Guest Post : Two Decades Of Greed - The Unraveling

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Submitted byJim Quinn of The Burning Platform

Two Decades Of Greed - The Unraveling

We are currently in the midst of a Fourth Turning. This twenty year
Crisis began during the 2005 – 2008 timeframe with the collapse of the
housing bubble and subsequent repercussions on the worldwide financial
system. It is progressing as expected, with the financial crisis
deepening and leading to tensions across the world. It will eventually
morph into military conflict, as all prior Fourth Turnings have. The
progression from High to Awakening through the Unraveling took from
1946 until 2006. The most treacherous period of the Saeculm is upon us.
The intensity of a Crisis is very much dependent upon how a country and
its citizens prepare for the Crisis during the final years of the
Unraveling. The last Unraveling period in U.S. history from 1984
through 2005 was symbolized by Boomer greed, materialism, debt and
selfishness. When Michael Lewis graduated from Princeton University in
1985 and joined Salomon Brothers, I’m sure he didn’t realize that he
would end up book-ending the Unraveling period in his two best-selling
books about Wall Street.

In his latest book, The Big Short: Inside the Doomsday Machine, Lewis seems bewildered by the fact that his first book Liar’s Poker, written in 1989,  didn’t dissuade college students from pursuing careers on Wall Street. If Lewis had read The Fourth Turning
by Strauss & Howe when it was published in 1997, he would have
understood why the people on Wall Street couldn’t change. The
generations were just acting out their part in a grand never ending
cycle. Lewis explains what he thought would happen:

“I stumbled into a job at Salomon Brothers in 1985 and stumbled
out much richer three years later, and even though I wrote a book about
the experience, the whole thing still strikes me as preposterous—which
is one of the reasons the money was so easy to walk away from. I
figured the situation was unsustainable. Sooner rather than later,
someone was going to identify me, along with a lot of people more or
less like me, as a fraud. Sooner rather than later, there would come a
Great Reckoning when Wall Street would wake up and hundreds if not
thousands of young people like me, who had no business making huge bets
with other people’s money, would be expelled from finance.”

Michael Lewis was a 24 year old Generation X Ivy League graduate who
ended up on Wall Street at the outset of the Unraveling. He was
flabbergasted by how clueless youngsters could pretend to know what
they were doing while taking home phenomenal amounts of money. He was
sure it would end in short order. But he was wrong. It built to a
decadent crescendo two decades later. It took longer than he expected,
but the rebellion is beginning now:  

“I thought I was writing a period piece about the 1980s in
America. Not for a moment did I suspect that the financial 1980s would
last two full decades longer or that the difference in degree between
Wall Street and ordinary life would swell into a difference in kind. In
the two decades since then, I had been waiting for the end of Wall
Street. The outrageous bonuses, the slender returns to shareholders,
the never-ending scandals, the bursting of the internet bubble, the
crisis following the collapse of Long-Term Capital Management: Over and
over again, the big Wall Street investment banks would be, in some
narrow way, discredited. Yet they just kept on growing, along with the
sums of money that they doled out to 26-year-olds to perform tasks of
no obvious social utility. The rebellion by American youth against the
money culture never happened. Why bother to overturn your parents’
world when you can buy it, slice it up into tranches, and sell off the
pieces? At some point, I gave up waiting for the end. There was no
scandal or reversal, I assumed, that could sink the system.”

The period from 1984 until 2005 was classified by Strauss & Howe
as the Third Turning Culture Wars. They describe this period in the
following terms:

“The Unraveling opened with triumphant “Morning in America”
individualism, and slowly drifted toward pessimism.  Personal
confidence remained high, and few national problems demanded immediate
action.  But the public reflected darkly on growing violence and
incivility, widening inequality, pervasive distrust of institutions and
leaders, and a debased popular culture.  National consensus split into
competing “values” camps.”

