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December 13, 2008

Two Great Insider Rants

Friedrich von Blowhard writes:

Dear Blowhards,

One of the more striking things about our current financial situation is that the most disgusted analyses come from people who work in finance and, um, know the score. Check out the advice of London Banker, a former central banker and securities market regulator in his post “Deflation has become inevitable” (hat tip Yves Smith of Naked Capitalism).

A small excerpt:

It’s this simple: I won’t invest in a country that bails out failure and punishes savers. I won’t invest in the US or UK until they change course and protect savers and investors, ensuring a reasonably predictable positive return. In the EU, I will be very selective, preferring those conservative states like Germany that never embraced the worst excesses, although sadly still have fall out from individual banks' stupidity in buying into foreign excess. I will know when it is safe to reinvest when [central bank] policy interest rates, bank/intermediary oversight and accounting standards give me confidence I am better protected than the corporate or financial elite.

His suggested plan of action? Embrace deflation, stop investing in financial assets, withhold your savings from financial sector 'brigands' (his term) and wait patiently for economic disaster to force governments to stop coddling the guilty and the incompetent:

I have quoted Mr John Mill before, but it bears repeating: "Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works." The extent to which capital has been betrayed in the past quarter century under Bretton Woods II, bank deregulation and the Basle Capital Adequacy Accords is unrivalled in the history of fiat banking. The bankers, lawmakers, regulators and academics who collaborated in the betrayal still hold power, like the well-armed brigands in the fortress, and their continued collaboration to prevent accountability must inevitably discourage honest savers from risking further loss. Even so, it is the savers/peons who hold the ultimate power as they can starve the brigands.

Likewise, in the field of elite education, we have the views of another "insider" critic, Chris Hedges, who speaks from the position of one who both taught at Ivy League schools as well as attending them. He lays much of the blame for our problems on the “meritocratic” educational-class system that credentials our New Class political, business and financial elite, in a piece you can read here . A selection:

The multiple failures that beset the country, from our mismanaged economy to our shredded constitutional rights to our lack of universal health care to our imperial debacles in the Middle East, can be laid at the feet of our elite universities. Harvard, Yale, Princeton and Stanford, along with most other elite schools, do a poor job educating students to think. They focus instead, through the filter of standardized tests, enrichment activities, advanced-placement classes, high-priced tutors, swanky private schools and blind deference to all authority, on creating hordes of competent systems managers. The collapse of the country runs in a direct line from the manicured quadrangles and halls in places like Cambridge, Mass., Princeton, N.J., and New Haven, Conn., to the financial and political centers of power.

Just remember, it’s all connected.

Good reading.



posted by Friedrich at December 13, 2008


I believe that on Thursday Federal bond yields dropped below the typical management fees for money-market mutual funds, meaning that you may well be paying for the privilege of taking your money out of your mattress.

If you haven't read Christopher Hedge's great book, "War is a Force That Gives Us Meaning", well, you should.

Posted by: MQ on December 13, 2008 10:55 PM

Multiple failures or a deliciously Hegelian dialectic.

Deflation (later inflation) - new global currency

Financial collapse - more 'centralization'

Small wars - destroy the nation state for super states ala the Euro

Terrorism - new identity measures

Posted by: Niko on December 13, 2008 11:33 PM

Friedrich, both of those links are very good posts. However I disagree that meritocracy is to blame for the current mess we're in.

The problem as I see it is the problem of specialisation. Our education system is geared to produce specialists, not generalists. It's true that a man must learn a trade, but university should be a time when he gets exposed to the big ideas of life as well. Religion, art, science, mathematics, philosophy etc.

Engineers should learn art, as our structures should be more than just functional, they should be beautiful as well. Economists might benefit from a bit of military history in order to keep alive business which may be unprofitable, but are of profound national security significance. More importantly, arts undergraduates should learn the basics of science.Fantasy needs to be grounded by reality. Lots of these specialists can't see life beyond the framework in which they operate. We produce small-picture men and expect them to operate a big-picture world. No wonder the place is such a mess.

Charles Munger, of Warren Buffet fame, gave a wonderful speech on just this topic. It's worth a read.

One of the more striking things about our current financial situation is that the most disgusted analyses come from people who work in finance and, um, know the score

Lot's of people outside the financial industry see the shit behind the image; you don't need to be in finance to work out that the game is rigged. The problem is they don't have a degree in Economics from Harvard, so no one listens to them. Credentials apparently matter, even if they are worthless in real life.

Posted by: slumlord on December 13, 2008 11:52 PM

It's just greed. Smart people in positions of influence find and/or devise methods of funneling wealth to themselves at the expense of the rest of us, aided by willing politicians who strip away oversight. I mean seriously, does anybody think it's anything other than that?

