Monday, July 09, 2007

The Ants of Gaia
It’s only the end of the world, so quit bitching

by Joe Bageant / July 7th, 2007

The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race. The vices of mankind are active and able ministers of depopulation. They are the precursors in the great army of destruction, and often finish the dreadful work themselves. But should they fail in this war of extermination, sickly seasons, epidemics, pestilence, and plague advance in terrific array, and sweep off their thousands and tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world.

– Thomas Malthus, 1798

As a small boy, I once transferred most of an anthill population from its natural digs in our front yard to a gallon jar of fresh dirt, sprinkled it with a little sugar (in the cartoons ants are always freaks for sugar, right?) and then left the ants on their own. Of course the day came when all I had was a jar full of dry earth, ant shit and the desolation of their parched little carcasses. I’d guess that it was the lack of water that finally got ‘em.

But the most interesting thing in retrospect — if a jar of dead bugs can be called interesting — is this: Up until the very end they seemed to be happily and obliviously busy. They constructed an ant society with all of its ant facilities, made more baby ants and did all those things ants do that the proverbial grasshopper is famous for not doing. Obviously Christian predestinationists to the last ant, they met the grasshopper’s grim fate by another route, and did not look at all surprised in death.

Now you’d think that the lesson of the ants would be obvious as hell to any non-intoxicated individual with a grade school education. Never mind that many people since Malthus, as my sainted daddy would have put it, “Done drove the point in the ground and broke it clean off.” Never mind that Paul Ehrlich’s The Population Bomb was a best seller and remains a classic. Never mind that James Lovelock, the nerdish forward thinking Englishman who 99% of Americans never heard of, delivered unto us yet one more time the worst truth in human history, the Gaia Hypothesis. Which is a fancy way of saying we cannot continue to devour our planet forever because it amounts to self-cannibalism.

Lovelock also convincingly argued that, due the side effects of this species expiration, now acknowledged as global warming, the equator will look like Mars at some point relatively soon, with the surviving 20% of humans now alive, or perhaps in the next generation, living near the North and South Poles.

As to be expected, the few very comfortable elite folks on this earth said of Lovelock: “This guy is full of shit, a nutcase being adored by a bunch of naked tattooed pagans and gloomy intellectual types,” both of which number among my favorite kinds of people.

Those pagans who allowed themselves to feel and not just intellectualize about the earth’s condition, and those scientists who did not require computer modeling to do simple subtraction, recognized that these are the most challenging of times in human history, “challenging” being a polite term for the fact that that humanity is gonna die off big time, if not sooner, then later. Call it the secular version of The End Times.

But not much later, in light of the brief span Homo sapiens hath shat, frolicked, killed and exceeded their MasterCard limits upon the earth, which is less than a second in geological time. Already we are on the way out because we did not have the common sense of lizards, which lasted tens of millions of years longer without so much as a calculator, much less computerized eco models.

A bunch of DNA molecules gave us this aberrant evolution of brain and consciousness that enabled us to dominate everything else and get into the totally fucked situation in which we now find ourselves. The monkey got so smart he took over everything, ate most of it, drove over the rest, then stuck the roadkill on its own dick as a nuclear warhead, and after having threatened what was left around him, set out to destroy even that small remaining scrap of his ruined earthly turf. Is this God’s cruelest joke?

Global Warming as Mange Medicine

If mankind were discovered on a dog’s hide the owner would give the dog a mange dip. Or if the earth were a Petri dish, we would be called pathology. Problem is though, mama earth tends to shed pathogens off her skin, which for us pathogens, is the ultimate catastrophe.

When forced to look at catastrophe on this order of magnitude, we either go numb in shock or look in delusion to something bigger, or at least something with more grandeur than Mother Nature flushing humanity down the toilet. Otherwise, one must accept the both ugly and the weirdly beautiful prospect of oblivion. Meanwhile, we begin too late to “make better choices.” Grim choices that do nothing but postpone the inevitable, which are called better ones and sold to us to make ourselves feel better about our toxicity. Burn corn in your gas tank. Go green, with the help of Monsanto. But not many can be concerned even with the matter of better choices. Few can truly grasp the fullness of the danger because there is no way they can get their minds around it, no way to see the world in its entirety. The tadpole cannot conceive of the banks of the pond, much less the wooded watershed that feeds it. But old frogs glimpse of it.

Still, there is choice available, even a superior choice — the moral one. Accept the truth and act upon it. Take direct action to eliminate human suffering, and likewise to eliminate our own comfort. We can say no to scorched babies in Iraq. We can refuse to drive at all and refuse to participate in a dead society gone shopping. We can quit being so addicted to rationality and embrace the spirit. Rationality simply turns back on itself like a mobius strip. Too much thinking, too much cleverness on the monkey’s part leads it to believe it can come up with rational solutions for what ration itself hath wrought.

All the green energy sources and eating right and voting right cannot fix what has been irretrievably ruined, but only make life amid the ruination slightly more bearable. Species gluttony is nearly over and we’ve eaten the earth and pissed upon its bones. Not because we are cruel by nature (though a case might be made for stupidity) but because the existence of consciousness necessarily implies each of us as its individual center, the individual point of all experience and thus all knowing. The accumulated personal and collective wounds fester and become fatal because there is no way to inform the world that we must surrender our assumptions, even if we wanted to. Which we do not because assumptions are the unseen cultural glue, the DNA of civilization. If we did so, the crash would be immediate.

