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Financial Advice, pt. 8

It is a hard choice to trust our government these days.  Immense budgets, inefficient actions, regulatory nightmares, lowered taxes, deficit spending, incomprehensible debt loads and that’s just at the local level.  One of the main reasons for the swell of support for Obama is the hope that his election might change some of that.  So the final chapter of Charles R. Morris’ The Trillion Dollar Meltdown may prove to be just what the doctor ordered.

Chapter Eight:  Recovering Balance

Less is more.  In a free market environment that dictom can and, according to Morris, has been taken too far.  For by trusting to the market place to be self governing, we have come to the possible unwinding of not only the US financial markets but the world’s as well.  The term writedown (the act of reducing the accounted value of an asset) has become commonplace to the current financial news.  To Morris the real disaster, the elephant in the room, is the danger that the rest of the world’s confidence in American financial markets may be lost.  To deal directly with this problem means,

Any program to restore confidence in American markets must start with the banks.  Loans to very highly leveraged parties should carry penalty capital charges.  Absurdities like prime broker loans to hedge funds that do not disclose ballance sheets should simply stop.  Banklike capital requirements should apply to all lending entities, including intermediaries like mortgage bankers who plan to warehouse deals for securitization.  Loan originators should always retain first losses, and put-back agreements should get much stiffer capital hits than they do now.  Accountants shouldn’t recognize credit insurance purchase from thinly capitalized entities, which would put leveraged credit hedge funds and the insurance monoliners out of the riskier portions of the credit insurance business.

Reading the list above reminds me of my own feelings about banks.  They always seem to be ready to help when you don’t need it.  See the barrage of credit offers when your FICO is good.  But don’t seem to know your name when the mortgage resets and a refi would really save the day.  In other words, banks give the impression of not taking risks but as the list above and the first seven chapters of this book point out, that really isn’t the case.   Morris cites, and he is not alone in this, the removal of Glass-Steagal Act controls in 1999 which then allowed the commercial and investment banks to comingle as one culprit that could be corrected.

As an example of another reason why re-regulation of the marketplace is a good idea, Morris takes a long look at the health care industry.  Just like with the financial market you might have to stretch your mind a little bit to deal with that idea.  See it isn’t about you and your doctor.  It isn’t about the best treatment for your family.  It is about how

America’s high-speed technology adoption cycles produce higher financial returns for drug companies, device makers, and aggressive medical practitioners, but often it is not good medicine and is very expensive.

Health care is a business, son.  What a business is about is ROI.  Patient care doesn’t rank very high in the listing of incomes next to manufacturing and producing cardiac stents or over-priced drugs.  Says Morris, “Much of the problem stems from the insistence that health care is just like any other consumer market.  It’s not.”

 I wont pretend to know exactly how the Pareto principle is supposed to work but I can see clearly how it can be used by the free marketeers to justify their financial outlook.  The claim however to this idea as being some sort of natural law of economics however begs the question.  If all the wealth is concentrated in one sector while all the debt is in another, that only makes the world work for the 20 percent.  The 15,000 who pull in 284 billion a year while the rest of us struggle to make do on an hourly wage.   We need a market place reset.  We need to stop worshiping at the alter of retirement luxury, of being rich, of having it all, and recognize the rule that says enough is enough.


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Financial Advice, pt. 7

Attacking the rich, maligning the poor, driving a wedge into the widening gap between the top and the bottom of the workforce, these are the topics of concern in The Trillion Dollar Meltdown’s penultimate chapter.

Chapter Seven: Winners and Losers

It is perhaps apt that this next to last chapter has this title since we have become a nation that lives and dies with the sports metaphor.  But just as the sports’ news has been dominated by spectacular betrayals of trust and honor so to has the world of finance.  Superstars, yes.  Superheroes, no.  What has become clear to the outside observer is that the last forty years have led us to a point where the idolization of the rich, and unfortunately their methods, is the major characteristic of our psychology.  Winning at any cost, walking away with it all, that is what we idolize.  We are number one in our admiration and acceptance of the rich and their apparent right to have it all.

So what if Blackstone guts Travelport of $4 billion while laying off 841workers.  We cheer as,

The private equity kings insist that they are management wizards, not financial engineers.  But, at least in its most recent phase, the numbers show that the private equity game, like subprime CDOs, is just another arbitrage on cheap money and rising asset markets. 