Deregulation Decade

“The crew of the space shuttle Challenger honored us by the
manner in which they lived their lives. We will never forget them, nor
the last time we saw them, this morning, as they prepared for their
journey and waved goodbye and slipped the surly bonds of earth to touch
the face of God.” –
Ronald Reagan


The Unraveling began during the 2nd Reagan term with the
“Morning in America” feel good landslide re-election campaign. The Dow
Jones Average on January 1,1984 was 1,259. The National Debt was $1.6
trillion. The oldest Baby Boomer turned forty-one in 1984, with the
youngest just twenty-four years old. This generation of 76 million
over-indulged spoiled social activists is the proverbial pig in a
python. Whatever path this generation chooses to take transforms the
country for better or worse. The term Yuppie was coined in the early
1980’s as the egocentric Boomers poured onto Wall Street beginning
their upwardly mobile perfectionist careers. The country was exhausted
from the 1960s turmoil and the depressing 1970s. Failed presidencies,
oil shortages, raging inflation, and American hostages had left an
America that was looking for a renaissance. Ronald Reagan’s first term
required extreme measures by Federal Reserve Chairman Paul Volcker to
break the back of inflation. By raising interest rates to 18%, Volcker
set the stage for a 20 year bull market in stocks and bonds. Reagan
survived an assassination attempt, the U.S. military conducted a
successful operation in Grenada, Reagan fired 11,000 air traffic
controllers, and an unprecedented peace time military buildup was
initiated. This created an atmosphere for economic revival, led by the

A new laissez faire era heralded by Ronald Reagan was based on his
belief that government was the problem, not the solution. His goal was
to cut the size of government while slashing taxes and unleashing the
animal spirits of the free market. Reagan was a rhetorical genius. It
is a shame that his soaring rhetoric did not match what actually
ensued. The basis of Reaganomics was:

  1. Reduce government spending,
  2. Reduce income and capital gains marginal tax rates,
  3. Reduce government regulation of the economy,
  4. Control the money supply to reduce inflation.

Reagan undoubtedly succeeded in radically cutting the top rates on
individuals from 70% to 28%. Of course, the only people affected by the
top marginal rates are the rich. These tax cuts did not benefit the
middle and lower classes. The benefits were supposed to trickle down to
these people.

Corporate tax rates were decreased from 50% to 38% by the end of
Reagan’s term. Corporate America was delighted. The tax savings
permitted profits to soar. This additional capital could have been used
to invest in the business. The Harvard trained CEOs decided it was more
beneficial to pay them outrageously high compensation and to buy back
their own stock in order to inflate EPS.

The tone for the next twenty years had been set. Reagan’s policies
did reignite the animal spirits of America. Reagan’s defense buildup
increased annual spending from $303 billion in 1980 to $426 billion in
1988, a 40% surge. This most certainly contributed to the collapse of
the Soviet Union. They were a hollowed out oak tree and Reagan’s
defense buildup was the gust of wind that blew the rotting tree over.
His achievements were great, but his failure to reduce government
spending will haunt the country for decades and planted the seeds of
economic disaster. The Federal Government spent $590 billion in 1980.
In 1988, Federal Spending had grown to $1.064 trillion. Rhetoric did
not translate into action. Politicians have always been good at
following through on promises that buy them votes. The tough stuff can
be pushed off to the next guy.  

 File:CBO Revenues Outlays Percentage GDP.svg

The reality is that government debt as a % of GDP was on a downward
trajectory for 30 years, bottoming in the late 1970s at 45%. Reagan cut
taxes and doubled spending during his eight year reign. This initiated
the launch procedure for a US government debt rocket. It sent a message
to the world and to its citizens that debt was not a bad thing.
Interest rates were in the midst of a quarter century long decline, so
the debt became more serviceable as time progressed. There was no
reason to save and invest when government and consumers could borrow
and buy what they wanted today. This was the attitude that began to
emanate during the early 1980s. Total government debt as a % of GDP
skyrocketed from 45% to 80% during Reagan’s eight year presidency. The
National Debt grew from $908 billion to $2.6 trillion, a 286% increase.
The massive increase in debt without apparent negative consequences
gave politicians and Baby Boomers the green light to live it up today
and not worry about tomorrow.