So we postpone transformation through truth, and stick with what has always worked — empire and consumption. And we twiddle our lives away thorough insignificant fretting about mortgages and health care and political parties and pretend the whole of American life is not a disconnect. Hell, all of Western culture has become a disconnect. Somebody needs to tell the Europeans too; progressive Americans give them entirely too much credit for the small positive variation in their cultures and ours. We both get away with it only so long as the oil and the entertainment last.

The front page of today’s newspaper tells me that 41 million motorists will gas up and hit the road today, July 3rd. Another five million will sip drinks and read magazines while zipping through the stratosphere in 747s that burn the day’s oxygen production of a 44,000 acre rainforest in the first five minutes of flight just getting off the ground and gaining altitude, adding to the more than 110 million annual tons of atmosphere-altering chemtrail gasses, some of which will remain to hold heat in the upper atmosphere for almost 100 years.

Below it all are the spreading pox like blotches of economic and ecological ruins of dead North American towns and city cores, such as downtown Gary Indiana, Camden, Newark, Detroit . . . all those places we secretly accept as being hellish because, well, that’s just what happens when “blacks take over,” isn’t it? Has anyone seen downtown Detroit lately? Of course not. No one goes there any more. Miles of cracked pavement, weeds and abandoned buildings that look like de Chirico’s Melancholy and Mystery of a Street. Hell, for all practical purposes it is uninhabited, though a scattering of drug addicts, alcoholics and homeless insane people wander in the shadows of vacant rotting skyscrapers where water drips and vines crawl through the lobbies, including the Ford Motor Company’s stainless steel former headquarters. (See the works of Chilean-born photographer Camilo José Vergara.) It is the first glimpse of a very near future, right here and now for all to see.

The hearts of even our most avowedly thriving cities are just dead, reduced to nothing more than designated spending zones, collections of bars and banks and overpriced eateries lodged at the center of a massive tangle of overpasses and freeways designed for a nation of soft people hurtling themselves through the suburbs in petroleum powered exoskeletons in search of fried chicken, or into the city for the lonely monetized experience called urban nightlife. Which is no life at all, but rather posturing in lifelike poses amid simple drunkenness and engorgement.

We allow ourselves to imagine the worst is somewhere in yet another future so we can continue without owning decision. Love of comfort being the death of courage, we continue the familiar commoditized life, the only one we have known. Is it not true that our entire understanding of courage as we know it is about braving some unknown? About making the socially unaccepted and dangerous choice? Stepping forward in the face of the wars and evil mechanics of our own particular time?

Empire and its inevitable permanent state of warfare flourishes not because evil men are at the helm, but because the men at the helm are even weaker and more in denial than we are. (Look at Dick Cheney. The guy is a nervous wreck wrapped in arrogance and denial.) And so their uninformed and crude confidence is assuring to both them and us. We elect the worst among ourselves in increasing avoidance of ourselves and they are validated by our endorsement. Evil men seeking empire did not make us or the world this way. We made their existence possible through our denial, love of ease and non accountability.

The most dangerous question in the world

Yet, I dare say that comfort is not the most important thing in most American lives. It is just the only thing we are offered in exchange for our toil and the pain of ordinary existence in such an age. Consequently, it is all we know. Meaningless work, then meaningless comfort and distraction in the too-few hours between sleep and labor. But we settled for that and continue to do so. The day will never come when we stand around the office water cooler and ask one another: “Why in the hell are we even here today?” It’s the most dangerous question in America and the Western world.

Some few of us are in a hellish limbo, simply waiting for total collapse because it is easier to rebuild from nothing than to change billions of minds not even remotely concerned with the looming catastrophe. A minority of the world, the six percent called America, suffers the mass self-delusion of endless plentitude. A much larger portion is less concerned with the moral aspects of consumption because they are brutally engaged in trying to find enough to eat and a drink of clean water. So plentitude on any terms looks damned good. Escape to America because those fuckers over there don’t seem to be suffering at all.

Manifesto of the Damned

I thank the stars for younger men, writers such as Derrick Jensen and Charles Eisenstein. They say what we cannot yet say to ourselves and what the media will never say because media survives by the corporate numbers game. Consequently, the iron rules of being allowed to communicate with significant numbers of people within our empire tend to call for glibness, fake optimism, and the wide net of inclusion of even the silliest sorts of people. Fuck only knows I’ve participated in the sham over the years. But the truth is never politically or socially correct.

What’s left of my own aging hippie optimism dies hard. And as an older guy who has seen both interior and external horror in this life, I often assure those who will deal with this world after I am worm chow that “to have seen a specter is not everything.” I’ve often repeated this theme because it is important to know that many more specters lie ahead of the next generation, the survivors of which will be the new “brave happy few,” links in the chain of reason tempered with art. No one yet knows with absolute certainty the outcome of our terrible common plunge toward truth. But even in the worst of times, there is glory in the sheer electricity of life, the expression of its juiciness, those moments when the eternal fecundity of the flesh struts by in a tight skirt, or perhaps sporting the perfect unshaven jaw, offering everything and nothing. Life is never completely joyless.