Billion dollar dividends to opportunistic takeover artists are just one wavelet in a long-term, and for many, increasingly dusturbing, tidal shift in American society – a widening disparity of wealth and income not seen since the Gilded Age.

Consider these wins:

  • “the top 1percent, or the top centile, who doubled their share of national cash income from 9 percent to 19 percent.
  • “the top one-hundreth of 1 percent, of fewer that 15,000 taxpayers, quadrupled their share to 3.6 percent of all taxable income.
  • “the average tax return, of those 15,000, reported $26 million of income in 2005, while the take for the entire group was $384 billion.

Seems fair to most conservatives apparently because they still claim that the poor through the government’s entitlement programs, and the middle class through tax-deferred savings, and the elderly’s social security and other retirement plans got more.  Only here are the facts of the matter according to Morris:

According to a 1999 Treasury study, 43 percent of the tax benefits from retirement savings programs went to the top tenth of households.  66 percent to the top fifth. and only 12 percent to the lower three-fifths.

Whiners and winners, that’s the net analysis.  Didn’t finish school, did your job get automated?  Well, that’s your lower class for you.  Didn’t understand that subprime mortgage contract, well that’s too bad, isn’t it?

There is no conspiracy against the poor and the middle class.  It’s more the inevitable outcome of our current money-driven political system combined with “the disposition to admire, and almost worship, the rich and the powerful,” which Adam Smith fingered as :”the great and most universal cause of corruption of our moral sentiments.”

Meanwhile, consider the drive to privatize.  Sallie Mae is an example.  Designed to be a government program to assist students in furthering their education has instead become a private company that  “was fully privatized in 2004, a year in which it made an astonishing 37 percent after-tax profit.”  See, say the free marketeers, that’s what business is all about.  When the government ran it, it just helped thousands of student learn their way to success.  But when it became a private company, and still retained the aspects of governmental protection from state usury laws, it made money.  As a matter of fact, it even spun off a separate SLM business line that racked up $800 million in debt management fees in 2005.  Imagine that.  The rich, CEO Albert Lord’s compensation package in 2003 was 12.7 million with options by 2005 up to 189 million, get richer.  While the poor (students) and the middle class (their parents) incomes stay flat.

We are apparently developing three kinds of services in this country.  The service industries that provide jobs for the lower class, the government and industry service which provides jobs for the middle class, and the financial services which provides wealth and leisure and privilege for the upper class.  Need proof, just look at Countrywide or Bear Stearns or Cit group or the K Street Project.  When they make money they are private and successful models for how to work the free market.  When they fail, the government, through the Fed or through pressure of other lenders/banks, bails them out.  Socialized capitalism is what we have.

The great consolidations of banking and investment banking into financial mega-players has proliferated armies of mega-income executives  Besides driving cash income shares toward the top of the payroll pyramid, it has greatly enhanced the political clout of Wall Street – as evidenced by steady cuts in taxes on capital gains and dividends and the persisitence of absurd tax advantages for private equity funds.

 It takes a certain kind of confidence, some would say faith, to believe that we can come out of this cycle with our overall system still intact.  Reading about the power of these forces and having watched what has happened even though the Democrats have assumed the political power for now, does not argue for success.  Those armies of execs, those walls of money strategies, those free market confidence games are not just going to go away.  America, you and I on the bottom may just have to do something about the top.

Next up:  Chapter Eight: Recovering the Balance

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Financial Advice, pt. 6

This has been a bear of a week.  As much as I have enjoyed coming to an understanding of this book, The Trillion Dollar Meltdown, I have also come to see that the amount of information that plays a part in these financial transactions is almost beyond what one brain can contain.  For one thing, we are a consumer economy but have become an investment dominated culture.  I remember waking up every morning to the sound of CNBC Market Week with Mario Bartiromo, when the commentaters were stars, and the line of ticker tape across the bottom of the screen, in reds and greens, was something we devoured along with every breakfast. 

But back in the early 90’s, in between volleyball games at the beach, I’d be passing the ball back and forth with someone while I could hear in the background these old guys who used to play discussing their Wall Street Journal and wonder WTF.  Since then times have changed and those retirement funds that are playing such a large part in our current story, those are yours and mine.  So get used to it, we share in the responsibility of this emerging disaster.  We have taken the free market ride and this has been our destination all along.

