Shocked, shocked!

September 17, 2007
     Alan Greenspan's memoirs are being flogged across the airwaves, bandwidths and printing presses, and the cohort of those who comment on public affairs in these media are shocked by the Maestro's confessions -- first, that a housing bubble emerged out of his leadership in the banking sector, and second that the Iraq war is about oil. As usual, they're getting it all wrong -- about as wrong as Al himself got it. But that is the way of things in this age of cultural dissipation and gross cognitive dissonance.

     Greenspan claims he had no idea that his cutting of interest rates to near zero would produce any irregularities in the US economy. Apparently he hadn't noticed that the Big Fund Boyz called him "Easy Al" for a reason. Or that when you introduce nearly free "money" (as in "available for lending") into a system of financial trade, the recognition of risk tends to evaporate. As the nation's chief bank regulator, Greenspan also apparently failed to notice the upsurge in dodgy lending practices previously only seen among mafia loan sharks, drug dealers, or twelve-year-olds playing Monopoly.

     But the really funny part of all this is that the media columnists are acting as though the American public got hoodwinked by Al. Which raises the question: just what the fuck was the public thinking when they bought half-million dollar houses on salaries under 60-K, taking out no-money-down, interest-optional balloon mortgages and other tricked-up contracts? The answer is: they walked into these arrangements with their eyes open because they thought they could get something for nothing. They thought the trend of steeply rising house prices would continue indefinitely and enable them to wiggle free of any hazard by flipping their houses to an endless supply of greater fools who would be there waiting to turn the very same trick. And the smoothies downstream in the mortgage and banking rackets were no less guided by avarice when they cooked up their formulas for bundling half-baked mortgages into tranches of tradeable securities. Easy Al may have failed to notice what was going on here, but then so did everybody else from The Wall Street Journal to the Securities and Exchange Commission.

     This, of course, represents an insidious psychology. It could only happen in a culture that has come off the rails mentally, so to speak, as ours has in the sense that nobody has any sense of consequence, neither the leaders nor those who affect to follow the leaders. The leading religion in America is not evangelical Christianity, it is the worship of unearned riches, and its golden rule is the belief that is is possible to get something for nothing. Its holy shrines are Las Vegas and Wall Street. (And, by the way, has anybody heard the evangelical Christians complain about Las Vegas? They complain about a lot of things, but are themselves among the greatest believers in unearned riches -- given their preference for prayer over earnest effort in the service of solving life's problems.)

     No, the American public, including the cheerleaders in the media, have only themselves to blame for the bitter harvest now underway in the asset and credit markets. And thus it would be a salutary thing for Baby Jeezus, or the forces of nature, or whatever powers guide the universe, to now kick the shit out of them, so to speak, financially, because that is exactly what the American public is full of, from top to bottom, from George W. Bush at his lonely desk on Pennsylvania Avenue to the pitiful, bankrupt householders of Orange County and Boca Raton.

     Now, as to the shock of Al's revelation that the Iraq war is about oil -- the media and the public have got this all wrong, too. The logic here seems to be that because the Iraq war is about oil it is therefore unnecessary, optional, a mistake, an indulgence, something we should not dirty our hands in. In fact, the Iraq war is not about oil, per se, so much as it is about America's behavior here at home, about the choices we make for how we live on this continent. None of those who complain most loudly about our military presence in Iraq have advanced any proposals for reforming how we live here -- and hence for our enslavement to oil, much of the world's remaining supply of which happens to be in the neighborhood of Iraq. When these complainers start complaining about the ubiquitous acceptance of suburban sprawl and abject car-dependency -- and this includes the environmental boy scouts out there who want to get merit badges for buying hybrid cars -- then they will deserve to be taken seriously. Until then, the American people have got exactly the grinding war that they deserve. Let them whine about it all the way to the Nascar tracks, and let them console themselves with giant plastic bottles of Pepsi Cola and buckets of chicken raised on corn grown with oil byproducts.