Younger men and women will live to rule or rule the day. So seize it for god sake! And listen to the cellular wisdom of the flesh. I did and do and am damned glad of it. Despite what a police court Jehovah, Yahweh or Allah may have told us, the only holy thing existent is this the flesh in which we now walk. It leads us toward both good and evil, but it leads, and most probably will bleed if we are on the right path. Yet, what could be better than a meaningful life during meaningless times? Which is everything, whether we be artistic, queer, altruistic, an unheralded ox in the fields of labor . . . or one of the invisible ones out there with a stone cold determination to kill the supposedly deathless machinery in which we are expected to supplicate daily and call that a life.

I am not a wise man, but I dare say that’s about all you can hope for. A splash of small glory, or perhaps even a canteen filled with meaningfulness in the desert. It is no small thing.

So here we are. You and me. Let us hang all our laundry out to dry in this tiny corner of cyberspace. I think it is entirely possible that we can be honest cybernetic bards in an unpromising age, possibly even noble amid the ruins.

Joe Bageant is author of the book, Deer Hunting With Jesus: Dispatches from America's Class War. (Random House Crown), about working class America. A complete archive of his on-line work, along with the thoughts of many working Americans on the subject of class may be found on his website. Feel free to contact him at: Read other articles by Joe, or visit Joe's website.
Eat, Fight, Fuck, Pray
An Interview with Joe Bageant

by Joshua Frank / July 9th, 2007

Joe Bageant is author of Deer Hunting With Jesus: Dispatches from America’s Class War just published by Random House Crown. He recently spoke with Joshua Frank about his new book.

Joshua Frank: So Joe, what the hell is going on with the redneck strain of the working class anyway? Why do they seem more apt to embrace evangelism rather than a labor union? Is it, as psychologists would say, learned helplessness, or worse, idiocy?

Joe Bageant: Well, Josh, that’s a pretty broad brush you’re painting with there. In fact, it’s too broad to be answered, but that will not stop me from responding with my usual shrillness and tin drum noise punctuated by flatulence. Let me start by saying the term redneck does not apply especially to southerners. I have found indigenous redneck culture and communities in Maine, Oregon Kansas, New York, Massachusetts, and California … in virtually every state and in large numbers. Among loggers, cowboys, poles, Germans, and even Latino rednecks.

Really. Don’t you think beer and low riders and macho sports aesthetic of Latinos, the heterosexual, patriotic Jesus focused Catholic is that much different from their Jesus focused Baptist Dixie and Midwestern counterparts? The low riders of LA are the same as beer and muscle cars of the south. In fact the first rednecks were probably the striking miners at the Ludlow Colorado massacre, who wore red bandanas and were seen as tough, surly, angry working class people who had to be kept down. The sun on the neck definition is another more recent one that got applied especially to Southerners, during the civil rights era I suppose.

We have been taught to use these ethnic, regional and racial labels to cover up the real issue in America that the rich want keep hidden another 200 years—that we are a classist country. That one class owns pretty much the whole country these days and that all the rest are left to suck hind tit and pretend they are all members of something called “the middle class.” The only real middle class is that thin layer of commissars, lawyers, teachers, journalists, and other caterers to the empire, those people necessary to manage it and count the beans, dumb down the kids and lock up enough people to keep the privatized gulags in business.

Anyway, I assume you are referring the heartland white working class people who attend fundamentalist churches. Ever since around 1800 about one-third of white America has been fundamentalist Christians, about one-third of Americans have had a born again experience. The thing that is different now is that these churches have access to political power. They were welcomed across the church-state wall of separation by cynical GOP strategists to whom giving the Republicans another chance to sack Washington, loot the national kitty and maybe pull off a good oil raid in the Middle East, was more important than our constitution. Now that they’ve let John Calvin’s wooly beast into to tent, we find it chewing on the constitution and generally stinking up the joint—it’s not going to leave without a fight.

As to the last parts of your question: When it comes to embracing the church instead of a labor union, I can remember a time when the churches stood behind the labor unions. Have we learned to be helpless? Man, we are helpless. Capitalist conditioning has replaced citizenship with consumerism. I mean, what are you or I doing? I write a book so the global publishing chain of Bertelsmann makes more money; you and I both sit here on the Internet spewing electrons across circuit boards that keep Bill Gates and the stock brokers farting through silk while we preach to the choir who bought our books. There are far better alternatives. We could grab some axe handles and heat up the tar bucket and start to burn some shit down. That still works you know.

Joshua Frank: I’ve always thought that’d work.

Joe Bageant: But we won’t. Because we are all programmed to participate through purchase, whether it is my book at Barnes and Noble or the software that enables us to read CounterPunch. Or choose the candidate that has been preselected and purchased in advance by the people who have essentially made Americans into a nation of iPod implanted pizza drivers and well dressed lawn jockeys sitting in front of monitors on the empires electronic plantations.

Joshua Frank: So how can we change this political myopia?

Our involvement with politics, our political lives, are merely as spectators who listen to commercials for three years before the magical moment before we “cast our vote” by simply going shopping in the tiniest shopping space of all—the voting booth—with the most limited choices possible that can still be called a choice: two twin parties whose parents, the corporations, have to display them against different colored backgrounds so people can get a clue as to their difference. (“I am for fighting the war until the last dog is dead,” as opposed to “I am for pulling the troops out, but not until a few hundred thousand more dogs are dead. I don’t wanna be seen as weak on the dead dog thing.” Or my favorite, “We can’t leave now or there will be chaos?” What the fuck is it we have created there now?) Right now the owning class Westchester Country Club Democrats is offering us two flavors, Hillary Clinton (bitter vanilla) and Barrack Obama (Mocha hope.)