The 1980’s proved to be a confidence building decade after two
decades of tumult. With the most egocentric self centered generation in
the history of the world entering the prime of their careers, a double
shot of renewed confidence and debt accumulation began a cycle of greed
and hubris like none ever seen on earth.

Fragmenting Culture

“I am not a destroyer of companies. I am a liberator of them!
The point is, ladies and gentleman, that greed, for lack of a better
word, is good. Greed is right, greed works. Greed clarifies, cuts
through, and captures the essence of the evolutionary spirit. Greed, in
all of its forms; greed for life, for money, for love, knowledge has
marked the upward surge of mankind. And greed, you mark my words, will
not only save Teldar Paper, but that other malfunctioning corporation
called the USA” – Michael Douglas as Gordon Gekko



The self-absorbed yuppies’ goal of wealth, power, and material possessions was captured accurately in the 1987 movie Wall Street and Thomas Wolfe’s fantastic 1987 novel Bonfire of the Vanities. It
seems that 1987 marked the high point of the Unraveling period. The Dow
Jones Industrial Average had grown from 824 at the beginning of the
decade to 2,700 by September 1987. The Boomer heroes of unbridled greed
were Michael Milken, Ivan Boesky, Carl Icahn and Boone Pickens.
Leveraged buyouts, where corporate raiders used huge amounts of debt to
takeover companies, taking them private, firing thousands of workers,
spinning it off as an IPO, and reaping enormous profits, were hailed as
the savior of free markets by Wall Street. These deals generated
gigantic fees for the firms advising on the LBOs. This Boomer led
societal mood of wealth accumulation at the cost of gutting
corporations and screwing the working class became ingrained in the
fabric of America.

More Wall Street “inventions” like program trading, portfolio
insurance, and arbitrage combined with hype and hubris to cause a 508
point crash on October 19, 1987. This 22.6% one day drop was the
largest percentage decline in history. This once in a lifetime event
scared the average investor out of the market for years. This event
also unleashed a 20 year reign of banking terror, as the Greenspan Put
was born. Alan Greenspan became Federal Reserve Chairman in August
1987. His 1st major act was to pour billions of liquidity into the market after the Crash. This was the 1st of many risk enhancing acts by Greenspan over the next two decades. 

 File:Black Monday Dow Jones.svg

Oliver Stone completed his film Wall Street before
the crash. He captured the battle between Boomer gluttony and the work
ethic of the average American worker. It was essentially a morality
play between the slick oily Gordon Gekko and the old union leader
looking out for the best interests of his fellow workers. They battle
for the soul of Charlie Sheen’s Bud Fox character. The film goes in
depth into the immoral culture of Wall Street. Inside trading on
non-public information is business as usual. Companies aren’t seen as a
productive part of society, but as pawns in a giant game of chess
played by the “Big Swinging Dicks” on Wall Street. The workers are seen
as liabilities that can be shed in order to boost short-term profits.
Maximizing returns as soon as possible was all that mattered to Gekko
and real life sharks on Wall Street. The movie’s message was clear.
Unrestrained free-market capitalism with no principles is destructive
for society. The movie isn’t anti-capitalism. It distinguishes between
the cynical, quick buck culture of the Boomers and the moral hard
working culture which had built America. Both Oliver Stone and Michael
Lewis thought that their works of art would deter young people from
vapid careers on Wall Street. Instead, young MBA students saw these
stories of greed as an exciting beckoning to riches, morality be damned.

