The New Empire of Debt: The Rise and Fall of an Epic Financial Bubble (5 page)

It proved, however, that the young prince on whose stories and promises the campaign was launched had been a bit frugal with the truth. Like the intelligence services’ warnings of weapons of mass destruction in Iraq, his depiction of the circumstances prevailing in Constantinople at the time was inaccurate. Much of it seemed fanciful.

Though the initial conquest was fairly easy and glorious, subsequent events were less so. The local population rose up against the invaders. The city had to be retaken; this time, the battle was bloodier, and thousands of innocent citizens were put to the sword.

As near as historians can tell, the Venetians earned no lasting gain or benefit. Dandolo died in 1205, never having set foot in his homeland again. As for his compatriots, what was left of them eventually returned to Venice.

“But there still remains in Venice,” adds Mrs. Oliphant, “one striking evidence of the splendid, disastrous expedition, the unexampled conquests and victories yet dismal end, of what is called the Fourth Crusade. And that is the four great bronze horses, curious, inappropriate bizarre ornaments that stand above the doorways of San Marco.This was the blind doge’s lasting piece of spoil.”
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“Been there. Done that,” whispers the old doge.

Who cares? Each generation needs to be there to do that, too. Though happy to turn on an electric light invented by a dead man, the living—in love, war, and finance—believe nothing they haven’t seen with their own eyes, except when they want to.

“Avoid foreign entanglements,” cautioned the father of the country. But corpses have no voice and no vote, neither in markets nor in politics. George W. Bush was undoubtedly better informed than George Washington. He may have neither the wisdom of a Washington nor the brain, but at least he had a pulse.

Few people complain about this tyranny of the living. Most accept it as a fact of life.They would not want people to be excluded from the pleasures of life because of an accident of birth. But they are perfectly happy to have the oldest and wisest of our citizens systematically barred from the polling stations and the trading floors by the accident of death. The departed shut up forever, leaving behind them their car keys, their stocks, and their voter registrations—that is all there is to it. Goodbye and good riddance. It is as if they had learned nothing useful, noticed nothing, and had no ideas that might be worth preserving; as if each generation were smarter than the one that preceded it and every son’s thoughts improved on those of his father.

Oh, progress! Thou art forever making things better, aren’t thou? Throw out the sacred books—what are they, but the thoughts of dead imbeciles? Forget the old rules, old wives’ tales, old traditions and habits of old generations, old-timers’ superstitions, the old fuddy-duddies’ doubts! We are the cleverest humans who have ever lived, right?

Maybe. But if we could convene a council from the spirit world and invite the dead to have their say, what would the corpses tell us?

Veni et vidi.
Gaze on the dead, and learn their secrets.

No one seems to care about dead people. No stockbrokers ask for their business. No politicians pander for their votes. No one cares what they think or what they may have learned before they shucked their mortal shell. They get no respect, just a quick send-off, and then they are on their own.

What did the old-timers know of war? Of politics? Of love? Of money? If only we could ask!

Years ago, investors wanted more from a stock than just the hope that someone might come along who was willing to pay more for it. They wanted a stock that paid a dividend out of earnings. When they heard about a stock, they asked: “How much does it pay?” That was what investing was all about.

But by the 1990s, the old-timers on Wall Street had almost all died off. Stock buyers no longer cared how much the company earned or how large a dividend it paid. All they cared about was that some greater fool would come along and take the stock off their hands at a higher price. And the fools rushed in. And now the market is full of greater and greater fools who think the stock market is there to make them rich. What would the old-timers think of them?

And what would our dead ancestors think of our mortgages? Most of them had small mortgages, if any at all, on their homes. And if they had them, they couldn’t wait to get rid of them. (Even our own parents held little parties to celebrate finally paying off the mortgage on the family home.) What would our forebears think if they were to learn that the richest generation in American history has mortgaged a greater share of its homes than any in history? What would they think of no-money-down mortgages, minimum payment plans, and negative amortization schedules?

And what would the old-timers think of our government debt? The unpaid liabilities and obligations, expressed as though they had to be paid today, come to about $56 trillion, depending on the source you choose to believe.

And what do the generations of Republicans, now in their graves, who believed so strongly in balanced budgets for so many years, think of the recent
republicano
in the White House, who proposed the most unbalanced budgets in history?

And what about the millions of dead Americans who immigrated to the United States to find freedom; what do they think of the country now? They came believing that if they minded their own business, they would be left alone to do what they wanted. But now, every pettifogging Pecksniff with a government service (GS) rating is on their grandchildren’s case.

And what about those millions of dead people who scrimped and saved—who got by on almost nothing—so their children and grandchildren might live free, prosperous, and independent lives? What would they think of their descendants, so deep in debt and so dependent on Asian lenders that they can barely pass a Chinese restaurant without bending over and kissing the pavement?

Each generation seems to think it is the first to stand upright, that its mothers and fathers walked on four legs and howled at the moon! Even when the living feign admiration for same fallen forebear, it is usually without paying the least attention to what the poor schmuck actually said or knew. The dead leave us their memoirs, their gospels, their histories, and their constitutions—for what is a constitution but a pact with the dead?—and we ignore them.We seem to believe that all that they suffered, all they went through, all the mistakes they made, hold no more interest for us than a comment by a sunstruck contestant in a TV survival show: “This is . . . like . . . weird . . . .”

