POSTED: 22 SEPTEMBER 2008 - 8:30am HST

Falling to Fall

image above: Redwood loggers in Humboldt, California posing for camera. Photo by W. A. Rogers

by James Kunstler on 22 September 2008 for -

So many shoes are poised to drop this week that the American scene might be confused for the world's greatest-ever clog dancing festival, but a closer look will reveal a circle of cavorting skeletons.

Last week's ripe moment turned out to be the Thursday night Washington photo op when Treasury Secretary Paulson and Fed Chief Bernanke emerged from a huddle with House Speaker Nancy Pelosi and just about every other legislative eminentissimo in an attempt to reassure the nation that its financial system had not turned into something like unto a truckload of stinking dead carp. I don't know about you, but I got two distinct vibes from the faces in that particular tableau: 1.) abject fear, and 2.) a total lack of conviction that they knew what they were doing.
The product of that huddle was a cockamamie scheme for the US treasury to absorb all the losses from a twenty-year binge in which Wall Street created and retailed the most complex set of swindles ever seen on this planet Earth. The background music to the tableau was the whoosh of a several trillion dollars exiting the US financial system never to be seen again.

The next day (Friday) many particulars of that scheme began to emerge -- such as the complete lack of oversight and review mechanisms for Treasury's new power to monetize private business failures and frauds -- and the stock market soared in response. Other new features of the reformed capital landscape also resolved later that day, like a new experiment aimed at eliminating the short sale as a way of guaranteeing that henceforth market bets could only be placed on the upside of the table.
It will be interesting to see how that reform works out in the days ahead.

Over the weekend, all these various playerz retreated into their gilded bunkers to negotiate the details, and by Sunday night, among other things, Goldman Sachs and Morgan Stanley -- the two remaining investment giants left standing -- announced that they would metamorphose into regular banks in order to qualify for additional truckloads of government loans in exchange for any leftover fraudulant securities still lurking in their vaults. Another new provision had the Treasury rescuing swindled foreign companies, too -- in effect, saving the world, which seemed at least, how you say, pretty ambitious.

By this morning, many new arguments had been raised by a suddenly de-zombified congress as to whether the proposed grand bail-out might reward recent Wall Street turpitudes and incentivize future mis-deeds and it looks like enough objections may be lodged to gum-up the process before it even goes into effect -- which, of course, would tend to revert the whole reeking cargo of trouble to its original train-wreck trajectory. I guess we'll see what happens now.

Any way you paint this grotesque panorama, it looks like a very new chapter of history for life in the USA. Basically, we are a much poorer nation than we were even a couple of years ago, and we have a much-reduced ability to project our will around the world, or even among our own floundering sectors and regions. Most troubling to me is the question of legitimacy that now hangs over the proscenium like a guillotine blade. Factoring in the old saw that history doesn't repeat but it rhymes, I think the situation emerging is rather like the crisis of legitimacy that preceded the Civil War. Then, in the 1850s, the nation's two symbiotic political parties, Whig and Democrat, entered a zone of fatal discredit. The White House had been occupied by a sequence of empty cravats named Fillmore, Pierce, and Buchanan, and so much pent-up mistrust roiled the centers of power that the nation entered a convulsion.

At issue then was the great festering unresolved polity of slavery. The Whig party, in its oafish, craven fecklessness, disappeared so quickly from the scene that an embarrassed God Almighty seemed to have hooked it off-stage in a nanosecond. Into the vacuum stepped an awkward lawyer from Illinois -- widely mocked by the coarser elements of what was then called the press as a figure resembling an ape in a stovepipe hat. He accomplished one crucial thing in the process of his emergence: he deployed a potent rhetoric that captured the essence of the crisis and clarified it for all to understand what was at stake -- and then the convulsion commenced in earnest.

The Republican Party amounts to today's Whigs. Their candidate for president, John McCain, is trying to run away from his own party -- as one might shrink away from a colony of importuning lepers. I am actually not kidding when I label the Republicans "the party that wrecked America," because I believe that is truly how the popular strain of history will regard them when (maybe if) the wreckage of their ministrations ever clears. But history doesn't repeat exactly. The current figure from Illinois, Barrack Obama, has yet to offer a truly crisis-clarfying rhetoric, though he labors under the expectation of being able to do so. Like his long-ago predecessor, he is mocked by the coarser elements of what we call "the media" these days -- Fox News and the moron-rousers of talk radio.