Soooo … What’s going on politically with the great beery redneck nation? Nothing. We don’t think about politics until the last half hour before time to vote. Then a sort of a heartburn grips our chests, and all the negative campaign ads, and the sound of Bill O’Reilly’s voice and last night’s beer and bratwurst and Hillary’s stern beady eyes drill in on us … preachers call down lightening bolts and fighter planes do a double roll over the desert … then suddenly an acidic clot curdles in our throat, we close our eyes and we projectile vomit all our fears and suspicions and prejudices and state injected messages in the direction of the party making the most noise right up until the last minute. That’s what we do down here.

What do ya’ll do?

Joshua Frank: Well, I grew up in Montana with rednecks aplenty. Most of my own family is small farmers who were forced to move to the little towns in the area because of the onset of industrial agriculture. They lost the land they worked. Most of them are still proud rednecks. I respect the work ethic, but not all the culture that goes along with it. Up in Big Sky country, folks know politicians lie, so they put their trust in God instead.

Pick up trucks. Gun racks. Elk hunting. Beer drinking. It’s a way of life there. I enjoy most of it. It takes some pretty damn rough times before people stand up and say, enough is enough! You’d think they’d be screaming from the mountaintops by now. But they haven’t because they don’t think they can do a damn thing about their lot. And that’s where you get a lot of that anti-government sentiment. The Freeman and the Unabomber. It resonates quite well. As it should. The state doesn’t stand up for the little guy, but for the big corporations and they know it. The elites, however, always seem to capitalize off of their collective weakness—mainly their inability to stand up in the face of power. But anymore, the mainstream “right” and “left” are almost one in the same when it comes to the fundamental economic issues of our times.

Anyway, this is supposed to be an interview with you. Not me!

Joe Bageant: I lived in northern Idaho for years and had a lot of truck with Montanans like yourself. And to me they are among the best people in this country, tough uncomplaining people, kinda like Southerners, but with far less racism (unless you happen to be an Indian in some cases). Once when I was trending bar on the reservation, a Montana cowboy led his horse right into the place and demanded a beer for his steed. He had been drunk for two days, driving south toward New Mexico with his horse trailer, down from Alberta, Canada, and was obviously looking for a good old time tension-releasing brawl. “Well sir,” I told him. “That horse ain’t old enough to drink.” “That horse is 18,” he replied. I peeled back the horse’s lips and checked his teeth. I had horses of my own and knew how to check their age. “That horse is nine years old,” I said. “Just about the age a good cow pony starts getting some real sense.” He threw back his head and laughed. The situation was defused and we sat there in the Bald Eagle Bar and jawed until closing time. A good, tough, brave man of the kind America doesn’t make anymore. Tipped me ten dollars, then went off to wrap himself in a blanket and sleep in his truck until first light.

At the same time though, there is a belief in authority, a reverence even, that is so typically American. America has never been a nation of true dissenters. Even during the Sixties. Don’t let the old newsreels fool you. You gotta remember that when those kids were gunned down at Kent State, one half of America was cheering and an even larger portion did not give a shit. But the footage was so shocking, and we actually had a rather liberal media back then, and so, like Twin Towers footage, it was shown over and over and written about until the message finally soaked in. But Americans for the most part are on the side of their own oppressor and like it that way. Heartland Americans were happy when the working man was shot down at Ludlow, and happy when the Bohunk and Pollack miners were gunned down at the Latimer mines (again, the rewriters of history have made it seem otherwise). The good people of the heartland were happy with the kangaroo courts that framed and murdered Joe Hill and Sacco and Venzetti. And today they are happy when they see police in black Kevlar beating down young radicals in Seattle and Old Jewish women in Miami protesting turning that city into a free trade zone labor gulag.

Joshua Frank: Your book has been put out by a major publishing house. As you note, these cats are in the business of making money, and I’m assuming they wanted to make your book palatable to the run-of-the-mill liberal audience. What was that process like?

Joe Bageant: For lefties it can be infuriating. My publisher is Random House, is owned by owned by Bertelsmann, the former Nazi German publisher that made massive profits from Jewish slave labor and published ant-Jewish propaganda for Hitler. It also owns Doubleday, Bantam, and a slew of other media around the world. So today we see the irony of scores of Jewish editors etc working for Bertelsmann, but this time instead of tattoos, they are sporting blackberries, worrying about theater tickets and treating their Salvadorian nannies like shit.

Anyway, big publishers Random House Crown roll the ball right down the middle of the aisle looking for a strike to sell the most books to the broad middle class. No leftie gutter balls. Let Seven Arrows have’em. On the other hand, Crown publishes Anne Coulter, which tells you something about the real middle road and what sells. Everyone must do that to keep their jobs and climb the ladder of the company, which constitutes the corporate brand allegiance that is their lives, livelihood and personal identity in the Empire. Their lives are the brand. The brand is their lives. As in, “I am an editor at Harper Collins, the one who did the Martini Book of Common Wisdom,” or “Hillary’s book,” or whatever.