     On CBS's "60-Minutes" show last night, Greenspan, in his new role as a private sector economic consultant made predictions for the coming months in the US economy. He declared that the financial sector would get over the current credit squeeze as if it were a mild case of indigestion brought on by one too many fried won-tons at the all-you-can-eat buffet, a mere burp, allowing the public to move on to the crab Rangoon and a helping of General Tsao's chicken. This gets back to the previous point about the Iraq war and oil in particular. Al doesn't get it. CBS's sycophant reporters don't get it. Nobody gets it. We are entering the zone of the long emergency in which the primary resource needed to run the industrial economies will become scarce, expensive, and profoundly destabilizing to markets and to normal life, such as it is known in this country. And the current problem in the markets is a reflection of the resource bankruptcy we are facing. Our problems are not about credit, they are about permanent insolvency.

     In his old age, Alan Greenspan's face -- once darkly handsome in his youthful years as a jazz musician -- has taken on the strange appearance of a circus clown. Something about the way his lips have settled into a kind of thick fatuous smile, even when he is apparently not amused by anything. Is it one of God's clever little tricks to leave him looking like a clown in his valedictory years, or has his face just resolved into the perfect embodiment of leadership for a clown nation?

Comments

[thal]

There is no channel changer to reality, although as Americans, we've sure tried to act as if there were one.

Indigestion reading James H. Kunstler? Ignore it, or flip open a book by Thomas L. Friedman.

[Riddick]

An excellent and cogent commentary this week Jim. Your discussions on the housing ponzi scheme were reflected in yesterday's Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/15/AR2007091501480.html
The concept of "flipping" houses of ever increasing value to an even more idiotic set of buyers pretty much sums the housing frenzy up. Add to the recipe the penchant for greed and materialism that form the new "Church of the USA", roll in the typical Republican laissez-faire viewpoint linked with the "Rich were blessed by God" mandates, and finally, make sure the Democrats remain as they are today, deer blinded in the headlights of governance, and voila....we have the US of today.

No one, not one person, has ever adequately explained the following phenomena I observed during the past 17 years. As a cop prior to my retirement I'd end my long 12 hour midnight shift perusing the various construction projects springing up everywhere. At sunrise even these monstrosities have a certain beauty if only fleetingly. While I saw many interesting things such as all the trash, human waste, and other detritus the thoughtful construction crews would leave in the wall voids prior to dry-walling them in an effort to show the future owners how much they appreciated them, it was the pricing that has me puzzled. Oh, btw, live in a tract house, I'd think twice about what might lie behind your painted or papered walls.
Anyway, I saw some townhouses on the market starting in the 80's for row units and 90's for end units, this was in 1990-91. Now, move forward to 2005 and these exact same units, now a decade and a half older and abused held stickers of 380 and 390 k. What the heck happened in 15 years? How did someone get to add $300,000 on? To me this is emblematic of the pricing structure throughout the USA real estate market. I can still not figure out why people didn't stop and wonder, how did prices for a house that was built a while back suddenly quadruple? I mean 20-25% annual appreciation is a bit insane!

[steve duncan]

What the hell, the ship orchestra kept playing as the Titanic sank, didn't they? They were just as powerless to repair the breached hull as is CBS and the Federal Reserve. The entire country deciding to ride bikes from Maine to SoCal to visit Grandma is unlikely, as is everybody's grandma moving back to within a stroll to the back fence to check on her and say hello. One day Americans may again decide to live out their entire lives in the city they're born in, forsaking exploration of their nation and the world. Companies may decide to recruit employees soley from a pool of applicants within pedaling distance of the plant. We may all choose to eat only those plants and animals indigenous to our region, Canadians never seeing an orange or lemon and those in Nebraska thinking a lobster or crab some strange, exotic creature seen only in biology books. However, those days won't be seen in any of our lifetimes whether the changes are necessary or not. It takes a big chunk of the ocean to turn around an aircraft carrier. It'll take a bigger chunk of the calendar to turn around our energy consumption attitudes and practices.

[scott]

Yes, no one has an alternative to our socio-economic growth model. Apparantly nationalism is only a problem for developed nations with a need to grow economically beyond their desire to reproduce. I knew we were doomed in the 70's when I saw that Coke commercial with the multi-cultural/racial choir singing, I'd like to teach the world to sing in perfect harmony...(getting the invocations of godwins law out of the way at the beginning of the thread)

If I seem unduly clear to you, you must have misunderstood what I said. ... Greenspan

[2020Vision]

Al Greenspan was interviewed yesterday for the Sunday Telegraph in the UK. He warns us that our housing market is about to tumble and that our housing market is heading for a painful correction.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/17/cngrspan117.xml

It seems that we are having our own short emergency here - with the Northern Rock bank shares having plummeted by 40% today -and queues of worried investors at every branch trying to withdraw their savings before the bank goes bust.