Some of the issues yet-to-be-clarified concern the behavior of the American public in the broad sense. We have obdurately resisted the reality of the energy crisis that hangs over everything we do (as slavery hung over the 1850s), from the way we inhabit the landscape to the way we do daily business in our 240-million-plus fleet of cars and trucks that ply the ribbons of asphalt and the lagoons of parking that now run from sea to shining sea where the fruited plain was replaced by the Wal Marts.

Mr. Obama isn't kidding either when he alludes to the change America faces, though history has not yet rhymed enough for his rhetoric to really set forth the terms of this change in its stark particulars. And even if he is able to articulate these things, he won't forestall the convulsion anymore than Lincoln held back a war between the states. That prior crisis was when America learned good and hard how tragic life could be, and it colored our national character for a century -- until we chucked it all to become a society of overfed clowns, with God Almighty replaced by Ronald McDonald. That pageant of happy idiocy is now ending. Like everyone else in this fraught and nervous land, I'm standing by to see what transpires in the days just ahead.



POSTED: 15 SEPTEMBER 2008 - 12:00pm EST

A Ripe Moment

image above: Hume-Bennett & Sanger Lumber Cos. felling redwoods from

By James Kunstler on 15 September 2008 for -


It turns out the real hurricane blew through Wall Street last week, not Galveston. This morning, Manhattan is strewn chest-deep with the debris of banking and at this hour (seven a.m.) nobody knows how far, deep, and wide the damage will spread. The fear, of course, is that we are witnessing a classic "house-of-cards" or "dominos-in-a-row," situation, and that the death of Lehman Brothers and Merrill Lynch will cascade into a generalized collapse of the entire consensus of value that supports mediums of exchange.

At least one thing ought to be clear: this has happened due to the negligence and misfeasance of the regulating authorities, namely the Republican Party, and that now all the hoopla surrounding Sarah Palin can be swept away revealing that group to be what they actually are: the party that wrecked America. I hope one or two Barack Obama campaign officials are reading this blog. You must commence the re-branding of the opposition right now. The Republicans must be clearly identified as, the party that wrecked America.

Many things happening this week will be interesting to see and hear, but just now an outstanding question is how on earth can the Bank of America buy Merrill Lynch for $50 billion after assuming the liabilities of the tarbaby known as Countrywide? But that little detail may be lost in the din as other banks and bank-like organizations start crashing like sequoia trees in a national forest.

I wish I knew whether this extravaganza of ruin might settle the question as to whether America goes into hyperinflation or implacable deflation, but the net effect is that money is leaving the system in big gobs. And if not money per se, then the idea of money as represented in certificates, contracts, counter-party positions, and gentlemen's agreements. This is the day that America finds itself a much poorer nation. The capital we thought was there, is gone.

A lot of it was actually translated over the years into Hamptons villas, Gulfstream jets, and other playthings that will now go up on Ebay or some equivalent as we turn into Yard Sale Nation in a general liquidation of remaining assets. Of course, the trouble in a situation like this, where absolutely everybody is trying to pawn off assets, is that there are very few buyers on the scene, so the prices of all these things go down down down. Everything is for sale and nobody has any money.

This was essentially the state of things in the Great Depression of the 1930s, and the only escape from that turned out to be the mobilization for war. And in the aftermath of that terrible war, we were the only industrial nation that hadn't been bombed to rubble. What's more, we had a very handsome supply of industrial world's primary resource, oil, at our disposal. So we spent the next thirty years making oodles of things and selling them to people in other lands (lending them the money to buy), until these nations were back on their own feet and solvent. And after 1975, the industrial club picked up a bunch of new members and they all began to clean our clock.

