavior out of simple rules is one the great lessons of swarm intelligence.
This is obviously a very different mindset from the prevailing approach to software development and to managing vast amounts of information: no central control, errors are good, flexibility, robustness (or self-repair). The big issue is this: if I am letting a decentralized, self-organizing system take over, say, my computer network, how should I program the individual virtual ants so that the network behaves appropriately at the system-wide level?”
Comment:
As usual social and economic theory are way behind science and technology. But then, they don’t have the DC monolith getting in their way…
You don’t have to be a genius to manage your money.
That’s the take from a new study of intelligence and wealth, which looked at thousands of baby boomers and found that those with average and low IQs were just as good at saving money as those with high IQs. At the same time, smart people were just about as likely to run into credit problems.
“If I were a person with low intelligence, I shouldn’t believe that I’m handicapped in any way, shape or form in achieving wealth,” said the study’s author, Jay Zagorsky, a research scientist at Ohio State University’s Center for Human Resource Research. “Conversely, if I’m sort of high intelligence, I shouldn’t believe I have any kind of special advantage.
And you don’t need to earn a lot, to keep a lot or become an financially independent. I know people with $200,000 incomes who are broke or worse. Can’t say I feel too sorry, unless they were sick. And I know people who make under $25,000 who own their own homes, have stock investments, no debt and live reasonably well. Some of this is up to individual self-discipline and the ability to make sensible choices.
That said, it doesn’t help when the financial and professional classes (bankers, accountants, CPA’s, lawyers) abandon professional ethics and set out to snooker people…
Update: I’m adding the section in “Mobs” that I wrote about the British empire.
Here’s the section, it’s in “Flattening the Globe,” Chapter 10 (my solo chapters in the book are 4, 5, 10, 11, with one section in 4 by Bonner. 3, 9, and 17 are joint, and I wrote sections within Bonner’s solo chapters, 7,12, 15).
The Angelic Empire
Globalization gurus like Friedman are always quick to point out that the phenomenon is not new. Some leading pontificators on the subject think we are in the third wave of it, the first having begun in the Age of Exploration, with Columbus and Magellan. Others think globalization only goes back to the heyday of the British Empire, in the mid nineteenth century. What all of them are united on, however, is that it is a good thing because it is free trade between free people. And it is an inevitable thing, they say, because it is a force of nature, a call of destiny, a historical imperative.
It is The Way Things Ought to Be.
When pushed further, the gurus will tell you why they think this. They will tell you that globalization is also The Way Things Have Been Before. They will point out to you the British Empire. That, they will say, is what globalization looked like once. That’s how it worked once. And since what the Romans were to the Greeks, we are to the British, that’s also where we should be heading. After all, wasn’t the British Empire, indisputably, A Good Thing?
Was it?
Were the British the one (and only) angelic imperialists? We are not in a position to say, one way or other, nor do we think we will ever be in such a position, but we offer a caveat to the argument itself: If what we had under the British Empire was globalization, then whatever globalization was, it was not free trade. And we also offer a corollary to the caveat: If what we are looking for is free trade, then the British Empire is not what we should be imitating. For, whatever trade it was that took place under the Empire was from the beginning not free but wrapped up in force…and fraud…plenty of it.
Take the way in which the Indian state of Bengal passed into the hands of the East India Company. The salient fact was that a clerk-turned soldier-adventurer, Robert Clive, managed to defeat a vastly larger Bengali army. How? Was it by superior skill…advanced technology? Not at all. The Muslim ruler (Nawab) of Bengal had insulted a fabulously wealthy Hindu merchant, who controlled the flow of goods to the ports of Bengal. In revenge, the merchant led a group of his fellow traders to talk the Nawab’s generals into negotiating with the English. The treacherous general threw away the Battle of Plassey and received the ruler-ship of Bengal in return. The Company then became the rent collector for the area. Within a few years, they acquired the right to collect revenue for the whole of North-East India[i]
Plassey was the cornerstone of British imperial rule and it made Clive one of the icons of the Empire. But, it was simply a fraud…the outcome of Clive’s treachery toward the local ruler whom he had first befriended.
As for the benevolence of the British empire, consider this: In the first half of the 19th century, there were seven famines in India, leading to a million and a half deaths. In the second half, after Victoria was crowned Empress of India (1877), there were 24 (18 between 1876 and 1900), causing over 20 million deaths (according to official records), up to 40 million according to others, or between 12-29 million, according to a recent scholar.[ii]
As early as 1901, W. R. Digby, noted in “Prosperous British India” that “stated roughly, famines and scarcities have been four times as numerous, during the last thirty years of the 19th century as they were one hundred years ago, and four times as widespread.”