Chapter Six:  The Great Unwinding

Remember the perky little CDOs from chapter four, and the credit swaps that were used to create synthetic CDOs, well they are back in this chapter with a vengence.  As you might recall, the grouped mortgages were sliced horizontally to create tranches of funds with the bottom tier becoming the high risk but very lucrative high yield toxic waste.  The question then was who or what would buy into such an investment?  The answer now becomes clear,

Hedge funds are unregulated investment vehicles that cater to institutions and wealthy individuals, and promise extraordinary returns.

As of mid-2007, hedge funds deployed an estimated $2 trillion to $2.5 trillion of equity capital, and much higher economic capital due to their aggressive use of leverage.

I recall driving out to Vegas while we listened to real estate mogul, Robert Kiyosaki, explain how leverage worked.  Of course, we could buy one property with our $100,000 but wouldn’t it be better to use the money to buy ten properties.  With $10 k down, the banks would lend the OPM to do the rest.  This is the thinking that dominates in the world of finance.  Leverage your money.  Use your tranche of CDOs to credit swap up.  Buy a house for $200,000 in two years sell it for $500,000 use the $300,000 gain to buy a million dollar home.  It all works unless, of course, the market comes tumbling down.  Or you are using a subprime mortgage that resets in 3 yrs at twice the interest rate.  It is after all an immense illusion.   Everything depends on no one noticing that the king is still naked.  And just as million dollar homes aren’t really worth a million so to the CDOs aren’t really worth there original valuation either.

Think of it this way.  Your Wiley Coyote hedge fund is one tiptoe on the ledge and the rest of its body of mortgage liabilities teetoring over the cliff.  All it takes is one slight breeze of interest shifts upward to tip the mark to market balance.  Says Morris,

The hedge funds’ appetite for the riskiest positions has made them a major source of liquidity in the CDO and credit default swap markets.  Their willingness to employ leverage to maximize those positions amplifies their impact.  The funds’ demand for higher-yield products is pushing the industry up the risk ladder into CDOs constructed from second-lien loans, bridge financings, private equity, and other less liquid assets, often with minimal protections for higher tier buyers.

The shift in credit hedge fund investing wawy from cash-flow CDOS toward credit derivatives, Fitch reports, “introduces its own unique risks that have not been fully tested in a credit downturn . . . (and) could foster greater short-term price instability.”

Morris’ walk through of a leverage example on pgs. 111 and 112 shows just how high the ledge really becomes in one of these deals.  5:1 becomes 20:1 becomes 100:1 just like that.  “Now assume the CDO incurs a 3 percent loss.”  The deal value which started at $20 million hedge funds and $80 million bank loans for a total of $100 million is now only worth $40 million.  The hedge fund and bank have to raise another $40 million just to cover their losses.  Think Bear Stearns, which was credit default swapping in billions, then multiply that by the fact that there are 100s of hedge funds and you can see the problem.  Not only is this credit market teetoring and ready to fall but that is us at the base of the cliff waiting to get crushed.

Do you know what a Ponzi scheme is?  You collect money from one set of investors and use it to pay off a second set, then a third set, fourth set, etc, etc, etc.  As long as the money keeps coming in and no one regulates it but yourself, everything will appear to be fine.  But Morris concludes this chapter by referencing Hyman Minsky, “a Keynesian economist who became famous for his theory of financial crises.  Unlike the Chicago-based school of free-market ideologues, Minsky believed that instability and crises were inherent features of financial markets.”  Put a Ponzi scheme of  100’s of hedge funds and real estate subprime loans and credit card debt into his model and you can see where we are heading.  Morris would have us reveal all the deals and face the music but as he notes at the chapter’s end,

The American financial sector today is far more powerful than it was in the 1970’s (when the pendulum swung towards the free-market theory).  And to date, its response to the looming crisis has been, overwhelming, to downplay and to conceal.  That is a path to turning a painful debacle into a decades-long tragedy.

Tomorrow: Chapter 7: Winners and Losers

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Financial Advice, pt. 5

So here we are, halfway through, Charles R. Morris’s The Trillion Dollar Meltdown and it’s Friday.  Last night T and I hosted our monthly Cashflow 101 game and get together for about 15 people.  We had a guest speaker from the real estate world talk about lease purchase options.  I could not help but hear echoes and see the shadows of Morris’s book in his presentation.  Deals within deals, make a million using OPM, buy low and use the margin.  It almost made me eager to get back to our review.