Thomas Wolfe’s novel Bonfire of the Vanities  addresses
the lack of control anyone has over their lives regardless of their
wealth, wisdom or success. He captured the yuppie Boomer excesses of
New York City and Wall Street in his brilliant novel.  Beneath Wall
Street’s veneer of achievement, the New York City was a hot-bed of
racial and cultural tension. Homelessness and crime in the city were
soaring. Several high-profile racial incidents polarized the city,
particularly two black men who were murdered in white neighborhoods. 
Bernie Goetz became a folk-hero in the city for shooting a group of
black punks who tried to rob him in the subway. The chasm between the
haves and have-nots had grown immense.  In Wolfe’s New York, venal
self-interest motivates everyone but the suckers, while ethnic and
racial bigotry is extreme.  Men use women for little other than sexual
gratification, and women use men almost entirely for monetary or social

Those in power fail to represent the disinterested abstractions
(justice, civil rights, truth) that they ostensibly represent.  The
manipulation of truth and justice by the news media, show Wolfe’s
cynical view of these flawed apparatuses of human society. Tom Wolfe
ruthlessly exposes the superficiality of 1980s culture. Wolfe directs
his most serious criticism to the very rich, with their extravagant
dinner parties, 6-block hired-car rides which cost $250, and
thousand-dollar flower arrangements. Hypocrisy is rife in this novel,
and most evident in the two leaders depicted on opposing sides,
Reverend Bacon and the Mayor of New York. Neither of these men is truly
concerned with the people of New York, but rather with their own
advancement and profit. Each, in his way, is racist, but decries racism
at every turn. Each purports to be “of the people” but uses his
position of power for monetary gain. Wolfe captured the worst traits of
America during the early years of the Unraveling.

The 1980’s proceeded as expected with strengthening individualism
and weakening institutions. The GI Generation Heroes began to depart
from the scene. This steady, cautious, risk adverse generation that
built American industry and finance were being pushed into retirement
by the Baby Boomer Generation. The old civic order was cast aside and
the cultural revolutionaries stormed the gates. Baby Boomers seized
control of Wall Street, having never experienced a bear market, never
faced adversity, and never having to care about anyone but themselves.
A brooding sense of pessimism began to creep into the mood of the
country. Fiduciary responsibility towards your clients and proper risk
management was considered old school. Maximizing profits, generating
fees, and getting rich was the mantra of the new Wall Street
generation. As the Boomers grew rich and cynical on the street of
dreams, moralistic charlatan frauds like Jesse Jackson and Al Sharpton
exacted their share of profits for themselves and their constituents.
The working middle class sunk deeper into despair as their wages
continued a two decade long stagnation. Real hourly earnings were the
same in 2005 as they were in 1984, and 10% below the level of 1972. 

The trickle down crowd, mostly Republicans, contended that a rising
tide lifts all boats. In theory that sounds great. In practice, it has
proven to be a lie. During the 1980s and 1990s, all boundaries
regarding compensation were obliterated by the “Me Generation”.
Executive pay packages began to skyrocket as they were viewed as rock
stars and masters of the universe. The ratio of CEO’s pay to the
average worker’s pay leaped from 30 to 1 in 1980 to 250 to 1 by 2005.
If CEOs had performed phenomenally over this time period, a case could
be made for this leap. But, corporate America and certainly Wall Street
had brought the US economy to the brink of disaster by 2005. This
outrageous pay disparity contributed to the deepening anger in the
country simmering below the surface.

Strauss & Howe aptly described the mood:

 “Personal confidence remains high, and few national
problems demand immediate action.  But the public reflects darkly on
growing violence and incivility, widening inequality, pervasive
distrust of institutions and leaders, and a debased popular culture. 
People fear that the national consensus is splitting into competing
“values” camps.”