The British mission civilisatrice took perverse forms. During the famines of 1877 and 1878, the British viceroy, Lord Lytton actually had merchants export millions of hundredweight of wheat to England. Lytton, whose father was the well-known novelist, Edward Bulwer-Lytton, seems to have been certifiably insane. He passed “The Anti-Charitable Contributions Act” of 1877, which prohibited, “at the pain of imprisonment,” “private relief donations that potentially interfered with the market fixing of grain prices.” Those who worked in the labor camps were reportedly fed less than the inmates of Buchenwald. Women and children were “branded, tortured, had their noses cut off, and were sometimes killed,” – a circumstance regarded with equanimity by the British governor, who subscribed to the Malthusian notion that famine was nature’s way of keeping the Indians from over breeding. Meanwhile, funds were available for extravagant celebrations of Victoria’s investiture as Empress of India.[iii] And the viceroy even ran “a militarized campaign” to tax those who survived to raise funds for the empire’s ongoing war in Afghanistan. So finally, even in the North West – which had crop surpluses – 1.25 million people died.
Yet, so powerful are myths that even the victims buy into them. Long after India became independent, we recall a grand-uncle reminiscing fondly about his days recruiting for the famed British army, although by then its history was already studded with imbecilities like the invasion of Kabul in 1842. The invasion is legendary now for the incompetence of its leader. It should be remembered equally for the incompetence of those who appointed him in the first place. The appointment casts some doubts about the pukka-ness of the pukka British administration. Major-General William Elphinstone, the hapless commander, actually tried to turn down the job, but it was no use. The Governor General of India – at the time Lord Auckland – was determined he should go. He went, and it cost him his life.
“Elphy Bey” (bey is the Turkish term for commander) was a gentle, doddering old fool. And coming apart at the seams. Just sixty, the ailments he suffered from could have filled a small hospital ward. He was mentally incompetent…and incontinent……flatulent…. and gouty…and his rheumatism was so bad that he was crippled and had to be carried everywhere on a litter. And to top it off, his arm was in a sling. Afghanistan, with its ferocious climate and even more ferocious warriors, was no place for the soft, senile general who had been retired on half-pay since acquitting himself – creditably it seems –at Waterloo. But Auckland was determined to take Afghanistan, and thus, in 1839 the Afghan amir, Dost Mohammed, was driven into hiding. He was replaced by another incompetent, Shah Suja and British garrisons were left at the capital, Kabul, as well as all along the route back to India.
Unfortunately, the new cantonment at Kabul provoked the suspicion of the Afghan rebels, led by the old amir’s son. The British were there to stay for a while, he thought, and began to look for ways to strike at them.
He did not have to look for long. The cantonment was located in a low swampy area, which presented an easy target to the rebels swarming in the hills and forts around. The circumference of the place was too great to be defended and all the supply stores were outside. The British might just as well have sent out an engraved invitation to the enemy to seize their supplies and starve the population inside. Which is precisely what happened.
“You will have nothing to do here. All is peace,” opined the outgoing commander when Elphy Bey and his main man, the brutal and belligerent Brigadier John Shelton, arrived. It was a singularly inaccurate prediction.
Not long thereafter, a brigade returning to India was besieged. Then, when Elphinstone’s health took a turn for the worse and the Governor General had to send out a replacement for him, he too was attacked and forced to hole up in a fortress.
The Kabul cantonment seems to have turned into the nineteenth century version of Iraq’s Green Zone. No one could go outside without drawing fire, and even inside, soldiers were constantly being gunned down.In short order, the British Resident and his staff were polished off by the rebels. Then, the supply stores were pillaged, leaving those inside the cantonment with only about three days worth of food.
Not content with a broken arm, poor Elphy tried mounting his horse and fell off. Then he hurt his leg, when the beast decided – perhaps with some justification –to step on it. That may have sent the old man straight out of his mind, because he now started begging for more ammunition to be sent around, although there was actually enough left for a year. By then, all he knew about the military situation was what random civilians were telling him, for Shelton was keeping mum and treating him with unrelenting scorn. The old man had to make do with Councils of War where almost anyone would wander in and say anything they wanted. Junior officers lectured their seniors. Civilians offered their advice unsolicited to the soldiers. In the midst of it all lay Shelton on his bedding, snoring… to show his contempt for the whole proceeding.