A dead man, Edmund Randolph of Virginia, attended the Constitutional Convention in Philadelphia in 1789. He explained why America needed a constitution: “The general object was to produce a cure for the evils under which the United States labored; that in tracing these evils to their origins, every man had found it in the turbulence and follies of democracy.”
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Another dead man, James Madison, made it even clearer: “Democracies,” he wrote, “have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death.”
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So, we leave you “a Republic, if you can keep it,” added Ben Franklin.

Well, we couldn’t keep it. Now, we have a curious empire, with a constitution as flexible as its money.

Everybody gets a vote in this new democratic Valhalla. Every half-wit’s ballot is worth as much as George W. Bush’s. Every fool and miscreant gets to have an opinion. Only the dead, are left out. Excluded. Ignored. Forgotten.

It is as if only the living had opinions worth hearing, as if only the here and now counted for anything; as if the small, arrogant oligarchy of those who happen to be walking around had all the answers; as if the present generation had found the ultimate truth and reached the end of history.

Your authors have never killed anyone, but we read the obituaries with approval and interest. We look for the distilled wisdom of saint and sinner alike. (The editorial pages, by contrast, we read only for entertainment.) The trouble with the news is that it is impossible to know what is important when you must rely solely on the judgment of people who happen to be breathing. The living can imagine no problems more urgent than the ones they confront right now, and no opportunities greater than the ones right in front of them.We prefer the obituaries.

Germany’s Third Reich is infamous. But what happened to the Second Reich? History never repeats itself perfectly. But what else can we study but history? The past may be imperfectly understood, but it is the only reference we have.Why not take a look at it? Why not shake the dust off a dead man and get his opinion? Why not venture into the land of the dead to ask some questions?

“The state’s need of money increased rapidly,” writes a dead man, Bresciani-Turoni, describing the scene in Germany 80 years ago. “Private banks, besieged by their clients, found it impossible to meet the demand for money.”
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As the situation heated up in the summer of 1923, there were some old-timers who gave advice: “Less,” they said.

But officials were in roughly the same situation as Ben Bernanke and Barack Obama today. “More,” said they. They feared the economy might fall into trouble unless they made more cash and credit available.

One, named Helferrich, the finance minister in Germany’s Weimar Republic, explained:

To follow the good counsel of stopping the printing of notes would mean—as long as the causes which are upsetting the German exchange continue to operate—refusing to give economic life to the circulating medium necessary for transactions, payments of salaries and wages, and so on, it would mean that in a very short time the entire public, and above all the Reich, could no longer pay merchants, employees, or workers. In a few weeks, besides the printing of notes, factories, mines, railways and post office, national and local governments, in short, all national and economic life would be stopped.
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When an economy comes to depend on more and more credit, it must get more and more of it or that economy will come to a stop. A man who has borrowed heavily to finance a lifestyle he cannot afford must continue borrowing to keep up appearances. Or else he must stop. In market manias, love, politics, or war, people rarely stop until they are forced to.

In 1921, a dollar would buy 276 marks. By August 1923, it would buy 5 million of them. Middle-class savers were wiped out.

If only we could roust Herr Helferrich from his eternal sleep! We have some questions we would like to put to his wormy cadaver. (And here, we think not of praising the dead, but of tormenting them.) What fun it would be to show him what his policies—the same, by and large, as are now put forward by Greenspan, Bernanke, and Bush—provoked. How gratifying it would be to see the little kraut squirm under an intense interrogation: What was he thinking, after all? Why did he think that more of the dreadful printing-press money would undo the harm that had already been done by too much? Bresciani-Turoni continues:

The inflation retarded the crisis for some time, but this broke out later, throwing millions out of employment. At first inflation stimulated production . . . but later . . . it annihilated thrift; it made reform of the national budget impossible for years; it obstructed the solution of the Reparations question; it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty. It was a distressing preoccupation and constant torment of innumerable families; it poisoned the German people by spreading among all classes the spirit of speculation and by diverting them from proper and regular work, and it was the cause of incessant political and moral disturbance. It is indeed easy enough to understand why the record of the sad years 1919-1923 always weighs like a nightmare on the German people.
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Surely some special corner of Hell is reserved for central bankers. Ben Strong. John Law.They are probably all down there. Maybe Charles Ponzi is with them.What do they do down there? Play cards, perhaps.

Helferrich must be there too—roasting. For when he undermined the Germans’ faith in their system, their money, and their culture, did he not also pave the way to Hell for millions of his fellow countrymen?

If only we could talk to them! Didn’t they sacrifice their souls, and do they not now writhe in eternal torment? And for what? Why should God make a moral example out of them if no one pays attention?

Every central banker in the world has taken the devil’s bait, creating money, out of thin air, as if no one were looking. As if it had not been tried before. As if they could get away with it and people really could get something for nothing! And yet, they all seem unable to do anything different—even with the threat of scorching their fat derrieres in the afterlife.

If the dead have secrets, what about those who are almost dead?

We read an interview with Sir John Templeton before he died. The great old man said he thought shares and houses in America were too expensive and that the United States was cruising for trouble with its trade deficit and U.S. federal deficit. He said he anticipated a long bear market in shares, falling residential real estate prices and a serious slump in the economy. Implicitly, he advised investors to hold cash.
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The person who wrote the article then asked local analysts and stockbrokers what they thought of Templeton’s opinion. One challenged Templeton’s competence, saying that because of his advanced age (Templeton was 92), he might be “out of touch” with current thinking. Templeton was not even dead yet, and already they were shoveling the mud on his face. But being out of touch is precisely what made his opinions valuable.