Cynical Alienation

“Now, I have to go back to work on my State of the Union speech.
And I worked on it until pretty late last night. But I want to say one
thing to the American people. I want you to listen to me. I’m going to
say this again: I did not have sexual relations with that woman,
Miss Lewinsky. I never told anybody to lie, not a single time; never.
These allegations are false. And I need to go back to work for the
American people.” –
President Bill Clinton, January 26, 1998

“The great story here for anybody willing to find it, write about it and explain it is this vast right-wing conspiracy that has been conspiring against my husband since the day he announced for president.” – First Lady Hillary Clinton, January 27, 1998


The appearance of progress on some issues overshadowed the
underlying deterioration of societal institutions and practices. Social
Security was “saved” by Alan Greenspan and his commission. Essentially
he manipulated the CPI calculation downward, screwing future
generations of seniors out of their rightful payouts. Politically
difficult decisions regarding Medicare and Medicaid were deferred to
sometime in the distant future. With oil prices averaging $20 per
barrel through the 1980s and 1990s, a coherent long-term energy
strategy seemed unnecessary to the next election cycle politicians who
control this country. The deregulation of the Savings & Loan
Industry gave them many of the capabilities of banks, without the same
regulations as banks. Imprudent real estate lending, fraud and insider
transactions by S&L executives, protected by high powered
Washington politicians, led to the first financial crisis. The failure
of 747 thrifts and losses of $160 billion to the taxpayer can be
attributed to lax oversight and fraud.  

The Berlin Wall fell as communism collapsed under the weight of
central planning, corruption, and fraud. Academics like Francis
Fukuyama foolishly declared “The End of History”. According to
Fukuyama, Democracy had won over all other forms of government:

 “What we may be witnessing is not just the end of the
Cold War, or the passing of a particular period of post-war history,
but the end of history as such: that is, the end point of mankind’s
ideological evolution and the universalization of Western liberal
democracy as the final form of human government.”

Only a Harvard academic could spout such claptrap. By 1991, the U.S. was again at war. The 1st
Gulf War was considered a moral war as the U.S. came to the rescue of
Kuwait and Saudi Arabia. Using traditional military maneuvers, General
Schwarzkopf obliterated Sadaam Hussein’s Republican Guard. But, there
was no consensus to follow through and eliminate Hussein. Unwittingly,
we planted the seeds for the bleak later stages of the Unraveling by
leaving military bases in Saudi Arabia. There were not many more feel
good national experiences after the 1st Gulf War. A
recession in 1991 (remember George Bush Sr. buying 4 pairs of socks at
JC Penney to exhort Americans to shop America out of recession) caused
by the S&L Crisis allowed an obscure Arkansas Governor to win the
Presidency. The election of Bill Clinton ushered in the culture wars of
the 1990s. The conservative religious right fought scorched earth
battles with the liberal left wing elite who control the media. Pat
Buchanan captured the animosity of this conflict:

“There is a religious war going on in our country for the soul
of America. It is a cultural war, as critical to the kind of nation we
will one day be as was the Cold War itself. Who is in your face here?
Who started this? Who is on the offensive? Who is pushing the envelope?
The answer is obvious. A radical Left aided by a cultural elite that
detests Christianity and finds Christian moral tenets reactionary and
repressive is hell-bent on pushing its amoral values and imposing its
ideology on our nation. The un-wisdom of what the Hollywood and the
Left are about should be transparent to all.”

As ideologues fought wars over morality, religion, and abortion,
unbridled corporate fascism and individual greed ran rampant. The
unholy alliance between mega banks, mega-corporations, the Federal
Reserve and Washington DC led to a widening chasm between the haves and
have-nots. The 1990s were rooted in three poisons: anger, greed, and
delusion. The Presidency of Bill Clinton was marked by a strong
economy, political gridlock, declining moral values and relatively
minor military skirmishes. Society glorified individuals, their wealth,
power and lifestyles. The TV show Lifestyles of the Rich and Famous, hosted
by Robin Leach, ran from 1984 until 1995. The show featured the
extravagant lifestyles of wealthy entertainers, athletes and business
moguls. Glorification of the rich and their profligate lifestyles,
spurred the superficial self-centered Boomer generation to idolize and
emulate this lifestyle. There was one big problem with emulating this
lifestyle. The Boomers didn’t have the money to live this lifestyle.
Wall Street stepped in to supply the fuel for the two decades of
decadence. Household debt grew from $2 trillion in 1984 to $14 trillion
in the mid 2000s.