But Shelton was hardly a military genius himself.Once, he led his men to no more than 20 paces from the Afghans and fired. When not one enemy soldier, or even horse, was killed, the Brits were forced to turn and flee. Another time, the idiot ordered his soldiers to fall into squares so concentrated and tidy that the Afghans, who were experts at hitting targets that were scattered and hidden, thought they were getting a Ramadan gift. Each of their bullets sent a small handful of the poor Englishmen tumbling like bowling pins. Sheldon, who had compounded this criminal performance by taking with him only one cannon when British Army regulations – with good reason – mandated two, soon found it too hot to operate. He had to fall back on muskets. But these were so poorly handled that the Afghans actually managed to get to point-blank range unscathed. By then the Shelton’s men were down to throwing stones. But, their wretched leader still held on pig-headedly. Finding themselves being picked off one by one, the soldiers finally came to their senses and fled, pointedly ignoring even Elphy’s attempts to rally them. The punch line of the whole business came when they learned that they had been driven back not by Afghanistan’s notorious warriors but by a bunch of Kabul shopkeepers.
The farce degenerated further. Elphinstone got himself shot…of all places, in the buttocks. The British Envoy, unable to stand things any longer, took it on himself to make nice to the head of the rebels. For his pains, he was assassinated and his head and torso skewered like a kebab and paraded through Kabul. Elphy, a world-class ditherer, now made the worst decision yet of his life. In return for Afghan guarantees of safe conduct he agreed that the cantonment would return to Jalalabad in India. They would go through the Khyber Pass, the infamous point of entry of every conqueror….in mid winter.
And so, 16,000 men, women, and children marched through snow a foot deep, on the orders of a senile general. Along the way, tribesmen from every neighboring village, including children, taunted, harassed and picked them off like ripe plums. At the end of all the hacking and butchering, Elphinstone was dead and so was every European except the Surgeon-General. But the British got their revenge in time. Elphinstone’s replacement, General Nott, finally extricated himself from his corner, marched to Kabul and burned down its famous bazaar.
Still, even then, the luckless Elphy could get no peace. On the way to Jalalabad, his coffin, decorously prepared by the new amir, was ambushed by tribesmen. They cracked it open, stripped the body and pelted it with stones. The amir had to send out another expedition before the dimwitted general was allowed to go to his rest with full…and completely undeserved… military honors.[iv]
The story of Elphy Bey was not unusual. Wherever the empire-builders succeeded, it was most often in spite of incompetence. It was force and fraud…and some luck… not genius. If there is a grand design in anything they did, it eludes us.
[i]Asia and Western Dominance: A Survey of the Vasco Da Gama Epoch of Asian History, K. M. Panikkar, London: George Allen & Unwin Ltd., 1953, pp. 78-9.
[ii]Late Victorian Holocausts: El Nino, Famines, and the Making of the Third World, Mike Davis, New York: Verso, 2001.
[iv]The Brassey’s Book of Military Blunders, Geoffrey Regan, Washington, D.C., Brassey’s, 2000, pp. 31-34.
The Angelic Empire
Globalization gurus like Friedman are always quick to point out that the phenomenon is not new. Some leading pontificators on the subject think we are in the third wave of it, the first having begun in the Age of Exploration, with Columbus and Magellan. Others think globalization only goes back to the heyday of the British Empire, in the mid nineteenth century. What all of them are united on, however, is that it is a good thing because it is free trade between free people. And it is an inevitable thing, they say, because it is a force of nature, a call of destiny, a historical imperative.
It is The Way Things Ought to Be.
When pushed further, the gurus will tell you why they think this. They will tell you that globalization is also The Way Things Have Been Before. They will point out to you the British Empire. That, they will say, is what globalization looked like once. That’s how it worked once. And since what the Romans were to the Greeks, we are to the British, that’s also where we should be heading. After all, wasn’t the British Empire, indisputably, A Good Thing?
Was it?
Were the British the one (and only) angelic imperialists? We are not in a position to say, one way or other, nor do we think we will ever be in such a position, but we offer a caveat to the argument itself: If what we had under the British Empire was globalization, then whatever globalization was, it was not free trade. And we also offer a corollary to the caveat: If what we are looking for is free trade, then the British Empire is not what we should be imitating. For, whatever trade it was that took place under the Empire was from the beginning not free but wrapped up in force…and fraud…plenty of it.
Take the way in which the Indian state of Bengal passed into the hands of the East India Company. The salient fact was that a clerk-turned soldier-adventurer, Robert Clive, managed to defeat a vastly larger Bengali army. How? Was it by superior skill…advanced technology? Not at all. The Muslim ruler (Nawab) of Bengal had insulted a fabulously wealthy Hindu merchant, who controlled the flow of goods to the ports of Bengal. In revenge, the merchant led a group of his fellow traders to talk the Nawab’s generals into negotiating with the English. The treacherous general threw away the Battle of Plassey and received the ruler-ship of Bengal in return. The Company then became the rent collector for the area. Within a few years, they acquired the right to collect revenue for the whole of North-East India[i]
Plassey was the cornerstone of British imperial rule and it made Clive one of the icons of the Empire. But, it was simply a fraud…the outcome of Clive’s treachery toward the local ruler whom he had first befriended.