Chapter Five:  A Tsunami of Dollars

Joel Grey as the stage manager in Cabaret comes to mind.  Money, money, money . . .  As you all probably know, everyone else’s currency is tied to the U.S. dollar.  How could you not know, since every financial report these days is headlined with a new comparison of how badly it’s doing.  The dollar is falling, the dollar is falling . . .  Ah well, what are we to do.  

After the meeting at Bretton Woods following WW II, “The value of the dollar, …, was fixed by a long standing commitment to redeem dollars for gold at the rate of $35 per ounce.  Virtually all prices in international trade were set in dollars.”  An agreement that lasted until 1971, when Nixon removed the US from the gold standard and we entered our current Fiat money system.   

The Fed has two ways it can affect our money.  Interest rates can be changed and/or the supply of money can be increased.  Even my untutored financial mind can see that if a government, the one that sets the standard BTW, can flood the marketplace with untethered money bad things can happen.  As Morris points out, a country’s finances can be seen “through the status of its current account, a kind of international profit and loss statement.”  Money travels in via export sales, and out via import expenses.  The negative difference between the two amounts is called a deficit.  In the US,”The 2006 trade dificit was over $750 billion, and the total current account deficit topped $800 billion.  The accumulated deficit for 2000 to 2006 is about $4 trillion.”   

Think of it this way.  If you take a dollar and you devide it into 10 equal parts and then you call each new part a dollar, you may have more dollars but clearly they are devalued quantities.  When your economy’s GDP  is growing, then expanding dollar availability via credit lines or new dollars is one thing.  But when the economy is in decline, a deficit, or recession it is quite another.  And since, the dollar is the comparison standard for the rest of the world, so to speak, our actions pull the rest like the winning side in a tug of war towards a deep and muddy hole.  Yet, that is where we find ourselves since Bretton Woods II.  Our present Fed chair, Ben Bernanke,  took this position:

 Everything is the result of market forces shaping events toward a high-efficiency outcome.  The Fed’s free-money policy was predetermined by the tidal wave of foreign savings.   Alan Greenspan was an agent, not an independant actor.  America’s housing and debt binge was made in China, and for large and good purposes.


On closer examination, the central premise of the BW2 hypothesis, that large foreign dollar-holders have no choice in the matter, is simply not true; indeed holding dollars is increasingly against their interests.

Morris’s grasp of the global marketplace must be trusted as he continues to discuss Russia’s, OPE C’s, Asia’s, and especially, China’s dollar-based economical development away from dollar dependence and toward a basket of currencies.

The rise of the Sovereign Wealth Funds was inevitable.  What country with enormous currency reserves wouldn’t want one?  “An SWF is a private investment fund under the broad control of a government but almost always outside of the official finance apparatus, free of the investment limitations that apply to official reserves.”  At this printing, “At least twenty-five surplus countries already have SWFs or are in the process of setting them up.”  If you are wondering where America is borrowing its money from these days you need look no further.

In this chapter, Morris returns to the main thesis of the book, unregulated free markets lead to a prideful fall.  This time with the facts and figures to back it up.

All in all, it’s hard to imagine a worse outcome – the United States, the “hyperpower,” the global leader in the efficiency of its markets and the productivity of its businesses and workers, hopelessly in hock to some of the world’s most unsavory regimes.  But that’s where a quarter-century of diligent sacrifice to the gods of the free market has brought us.

I have to agree with him.  At this point, “It’s a disgrace.”

Next up: The Great Unwinding

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Financial Advice, pt. 4

So far this week we have been dealing with the past, the history we should have learned from.  But as Morris keeps letting us see, Hudibras, was and probably still is, the god in charge.

Chapter Four: A Wall of Money

The oughts, as the English call them, have been tumultuous at best.  The bust, the Tower’s attack, Bush, Iraq; a list of ups and downs that just doesn’t stop.  The Fed, led by Alan Greenspan, responded to this in a way we should all recognize.  Starting with the bust, the Fed began to lower the federal fund rate.

The Fed did not start raising rates again until mid-2004, and for thiry-one consecutive months, the base inflation-adjusted shor-term interest rate was negative.  For bankers, in other words, money was free.

. . . banks embraced securitization.  Instead of holding their commercial mortgages, corporate loans, high-yield takeover loans, emerging market loans,and such on their books, the bankers had always done, they began to package them up as collateralized loan obligations (CLOs) or collateralized debt obligations (CDOs) and sell them to outside investors.  They could still collect hefty fees while encumbering little is any of their capital.  Lending, in other words, was becoming costless.