The United States has experienced a three decade long “expenditure
cascade”.  An expenditure cascade occurs when the rapid income growth
of top earners fuels additional spending by the lower earners. The
cascade begins among top earners, which encourages the middle class to
spend more which, in turn, encourages the lower class to spend more.
Ultimately, these expenditure cascades reduce the amount that each
family saves, as there is less money available to save due to extra
spending. Expenditure cascades are triggered by consumption. The
consumption of the wealthy triggers increased spending in the class
directly below them and the chain continues down to the bottom. This is
a dangerous reaction for those at the bottom who have little disposable
income originally and even less after they attempt to keep up with
others spending habits. The personal savings rate was 12% in the early
1980s and declined to negative 1% by 2005. The expenditure cascade
couldn’t have occurred without easy access to debt. The question that
must be asked is, who benefits from debt and who pays?

The delusion of the American populace cannot be underestimated.
Their worshipping at the altar of materialism and adoration of
Hollywood created pop culture was crucial to the societal delusion.
Without the corporate consumerism marketing machine, an unlimited
amount of credit provided by bankers, and ultra-low interest rates
supplied by the Federal Reserve, the delusions of grandeur could not
have been realized. Credit cards didn’t even exist until 1968. Until
the 1990s mortgage lenders followed the 28/36 rule. Your mortgage
payment, including taxes and insurance, couldn’t exceed 28% of your
monthly gross income. All of your debt payments couldn’t exceed 36% of
your monthly gross income. Homebuyers rarely put down less than 10% of
the home’s value. Home equity loans were virtually non-existent. The
subprime loan market for homes and automobiles was miniscule. In the
early 1980s auto loans averaged 45 months and buyers put 12% down on
the purchase. By the mid 2000s auto loans averaged 64 months with only
5% down on the purchase. By 1999, 40% of all cars on the highway were
leased. The proliferation of easy credit allowed average people to live
a life of excessive opulence, occupying 7,000 sq ft  McMansions,
driving BMWs, and wearing Rolex watches. Americans bought so much stuff
on credit they couldn’t fit it all in their oversized abodes. So they
needed to rent outside storage for their stuff. In 1984 there were
6,601 facilities with 290 million square feet of rentable self storage
in the U.S.  In 2009, there were 46,000 self storage facilities with
2.21 billion square feet, a 762% increase.

The delusional middle and lower class Boomers believed they were
equal to the top 1% of ultra-wealthy, because they were living like
them. As Orwell noted, “all animals are created equal but some animals are more equal than others”. Those
that were “more equal” worked on Wall Street. The repeal of the
Glass-Steagall act in 1999 with overwhelming majorities in both Houses
of Congress and cheered on by Wall Street groomed Secretary of the
Treasury Robert Rubin, opened Pandora’s Box. Bank holding companies
started dealing in mortgage-backed securities, credit default swaps,
and structured investment vehicles. A blizzard of products solely
designed to generate fees while ignoring the banks’ fiduciary duty to
their clients was unleashed. Subprime mortgages surged from 5% of all
mortgages to 30% by 2008, as issuing the mortgage became detached from
the risk of the mortgage. The issuer of the loan had no risk, since the
mortgages were immediately bundled and sold off to investors (suckers).
No doc, Alt-A, and Option ARM mortgages proliferated as fraud ran
rampant on Wall Street and throughout the financial services industry.
The Federal Reserve, led by Alan Greenspan, aided and abetted the
delusional debt bubble through its non-existent regulation of the banks
and mortgage brokers, and unnecessarily keeping interest rates
extraordinarily low from 2001 through 2005.