At one end, you have the editors, many of whom care about the life of the mind but have internalized capitalist market driven values, and thus feel courageous when they really are not. At the other end you have the company management, who see all books merely as units. Naturally, in a system like that, the pull is always rightward toward profit driven and non-risky thinking. Consequently, the American reading public for idea based books, which is small as hell, thinks it is expanding its knowledge through reading when they buy books, when actually, all most want to do is see their viewpoints reaffirmed. But what really happens is that they are drawn more rightward by the narrowness of available choices in a marketplace that loves the homogeneity and standardization of thought which makes marketing much easier.

In all fairness though, I would be the first to say that a publisher like Random House seems to put energy, resources and talent behind you, once they are committed. Frankly, they put in more than I really care to deal with sometimes. But when I hear the horror stories of some very good writers working with small publishers and their limited resources, I know I have been fortunate that way. Lucky to have the editor, publicist and agent I have. Most writers would kill for what sort of landed in my lap, given that I was not looking to write a book in the first place. I try not to be an ingrate, but at the same time I am not at all impressed with this stuff. I might have been at your age, but not now. Thankfully, it has come too late. It’s rather like a beautiful woman coming to the bed of an 85-year old man. Delightful to behold, but no distraction from the path that took so long to hew through the jungle of false thinking and ill-focused passions.

I had the good standard middle class New York Jewish editor. She had the job of reconciling my cranky agrarian based redneck leftist thinking with the publishing environment and the marketplace as it is. I am a rather uncontrolled writer given to free association and distracting rants. When it comes to something as long as a book, I absolutely need an editor for guidance. Someone to say, “That sucks. It’s unreadable,” and make suggestions. Without her work, it would not be getting the glowing reviews it is getting so far.

Writer/editor relationships can get very personal as you know, and we had class issues, given was the chasm between our backgrounds. But I must say the editor made every effort to bridge that gap, once she got around to my book, when, at times, I simply refused to. Mostly when drunk and depressed by the glacial process by which books are published. To compound matters, time was running out for me. I was very ill with my lung disease at the time and was diagnosed as having about 18 months to live, which turned out to be somewhat wrong; I’ve got a few more years in me yet. So here I was sneezing blood, working 55 hours a week at a straight gig, and trying to write a book too while my editor had put me on the back burner so she could work on Barack Obama’s book. Needless to say, I was a very miserable camper during much of the process.

At the same time, the entire grisly process brought my editor and I closer together as human beings, and I now consider her among my good friends, even if our backgrounds have forever conditioned us in different directions. I shudder for the fate of her children in this world the same as I do for those of my adopted family in Belize.

As to Belize, I’ve pretty much got my scene together there and consider it my home, though what I will do for money in the long term, I do not know. Presently I am back here to cooperate in the promotion of the book, and will be here a few weeks longer. I’m beginning to understand that I will always be spending significant amounts of time here, if for no other reason than earning money. A lot has happened in the past several months. I began to live on $4000 a year, as I had vowed, which causes stress on my marriage and family life, as you would imagine. And now I have a deep regret for the trees wasted in the publication of my book and hate what my air travel to Belize does to the upper atmosphere, regarding global warming. If I ever do another book, I can try to do it on recycled paper, insist it be done by union printers, and then, as I do now, donate all the royalties except the $4000 to small-scale development projects. But frankly, I don’t have anything to say that is important enough to justify the damage done by publishing it. Nothing that cannot be said on the Internet with far less environmental damage. But who knows? Life has a funny way of making us eat every word.

Joshua Frank: What do the folks of your town, of which you write so frankly, think about the book?

Joe Bageant: Not much so far. The working class people in the book, who never buy or read books at all, seem rather mystified when someone exposes them to parts of it. They relish figuring out who is who and generally agree with its message about class in America. The town’s old families are pissed. Some have called me. One asked why I wrote such “mean things about this town’s leading families.” Leading families! Can you imagine that? Another told me there is “no such thing as class in Winchester. We are all happy and equal.” I just about choked on that one. They tell me the local newspaper is oiling up its guns for an attack. And some upper crust family is bound to try and sue me, I’m sure.

Joshua Frank: So when is this class war you write about going to come to a head, or has it already? I’m talking about blood in the streets and mansions on fire. Will there ever be a true class revolt in the United States, or will any sort of militant dissent be stopped dead in its tracks by the Feds?

Joe Bageant: I don’t think that will ever happen, but that doesn’t mean we shouldn’t keep up the fight. I think so-called terrorism and ecocide may tear down the system for us, though. Danger has no favorites. The good old days of “the teeming masses,” that sweat soaked, beer farting mob of working class Americans who didn’t have a pot to piss in, much less a credit card, but instinctively knew fascism when they saw it, are over. Seattle in 1999 may not happen in the states again. We have all become an artificial product of corporately “administrated” modern life.

Joshua Frank is co-editor of Dissident Voice and author of Left Out! How Liberals Helped Reelect George W. Bush (Common Courage Press, 2005), and along with Jeffrey St. Clair, the editor of the forthcoming Red State Rebels, to be published by AK Press in March 2008. Read other articles by Joshua, or visit Joshua's website.