CMO, CLO, CDO, RMBS, CMBS, ABS, CBO, SBE; these are just some of the names of the securitized instruments that came into being.  Take a look at this list from,


An investment instrument, other than an insurance policy or fixed
annuity, issued by a corporation, government, or other organization
which offers evidence of debt or equity. The official definition,
from the Securities Exchange Act of 1934, is: “Any note, stock,
treasury stock, bond, debenture, certificate of interest or
participation in any profit-sharing agreement or in any oil, gas,
or other mineral royalty or lease, any collateral trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of
deposit, for a security, any put, call, straddle, option, or
privilege on any security, certificate of deposit, or group or index
of securities (including any interest therein or based on the value
thereof), or any put, call, straddle, option, or privilege entered
into on a national securities exchange relating to foreign currency,
or in general, any instrument commonly known as a ‘security’; or any
certificate of interest or participation in, temporary or interim
certificate for, receipt for, or warrant or right to subscribe to
or purchase, any of the foregoing; but shall not include currency
or any note, draft, bill of exchange, or banker’s acceptance which
has a maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the maturity of
which is likewise limited.”

Property which is pledged as collateral for a loan.

Remember Black-Scholes?  Now instead of investors using the formulas, we apparently had our trustworthy bankers playing the same game.  All with Greenspan’s “a new paradigm of active credit management.” Put’s blessing and the Fed’s help.  Leverage buyouts were back.  OPM, Other People’s Money, became the watchword for how to invest.  Morris uses this example,

Put up $1 billion, borrow $4 billion more, snap up a healthy company for $5 billion (after making a very rich deal with its executives), vote yourselves a “special dividend” of $1 billion, then as the buyout-fueled stock market keeps rising, sell the company back to the public, pocketing another couple billion, all the while taking no risk.

As I write, I can’t help thinking of the Bear Stearn buyout.  About how much we, you and I John Q. Public, don’t know about how all this works nor how we can do anything about it in a time where, to judge from the workshops being offered around the country, many people are still being sold on the idea that this is the way to get rich.  As we all sit here watching the real estate bubble burst, I won’t take the time to catalog all the stats for you.  Just know this, during the same time that LBOs were making a comeback, our economy was being fueled by the same sort of leverage being applied to home ownership.  While, Greenspan focused his put on stabilizing the financiers while encouraging the rest of us to go further and further into debt via the refi route, real real estate values were inflating at a rate of about 50 percent.

Refis jumped from $14 billion in 1995 to nearly a quarter of a trillion by 2005, the great majority of them resulting in higher loan amounts.

By 2005, 40 percent of all home purchases were either for investment or as second homes. (Experts believe that a large share of the “second homes” actually are speculations for resale; lenders don’t review vacation-home purchases as closely as investment properties.)

OPM.  Free market.  Caveat Emptor. 

By 2003 or so, mortage lenders were running out of people they could plausibly lend to.  Instead of curtailing lending, they spread their nets to vacuum up prospects with little hope of repaying them.  Subprime lending jumped from an annual volume of $145 billion in 2001 to $625 billion in 2005, more than 20 percent of total issuances.

The industry was awash in socalled “ninja loans – no income, no job, no assets.”

Meanwhile, things were, without us having any way of knowing it, becoming more and more insecure in the securitized world.  Remember all those security instruments mentioned above, well since there was so much money to be made at so little risk (ha ha), and with so little regulation, then why not just do this.  Think I’m talking small here.  Well, think again.  According to Morris, “The notational value of credit default swaps – that is, the size of portfolios covered by credit default agreements – grew from $1 trillion in 2001 to $45 trillion by mid-2007.  Synthetic (models emulating the real CDO created on a computer to simulate the real thing) SIV structures were now capable of being built and then put into play.  Unbelievably, entities that were called CDO2s or CDOs of CDOs, you get the picture.

Earlier in the book, Morris explained one of the guidelines that financial institutions were supposed to use to make sure that the investor was covered against loss was something called the Agency rule.  Under the Agency rule an institution’s officers could not recommend investments that acted against the investor’s interest.  But without regulation, remember Hedge funds are private, who’s to say what is in who’s favor, especially as the swaps make the distance between the real investor and his or her money increase exponentially.