Barrat Developments a major UK property developer saw its share price down 7% today, and Alliance and Leicester - a building society - just lost 16.5% in this morning's trading.

The extent of the rot is now becoming apparent - and our Chancellor and Prime Ministers engaged in "emergency discussions" regarding the stare of the economy.

Regarding housing costs over here. I was fortunate enough to buy an old 3 bed house in summer 2000 for just under $250K. It was old and run down but a solid affordable home on 1/10th acre plot. Last summer similar houses were selling in this street for $500K.

Developers have just built 3 new town houses about 200 yards away.Each is on an 0.03 acre plot.
They have squeezed 3 houses into the footprint of two my size, and are asking just under $750K each for them.

These are not mansions, they are considerably under 1000sq ft. The house is 12' wide and about 35' deep on 3 floors

http://www.andrewsonline.co.uk/buying-selling/property-details.aspx?ID=39606

The rooms are so small that you can hardly swing a cat, and the driveway is only big enough to take 1 car, not 2 - how many families have just one car.

Perhaps these have been designed for the 1 car, 1 small child, no disposable income families that now appear to be the norm in this part of suburbia.

Paying for a $750K mortgage is not going to leave you much left at the end of each month.

[Dave]

Again a great short piece of right on the mark no bullshit truth. Damn if JHK is not becoming a national treasure that resists inflation which means he knows his humble place and sticks to it valiantly and heroically unlike Bernake who is going to cave this week and assure that Bubbleville can continue for a few months longer. Great Job Jim and don't be surprised if I come knocking some day to get you to sign my copy of the Long Emergency. That will make it even a more prized possession than it already is but I question if it will sell on E Bay or in Yard Sale America.

[artiefacts]

"When these complainers start complaining about the ubiquitous acceptance of suburban sprawl and abject car-dependency...then they will deserve to be taken seriously. Until then, the American people have got exactly the grinding war that they deserve."

How sad. Kunstler always insists on the no-win, no hope situation.

I'll grant you the American public, as a whole, has not exhibited great intelligence or curiousity about US energy and foreign policy. But at least give Americans the benefit of the doubt - if someone in a position of authority, like Cheney, Bush, Greenspan, Clinton had ever once told them the TRUTH about PO and Iraq, and they still insisted on wallowing in NASCAR and Cheez-doodles, well then you'd have a little more justification for all this cynical bile.

But instead, all those "leaders" told, and continue to thell the American public nothing resembling the truth about PO or Iraq. In fact, what the American public knows about PO and Iraq is the product of a massive campaign of lies and disinformation.

You of all people should know this, Kunstler. And you should have figured out a long time ago that the American public's not taking it's oil advice from you and the other "punish me" masochists.

[David Mathews]

I have a prediction for tomorrow:

1. Bernanke will lower the fed funds rate.
( http://www.usatoday.com/money/economy/2007-09-16-markets-fed_N.htm?csp=34 )

2. The stock market will rally back to 14,000.

3. CNBC and the MSM will loudly proclaim, "Happy days are here again!"

After that, it is anyone's guess how soon before the world economy suffers its final collapse. I doubt that we will have to wait very long, though.

[DanaJ]

Riddick, we bought our house in Nor Cal about 10 years ago, paid about $150k with 10% down and a at the time decent 7% 30 year mortgage, the range then was 7-10%+ with 20% down at the upper end. Up to 2005 housing prices increased about 10%+ per year here, so the first year our house increased by about $15K, we got our down back in equity. Doing the math:
year 3 $165k + 10% = $181500,
year 4 $181500 + 10% = $199650
year 5 $199650 + 10% = $219615
year 6 $219615 + 10% = $241576
year 7 $241576 + 10% = $265734
year 8 $265734 + 10% = $292308
year 9 $292308 + 10% = $321538
year 10 $321538 + 10% = $353692
In un-reality here in Sonoma County, our house was valued at over $400k last year. It's a tiny 2 bed, 1 bath cottage on a lot barely bigger than the house.
Of course we hit a speed bump after about 5 years, my wife was laid off by the city to join the ranks of the over 50 perm-a-temps, no paid vaction, no insurance, the house needed a new roof, some plumbing work. So we re-fied and got a new mortgage at just over 5% and took out an equity loan.
Anyway, thats the way it works.