Wednesday, July 04, 2007

The Fed’s Role in the Bear Stearns Meltdown
by Mike Whitney / July 2nd, 2007

The Bank for International Settlements issued a warning this week that the Federal Reserve’s monetary policies have created an enormous equity bubble which could lead to another “Great Depression”. The UK Telegraph says that, “The BIS — the ultimate bank of central bankers — pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

The IMF and the UN have issued similar warnings, but they’ve all been shrugged off by the Bush administration. Neither Bush nor the Federal Reserve is interested in “course correction”. They plan to stick with the same harebrained policies until the end.

The “easy credit” which created the subprime crisis in mortgage lending has now spread to the hedge fund industry. The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is “contained” is pure baloney. The contagion is swiftly moving through the entire system taking down home owners, mortgage lenders, banks, rating agencies, and hedge funds. We are just at the beginning of a system-wide breakdown.

The problem originated at the Federal Reserve when Fed-chief Alan Greenspan lowered the Feds Fund Rate to 1% in June 2003 and kept rates perilously low for more than 2 years. Trillions of dollars flowed into the economy through low interest loans creating a massive equity bubble in real estate which drove up housing prices and triggered a speculative frenzy.

The Feds’ “easy money” policy has disrupted the “debt-to-GDP” balance which maintains the integrity of the currency. By expanding circulation debt via low interest rates, Greenspan put the country on the path to hyperinflation and, very likely, the collapse of the monetary system.

The problems at Bear Stearns are the logical upshot of Greenspan’s policies. The over-leveraged hedge funds are a good example of what happens during a “credit boom”. Liquidity flows into the markets and raises the nominal value of all asset classes but, at the same time, GDP continues to shrink. That’s because the wages of working class people have stagnated and not kept pace with productivity. When workers have less discretionary income, consumer spending — which accounts for 70% of GDP — begins to decline. That’s why this quarters earnings reports have fallen short of expectations. The American consumer is “tapped out”.

The current rise in stock prices does not indicate a healthy economy. It simply proves that the market is awash in cheap credit resulting from the Fed’s increases in the money supply. Consumer spending is a better indicator of the real state of the economy than stocks. When consumer spending drops off; it is a sign of overcapacity, which is deflationary. That means that growth will continue to shrivel because maxed-out workers can no longer purchase the things they are making.

The underlying problem is not simply the Fed’s reckless increases to the money supply, but the growing “wealth gap” which is undermining solid economic growth. If wages don’t keep pace with productivity; the middle class loses its ability to buy consumer items and the economy slows.

The reason that hasn’t happened yet in the US is because of the extraordinary opportunities to expand personal debt. The Fed’s low interest rates have created a culture of borrowing which has convinced many people that debt equals wealth. It’s not; and the collapse in the housing market will prove how lethal that theory really is.

To large extent, the housing bubble has concealed the systematic destruction of America’s industrial and manufacturing base. Low interest rates have lulled the public to sleep while millions of high-paying jobs have been outsourced. The rise in housing prices has created the illusion of prosperity but, in truth, we are only selling houses to each other and are not making anything that the rest of the world wants. The $11 trillion dollars that was pumped into the real estate market is probably the greatest waste of capital investment in the nations’ history. It hasn’t produced a single asset that will add to our collective wealth or industrial competitiveness. It’s been a total bust.

The Federal Reserve produces all the facts and figures related to the housing industry. They knew that trillions of dollars were being diverted into a speculative bubble, but they did nothing to stop it. Instead, they kept interest rates low and endorsed the lax lending standards which paved the way for millions of defaults. Now the effects of their “cheap money” policies have spread to the hedge fund industry where hundreds of billions of dollars in pensions and savings are in jeopardy.

Alan Greenspan played a major role in the housing boondoggle. On February 26, 2004, he said, “American consumers might benefit if lenders provide greater mortgage product alternatives to the traditional fixed rate mortgage. To the degree that households are driven by fears of payment shocks but willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”

Greenspan tacitly approved the whacky financing which produced all manner of untested loans — including ARMs, piggyback loans, “no doc” loans, “interest only” loans etc. These loans are a break from traditional financing and have contributed to the increase in bankruptcies.

Millions of people who were hoodwinked into buying homes with “interest-only”, “no down” loans will now either lose their homes or be shackled to an asset of decreasing value for the next 30 years. They’ve been tricked into a life of indentured servitude.

A recent article in the Wall Street Journal revealed the extent of Greenspan’s involvement in the housing fiasco. Here’s an excerpt from the article:

“Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

“I would have liked the Fed to be a leader” in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

“He was opposed to it, so I didn’t really pursue it,” says Mr. Gramlich.

Still, Mr. Greenspan’s views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny”. (Wall Street Journal)

So, Greenspan had the chance to “crack down on predatory lending” and he refused. Now millions of low income people are saddled with payments they have no reasonable prospect of paying off. How much of the present carnage could have been avoided if he had Greenspan done the right thing?

The “Not So Great” Depression
An article appeared this week in the UK Telegraph by Ambrose Evans-Pritchard which supports the theory that Greenspan’s “loose monetary policy” fueled a huge credit bubble, which is pushing the global economy towards a “1930s-style slump.”

The article quotes from a statement made by The Bank for International Settlements:

“Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived”.

But today we face “worrying signs” of another economic meltdown.