As for the benevolence of the British empire, consider this: In the first half of the 19th century, there were seven famines in India, leading to a million and a half deaths. In the second half, after Victoria was crowned Empress of India (1877), there were 24 (18 between 1876 and 1900), causing over 20 million deaths (according to official records), up to 40 million according to others, or between 12-29 million, according to a recent scholar.[ii]
As early as 1901, W. R. Digby, noted in “Prosperous British India” that “stated roughly, famines and scarcities have been four times as numerous, during the last thirty years of the 19th century as they were one hundred years ago, and four times as widespread.”
The British mission civilisatrice took perverse forms. During the famines of 1877 and 1878, the British viceroy, Lord Lytton actually had merchants export millions of hundredweight of wheat to England. Lytton, whose father was the well-known novelist, Edward Bulwer-Lytton, seems to have been certifiably insane. He passed “The Anti-Charitable Contributions Act” of 1877, which prohibited, “at the pain of imprisonment,” “private relief donations that potentially interfered with the market fixing of grain prices.” Those who worked in the labor camps were reportedly fed less than the inmates of Buchenwald. Women and children were “branded, tortured, had their noses cut off, and were sometimes killed,” – a circumstance regarded with equanimity by the British governor, who subscribed to the Malthusian notion that famine was nature’s way of keeping the Indians from over breeding. Meanwhile, funds were available for extravagant celebrations of Victoria’s investiture as Empress of India.[iii] And the viceroy even ran “a militarized campaign” to tax those who survived to raise funds for the empire’s ongoing war in Afghanistan. So finally, even in the North West – which had crop surpluses – 1.25 million people died.
Yet, so powerful are myths that even the victims buy into them. Long after India became independent, we recall a grand-uncle reminiscing fondly about his days recruiting for the famed British army, although by then its history was already studded with imbecilities like the invasion of Kabul in 1842. The invasion is legendary now for the incompetence of its leader. It should be remembered equally for the incompetence of those who appointed him in the first place. The appointment casts some doubts about the pukka-ness of the pukka British administration. Major-General William Elphinstone, the hapless commander, actually tried to turn down the job, but it was no use. The Governor General of India – at the time Lord Auckland – was determined he should go. He went, and it cost him his life.
“Elphy Bey” (bey is the Turkish term for commander) was a gentle, doddering old fool. And coming apart at the seams. Just sixty, the ailments he suffered from could have filled a small hospital ward. He was mentally incompetent…and incontinent……flatulent…. and gouty…and his rheumatism was so bad that he was crippled and had to be carried everywhere on a litter. And to top it off, his arm was in a sling. Afghanistan, with its ferocious climate and even more ferocious warriors, was no place for the soft, senile general who had been retired on half-pay since acquitting himself – creditably it seems –at Waterloo. But Auckland was determined to take Afghanistan, and thus, in 1839 the Afghan amir, Dost Mohammed, was driven into hiding. He was replaced by another incompetent, Shah Suja and British garrisons were left at the capital, Kabul, as well as all along the route back to India.
Unfortunately, the new cantonment at Kabul provoked the suspicion of the Afghan rebels, led by the old amir’s son. The British were there to stay for a while, he thought, and began to look for ways to strike at them.
He did not have to look for long. The cantonment was located in a low swampy area, which presented an easy target to the rebels swarming in the hills and forts around. The circumference of the place was too great to be defended and all the supply stores were outside. The British might just as well have sent out an engraved invitation to the enemy to seize their supplies and starve the population inside. Which is precisely what happened.
“You will have nothing to do here. All is peace,” opined the outgoing commander when Elphy Bey and his main man, the brutal and belligerent Brigadier John Shelton, arrived. It was a singularly inaccurate prediction.
Not long thereafter, a brigade returning to India was besieged. Then, when Elphinstone’s health took a turn for the worse and the Governor General had to send out a replacement for him, he too was attacked and forced to hole up in a fortress.
The Kabul cantonment seems to have turned into the nineteenth century version of Iraq’s Green Zone. No one could go outside without drawing fire, and even inside, soldiers were constantly being gunned down.In short order, the British Resident and his staff were polished off by the rebels. Then, the supply stores were pillaged, leaving those inside the cantonment with only about three days worth of food.
Not content with a broken arm, poor Elphy tried mounting his horse and fell off. Then he hurt his leg, when the beast decided – perhaps with some justification –to step on it. That may have sent the old man straight out of his mind, because he now started begging for more ammunition to be sent around, although there was actually enough left for a year. By then, all he knew about the military situation was what random civilians were telling him, for Shelton was keeping mum and treating him with unrelenting scorn. The old man had to make do with Councils of War where almost anyone would wander in and say anything they wanted. Junior officers lectured their seniors. Civilians offered their advice unsolicited to the soldiers. In the midst of it all lay Shelton on his bedding, snoring… to show his contempt for the whole proceeding.