So, as our industrial base waned, and our factories got old and brittle, and our labor force was steeply under-bid by cheaper labor forces, we embarked on a quest for "the new economy." This was represented in successive turns as the information economy, the consumer economy, the high-tech economy, et cetera. They were all ruses, aimed at concealing the truth -- which was that we had become a society no longer producing things of value, no longer generating real wealth. The final act of this farce has been the so-called "financial industry."

That "industry" turned out to be most earnestly devoted to the production of complex swindles. They were so finely engineered that it took twenty years for the swindles to stand revealed, and they were cleverly hitched to the primary thing that the American public vested its identity in: house-and-home. Thus, much of the public finds itself in very real danger of becoming homeless and broke.
We generally recognize that some wicked-massive transfer of wealth occurred in the process of the mortgage fiasco, but it remains to be seen whether any residue of this wealth can actually be retained, as represented by currencies, contracts, and supposed securities. The wholesale settling of debt now underway may leave an awful lot of this stuff with no value.

We should be frightened by the political implications of this Great Implosion of presumed wealth. Some group of somebodies will have to clean up this mess. Moving toward a major election, it is hard to imagine the American people giving the clean-up task to the very group that created the mess -- no matter how many cute little faces Sarah Palin can make on TV. Both parties have so far managed to ignore the gathering crisis of banking and money, but they can't ignore the sequoia trees crashing down around their ankles and shaking the earth they stand on.
At issue now will be the question of legitimacy in all its human social dimensions. Is our money legitimate? Is the authority of our elected officials legitimate? Are our values and ideas legitimate? These are the things that will determine what kind of future we find ourselves in.

So, to begin this process, and to clarify the situation, I urge readers of this blog to identify the Republican Party by its new brand-name: the party that wrecked America. At least, then, we can reinstate one cardinal value into the juddering structure of what we claim to believe: that actions have consequences, that you can't just swindle and loot a society and walk away with the swag.

Spread the word, change the tone of this campaign, and keep posted. This will be a momentous week.



POSTED: 8 SEPTEMBER 2008 - 8:00am EST

Last ditch effort to save system

image above: "A Bit of Rough Road" by Frederick Remington (1890). From

By James Kunstler on 15 September 2008 for -

Why do the big deals always happen over the weekends? So the big boyz in government and finance can take off their neckties when they bargain with each other? So the markets will be closed and unable to register a response one way or another? So the shrinking fraction of the US public that pays attention to anything besides Nascar and pornography won't catch the news Saturday evening?

This weekend's big deal was the US government taking over the "government sponsored enterprises" (GSEs) Fannie Mae and Freddie Mac that guarantee trillions of dollars in mortgages. The "guarantee" is supposedly accomplished by converting bundles of mortgages from the banks and loan companies that originate them (that make the contracts with the buyers of houses) into bonds that can be sold downstream. Risk was theoretically dispersed among the holders of these bonds. This all seemed to work during the long stable period when our cheap oil economy was chugging along, and house prices maintained a consistent relationship with incomes, and people paid their mortgages dependably. The whole system ran like a reliable machine -- like a Chrysler slant-six engine!

Until the cheap oil age came to an end. Then, all parts of the system shook apart. It was the end of cheap oil that catalyzed the housing collapse and, by extension, the current huge financial crisis. But the run up to it was like a bounce off a high diving board into an empty pool. The bounce came around 2001 when it became apparent that the US standard-of-living could not be maintained on incomes in a post-cheap-oil economy.

The trauma of 9/11 prompted a new and utterly insane consensus to form that the US standard of living could be switched over from income to massive debt. All the normal brakes against irresponsible lending and borrowing came off -- embodied in Alan Greenspan's absurd statement that it was a good time to assume an adjustable rate mortgage when interest rates were at a historic low -- meaning they could only be adjusted upwards. Why hold Greenspan responsible? Because he was at the apex of the authority vested with establishing norms, and he shoved our behavior into the realm of the recklessly abnormal, and he should have known better.

