So far, so good. But, where were all of the professional economists who could have warned persons who relied on S&P and Moody's ratings, that they were unreliable?

Keven Phillips is a respected and knowledgeable writer on politics and economics since as a young man he predicted the realignment of American politics with the domination of conservative Republicans. In this book he looks at the current global crisis, comparing it against three previous imperial failures, that of Spain, the Dutch, and the British. He goes into lengthy explanations of the financial services sector domination of the U.S. economy and the questionable nature of the wealth it produced and the reasons for the failure of these financial instruments. He also ties in the question of the influence of oil on the world's economy, politics, and wars. If oil production has, or is about, to, peak, the world's economies are in for major and painful restructuring. Moreover, failed U.S. foreign policy, especially the disastrous Iraq war, has increased the speed of the formation of anti-American or post-American power blocks.

An important look at the current financial crisis and the problems that led up to it. ( )

Bill Moyers’ interview with Kevin Philips was sufficiently interesting that I bought this book and moved it to the top of my In stack.

Philips traces the roots of our current financial crisis, and brings up some data points I was previously unaware of. I knew that bad deregulation made it easy for subprime loans to be packaged up and sold off as financial instruments while hiding the actual risk, that the ratings agencies had engaged in a “race to the bottom” to put their seal of approval on bad investment pools, and that the SEC in 2004 waived its leverage rules for the Big Five Investment Banks that Are No More. (And lest anyone think that Democrats are blameless in this mess, Phil Gramm may have been instrumental in drafting the Commodity Futures Modernization Act of 2000, but Bill Clinton signed it, and the Clintons are quite cozy with Wall Street.) Philips notes that the Consumer Price Index was tinkered with in the late 1990s to camouflage inflation, and compares it to old-style debasing of currency, and that Bernanke suspended the publication of M3 statistics in 2006, also hiding indicators of inflation.

The book compares our current situation to historical examples of other world economic powers that passed their Zenith, such as Hapsburg Spain, the maritime Dutch Republic, and imperial Britain before WWI. We seem to be following a historical pattern: financialization (the shift of the economy from doing things and making things to finance), an intensification of religious fervor leading to conflicts with science, imperialism and military overreach, excessive debt, and (in the later two cases) the energy infrastructure becoming obsolete. There are many examples from our past three decades of “collusions between political permissiveness and financial recklessness”, receiving government rescue every time the voters felt threatened.

He points out the sources of our troubles: a quasi-religious faith in the efficient markets hypothesis, debasement of the statistics that help us steer the economy, the use of the “prosperity gospel” to anaesthetize voters who might otherwise have been more skeptical at the polls, and securitization to hide risky assets. He also looks at impending problems, taking a hard look at energy security, and the risks of some of seeing some of our trading partners decide to rethink policies like Bretton Woods II, or OPEC pricing oil in dollars. There will be a shift of economic power to Asia in this century, and if we aren’t careful, that shift will be abrupt and (for us) rather unpleasant.

He has little good to say about either political party, noting bipartisan trends of dynastic politics that selecting for working the system rather than doing good work, but still hopes that we might manage to eventually move the nation toward being a high-value-added manufacturer and exporter comparable to Germany, Japan, or Switzerland. Overall, a sobering read. ( )

I have a grand total of two complaints to level against this work: First, it tries to cover too much territory for a mere 200 or so pages of text, excluding notes and index. Second, it appears Mr. Phillips doesn't quite "get" the Efficient Market Hypothesis, as discussed on pages 73-79 of the text. Not that I personally consider the EMH above criticism necessarily, simply that Mr. Phillips seems to be battling against a straw man, using a version of EMH that very few people who believe in it hold.

But these are two relatively minor blemishes on an otherwise very well written and very frightening work. Simply put, Phillips thinks the days of US domination of the world are over. And not only that, the activities fo the powers that be over the last thirty years have done nothing but create a bill that is now going to have to be paid sooner rather than later. The best chapters of the book are Chapter 4 on securitization and Chapter 6 on Debt and Oil. Phillips seems to truly understand both topics. ( )

Monday, June 23, 2008
Phillips Loses Sight of an Essential American Trait
Bad Money
By Kevin Phillips
Hardcover: 256 pages
Publisher: Viking Adult (April 15, 2008)
ISBN-10: 0670019070
ISBN-13: 978-0670019076
Rating – 3 stars

I have spent four decades reading Kevin Phillips’ books. In other forums, I have identified him as one of my favorite authors and analysts.

In my mind he has authored at least brilliant books: The Emerging Republican majority]], The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath and Wealth and Democracy: A Political History of the American Rich. It is difficult for me to say, this book does not measure up to his early high analytic standards

He is not known as a flamethrower. In the past he offered clarity where there was confusion. These books provided my first exposure to emerging national trends. He was trained as a lawyer. His research is meticulous; his arguments convincing.

But he is wrong.

His argument ignores an essential trait of the American people: we are practical; we pride ourselves in being problem-solvers. Each day at work, we are asked to place a size 13 foot into a size 10 shoe. Not only are we good at the “impossible,” we love the challenge.

In his latest book, Phillips argues what he terms “megafinance”-- the perilous interaction of debt and financial recklessness coupled with cost of oil dooms us to a crisis. Readers familiar with his work, already recognize he has lost one evil leg of his previous argument in American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21stCentury – the danger of what he termed “Patriot Pastors.” Those of us who are not quite so alliterative know them as right-wing evangelicals. The American voter dispatched them during the last mid-term elections.

I am positing everything is rosy. It is not. As a country we face serious problems. What I am saying, however, is that anytime during the past 40 years Phillips has been analyzing the American scene he could have seized on any number of problems at the time those books were published and come to the same this book’s conclusion.

But it did not happen.

The American people rose to the occasion and conquered the problems they faced. I have no doubt they do the same this time.

Phillips, as he always does, delivers a skillful and thought-provoking argument against dynastic leadership. The book is worth reading. According to Phillips, Americans will knuckle under. I believe they will rise to the occasion.

Penned by the Pointed Pundit
June 23, 2008
8:39:57 PM ( )