Next up, Chapter Five:  A Tsunami of Dollars

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Financial Advice, pt.2

Yesterday, I began my review of Morris’s The Trillion Dollar Meltdown.  Today we continue with

Chapter Two:  Wall Street Finds Religion

I don’t know if the author meant this to sound ironic but it’s clear he does mean to show us how people bought into “monetarism” whole heartedly.  “Chicago school economics has mutated from a style of analysis into a Theory of Everything.” is how he puts it.  The theory of finance that Milton Friedman proposed had been not so patiently waiting in the wings for quite a few years as Keynesian style liberalism held sway.  In 1979 things were ready to change.

Morris points us to two events that took place:  the 1978 cut in capitol gains taxes and the 1981decontrol of oil prices.  Both of these events took on what Morris calls “foundation myth” status but he quickly points out the flaw in this belief.  It wasn’t the corporations and individuals that used the benefits of the tax cuts to invest,

When the regulations were finally eased in 1979, it was pension funds, foundations, and endowments that were the source of most of the new venture money.  Those investors are tax-exempt, of course, and couldn’t have cared less about “Steiger.”  It’s not that tax rates don’t matter.  It’s just that if you try to trace exactly how much they matter, the usual answer is”not a lot.”

The story with Reagan’s decontrol of oil is a little more complex.  According to Morris,

The ratio of national output to energy inputs, it turns out, started improving sharply in 1973, by about 2 percent a year, with no help from the Chicago school.

So why did the price break happen in 1981?  In all likelihood, seven years of global efficiency gains, coupled with the 1981 recession, which was substantially global in its effect unblalnced OPEC’s demand/supply assumptions.  That happened to coincide with the peak of the Iran-Iraq war, when Arabs were pouring money into Iraq to forestall an Iranian victory.

In other words, the market worked.  But it worked over the long haul, across multiple regimes, and policy dispensations, reflecting tidal currents, like the advanced-country shift toward services, that policy-makers were only dimly aware of.

“Killing Inflation.” 

Since in 1980, I was the recipient of the benefits of the incredibly high interest rate cycle, my CD’s earned 18% for about a year and at the same time I was living a frugal life style with no car, TV, or phone, I was severely depressed when Paul Volker’s controls began to take effect.  Well, not severely depressed actually, just puzzled by it all since I had no idea of what inflation or stagflation or recession really meant.  Apparently, the U.S. was trapped between the rock of recession and the hardplace of inflation.  It was Volker’s job as chairman of the Fed to bring this situation under control.  To do so he adopted the strategy suggested by Milton Friedman.

He taught that inflation could be controlled solely by controlling the stock of money – the quantity of M1, the sum of all check money and all circulating cash.  If the Fed merely insured that the stock of money grew at roughly the same pace as the economy, all prices would remain on an even keel.

What happened next is truly amusing to read because it both supports the free market philosophy of the Chicago school and points out its major weakness.  As Adam Smith had pointed out so long ago, there is public interest and there is self interest.  “The transcripts of the Federal Open Market Committee (FOMC) through most of 1980 betray an air of semicomic desperation as the members try to discern which numbers they should count as the money supply.”  Volker’s success hinged on three things, his conviction to stay with the policy, Reagan’s support, and the committment of the American people to endure and rideout the situation.  “From that point, America’s committment to Price statbility was assumed as a matter of course.”

Thus, with all hope in the goodness of mankind and the efficacy of the free market place, the Decade of Greed, the LBO (Leveraged Buy Out) boom began.  Efficiency became the watchword.  Businesses were pared down, restructured, and top heavy management was rolled up.  It started out friendly but in 1986 when the stock market reported the average P/E averages had tripled,

the markets went crazy.  Returns on the first wave of deals were so spectacular that big investors, like pension funds and endowments, were clamoring to get in, while the fund start-ups multiplied like roaches.

 At the same time that LBO’s were playing out to their eventual busts, the growth of the non-regulated Savings and Loans Industry was taking place.

But the second half of the LBO boom and the S&L debacle demonstrate the dangers of loose financial markets regulation.  In the raw markets, the scent of money deadens all other sensory and ethical organs.   In both cases the quick, the deadly, and the unprincipled made a lot of money fast, while the ordinary workers and the taxpayer took it in the ear.

