Nixon, Bush, Palin
In 1970, in the midst of the longest bear market since World War II, President Richard Nixon declared: “Frankly, if I had any money, I’d be buying stocks right now.”
The market soared.
Now, I’ve been asking myself, just for the heck of it, what would happen if President Bush tried his own jawboning of the market and said: “Frankly, if I had any money, I’d be buying stocks right now.”
My conclusion is: Mr. President, please, please do not say that! I reckon the market could tank in ways that would make this week’s one-day 777 point plunge look paltry.
I’m not about to write a paean to Nixon. I watched him quit in a bar in Bolinas, Calif.; I can still hear the cheer. But even his tortured, sleazy nature betrayed some essential seriousness about the fate of the United States. By contrast, the Bush crowd has gambled the future of this country with abandon.
(And Nixon did resign as impeachment loomed. Whatever happened to the notion that someone — a cabinet member, a Wall Street C.E.O., the inventor of credit-default swaps — might actually fall on his or her sword? Shame has become a quaint chivalric notion, like honor, a thing of another American time.)
A closer look at the Bush gamble is merited because the first person to reprice risk on the basis it no longer existed was the president. Now, that’s leading by example.
The gamble involved going to war in Iraq at an estimated cost to date of about $700 billion (does that figure sound familiar?), while opting not to raise taxes but to lower them. It involved going into that war, and another in Afghanistan, while asking not for shared sacrifice but a great collective maxing-out in the service of: shopping.
At the same time, Bush, who often seemed to need directions to the Treasury, opted to allow an opaque derivatives market to grow into the trillions without supervision, regulation or information. The market knew best. Turns out that what the market knew best was how to turn capitalism into a pyramid scheme for trading worthless paper.
The cost is now clear. But we should be grateful for small mercies. Remember Bush wanted to throw Social Security into the casino, too, by privatizing it!
Market capitalism is a sophisticated thing that calls for transparency, ethics and rules. Bush and his crowd gambled that some “new paradigm” meant these things were passé.
They’re not. We have to be careful now. Already the contagion of bank failures has spread to Europe. People are asking of the United States: what became of this country?
The Chinese have been ready to treat U.S. Treasuries as a rock-hard store of value and loan us the dollars they accumulate at a very low interest rate. But what if they start to doubt the U.S. government will repay its debt?
“We are getting closer to a tipping-point,” said Benn Steil, an economist. “People are asking: can we really trust the dollar as a store of value?”
The Bretton Woods system of monetary management collapsed in 1971, under Nixon. Since then the dollar’s been the primary reserve currency. Now, we’re reaching another point where a rethink of the foundations for a global economy is needed.
Global trade and capital flows are essential to prosperity. But it’s illogical to have a global system with no global reserve as insurance. Perhaps the trillions of Gulf and Chinese surpluses could be used to finance that. Or perhaps it’s time for a return to the gold standard.
I know one thing: this is no time for further gambling. John McCain rolled the dice on Sarah Palin. I’m grateful to Bob Rice of Tangent Capital for pointing out that the actuarial risk, based on mortality tables, of Palin becoming president if the Republican ticket wins the election is about 1 in 6 or 7.
That’s the same odds as your birthday falling on a Wednesday, or being delayed on two consecutive flights into Newark airport. Is America ready for that?
The lesson of the last eight years is this: when power is a passport to gamble, people can end up seriously broke or seriously dead.
There is one capable, sober guy in the Bush administration: Defense Secretary Robert Gates. He recently said that U.S. forces in Iraq had to learn counterinsurgency on the job. “But that came at a frightful human, financial and political cost,” he noted.
Gates warned that “warfare is inevitably tragic, inefficient.” He urged skepticism of any notion that “adversaries can be cowed, shocked or awed into submission, instead of being tracked down, hilltop by hilltop, house by house, block by bloody block.”
In short, he lambasted the Rumsfeld-Cheney-Bush war effort for its gambler’s irresponsibility. The financial equivalent of reckless “Shock and Awe” has been “Sub and Prime.”
And people’s houses across America really did go up in smoke.
And fear stalked the land.