But Shelton was hardly a military genius himself.Once, he led his men to no more than 20 paces from the Afghans and fired. When not one enemy soldier, or even horse, was killed, the Brits were forced to turn and flee. Another time, the idiot ordered his soldiers to fall into squares so concentrated and tidy that the Afghans, who were experts at hitting targets that were scattered and hidden, thought they were getting a Ramadan gift. Each of their bullets sent a small handful of the poor Englishmen tumbling like bowling pins. Sheldon, who had compounded this criminal performance by taking with him only one cannon when British Army regulations – with good reason – mandated two, soon found it too hot to operate. He had to fall back on muskets. But these were so poorly handled that the Afghans actually managed to get to point-blank range unscathed. By then the Shelton’s men were down to throwing stones. But, their wretched leader still held on pig-headedly. Finding themselves being picked off one by one, the soldiers finally came to their senses and fled, pointedly ignoring even Elphy’s attempts to rally them. The punch line of the whole business came when they learned that they had been driven back not by Afghanistan’s notorious warriors but by a bunch of Kabul shopkeepers.
The farce degenerated further. Elphinstone got himself shot…of all places, in the buttocks. The British Envoy, unable to stand things any longer, took it on himself to make nice to the head of the rebels. For his pains, he was assassinated and his head and torso skewered like a kebab and paraded through Kabul. Elphy, a world-class ditherer, now made the worst decision yet of his life. In return for Afghan guarantees of safe conduct he agreed that the cantonment would return to Jalalabad in India. They would go through the Khyber Pass, the infamous point of entry of every conqueror….in mid winter.
And so, 16,000 men, women, and children marched through snow a foot deep, on the orders of a senile general. Along the way, tribesmen from every neighboring village, including children, taunted, harassed and picked them off like ripe plums. At the end of all the hacking and butchering, Elphinstone was dead and so was every European except the Surgeon-General. But the British got their revenge in time. Elphinstone’s replacement, General Nott, finally extricated himself from his corner, marched to Kabul and burned down its famous bazaar.
Still, even then, the luckless Elphy could get no peace. On the way to Jalalabad, his coffin, decorously prepared by the new amir, was ambushed by tribesmen. They cracked it open, stripped the body and pelted it with stones. The amir had to send out another expedition before the dimwitted general was allowed to go to his rest with full…and completely undeserved… military honors.[iv]
The story of Elphy Bey was not unusual. Wherever the empire-builders succeeded, it was most often in spite of incompetence. It was force and fraud…and some luck… not genius. If there is a grand design in anything they did, it eludes us
[i]Asia and Western Dominance: A Survey of the Vasco Da Gama Epoch of Asian History, K. M. Panikkar, London: George Allen & Unwin Ltd., 1953, pp. 78-9.
[ii]Late Victorian Holocausts: El Nino, Famines, and the Making of the Third World, Mike Davis, New York: Verso, 2001.
[iv]The Brassey’s Book of Military Blunders, Geoffrey Regan, Washington, D.C., Brassey’s, 2000, pp. 31-34.
ll my writing gives full credit to my co-author. (As an author and former academic I know as well as anyone the dangers of improper attribution, quite apart from the ethics of it)
As always, it was only libertarians on the right who saw through the pretensions of what neoconservatives today avow was the one and only “good” empire — on which America ought to model itself.. In fact, IS modeling itself.
So, let’s take a look at what that empire actually did (caveat: this piece is from the socialist press, so it makes no distinction between the mercantilist policies of today’s capitalism and a real free market; it also tends to simplify the actual interaction of race and religion with state policies — it’s downright wrong on that in some places but the facts are not in dispute):
“Tax collections rose even as millions died of man-made famines. Like Bengal of 1770-72. The East India Company’s own report put it simply. The famine in that province “exceeds all description.” Close to ten million people had died, as Rajni Palme-Dutt pointed out in his remarkable book, India Today. The Company noted that more than a third of the populace had perished in the province of Purnea. “And in other parts the misery is equal.”Yet, Warren Hastings wrote to the directors of the East India Company in 1772: “Notwithstanding the loss of at least one-third of the inhabitants of this province, and the consequent decrease in cultivation, the net collections of the year 1771 exceeded even those of [pre-famine] 1768.” Hastings was clear on why and how this was achieved. It was “owing to [tax collection] being violently kept up to its former standard.”
The Company itself, as Palme Dutt observed, was smug about this. It noted that despite “the severity of the late famine and the great reduction of people thereby, some increase has been made” in the collections.