Posted by: JV on December 14, 2008 12:21 AM

Low-carb doc Michael Eades, writing about Oprah's losing battle against weight, has a nice observation about prestige, degrees, new-class people, elites, etc:

The second major problem that Oprah has is directly related to her fame and position. Because she is who she is, she can have access to anyone she wants to have access to. And she makes the same mistake all people in her position seem to make. When she has a health problem, she turns to Harvard or some other big-name institution to get advice. The problem with that is that all the people at Harvard and other big-name institutions are as mainstream as mainstream can get. They are also far removed from patients care. They haven’t had an original thought in years. I would be willing to bet that yours truly has more first hand experience taking care of overweight middle-aged females than the entire faculty of Harvard and Yale put together. But when Oprah (or any other celeb) has a problem, where does she turn? To Mehmet Oz, Harvard grad, and a low-fatter of the deepest dye.

Seems semi-sorta related, no?

Posted by: Michael Blowhard on December 14, 2008 1:12 AM

I read the Chris Hedges piece. He criticizes Ivy League institutions for their mediocrity and the narrow-mindedness and conformity they instill. But look at his biography, which I found at Wikipedia. For him to criticize Ivy League institutions is like someone who spends all his free time at the shopping mall criticizing the banality of shopping malls.

"Christopher Lynn Hedges was born in St. Johnsbury, Vermont, the son of a Presbyterian minister, the Rev. Thomas Hedges. He graduated from the Loomis Chaffee School in Windsor, Connecticut in 1975. He has a B.A. in English Literature from Colgate University and a Master of Divinity from Harvard Divinity School, where he studied under James Luther Adams.

"In 1983, Hedges began his career reporting on the conflict in El Salvador. Following six years in Latin America, he took time off to study Arabic and then went to Jerusalem and later Cairo. He spent seven years in the Middle East, most of them as the Middle East Bureau Chief for The New York Times. He left the Middle East in 1995 for Sarajevo to cover the war in Bosnia followed by the war in Kosovo. Later, he joined the investigative team of The New York Times, based in Paris, and covered terrorism.

"He was a Nieman Fellow at Harvard University during the academic year of 1998-1999, and spent a year studying classics. In addition to English, he speaks Arabic, French and Spanish and knows Latin and ancient Greek."

Posted by: James on December 14, 2008 2:08 AM


I mean seriously, does anybody think it's anything other than that?

Never attribute to malice what can adequately be explained by stupidity.

Posted by: slumlord on December 14, 2008 5:14 AM

It will be interesting to see if London Banker's predictions pan out, given his track record of successful prediction so far. Wait! Does he have one? Not as far as I can tell...

And Chris Hedges too. He predicted in his "great book" (Hi MQ!) American Fascists that organized ultra right-wing fundamentalist Dominionists and Dispensationalists are poised to take over in the event of a catastrophic social meltdown of the kind we're apparently heading into now. Which means that our "meritocratic" higher ed system, with its standardized testing and Advanced Placement courses having produced the people who produced the financial debacle (Advanced Placement courses? The 'fuh?), is somehow going to lead to a theocratic fascist putsch out of flyover country sometime soon. At least according to the crystal ball Chris Hedges is smoking, er, reading.

This is all too complicated for me. Just as Friedrich's earlier quote of a guy who apparently thinks the trade deficit is like a budget deficit was just too subtle for my simple peasant (sorry, as London Banker would say "peon") mind.

But remember, it's all connected.

Posted by: PatrickH on December 14, 2008 9:18 AM

And Chris Hedges too. He predicted in his "great book" (Hi MQ!) American Fascists that organized ultra right-wing fundamentalist Dominionists and Dispensationalists are poised to take over in the event of a catastrophic social meltdown of the kind we're apparently heading into now.

Dude, you need some work on the reading comprehension skills. I included the *title* of the book I was recommending for a reason. I also refrained from saying "every book Chris Hedges has written is a great book". He's a somewhat extreme character, impassioned and over the top, who seeks out extreme experiences, but such types can be great witnesses. He is one and "War is a Force" is a great book. He's a sensation-seeker and I imagine that when he's stuck in a basically pretty peaceable setup like the U.S. he probably gets a little loopy.

By the way, though, I don't think it's outlandish to say that we have something like a native fascist movement taking root on the right wing, although they were always in the minority and seem to have gone into remission for the moment. If things really go south economically we'll see.

But look at his biography, which I found at Wikipedia. For him to criticize Ivy League institutions is like someone who spends all his free time at the shopping mall criticizing the banality of shopping malls.

Are you kidding me? Hedges has anything but a banal background. He's spent his entire adult life covering various wars from as close in as he could get to them. Does this quote from the Wiki page you cited seem banal?