This chapter concludes with an analysis of what happened during the “Interlude: The Goldilocks Economy of the 1990s”  wherein the budget deficits created during Reagan’s tax cutting years were directly addressed by Clinton’s ability to pass an almost pure tax increase and the incredible boom of the dot-com bubble.  As usual, economists claimed theoretical victory but as Morris again points out, the tax increases were overwhelmed by the upsurge in capitol gains taxes from the stock market boom.

Morris concludes this chapter with what I call an ominous warning.  Despite the presence of multiple market bubble bursts and failures through out the previous 20 years, there was an increased conservative conviction that free market deregulated were what really worked.  Hello President Bush.

Tomorrow, Chapter Three: Bubble Land:Practice Runs

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Returning To Earth

by  Jim Harrison is a story of life and a way of dying.  It is a story of people who live close to the land.  In dying of Lou Gehrig’s disease the main character, Donald, dominates the first fourth of the book.  From his bed, inside his head, he tells us tales of growing up through the stories of his family.  A family dominated by a Native American beliefs but constantly in interaction with the white culture within which it lives.

In the second part of the story, we begin to see Donald through the eyes of K, son of Polly who is sister to Cynthia, Donald’s wife.  It is through K’s eyes and stories of his love like relationship with Clare, Donald’s daughter, that we learn how a person’s honorable life can affect the others around him. 

Donald was always interested in value rather than mere cost.  In the summer he wouldn’t drink soda pop, which he said had gone up five hundred percent in his lifetime, packing along iced coffee in a thermos instead.  When hamburgers went up a quarter at a local Soo diner he inquired and the owner, who was a friend, showed Donald his books and explained the price rise, but economics were a lacuna for him.  I once tried to explain the nature of inflation but he thought it as pathetic as daylight savings time.  

K loves Clare and occasionally admits to lusting after Cynthia.  He too lives close to the land but does so through the pursuit of a life long and peripatetic course of post graduate studies.  He chronicles the rivers and streams that wander through the land and his life has taken a similar course.

In part three of the novel, the story is taken over by David, Cynthia’s brother.  He too travels the land by living half the year in a cabin in the woods and the other half in Mexico.  His part of the story is dominated by the effect of a rape of the woman, Vera, he has loved for the past 30 years though the rape occurred when he was a teenager and involved his own father.  David has spent his life trying to make up for his father and his charity takes the form of a survival pack that he puts together and then takes with him to Mexico.

I distributed these free of charge to workers’ groups and through left-leaning Catholic priests.  I was opposed by many on both sides of the border for political reasons, which didn’t bother me except for the legal expenses I incurred avoiding prosecution by the United States.  My raison d’etre was simple on the surface.  Estimates of crossing deaths along the entire nineteen-hundred-mile border with Mexico went as high as two thousand a year.

It started when I found a dead man in a wilderness thicket a few miles from the border south of Sonoita, Arizona.  The man smelled like a dead deer.  Two days later in a local tavern an ex-dope pilot told me that two hundred miles to the west over in the huge Cabeza Prieta if he wished on moonlit nights he could navigate by skeletons on his under-the-radar flights.  Three days after that while looking into what is euphemistically called “the problem” I saw the photo of a nineteen-year-old girl from Veracruz who died of thirst on the Tohono O’odham Indian reservation just over our side of the border.  Naturally, I thought of Vera.  That did it.

The last section of the novel brings us back to Cynthia and of course the spiritual resolution that all of the characters are seeking through Donald’s death.  Throughout the story there is a core of real sexuality that underlies each of the character’s lives.  Cynthia’s path back to a sense of acceptance of the loss of her lover at such a comparitively young age mines this core with memories of Donald and her own bodily desires.  But though important this aspect is secondary to the what I believe is the true nature of this story.  How do we let go of life?

In Donald’s case, it’s is with some sense that he wants to follow his spirit.  In fact, all of the novel’s characters have dreams, listen to their dreams, and in some sense try to do what their dreams are telling them.  I speak here of actual dreams not dreams as in hopes or wishes to be.  It is a point Donald proves by finding and testing out his own burial place – a wilderness location across the Canadian border where he was able after several tries to complete a three day fast.

About a hundred yards away and below us a large bear swagged his head between a patch of beach pea and strawberries nibbling quickly as if frantic to eat.  And then the ravens above him must have warned him because he stood up and made a woofing sound.  I know that Clare and I were thinking the same thing. Is that him?  Is that him?  Is that Donald who is greeting us, saying a final goodbye?  The bear stared at us and Clare clenched at my hand.  And then he trotted over a hill as we all must.

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