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Utopian Dreams, Hired Money, Political Extremism
Though every crisis is different, they often progress in similar ways. This seems to be the case with the present debt-related financial crisis rippling through western economies. It’s present causes are unique, but it seems to be meandering down an all-too familiar and frightening path.
During much of the 1920s in Europe there were deep recessions linked to debt. A fair number of players were involved and a slew of accommodations were attempted to resolve these debt issues. But it had one overriding and intractable element: The French owed U.S. banks huge sums related to World War I borrowing that they couldn’t replay unless Germany, which owed huge sums to France in the form of reparations mandated by the Treaty of Versailles, serviced this debt.
Lenders didn’t want to lose money here by virtue of not being paid and thought they had a moral as well as a legal right to get it all — a view summed up neatly by Calvin Coolidge’s unforgettable phrase, “They hired the money, didn’t they?”
This hired money was loaned in the name of a utopian dream (a war to end all wars) by institutions that therefore felt a moral right to collect it all, and beyond this, the power not to lend any more and further impoverish borrowers if they didn’t get it all back. And you had populations that often simply couldn’t pay up, didn’t believe the debts were really their fault, and gradually turned to extremist ideologies that convinced them they were actually victims of sinister alien forces that had to be destroyed.
Which brings us to the present debt-based financial crisis in Europe, and its variant on our own shores. A vast amount of money that can not be easily repaid, or repaid at all, has been loaned out in the name of utopian dreams.
One such dream was the so-called “American Consensus,” a fantasy of U.S. and U.K. banks, promoted by Wall Street investment banks, that held that if you concocted incredibly sophisticated financial instruments (aka derivatives) that insured against any possible default, there probably wouldn’t be any, and if there were, these miraculous instruments would keep overall finances on an even keel.
Another utopian fantasy at work was the EU and its single euro currency. Originally designed to end all wars on the continent while also creating a single continental economy that could compete with the U.S., this utopian fantasy gradually metastasized into another one — that any new member could be invited into the club because after entry it would automatically behave in a fiscally prudent manner no matter how this might conflict with its own political and economic norms.
Still another utopian fantasy on our own shores aimed to make us all homeowners, this somehow being deemed a great good in itself. Under the influence of this fantasy money to buy homes was loaned to most anyone, no matter how implausible this person’s ability to service the loan, because ever rising home prices would bail everyone out.
So here we are. Awash in oceans of inherently uncollectable hired money that’s largely the product of fantasies. Lenders and debtors all feel abused, exploited, misunderstood. Government leaders that not simply allowed but promoted the fantasies that brought us to this present overhang don’t have a clue about to how to make things right.
Ready. Set, Bring on the political extremism of right and left.
More from this writer at http://blog.wallstreetpoet.com
4 Responses to “Utopian Dreams, Hired Money, Political Extremism”
All three are now true given the modern big-money likes of Soros.
There’s always will be rich people who want the government to protect their wealth. If you look at the formation of the IMF, the Fed, and even first national bank, you’ll see these people at work.
This is an excellent column IMO.
Prof- I agree that there’s nothing new under the sun but Silverstein is pointing out a particularly dangerous way that the rich and powerful coapt public opinion to allow for the policies that protect their wealth and power; that is, the use of the utopian narrative.
And it’s a perfect storm when both political parties coapt these themes (ie, Bush’s Ownership Society and nation building in the Middle East) because then there’s no check on it at all. If conservatism stands for anything at all it should be as a stopgap against utopian ideals which are always illusive and worse yet, often illusions that mask the underlying real goals of their advocates.
The OP didn’t explicitly say this final point but hinted at it in the concluding statement: when the inevitable collapse comes, political extremism is stoked because both sides actually did take part in the scheme and partisans of both sides can be counted on to see the opposing side’s fingerprints but not those of their own side.
I officially stand corrected. After McCain’s charge that illegals started the Arizona wildfires, I clearly was wrong about the extremist’s view making headway.