[bøfogøst]

I don't see any problems.

If people are continually occupied with the pursuit of larger houses they will die before they realize they have run off the cliff. And who cares if dead people fall off cliffs? Basic economics, sir.

Also, Iraq is about 9/11. You see, we were attacked and therefore those sons-of-bitches must die. We have won Afghanistan and Iraq, soon we will win Iran and Syria, and maybe France. Then the entire world will realize Wal-Mart and SUV's are more favorable than clean drinking water and the Golden Age will arrive.

[Loveandlight]

One thing I never understood is how bad loans could get packaged and sold as "securities". It sounds a lot like selling buckets of pig-poop as gold.

[David Mathews]

Hello Everyone,

Yesterday was an absolutely spectacular day in Florida. beautiful weather is expected and Florida delivered.

I saw a bald eagle flying, roseate spoonbills, a large flock of ibises, a flock of storks, and five manatees (including two baby manatees) in the course of my travels.

I have added a picture of yesterday's baby manatee to my home page:

http://www.geocities.com/dmathew1/onm.html

After all that, I got home and watched the Buccaneers win. A lovely day all around.

[Dr.Doom]

"How sad. Kunstler always insists on the no-win, no hope situation."--artiefacts

Well, if our "leaders" did in fact level with the public, their constituents, then I reckon this blog and Jim's books would probably confine themselves moron to topics in urbane planning and architecture. At the moment, the situation is indeed no win, no hope for most in the oil-dependent world. So, unless you are planning to join some New Guinea highlander tribe and continue in their "off grid" lifestyles (no picnic, I hear, BTW) then you my friend, and your neighbors and relatives, etc. have a problem.

Of those you mention, Clinton was and still is trying to stay elected to high office. Same for Bush-Cheney, who in fact are trying to do something about our oil dependency, it's just not popular. Only Greenspan has apparently mentioned the Iraq-oil connection in public, and he is retired from public service.

I don't know why I write to you about this, but it is perhaps because I harbour a faint glimpse of hope that you will wake up and quit throwing stones at the heroic messenger.

[Steve 'n Denver]

Jim,
This post was one of your very best. You really hit the nail on the head,
Especially about the Evangelical christians. I just read a book about the 1929 market crash and it seems like lots of people back then were trying to get something for nothing too.

[montysano]

Artiefact's "nobody told us the truth" defense has some merit, and points to something that's been on my mind as of late: of all the massive problems that face us, the problem that is at the root of much of it is the corporate media. Most people have the assumption, which used to be true, that if it's on television, and it says "News", than it's true. Now, of course, nothing could be further from the truth.

But that doesn't excuse intellectual laziness. "The truth is out there" was the motto of the X Files, and it's true. But one has to be curious, be proactive, has to activelly seek the truth. Truth is no longer delivered to your doorstep (if it ever was).

One of the startling things about the Greenspan revelations is his fondness for Bill Clinton, who, in Greenspan's words, had a "preference for facts". The fact that we're now led by people who have a definite aversion to the facts tells us all we need to know about our predicament.

[Newington]

A sign of things to come? http://www.washingtonpost.com/wp-dyn/content/article/2007/09/15/AR2007091501480.html

[Uncle Al]

http://www.mazepath.com/uncleal/fattest.htm

An acquaintance teacher (Southern California) has begun the first week of 6th grade. Her ethnically celebrating charges test at the 1st grade reading level. Why demand insanity when stupidity abetting "rights" enforced by social advocacy is wholly adequate?

http://www.mazepath.com/uncleal/immig.htm

[kahunabear]

Greenspasm Bubbles:

http://www.stockmania.com/2007_09_18_archive.html

[XER]

Jim,

Nice work. This weeks comments made me feel real good.

And...

Greenspan has gone to the political confessional and confessed his sins against the rulers. He "Clarified" his comments on war for oil. he is back in the graces of the church of washington. As the former high priest of dreamed up wealth, he has seen the error of his ways. All is well again on the bridge of the ship of fools.

