The Year of Jubilee

I think I'm not alone in finding witnessing a great financial collapse a bit--how you say--spiritual. All through the mortgage collapse, the steady stream of refi junk mail has changed not a whit. I got junk mail from Washington Mutual this week, and did not treat it like the touching last letter home before the poor dogface bought it on the beach. My mortgage company, after all, is Countrywide, and managed, like one of Robert Heinlein's Martians, to discorporate between one invoice and the next without so much as a tilt to the logo. Lehman Brothers gone?  AIG gone? Merrill Lynch (which I still recall as Merrill Lynch Pierce Fenner and Smith) resorbed? And the biggest bank failure in American history, and it's kind of hard to tell.

And a lot of people are reacting to that theological aspect to say, why don't we let them fail? And a lot of other people are saying don't be stupid, that things could get a hell of a lot worse. And the others remain unconvinced. 

A lot of this has to do with the extremely spiritual nature of debt. Money to begin with is a dream that we all dream at the same time, but debt doesn't doesn't even require everybody. Credit can be between two parties alone, as can debt--and can vanish with the mere exercise of psychology. Credit and debt can exist without the rest of the world knowing its existence. Governments can (and do) create money out of nothing and destroy it, which tends to upset people who object to the government giving their hard-earned money to poor or bllllllack people. But credit and debt, while it might tend to look like money, is something just about anybody can create. And therein lies danger, and economic growth, and a whole lot in between.

It's possible to argue that these big companies are whining over nothing, since all these loans are secured loans: they now have all this real estate, right? That's the deal, right? So why are they complaining? More interestingly, why are they collapsing?

The stuff still exists; the houses still exist. They have all this real estate. So why, like Carlton Sheets, aren't they prospering? The answer is that the debt/credit part of the process vanished like a piece of flash paper, and with it the semi-miraculous process that turns debt into money. And what really caused them to combust is that they were running around treating the debt like money. And all that flash paper going up lit them up like The Wicker Man.

Financiers treat debt like money all the time, and investments fail all the time. The lesson of the first is that (as I've said before) Financiers have one job. which is to assess risk--and the lesson of the second is that life is tough, and a license to print debt is not a license to print money. And another way of putting that last part is that you are not the nation and, especially, not God.

And so I arrive at the Biblical idea of Jubilee. Every seven years all debts are forgiven, and every fifty land is returned to the original owners. The fifty year stipulation would cause the United States of America simply to vanish, so we'll set that aside for now. But, I ask, looking out my window at the cars going by, what would happen if the Jubilee came?

The reality of it is that it would be bad. And the reason it would be bad is that a grand illusion would be revealed.

The truth that has been covered up is that we as a nation are poorer than we think we are--poorer in money as the world understands it. The middle and lower classes have had their wealth and their prosperity eroded. It's been obscured by a number of changes that didn't look like economic ones: the advancement of technology, the entry of women into the workforce, and most importantly, the rise of unsecured credit.

Around about the sixties, the national economy was reaching its carrying capacity: the money that people were earning was just enough to buy the stuff companies were producing. Companies, due in large part to the expectations of investors, had to, wanted to, continue growing.  There were pretty much two alternatives: start paying the middle and working classes more, or start offering them credit.

Unsecured credit on a national scale is kind of insane if you think about it: just run around lending money to almost everybody with no houses or cars to repossess, or furniture to carry back out of the apartment. The individual process of trust became a general principle. Pretty outrageously optimistic, which was in part why America took to it. We were not only richer, we were more trustworthy! And so America was able to afford the increased production of the corporations without the middle class actually getting rich enough to actually afford it. More money for them, and corporate America kinda sorta looks like it's controlling the money supply--in their favor.

A layer of debt was laid on top of America--and it seemed to work. Certain Jeremiahs and Cato the Censors to the contrary, Americans were by and large not overly greedy, managed their debt, And were surrounded by what felt like the rewards of hard work and benefits of living in The Greatest Country in the World. No, it did work, even if there began to be a disconnect.

However, they couldn't do it again. And that's what made this a peril it would be hard to avoid. When the American middle class began to approach credit carrying capacity, corporate America would really have to start paying middle America more. 

Instead, corporate America kept extracting money from the middle class, making them poorer in money and an ever greater proportion of what passed for wealth in debt. Health care, energy, the costs of job interruptions during business: costs shifted to the middle class. And yet they were expected to support an ever greater output of goods. 

It's a recipe for disaster. Why would corporate America  fuel their engine with a higher and higher proportion of debt? Why cripple the basis from which they derive their wealth? Why sit there and ask for, beg for this conflagration? Did they just go mad with greed? Are they that stupid? what?

There are a lot of  elements, and greed and stupidity are certainly part of it. But there are two reasons , one slightly sane and one slightly mad behind it.

The first is that they managed to seize control of the government. First the Congress and then the Presidency. And the government had the power that corporate America did not. And what they were expecting was what George W. Bush and Henry Paulson tried to give to them, Rumplestiltskin-like: to spin the straw into gold. They would be as risky s they wanted to be, generate crap loans, impoverish the middle class, taking the actual wealth and stuffing the economy with debt--and be bailed out.

But instead the straw caught fire.

The other reason--the mad one--is that this was not just the necessity to get big fat juicy returns on investment. Why not, after all, pour money into the middle class? The Clinton years showed that it worked. It stoked the engine and improved the work force and things got better. Why not set up universal health care, so that companies didn't have it as a drag on their budgets and their HR departments could dissolve their cryptograph sections and their SWAT teams? Why the reluctance to make a proven good investment?

The answer is the deep desire among elements of the wealthy to be an aristocracy. And as I've said before, the great achievement of 20th century America is the development of a genuinely democratic culture. Despite everything, the rich are culturally irrelevant in america. Nobody cares what kind of music Bill Gates likes, or who Warren Buffett's tailor is. There's very little this country produces as cultural product that everybody can't have access to. And finally, the taste of the rich has become indistinguishable from that of the masses. 

What a certain comonent of the rich want, and a larger component want subconsciously, is to be eminent. They want to be in the spotlight, at the center rather than in gated communities out on the periphery. They want to have the cultural position the rich had in William McKinley's time. And that requires not just lots and lots of money, but a subjugated middle class. Giving more wealth to the middle class only throws them further to the margins.

I of course have no idea how prevalent or how conscious this feeling is, but it explains things that simple greed, rapaciousness, or stupidity don't. At the base, they felt they could be stupid and risky and greedy and the Masters of the Universe, and the government would work its magic for them. The war in Iraq proved them right, moreover.

So is this the comeuppance? Should we bring the Jubilee? On the one hand, the people in the system were creating debt by any means feasible, even to the hurt of others, and turned around and represented it as close to money, lied about it, wrecked the system, and in the end expected that it would turn into 700 billion dollars and a dukedom. On  the other hand, the credit that would burn away in a Jubilee would also make up a good deal of what an awful lot of good, decent, hard working people have considered their resources for making a good life. It's hard to tell how much misery there would be--after all, the middle class has been suffering for some time now a lot of the price of this--but misery there would be.

Ultimately, letting it all burn--or simply punishing the Masters of the Universe--will not solve it--and more misery is almost never a good idea. Neither is leaving us poorer. Ultimately, the only way out of this is to make this nation wealthier. And one way to do that is, yes, turn some of that credit-straw into money-gold--because that's what we've been living on. But turning away from this rotten mad arrogant path and toward a healthier relationship between corporate and middle-class America is essntial.

And so is knowing just what's going on.