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Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism Hardcover – April 15, 2008
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"A harrowing picture of national danger that no American reader will welcome, but that none should ignore. . . . Frighteningly persuasive."
-Alan Brinkley, The New York Times
"An indispensable presentation of the case against things as they are."
"Sobering . . . positively alarming."
-Los Angeles Times
About the Author
Kevin Phillips has been a political and economic commentator for more than three decades. A former White House strategist, he is a regular contributor to the Los Angeles Times and NPR and writes for Harper’s and Time. His books include New York Times bestsellers The Politics of Rich and Poor and Wealth and Democracy.
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This huge growth of the financial sector was not without adverse consequences: in the last 20 years public and private debt has quadrupeled to $43 trillion. How this came about has been expertly explained in another book called The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash by Charles Morris. There was easy money as the Federal Reserve was lending money at less than the rate of inflation. Money was risk-free for the lender since they collected fees up front and sold the securitized loans to investors. When this process was repeated millions of times, one ends up with hard-to-value securitized debt throughout the global economy. Then when housing prices start to decline and homeowners start to default on their mortgages on a grand scale, you have a global crisis of American capitalism. (Bear Stearns alone was estimated to be holding $46 billion worth of bad money.)
As in American Theocracy, Phillips writes that the oil industry is another component of the current crisis. In the US oil production peaked in the 1970s, on a global level it is peaking right about now. And with the ravenous appetite for oil from newly industrialized countries such as China and India, prices will continue to go up. The US still gets "cheap" oil relative to Europe since oil is priced in dollars, but that advantage may soon disappear. The weakening dollar is forcing OPEC countries to move to Euros and other currencies. And some oil producing countries such as Iran and Venezuela are moving to other currencies for reasons other than economic.
The author began his career as a Republican strategist, but he has long since disavowed them. Having a monetary policy of free money, a fiscal policy of tax cuts and increased spending, and an ideology of unregulated market fundamentalism, the Republicans have lost most of their credibiltiy. This does not mean Phillips has gone over to the Democratic side. He believes that Bill Clinton was instrumental in the financialization of the economy, and that currently Hillary and Obama are beholden to investment bankers and hedge fund managers. What used to be the vital center in Washington is now the "venal center."
The conclusion of this volume is very gloomy. Phillips believes that we are at a pivotal moment in American history when the economy has been hollowed out, we are saddled with trillions of dollars of debt, and our political leaders are dishonest, incompetent, and negligent. Given that all that may currently be the case, it may be instructive to further meditate on the empires of the past. Spain, Holland, and Britain all managed to survive and even thrive, hopefully the US will do the same.
Reading Phillips' books, I often get the feeling that I have walked
into a classroom where the professor is delivering his third lecture on
the subject and I must scramble to follow what he is saying. Bad Money is
no exception. I wish his editor(s) had pushed him to put in a few well
laid out examples that would endable the reader to properly understand
just what a CDO or an SIV actually consist of, how they function, how
they're handled in the marketplace and so on. Again, this is not an
That said, however, the points Phillips makes are well backed up in
economic analysis and facts, and in historical relevance, both of which
areas Phillips is intimately familiar with. He is sounding an alarm to
anyone willing to listen, and what he lays out in this book is very
disturbing to anyone who has noticed the growing chaos in our financial
markets, the rising insecurity of our economic situation, and the
seeming inability and unwillingness of our political leadership to deal
with these growing problems.
The preface, with its subtitle "The Political Economics of Deception",
starts with these paragraphs that lay out in startling clarity the
central concern of the book:
"The most worrisome thing about the vulnerability of the U.S economy
circa 2008 is the extent of official understatement and misstatement --
the preference for minimizing how many problems there are and how
interconnected they are... Whether the U.S. government and the
Republican and Democratic parties can remedy the debt and oil-related
transformations of the last two or three decades is dubious enough. Far
more worrisome is the possibility that neither Washington nor Wall
Street is willing to confront the deeper problem -- the ascendancy of
finance in national policymaking (as well as in the gross domestic
product), and the complicity of politicians who really don't want to
talk about it."
One important point Phillips makes is one people can instinctively
relate to: the debasement of government statistics. People know from
their daily lives that the economy is not good, that prices of almost
everything are on the rise, that jobs are harder to come by, and that
overall, things just aren't as good as they once were. But at the same
time, the government keeps insisting that unemployment and inflation
are low and that the economy is growing, citing figures that people
can't reconcile with what they're experiencing every day. The reason is
because the numbers have been cooked to support the government's claims
and no longer represent any meaningful measure of the things they are
supposed to relate to. And the numbers they can't cook, they suppress.
"Beginning in March 2006, the new Fed chairman, Ben Bernanke, ordered
that the government cease publishing data on changes in the broadest
measurement of the U.S. money supply, the so-called M3. It was
expanding at a 10-12 percent annual rate in 2006; outsiders calculated
that as of August 2007, that growth had accelerated to a high-powered
14 percent.... Continued publication of M3 reports would have undercut
the assertion of Bernanke... that the inflationary expectations of the
public had been safely 'anchored' at a low level by the tame core
CPI... For 2007, the U.S. M3 numbers show runaway inflation in the
annual range of 14 percent."
Another point Phillips makes in the book is that our growing financial
problems are compounded by our energy and political problems:
"the prior eminence of the United states in global petroleum matters
has left not only an outdated infrasturcture but a spectrum of
disabilities, unwarranted smugness, vested interests, and booby traps.
These range from currency vulnerabilities and lack of a serious
national energy strategy to apparent policy inertia in Washgton, where
many officeholders seem unable to understand how much has changed for
the United States over the last decade."
Other warnings include the rise of oil consumption by countries like
China and India and the extent to which oil-producing countries are
already re-directing their output towards those markets.
"In the wake of the unpopular U.S. invasion of Iraq, the Saudis showed
their displeasure... continuing to reduce oil sales to the United
States... after peaking at the equivalent of 1.7 million barrels per
day in 2002, Saudi sales to the United States fell to 1.1 million
barrels per day in May 2004... China soon jumped ahead of the United
States in oil exports from the Saudi kingdom... the demand for oil in
China alone will, before long, equal the entire production of Saudi
Arabia... China stands to be the world's largest oil market of the
2030's, possibly replacing the United States in that capacity by 2025."
Phillips also touches on why the political leadership seems both unable
and unwilling to deal with the array of problems the country is facing
and shows how this same deadly political inertia has afflicted other
great powers in history, citing examples from the Spanish, Dutch and
British economic empires that preceded our American economic empire.
The comparisons are fascinating and disturbing at the same time.
Again, in looking at what I have written, I know that I have barely
scratched the surface of all there is in this book that merits being
read. All I can do is urge anyone who wants to understand why the
economy seems to be in such bad shape, why the government figures seem
to be so contradictory with what is happening, and why our political
leaders seem neither willing nor able to deal with the problems, this
is the best book you can possibly read and the time to read it is
_now_, before the election, so you can see through the utterly
meaningless drivel that politicians are putting out instead of talking about the very real problems we're facing, about what our options - however painful - are, and about what the consequences to us as as nation are if we continue to do nothing.
Most recent customer reviews
(poorly-titled, as so much of it is about the 'financialization' of the US...Read more
Anytime an author keeps referring to his previous works, you know that you, the reader/listener are in for a hard, hard, slog.Read more