Jiminy Cricket got to Alan the Clown.

[artiefacts]

"...wake up and quit throwing stones at the heroic messenger"

Heroic messengers don't blame the "complainers" for the 'war' in Iraq. I also have some faith that Kunstler will eventually wake up and realize that all-hyperbole-all-the-time does not persuade either the complainers or the clueless public.

[oneEyeOpen]

"I have a prediction for tomorrow:

1. Bernanke will lower the fed funds rate.
( http://www.usatoday.com/money/economy/2007-09-16-markets-fed_N.htm?csp=34 )

2. The stock market will rally back to 14,000."

Nope, The fed cut has aleady been factored in. The market is trading today as if the cut has already taken place. So far, the market is down. Want to see a total disaster? Ben decides to play tough and does not lower the rate tomorrow. Thank God I took a buch of money off the table last Friday.

[umass82]

The housing bubble is deflating not bursting, by that I mean the damage is going to get worse not better no jawboning from AL can stop it.

In the metro area I am in the exburbs are still growing, expanding, the malls and big box stores are still replacing fertile farm land with tarmac and satellite stores.

Large houses on larger lots are still being put up with the ubiquitous dominating 3 car garages in the front.

In years past this was an inland port city and a rail road hub. the river front is now park land and the tracks are mostly gone.
Also the streetcars that created the streetcar suburb i live in are long gone.

The cities traditional manufacturing plants have gone to Mexico and Red China.

When the shtf as it soon will the exburbs and suburbs will wither on the vine. Like any thing that loses its ability to sustain itself they will die.

The center cities will also have a hard time until they can restore themselves as the center of commerce trade and manufacture. Aside from some hospitals and colleges all that is there now are lawyers restaurants, museums and banks, after the shtf there will not be much room for this. In an energy poor future this will not be easy. and as such this city may not survive. How we will feed, clothe and house our society with ruined farm land no manufacture and a collapsed housing scheme

When this realization hits it will be far more devastating than the sub prime mess. Imagine most if not all of the homes built in the postwar era being abandoned this will collapse the suburb and exburb housing market, and collapse the banks and take down these economic parasites in a way that makes the s and l fiasco look mild.

[Holmes, I presume]

You guys who never asked to be born on the upside of Hubbert’s Peak, and who think that the truth is out there somewhere if only someone would tell it to you… please try to be just a little bit serious. You are up to your thigh-high waders in truth! I echo Dr. Doom’s generalized frustration on this count.

Soon, more and more mainstream “messengers” will start popping up -- almost like that Whack-A-Mole game -- just in time to promote their new books.

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/16/AR2007091601287_pf.html

“[Greenspan] said that in his discussions with President Bush and Vice President Cheney, "I have never heard them basically say, 'We've got to protect the oil supplies of the world,' but that would have been my motive." Greenspan said that he made his economic argument to White House officials and that one lower-level official, whom he declined to identify, told him, "Well, unfortunately, we can't talk about oil." Asked if he had made his point to Cheney specifically, Greenspan said yes, then added, "I talked to everybody about that."

***

"No, no, no," he said. Getting rid of Hussein achieved the purpose of "making certain that the existing system [of oil markets] continues to work, frankly, until we find other [energy supplies], which ultimately we will."”

------End of Excerpt------

As JHK suggests, Greenspan still doesn’t get the more complete picture. At the very least the old coot continues to reveal himself unambiguously as a Flaming Cornucopian.

[oneEyeOpen]

" Imagine most if not all of the homes built in the postwar era being abandoned this will collapse the suburb and exburb housing market, and collapse the banks and take down these economic parasites in a way that makes the s and l fiasco look mild."

This is the silliest thing I have ever heard. The majority of Americans live in the suburbs. You think the majority will just abandon their homes? And go where? Not going to happen.

[Dr.Doom]

OEO, respectfully, those living in the distant suburbs will have to relocate themselves closer to the public assistance centers. There they can pick up some food, clothing, free medical care. It could be a takeaway operation for the goods, but folks will have to be cleaver about, ahem, pooling their remaining resources to get there and back.

Relocating to within walking/bike/moped distance to the local Salvation Army or Goodwill centers might be a good idea. Just ask those former realtors and boat salespersons.