The BIS said that they were “starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be ‘cleaned up’ afterwards”, (Greenspan’s method) and that, “while cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and sowing the seeds for more serious problems further ahead.’”

“The bank said it was far from clear whether the US would be able to ignore the consequences of its latest imbalances, ($800 billion per year) citing a current account deficit running at 6.5% of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unprecedented drop in the savings rate. ‘The dollar clearly remains vulnerable to a sudden loss of private sector confidence.”’

The BIS referred to the toxic effect of the “$470 billion in collateralized debt obligations (CDO), and a further $524 billion in “synthetic” CDOs which have spread through hedge funds industry. These CDOs are the loans (many sub primes) which were bundled off to Wall Street and turned into securities which are highly leveraged in hedge funds for maximum profitability. As Bear Stearns is discovering, these CDOs are like roadside bombs; exploding without notice whenever the stock market suddenly dips.

The BIS also cautioned about the excess of “leveraged buy-outs (mergers) which touched $753bn, with an average debt/cash flow ratio hitting a record 5.4… ‘Sooner or later the credit cycle will turn and default rates will begin to rise.’”

The central banks around the world are increasingly worried that the Bush administration’s profligate spending and irrational monetary policies will trigger a global depression. The recent volatility in the stock market suggests that the credit boom is just about over. Once the liquidity dries up — stocks will fall sharply.

The Housing Slump
Yesterday’s housing data, shows that sales are still weak while inventory continues to grow. Existing home sales dropped 3% while prices dropped another 2.1%. Falling prices mean that cash-strapped home owners will not be able to tap into their home’s equity for other expenses. Last year, mortgage equity withdrawals (MEWs) accounted for $600 billion of consumer spending. This year, the amount will be negligible at best.

The media and the Fed continue to mislead the public about the magnitude of the housing bubble. Fed chief Bernanke assures us that the sub prime calamity hasn’t “spread to other parts of the economy” (tell that to Bear Stearns) and the media keeps cheerily reiterating that a “turnaround” or “soft landing” is just ahead.

These claims are ridiculous. Apart from the 80 or more sub-prime lenders that have gone “belly-up” in the last few months, the rickety collateralized debt obligations (CDOs) and mortgage backed securities (MBSs) are steamrolling their way through the stock market bowling down everything their path. Bear Stearns is just the first on the casualties list. There’ll be many more before the storm is over.

Fed-chairman Bernanke knows what’s going on. He was given a full rundown by “John Burns Real Estate Consulting that the national sales information for both new and existing homes, is “misleading and covering up a deep plunge of the housing sector.” The housing market is freefalling. Existing-home sales are down 22% in May and mortgage applications have fallen a whopping 18%…. In Florida home sales are down 34%, not 28% as NAR reported; Arizona sales are down 38%, not 28%; and California’s down 37%, not 24% as NAR reports.”

Down 37% in California!?!

Gadzooks! It’s a landslide.

As the defaults continue to pile up; the hedge funds will take a bigger and bigger pounding. It can’t be avoided. That’s what happens when bankers abandon traditional lending standards and lend trillions of thousands of dollars to people who have bad credit and lie on their loan applications.

Thousands of these same shaky sub primes loans have been wrapped up like the Crown Jewels and sold off to Wall Street as CDOs. Now they are ripping through the hedge fund industry like a tornado in a trailer park. The media has tried to downplay the damage, but its not hard to see what is really going on. According to Reuters:

“Banks doubled the amount of CDOs outstanding in the past two years to $2.6 trillion, including a record $769 billion sold last year, according to J.P. Morgan. These figures include funded and unfunded issuance. Pimco’s Bill Gross said there are hundreds of billions of dollars of subprime residential mortgage-backed securities (RMBS), derivatives on subprime RMBS and collateralized debt obligations (CDOs) that buy subprime RMBS and/or the derivatives on the RMBS — all of which he considers “toxic waste.”’

“$2.6 trillion”! That’s enough to bring down the whole economy. And, as Bear Stearns proves, the whole mess is beginning to unwind pretty quickly.

“Foreign investors have been the dominant buyers of these exotic debt instruments in recent years, owing to their insatiable demand for yield. ‘If investors start dumping them, oh boy, watch out for some massive credit widening,” said Dan Fuss, Vice Chairman at Loomis Sayles. (Reuters)

If the hedge fund industry follows the downward slide of the housing bubble, foreign investors will run for the exits. In fact, this may already being happening.

China sold $5.8 billion in US Treasuries in May; the first time they have dumped USTs on the market. This may be the first sign of “capital flight”—foreign investment fleeing the US for more promising markets in Asia and Europe. The greenback’s survival now depends on the generosity of foreign bankers. If they refuse to recycle our $800 billion current account deficit by purchasing US bonds and securities, then the dollar will sink like a stone and lose its place as the world’s reserve currency.

More Housing Blowdown
Last Friday, the stock market took a 185-point nosedive on the news that Bear Stearns was trying to raise $3.2 billion to rescue its battered hedge fund. According to the New York Times, however, Bear was only able to came up with “$1.6 billion in secured loans to bail out one of the 2 hedge funds”.

The funds are the latest victim of the sub-prime meltdown which Bernanke and Paulson assured us was “largely contained”. In fact, Paulson even said, “We have had a major housing correction in this country,” and “I do believe we are at or near the bottom.”