Between 24 million and 29 million Indians, maybe more, died in famines in the era of British good governance. Many of these famines were policy-driven. Millions died of callous and wilful neglect. The victims of Malthusian rulers. Over 6 million humans perished in just 1876 — when Madras was a hell. Many others had their lives shortened by ruthless exploitation and plunder. Well before the Great Bengal Famine, the report of that province’s Director for Health for 1927-28 made grisly reading. It noted that “the present peasantry of Bengal are in a very large proportion taking to a dietary on which even rats could not live for more than five weeks.” By 1931, life expectancy in India was sharply down. It was now 23.2 and 22.8 years for men and women. Less than half that of those living in England and Wales. (Palme-Dutt.)
Mike Davis’ stunning book, Late Victorian Holocausts, also ought to be required reading in every Indian school. Davis gives us a scathing account, for instance, of the Viceroy Lord Lytton. Lytton was the most ardent free-marketeer of his time — and Queen Victoria’s favourite poet. He “vehemently opposed efforts … to stockpile grain or otherwise interfere with market forces. All through the autumn of 1876, while the kharif crop was withering in the fields of southern India, Lytton had been absorbed in organising the immense Imperial Assemblage in Delhi to proclaim Victoria Empress of India.” The weeklong feast for 68,000 guests, points out Davis, was an orgy of excess. It proved to be “the most colossal and expensive meal in world history.” Through the same week as this spectacular durbar, “100,000 of the Queen Empress’ subjects starved to death in Madras and Mysore” alone.
In fact, barring the scale, it all sounds depressingly like the present. In terms of ideology and principle at least. The Raj nostalgia of today’s neo-liberals is quite heart-felt. .
Cannon fodder
Yes, there’s that, too. British good governance killed more than those tens of millions in famines. Countless numbers of Indians died in wars waged for, by, and against the British. Over 8,000 died in the single battle around Kut in Iraq in 1916. London used them as canon fodder in its desperate search for a success against the Turks after the rout at Gallipoli. When there were no Indians around, the British sacrificed other captive peoples. “Waste the Irish” was the term used by an English officer when sending out troops on a suicidal mission.
In his book Global Capitalism and India, C.T. Kurien gives us a stark example of British-led globalisation from the 1860s. The civil war in America had hurt the flow of cheap, slave-labour cotton to Britain. So the Raj forced the growing of that crop here on a much larger scale than before. “From then on, commercialisation of agriculture continued to gain momentum. Between the last decade of the 19th century and the middle of the twentieth, when food production in India declined by 7 per cent, that of commercial crops increased by 85 per cent. Widespread and regular famines became a recurring feature during this period…….
Again, while the scale is wholly different, the parallels are odd. In June this year, we could see Montek Singh Ahluwalia speaking solemnly of problems, even a crisis in agriculture. (Gee! I wonder who told him.) These headaches, he feels, go to back to the mid-1990s. No mention of who was shaping the ghoulish policies of that — and the present — period. And no questions asked about it in the media. There’s good governance for you. Welcome back, Lytton. All is forgiven, come home.”
I am not fond of the reiteration of the terms “White” and “Christian” in this piece — though color and religion probably exacerbated attitudes toward the peasantry and even to some of the Indian elites. It’s a fact, however, that racial attitudes were strengthened only AFTER the establishment of imperial “good governance” and not in the early history of the British East India company, the entity that began this whole remarkable mercantilist conquest. And obviously I don’t sympathize with the idea that more government interference is the needed prescription.
But still, the Davis’ book is a welcome antidote to the neoconservative glorification of the British empire (as in Niall Ferguson’s poorly-sourced coffee table primer – “Empire.”
Not as dreadful as Hitler or Stalin or Mao is not good, and as you can see, the death toll from the famines was certainly up there as far as sheer numbers go.
You can’t equate intentionally killing vast numbers of people with deaths from famines that were set off at first by climate conditions (hmmm….does Davis have an axe to grind?) and dreadfully worsened by pitiless and incompetent policies. And I’m not really sure what the use of the word ‘holocaust’ was intended to do here, either. An intentionally murderous policy is not the same as horrible mismanagement and callousness. Still, at a certain level, if you go ahead knowing what’s going to happen, you can’t hide behind “intention” after that. Driving a truck through a classroom without “intending” to kill children is something of a self-contradiction, I would think. Collateral damage you calculate before hand and discount counts as intended.
That aside, Davis has shone some light on a history that many people simply don’t know.
When Americans take up the imperial purple from the British empire, they should read about its darker side. However admirable English culture, laws, and civil society may be, they were not made so by empire, but undermined by it.