As the average American middle class worker fell further behind,
without realizing it, the financial sector grew ever more powerful and
malevolent. A country that had once produced its way to world
domination degenerated into a paper kingdom run by Harvard MBAs,
lawyers, tax accountants and central bankers. They “create” pieces of
paper with terms that no one understands, packages worthless pieces of
debt obligations and sell it to other clueless financial experts,
borrow 40 times their capital and gambles it based on models that told
them they couldn’t lose, and rewards themselves with obscene pay
packages and bonuses.  







Manufacturing 22.7% 20.0% 16.3% 14.5% 11.5%
Construction 4.8% 4.7% 4.3% 4.4% 4.1%
Retail & Wholesale Trade 14.5% 14.0% 12.9% 12.7% 11.9%
Finance, Insurance, Real Estate 14.6% 15.9% 18.0% 19.7% 20.0%
Professional Services 5.4% 6.7% 9.8% 11.6% 12.7%
Educational Services 0.7% 0.6% 0.7% 0.8% 1.0%
Health Services 3.2% 4.4% 6.0% 6.1% 7.1%
Government 15.2% 13.8% 13.9% 12.3% 12.9%
Other 18.9% 19.9% 18.1% 17.9% 18.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
Source: BEA  

The “creativity” of Wall Street was complimented by corporate
America instituting “free trade” and “globalization” policies (NAFTA)
supported by politicians in Washington DC. The terms free trade and
globalization were code for corporate CEOs shipping US manufacturing
jobs to China, India, and Vietnam, while expanding their corporate
earnings per share 3 cents above analyst expectations per quarter. As
reward for gutting American industry, the CEOs demanded their Board of
Director toadies give them stock options for 1 million shares and $10
million raises. Does it require a Harvard degree and ingenious
brilliance to fire 100,000 American workers making $20 per hour and
build a plant in China paying peasants $1 per hour and depending on
cheap oil to inexpensively ship the goods back to America? Only one
problem, people without jobs have trouble buying stuff. Without middle
class jobs, corporate CEOs turned to their Harvard buddies on Wall
Street to create $1.2 quadrillion of financial derivatives to convince
the middle class they really had wealth to spend on cheap Chinese
goods. This corporate/banking collusion was fully supported by their
paid for representatives in Washington DC. This unholy alliance between
big business and big government enriched the ruling elite, while
impoverishing the middle class.


Once In A Lifetime

“Indeed, recent research within the Federal Reserve suggests
that many homeowners might have saved tens of thousands of dollars had
they held adjustable-rate mortgages rather than fixed-rate mortgages
during the past decade, though this would not have been the case, of
course, had interest rates trended sharply upward.”
– Alan Greenspan, February 2004

“Even though some down payments are borrowed, it would take a
large, and historically most unusual, fall in home prices to wipe out a
significant part of home equity. Many of those who purchased their
residence more than a year ago have equity buffers in their homes
adequate to withstand any price decline other than a very deep one.”
– Alan Greenspan, October 2004

“Improvements in lending practices driven by information
technology have enabled lenders to reach out to households with
previously unrecognized borrowing capacities.”
– Alan Greenspan, October 2004

“The use of a growing array of derivatives and the related
application of more-sophisticated approaches to measuring and managing
risk are key factors underpinning the greater resilience of our largest
financial institutions …. Derivatives have permitted the unbundling of
financial risks.”
– Alan Greenspan, May 2005


You may find yourself living in a shotgun shack
You may find yourself in another part of the world
You may find yourself behind the wheel of a large automobile
You may find yourself in a beautiful house, with a beautiful wife
You may ask yourself: well… how did I get here?

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/after the money’s gone
Once in a lifetime/water flowing underground

You may ask yourself
How do I work this?
You may ask yourself
Where is that large automobile?
You may tell yourself
This is not my beautiful house!
You may tell yourself
This is not my beautiful wife!

You may ask yourself
What is that beautiful house?
You may ask yourself
Where does that highway lead to?
You may ask yourself
Am I right?… Am I wrong?
You may say to yourself
My God!… what have I done?