Anyone who believes Paulson should take a look the below chart. It illustrates that how loan “resets” will continue to pound the housing market for at least another year and a half getting steadily worse as inventory grows.

The disaster is so bad that even the realtors are beginning to tell the truth. As one agent noted, “It’s a bloodbath.”

But the debacle in housing is only the first part of a much larger problem — a global liquidity crisis. Banks and mortgage lenders have already begun to tighten up their lending practices and many have abandoned sub prime loans altogether. (20% of the housing market in 2006 was sub prime) Now the focus has shifted to the stock market, where banks are beginning to see that “risk” has not been properly calculated. That means that if more hedge funds collapse, the banks may not be able to cover the losses.

The Bear Stearns fiasco has had a chilling affect on lending. In fact, the New York Times reported on 6-26-07 that “After years of supersize private equity deals… the buyout boom may be about to hit a bump… Rising interest rates and tougher terms from investors may signal that private equity players will soon be struggling to continue reaping the outsize returns that have made the buyout business so lucrative.” (Private Equity Investors Hint at Cool Down” NY Times)

Liquidity is drying up in the private equity business. The troubles at Bear Stearns has changed the credit-landscape overnight. Bankers are nervous, money is getting tighter, and liquidity is vanishing.

“We know that these holdings are not unique to Bear Stearns,” said Professor Joseph R. Mason, co-author of a recent study warning of dangers in securities backed by home loans to high-risk borrowers. “It would be hard to find a Wall Street firm that hasn’t created similar funds.”

That’s right; the industry is waist-deep in these sub-prime time-bombs. Shaky loans and rising foreclosures threaten to knock the foundation blocks out from under the stock market and set off a wave of panic selling.

Could it have been avoided?

Perhaps, if there were better regulations on rating bonds and restricting leverage.

Consider this: one of Bear Stearns hedge funds took a $600 million investment and leveraged it 10 times its value to $7 billion. Their portfolio was chock-full of dicey CDOs and “illiquid assets” such as timber holdings in foreign countries and toll roads. These assets are difficult to price and nearly impossible to quickly auction off if the market suddenly takes a downturn.

It looked like Merrill Lynch & Co. was going to auction off $850 million of Bear Stearns CDOs this week, but backed off at the last minute. (They were reportedly only offered 30 cents on the dollar!) Once the hedge funds start selling these CDOs, then everyone will know how little they’re worth. That could trigger a wave of selling that could bring down the stock market. Even if that scenario doesn’t play out, the Bear Stearns incident ensures that CDOs in other hedge funds will be face a substantial downgrading that could take a big chunk out of their bottom line.

And, there’s a bigger fear on Wall Street than the fact that 2 hedge funds are headed into bankruptcy, that is, that a sudden tightening of credit will send the over-leveraged stock market into a downward spiral.

The market is particularly sensitive to any rise in interest rates or tougher lending standards. It’s become addicted to cheap credit and any break in the chain will cause equities to plummet.

Economist Henry C.K. Liu sums it up like this:

“The liquidity boom has been delivering strong growth through asset inflation without adding commensurate substantive expansion of the real economy. …. Unlike real physical assets, virtual financial mirages that arise out of thin air can evaporate again into thin air without warning. As inflation picks up, the liquidity boom and asset inflation will draw to a close, leaving a hollowed economy devoid of substance. … A global financial crisis is inevitable”. (“Liquidity boom and looming crisis” Asia Times)

In other words, the “virtual” wealth of Wall Street is a chimera which was created by the Fed’s inexorable expansion of debt. It can vanish in a flash if the sources of liquidity are cut off.

Puru Saxena draws the same conclusion in his article “A Gradual Transition”:

“Thanks to the Federal Reserve’s expansionary monetary policies over the past 5 years, US asset-prices have risen considerably; also known as the “wealth effect”. At the end of last year, the market capitalization of the US stock market rose to a record-high of US$20.6 trillion, matching the value of household real-estate, which also rose to a record-high at the same time. On the surface, this may seem like brilliant news, however you must realize that this “wealth illusion” achieved by an ocean of money and record-high indebtedness is only a consequence of inflation.”

Code Red: Subprime Chernobyl
We expect that the mounting losses in CDOs and the continuing defaults in the housing industry will precipitate a “severe credit crunch” which will end in a stock market crash. A report which appeared in the UK Telegraph appears to agree with this analysis. Lombard Street Research predicted that:

“Excess liquidity in the global system will be slashed. Banks Capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US ‘hard landing”’ (“Banks set to call in swathe of loans” UK Telegraph 6-26-07)

Three of the main hoses which provide liquidity for the market have either been cut off or severely damaged. These are “securatized” subprime CDOs, corporate mega-mergers and hedge fund leveraging. Without these instruments for expanding debt, liquidity will dry up and stocks will fall. The period of “easy credit” will end in disaster.

We should now be able to see the straight line that connects the Fed’s low interest rates to the impending stock market meltdown. The problems began at the central bank.

Presidential candidate Rep. Ron Paul (R-Texas) summed it up best when he said:

“From the Great Depression, to the stagflation of the seventies, to the burst of the dot-com bubble; every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and artificial “boom” followed by recession or depression when the Fed-created bubble bursts”.

Mike Whitney lives in Washington state. Read other articles by Mike.