The public went along with it because "free money" and high living are fun. Their behavior was reinforced by other authorities -- for instance, President Bush, who told Americans to go shopping after the 9/11 attacks. (They went shopping with credit cards.) Things really wobbled in 2005 -- which was, coincidentally, the year of all-time world-wide peak conventional oil production -- with hurricanes Katrina and Rita ripping through the Gulf of Mexico oil rigs as a dramatic highlight. (It was also the year that The Long Emergency was published.)

Since then, the US economy and the financial part of it that became a nine hundred pound tail wagging a thirty-pound dog, has been held together with baling wire, duct tape, and band-aids. All the debt run up by all parties -- home-owners, credit-card holders, business, banks, hedge funds, government -- is not being paid back reliably, and all the leveraged arrangements that depend on it being paid back are coming apart. Thus, capital disappears.
The wealth of a nation disappears. All that remains is the pretense that we are still a wealthy society.

Fannie and Freddie are near the center of this black hole of debt. So far, the black hole has been "papered over" by the old stage magician's trick of diverting the audience's attention. The systemic wound that Bear Stearns represented, was covered up with a band-aid applied by the Federal Reserve's exchange of loans for worthless securities. In fact, the capital of Bear Stearns actually did disappear -- a mere residue of it, a few cents on the dollar, was shifted to JP Morgan as payment for taking the wrapper off the band-aid. But, basically, the money is gone.

Now, the same thing has happened with Fannie and Freddie, except that the scale is an order of magnitude greater. This time, the US Treasury Department is assuming worthless paper and paying out much larger loans to enterprises that are functionally bankrupt. The exact nature of the government's chartered "sponsorship" has always been ambiguous. Professional opinion has generally held that government backing was implied rather than explicit -- but that's a ridiculous internal contradiction that went unchallenged for decades as Fannie and Freddie's Ponzi-style operation lumbered on (and their executives made off with obscene payouts). Now the government's role has suddenly been made explicit. It will probably only make things worse, since the enterprises are too big and over-scaled to work under any circumstances, let alone insolvency.

One thing this points to is a truth that is uniformly overlooked by kibitzers: that what we developed over the past decade in America was not an "information economy" or a "consumer economy" but a suburban sprawl building economy, meaning an economy dedicated to building a living arrangement with no future. The climax of the sprawl building economy occurred in absolute lockstep with the climax of peak oil. You can date it virtually to the month -- May, 2005. After that, the future asserted itself and all the financial expectations bound up with sprawl-building went up in a vapor -- including the value of mortgages on suburban houses. Everything that followed has been an attempt to cover up this basic reality: that the way we live in America can't continue.

The reason our energy debate is so hollow and idiotic is because we can't face this basic reality. The fantasy-du-jour among both political parties is that we can become "energy independent." By this they mean we can keep on living the way we do by means other than oil. This is just not true. We have to make profound changes in everything we do from the way we inhabit the landscape to the way we produce our food. Lately, the only change we've shown any interest in is changing what our cars run on. But that is not going to rescue us, not even a little. Our inability to talk about anything else except the cars will drag us down into poverty and turmoil.

The housing market is not coming back. Ever. In the form that we knew it. The suburban project is over. That version of the American Dream is over. We'll be a lot better off if we put aside dreaming altogether for a while and start focusing on reality instead -- that part of the day when we're awake and capable of actually doing things. We've got a lot to face and a lot to do.

The government takeover of Fannie and Freddie is just another papering-over of our fundamental problem -- that until we embark on new ways of being a nation, of living differently and working differently on different things, the other nations of the world will not have confidence in us, or the paper we issue, and we will not really have confidence in ourselves.

I have believed all along -- and said as much in The Long Emergency -- that we would not get through this crisis without passing through a period of hardship. We're entering it now. Even if the stock markets shoot up five hundred points today on the basis of the Fannie-Freddie deal (and the mistaken belief that our troubles are over), we are only at the beginning of a very painful workout. Personally, I think we're in for financial carnage before the election. The Fannie-Freddie deal may be the place where the wheels really come off.

see also:
Island Breath: Peak Global Economy 7/29/08
Island Breath: Fannie Mae & Freddie Mac Mess 7/14/08
Island Breath: The Perfect $torm Approaches 6/28/08
Island Breath: Report from the Bank of Banks 6/28/08