                       The Talking Heads – Once in a Lifetime


David Byrne’s lyrics are reflective of how Americans have operated
in a largely unconscious state for the last twenty years, operating on
debt-oriented auto-pilot, and waking up from their materialistic stupor
asking, “How did I get here?” We have taken the acquisition of material
belongings so seriously that it became what we worked for. Material
possessions defined who we are.  When we lose these possessions we no
longer have the identity that we have blindly created by collecting
“things”. My God, what have we done? Charles Mackay in his book Extraordinary Popular Delusions and the Madness of Crowds , written in 1841, captures the essence of what has happened in the US:

“Money, again, has often been a cause of the delusion of the
multitudes. Sober nations have all at once become desperate gamblers,
and risked almost their existence upon the turn of a piece of paper.”

The nation had an opportunity to come to our senses with the
election of George Bush in 2000. The gravity of the coming Saecular
Winter could have been moderated through prudent actions taken on the
fiscal, political, and defense fronts. The autumnal Unraveling is a
time of foreboding and a brooding pessimism. As a howling wind begins
to blow, leaves turn brown and wither, determined squirrels scurry
around collecting acorns in preparation for the bitter snowy Winter
ahead. The opportunity to judiciously prepare was wasted after the
September 11, 2001 terrorist attack on America. The colossal
overreaction to an attack by a terrorist organization consisting of a
few thousand members, ensured that the coming Winter will be harsh,
deadly, and more bitter than any ever experienced in U.S. history.
Prudence, caution, intelligence, and sound judgment were required.
Recklessness, haste, stupidity, and hubris were employed. The result
was that the Crisis that arrived in 2005-2008 will be more painful and
possibly fatal for the United States. The multiple wars of choice,
immense housing bubble, stunning government deficits and unaddressed
unfunded liabilities have created a nation weakened and unprepared for
the harsh reality ahead. The Empire of Debt has reached epic

The recklessness of our lack of preparation is reflected in the following facts:

  • Total US credit market debt increased from 275% of GDP in 2000 to 365% of GDP in 2009.
  • The National Debt increased from $5.7 trillion in 2000 to $13 trillion today. It is projected to reach $20 billion by 2015.
  • Consumer debt has increased from $1.5 trillion in 2000 to $2.4 trillion today.
  • The U.S. has spent $1 trillion since 2003 on wars of choice in Iraq and Afghanistan.
  • Annual defense spending has risen from $359 billion in 2000 to $896 billion in 2010.
  • Unfunded liabilities for Social Security, Medicare, and Medicaid total $106 trillion.
  • There are 7 million less Americans employed today than there were in 2007.
  • In 2008, Wall Street lost $42.6 billion and required middle class
    taxpayers to bail them out. Total compensation on Wall Street in 2009
    totaled $55 billion, three times the previous high.

Michael Lewis was befuddled that his tale of greed, hubris and
recklessness, written in 1987, did not deter college graduates from
heading to Wall Street. It took two more decades, but the Wall Street
money culture is in the process of being discredited. Americans are
slowly coming to the realization that unbridled greed is not the same
as capitalism. Excessively low interest rates punish savers and senior
citizens, while benefitting borrowers, risk takers and Wall Street.
Savings leads to investment, while borrowing leads to impoverishment.
The actions taken thus far by politicians, government bureaucrats, and
the Federal Reserve are the exact opposite of what was required. The
next leg down in this Greater Depression will thoroughly discredit
those who have promoted a money culture over those virtues that will
benefit society in the long run. The current Crisis will require
personal sacrifice, renewed community spirit, public consensus, and
truth. Failure could prove fatal for our nation. The best of human
nature must win out over greed, ignorance, and love of power. Our
future hangs in the balance.

“It has always seemed strange to me… the things we admire in
men, kindness and generosity, openness, honesty, understanding and
feeling, are the concomitants of failure in our system. And those
traits we detest, sharpness, greed, acquisitiveness, meanness, egotism
and self-interest, are the traits of success. And while men admire the
quality of the first they love the produce of the second.” –
John Steinbeck