In fact, as I pointed out, racial feelings only seriously developed after the imperial state had administrative charge of the whole of the country – after very decent, well-meaning British civil servants had been sent out to man the apparatus of government. Many of them were of a much higher caliber than the corrupt merchant adventurers of the earlier centures — true. But the record seems to show that in spite of that, racism really came into the mix only later in imperial history, not earlier. It was a theoretical justification for the overwhelming inequality between rulers and ruled by the nineteenth century.
In any case, whenever it developed (most probably in the 19th century), it seems to me to have been exacerbated by the expansion of the empire.
You can admire British culture, literature and science but still see this. British culture and society are not the same thing as the British empire and they never needed to have been.
No matter what Dinesh D’Souza says.
Mark Twain had it right.
“Now considered the quintessential American novelist, yet he too was called a traitor for opposing the annexation of the Philippines. Twain was thought un-American. ‘Shall we?’ he asked, attacking McKinley’s foreign policy. ‘Shall we go on conferring our Civilization upon the peoples that sit in darkness, or shall we give those poor things a rest? Shall we bang right ahead in our old-time, loud, pious way, and commit the new century to the game; or shall we sober up and sit down and think it over first?’
Update: What about the benefits of British rule, you might ask? There were some. The railroads, for one example. But at what expense did the Indians get railroads? And couldn’t they have got them from, industrialization, free trade (and free trade is NOT mercantilism) and competition just as well? They could have got all the cultural benefits without the murderous sideshow.
Do I deny that culture plays a big role in things? Not at all. What I do deny is that you need an aggressive state to foster the kinds of civic associations and laws needed for culture to grow.
As for Social Darwinism and statism being opposed — you only have to look at policies where the state actively intervenes to prop up the financial classes, while it lets the rest sink or swim — you can have both going on at the same time. The powerful get bail-outs, handouts, while the rest get the law of the jungle. Note – the powerful doesn’t always mean the rich. I mean those who have the state to mop up their mistakes and shove their costs on to other people.
Look – the free market always assumes you already have laws and morality. Where statists are mistaken is to think you need a modern bureaucracy and a standing army for laws and morality to exist…
With all the rah-rahing by analysts over the stock market’s performance, more attention needs to go to the stealth implosion of the dollar in the last couple of weeks — and the resurgence of gold prices. While the MSM and the money professionals try to frame the Bear Stearns mess (2 of its hedge funds were wiped out and a third returned 91% losses) as an isolated event, the shock waves are hitting the credit market as supposedly triple-A bonds are suddenly being rechristened junk..
This looks like the end of a long period of financialization that started a while back..maybe even a decade ago… but while it might not be curtains yet, it’s time to look at your savings in dollars and dollar-denominated assets and figure out how you plan to stop them from being wiped out by currency devaluation:
A good piece about that by Ambrose Evans Pritchard in the Telegraph,
which avoids a hard sell on gold, while staying optimistic about its long term prospects.. .
“Here we go:
I started buying gold mining shares in September 2001, missing the bottom by four months. I still hold some shares (mostly duds, since I am the village idiot when it comes to picking stocks). Gold’s 15 to 20 year upward cycle is alive and well.
For those who don’t follow bullion, gold hit $252 an ounce in the Spring of 2001 in a final capitulation sell-off when Gordon Brown began his Treasury sales. It rose to a peak of $730 in May 2006.
Gold has languished since, in part because of sales by the Spanish and Belgian central banks. I remain very wary in the short to medium-term.
What unnerves me is the way gold has tended to move in sympathy with global stock markets. Whenever risk appetite rises, it rises. When investors shun risk, it falls. In other words, it has become correlated with all the speculative trades – notably the yen and franc carry trades – responding to abundant global liquidity. This liquidity is now being drained as the BoJ, ECB, SNB, BoE, Riksbank, and Chinese Central Bank, etc, turn off the tap. So be careful.
While the pattern appears to have changed over the last couple of weeks, this is not long enough to establish a “paradigm change”, excuse the ghastly term. My concern is that gold will fall hard along with everything else (except the yen and the Swissie) in any market crash/correction.
At some point it will decouple, as it did during the 1987 crash when it fell hard, found a ledge, and then recovered hard, while the DOW kept falling. But, I would rather hold Swissies or Yen until gold finds that ledge in a downturn, resuming its old role as a safe store of value. This may happen quite quickly in a crisis. (Of course, I may also be left behind right now in an accelerating rally, but that is a risk I accept)
Ultimately, gold will surge, once it becomes clear that the euro lacks the staying power to serve as an alternative to the dollar. To restate a point I have made many times, the euro-zone is an ill-assorted mix of 13 unconverged national economies – with national treasuries, debt structures, taxes, pensions, and labour laws – that are not ready to share a currency, and are drifting further apart by the day.