"War and conflict have marked most of adult life. I began covering insurgencies in El Salvador, where I spent five years, then on to Guatemala and Nicaragua and Colombia, through the first intifada in the West Bank and Gaza, the civil war in the Sudan and Yemen, the uprisings in Algeria and the Punjab, the fall of the Romanian dictator Nicolae Ceausescu, the Gulf War, the Kurdish rebellion in southeast Turkey and northern Iraq, the war in Bosnia, and finally Kosovo. I have been in ambushes on desolate stretches of Central American roads, shot at in the marshes of southern Iraq, imprisoned in the Sudan, beaten by Saudi military police, deported from Libya and Iran, captured and held for a week by the Iraqi Republican Guard during the Shiite rebellion following the Gulf War, strafed by Russian MIG-21s in Bosnia, fired upon by Serb snipers, and shelled for days in Sarajevo with deafening rounds of heavy artillery that threw out thousands of deadly bits of iron fragments."

Posted by: MQ on December 14, 2008 2:20 PM


Sorry I didn't give you an answer to your previous question. I felt bad about it at the time, but I am kinda busy running my business. I'll try to do better soon.

As for London Banker's hypothesis, I thought it was pretty plain vanilla: the fall in value of financial assets (which has led, via general deleveraging, to falling economic activity and thus general deflation), is a fairly straightforward consequence of a lack of trust in the people who manufacture financial assets. This lack of trust is not addressable by the Federal Reserve lending out ever larger funds to the financial sector or by Mr. Paulson's investments of public money in banks, without any requirement for the replacement of even top management. This is in marked contrast, I would add, to the successful Swedish bank rescue of the early 1990s, which involved wholesale replacement of top management of the nationalized banks. I think London Banker's not saying much more than a severe lack of financial regulation will continue to have pretty serious consequences until it is addressed, especially since no one seems to be taking up the task of more stringent regulation even today, over a year after the beginning of this crisis.

Mr. Hedges may espouse lunatic theories in his off hours, and perhaps I would have been well advised to investigate him more thoroughly, but I see nothing to argue about in the piece I linked to. The naked careerism and lack of genuine intellectual curiosity of Ivy League undergraduates was pretty evident to me back in the early 1970s and doesn't seem to have gotten much better since. Do you actually disagree with this?

Posted by: Friedrich von Blowhard on December 14, 2008 2:25 PM

"The naked careerism and lack of genuine intellectual curiosity of Ivy League undergraduates"

Don't you find those characteristics in the majority of people, regardless of background? I know I have, particularly the lack of curiosity. I have a hard time believing its more prevalent in Ivy League institutions than in the state college I went to. Or in the workplaces I've been in since.

Posted by: JV on December 14, 2008 6:08 PM

MQ, buddy, relax! Just sayin' hi! Chris Hedges wrote a preposterous, useless paranoid book about evil right-wing theocrats poised to take over in the event of financial/social catastrophe. That he wrote such nonsense causes me to doubt his worth in describing our current situation. A 9-11 Truther running his mouth about the financial meltdown is going to have some hill to climb before he gets a listen(at least from me) in talking about small groups of people doing great big gouts of damage to the world. That's all. Hedges is a left wing Truther, at least some of the time, and IMO should be treated as such.

I wouldn't say you need to work on your reading skills, MQ. More like your self-control. But your reading skills do need some work too.

Peace out, and go Obama!

Posted by: PatrickH on December 15, 2008 11:10 AM

Friedrich, thanks for the reply. I apologize for my testy comment, at least for the London Banker part of it. If his advice to his clients has helped them avoid the horror of the meltdown, then of course his predictive track record is good, as good as it could be, really, tested as it has been in the real world. I hope his new position will allow him to make a contribution to recovery from the debacle, as he stated in his last post was his hope and belief.

My difficulty with Hedges is his argument that "meritocracy" and careerism has led to hordes of competent system managers, which has in turn led "in a direct line" to the collapse of the country.

My own sense, from your posts as well as others' comments, is that the current crisis is the result of actual fraud, chicanery, lies, virtual embezzlement, massive corruption in government regulatory oversight bodies, and in general, the hijacking of said government by rent-seekers of a particularly clever, cunning sort. Not competent careerist systems managers at all.

In other words, Hedges' tendency to point fingers has set him off on a tangent. It's real criminality that's the issue here. Not "competence", "blind deference to authority", or "systems management". Hedges is simply mashing his own preoccupations together, arguing causation by syntactical contiguity.

So I don't disagree at all with the point about careerism in the Ivies. It's just that we're not dealing with careerists in this crisis...unless you consider career criminals to be careerists.

Which in a sense they are, I guess. I say, let's mess 'em up. Focus their minds, Sam Johnson style. There's nothing in this present crisis that a good brick wall and half a dozen semi-automatic rifles wouldn't cure.

Sigh. Where are Chris Hedges' American Fascists when you need them?

Posted by: PatrickH on December 15, 2008 11:29 AM

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