Tuesday, 28 August 2007
If we are Rome, Wall Street's our Coliseum
The analogy of the US as modern Rome has been made before. But with the frozen corporate paper markets and companies and institutions rush to cash we could see the biggest financial crash of our lifetimes over the next few months. This article focuses on an honest man who holds one of the highest fiduciary offices in America. America's Comptroller General, David Walker, has been telling it like it is for sometime. I thought that today's article published in Marketwatch was worth reposting here. Although I take issue with Walker's point on "entitlement reform". Surely raising taxes on the rich would be more like it! They've got off scott free for years and are mostly responsible for getting us into this mess.
PAUL B. FARRELL
If we are Rome, Wall Street's our Coliseum
Comptroller General warns (again), we're 'bankrupting America'
By Paul B. Farrell, MarketWatch
Quotes ARROYO GRANDE, Calif. (MarketWatch) -- What do Cassandra, "Chicken Little," the "Boy Who Cried Wolf" and David Walker, America's Comptroller General and head of the U.S. Government Accountability Office, all have in common?
Nobody pays attention to them!
Well, at least not until it's too late. Or till a brutal catastrophe wakes us up, forcing us into action. History's a great teacher, but so few graduate. Nobody listened to Churchill's warnings, until Hitler invaded France. We sat on the sidelines till Pearl Harbor.
It takes a 9/11. Before the direct hit, history lessons are academic. The David Walkers of the world are merely tolerated. We're polite, but nobody's really listening. In fact I missed his recent talk in Chicago. ... even though the Comptroller General may be the only Washington insider we can trust to tell us the unvarnished truth ... even though he was interviewed on "60 Minutes" in March, where he admitted that elected officials don't want to hear that they're "bankrupting America" ...even though he's now on a "Fiscal Wake-up Tour" traveling across America taking his message directly to the people in town-hall style meetings ...
and even though he's one of my heroes, and I encouraged readers to make him a write-in candidate during the 2006 elections. See previous Paul B. Farrell.
Except for a short piece in London's Financial Times, Walker's warnings were generally ignored by the American press, by the public and even by the very Congress that hired him and has the power to do something, yet still refuses to heed his warnings.
We're in denial, tuning out ... Americans just don't want to hear this modern day Cassandra's wolf cries about the sky falling ... ignoring history, we're determined to wait till the last minute, until the sky does fall, until the wolf does bite us.
So why did I do a double-take and listen? Because this time Walker used the "R" word. No, not recession, but "Rome." Listen:
"America is a great nation, probably the greatest in history. But if we want to keep America great, we have to recognize reality and make needed changes ... There are striking similarities between America's current situation and that of another great power from the past: Rome.
"The Roman Empire lasted 1,000 years, but only about half that time as a republic. The Roman Republic fell for many reasons, but three reasons are worth remembering: declining moral values and political civility at home, an overconfident and overextended military in foreign lands, and fiscal irresponsibility by the central government. Sound familiar?"
Truth is, Americans rarely learn from history. We're short-term thinkers, reactors. Crises turn us on! In fact, we love setting them up, tempting fate, waiting at the brink of disaster ... even when we have intelligence warning us of an eminent attack.
Why? Because America's economic brain is a myopic computer programmed for instant gratification, not long-term planning. Years of brainwashing focuses on the latest fashions, today's store sales, Wall Street's relentless minute-to-minute trading. We assume that "tomorrow will take care of itself," and that the government will bail us out, like the Fed did recently with the discount rate. But, Walker warns, you can't trust government with your future:
"Unfortunately, our government's track record in adapting to new conditions and meeting new challenges isn't very good. Much of the federal government remains overly bureaucratic, myopic, narrowly focused and based on the past. ... Hurricanes Katrina and Rita brought that point home in a painful way ... Public confidence in the ability of government to meet basic needs was severely shaken ... If our government can't handle known threats like natural disasters, it's only fair to wonder what other public services may be at risk."
Walker's the one person in America with a nonpartisan, solidly analytical understanding of America's economic future, backed by 3,000 GAO employees analyzing every possible scenario ... and yet, his message is largely ignored. Nobody wants to hear the Comptroller General (or anyone else) warn us that ... "Entitlement reform is especially urgent. Unless we reform Social Security, Medicare, and Medicaid, these programs will eventually crowd out all other federal spending. Otherwise, by 2040 our government could be doing little more than sending out Social Security checks and paying interest on our massive national debt."
We've written often about this "coming storm." See previous Paul B. Farrell.
But here it's coming from the one Washington insider who knows the facts and has no "axe to grind." Walker delivered a powerful speech in Chicago, titled "Transforming Government to Meet the Demands of the 21st Century." And it boils down to the single problem that'll destroy America from within ... oppressive debt from out-of-control spending:
"Transforming government and aligning it with modern needs is even more urgent because of our nation's large and growing fiscal imbalance. Simply stated, America is on a path toward an explosion of debt. And that indebtedness threatens our country's, our children's and our grandchildren's futures. With the looming retirement of the baby boomers, spiraling health-care costs, plummeting savings rates, and increasing reliance on foreign lenders, we face unprecedented fiscal risks."
After reading Walker's speech the real reason nobody listens suddenly hit me. He's too nice. Too rational. Too matter-of-fact. Maybe he should go wild like cable-TV showman Jim Cramer, throwing a childish tantrum to get Daddy Bernanke's attention, forcing him to drop the Fed's discount rate. And yet, if our economy and markets are ever going to be "transformed," it'll take a cool, rational, long-term thinker like Walker, not a myopic stock market fanatic going ballistic, demanding a quick-fix from daddy!
When Walker talks, he undoubtedly has in the back of his mind Cullen Murphy's bestseller, "Are We Rome? The Fall of an Empire and the Fate of America." You can find many online analyses of Murphy's six scary parallels between America and Rome:
-Self-centered aggrandizing of the capital city
-Overextended military unsuited for global empire
-Myopic, distrusting, isolationist view of the world
-Big government, too complex, unmanageable, risky
-Privatization of public responsibilities breeding greed
-Porous borders and failed immigration policies
But the scariest of all parallels is not one either Walker or Murphy see between the two empires. The scariest parallel is Wall Street with millions of daily duels to the death.
Wall Street is a metaphor for the Coliseum where Romans fought not just individual duels, but fought a much deeper battle for the heart and soul of the republic -- and lost. The Coliseum was symbolic of their obsession with wealth and material excesses, destroying its values, exposing its vulnerability ... until eventually Rome was overrun by outsiders. "Sound familiar?"
Here's Walker's history lesson for Wall Street: "It's useful to remember at the end of the 19th century, the original Dow Jones Industrial Average consisted of 12 stocks. These were all powerful companies, the leaders in their fields. Names like National Lead, U.S. Rubber, and Tennessee Coal and Iron were the Microsofts and Wal-Marts of their day. It's sobering to realize only one of the original 12 Dow Jones companies survives today, and that's GE. The rest couldn't adapt to changing conditions and either merged with competitors or went out of business."
Makes you wonder if maybe, just maybe, Wall Street itself might eventually look like today's crumbling Roman Coliseum ... and take "The Empire" down with it?