(Lest anybody forgets, the motive behind monetary union was PURELY political. The economists at the European Commission warned that the project could not survive over time if it included a Latin Bloc of countries with an unreformed culture of high inflation, rising wage costs, and an export base exposed to Asian competition [unlike Germany’s, which is complimentary] – unless it were backed by a full superstate. They were ignored. Indeed, any future crisis was to be welcomed as the “beneficial crisis”, a chance to force through full political integration that would otherwise have not been possible, as Romano Prodi so candidly admitted when he was Commission chief).
At some point it will become clear to everybody that: the Club Med group cannot compete at an exchange rate of $1.40, $1.45, $1.50, or whatever it reaches; their credit booms are tipping over; they will soon need stimulus more than the US.
Goldman Sachs, by the way, is already ‘shorting’ Italian and French bonds, while going ‘long’ on German bunds to play the divergence (the opposite of the euro-zone ‘convergence play’ that made the banks rich in the 1990s).
We may have a situation where sharp dollar falls caused by impending rate cuts by the Fed sets off a systemic crisis for Euroland. If so, politics will quickly take over from economics and begin to dictate events in Europe. The ECB will have to stop raising rates (whatever Berlin wants), and the euro will become a structurally weak currency tilted to the need of the weakest players. If it doesn’t, the EU itself will blow up. So the ECB will have to change tack to support the union. And the European Court will interpret the treaties in such a way as to force the ECB to do so.
Gold will fly once investors can see that neither of the two reserve currency pillars (euro and dollar) is on a sound foundation, and once the pair are engaged in a beggar-thy-neighbour devaluation contest to stave off a slump (if necessary with the use of Ben Bernanke’s helicopters, meaning mass purchase of Treasuries, mortgage bonds, stocks, or assets of any kind to support the markets). This would amount to a partial breakdown of the monetary system. Gold will not stop at $800. It might well go beyond $2,000.
We are not there yet. Timing is not my forté, but 2008 looks ripe. Watch the Spanish housing market. Watch the French trade data. Watch Chinese inflation. And, of course, watch the US jobs market – the bogus prop to the alleged US recovery (on that, more later).”
Comment:
Well — gold was a bit uncoupled from the dollar index for quite a while, but the technical action over the last few weeks certainly hasn’t been. Gold is once again up when the dollar is down now, and it probably reflects credit anxieties spilling over from the sub-prime mess in the housing market.
(Translation for those who haven’t been following the housing market recently: subprime loans are those substandard loans that used to represent only a miniscule proportion of the housing market but in the last 3-4 years rose to lethal levels. It wasn’t just that the borrowers hadn’t the proper credit history; the lenders were leveraged to the hilt. The lenders, mind you, not being your friendly bank on the corner any more, nor the government-backed lenders like Fannie Mae and Freddie Mac but a whole plethora of con men in financial fancy dress. These hedge funds and bankers sold their clients substandard mortgage- backed financial securities (MBSs) disguised as gilt-edged investments, which are now blowing up in their faces like hand grenades, as the borrowers find themselves unable to meet their house payments. Why? Because the terms are tightening up — as they tend to do in subprime mortgages…..
Used to be called loan sharking in the old days.
And Pritchard may also be right about the Yen being a safer bet for diversification than the Euro — a faux currency, if ever there was one.
“This week, bond rating agencies Moody’s and Standard & Poor’s finally announced downgrades on billions of dollars of bonds backed by subprime mortgages. Though the cuts will certainly not reflect the full weakness of the bonds, and will not include nearly as many issues as they should, they nevertheless amount to the beginning of the end of the phony mortgage investment market and the unrealistically high home prices that it helped support. In a sign of desperation, the U.S. has dispatched Housing and Urban Development Secretary Alphonso Jackson to Beijing to beg the Chinese to use some of their $1.3 trillion in foreign reserves to buy more U.S. mortgage backed securities. Talk about chutzpa! We bash them publicly, but behind the scenes we go hat in hand seeking their help. If the Chinese have any sense they will send the Secretary packing. After all, why should they use Chinese taxpayer money to bail out the U.S. housing market by purchasing securities that no American would touch with a ten-foot chopstick?”
[With the caveat, of course, that that’s a site where gold-bugs, bulls and a few opportunists too, are pushing their stuff. Still, on the whole (and with plenty of caution about their buy and sell signals), I haven’t found them to be fundamentally wrong about the questions they raise…]
“The Press Telegram. “Don’t try to tell Dick Gaylord it’s a down housing market, or that there’s a housing slump, and don’t dare mention the word ‘bubble.’”“The congenial Long Beach man, who will assume the role as the nation’s head Realtor next year, [my emphasis] will argue vehemently that the market ‘isn’t down but just returning to normal.’”
“‘I don’t know that there’s ever been a bad time to buy,’ Gaylord said. ‘If people will hold on, there’s no bad time to buy in real estate…..”