A tough read but a timely and truly urgent one | Bad Money: Reckless Finance, Failed Politics, and the...

The Financialization of America | Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism | Kevin Phillips

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	• Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism Kevin Phillips Viking Adult, 2008 - 256 pages average customer review:based on 54 reviews view larger image
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highly recommended

Losing Control

Kevin Phillips describes immediate problems with the economy, that is, energy shortage, dollar decline, and mushrooming debt. Few are thinking about what it will take to avoid major recession and how badly a recession will be compounded with huge debts.

The end result is loss of control. Growth of debt and credit industry leads to public loss of control of its economic future - a result of higher inflation coupled with higher interest rates producing enormous debts. The financial sector now dominates the industrial sector. The Federal Reserve Board would play a major role in determining the future, yet it is controlled in part by the banking sector which is not elected.

Phillips' style is arduous yet candid. When style is compounded with the bad news this can be a trying book. Phillips makes up for it with a multitude of important points.

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A tough read but a timely and truly urgent one

Kevin Phillips' latest book - Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism - is not an easy read and not an easy book to review. To properly review it would take more space than is practical in this format. What I truly want to do with this review, then, is to convince people how very important this book is and, as other reviewers have noted, how important it is for anyone willing to tackle its complex subject matter to read it _now_. It will truly change your perception of what is happening in the US economy and in the US political scene. And, also as other reviewers have noted, it is in the end quite depressing as to how bad our current situation and how bad our prospects for the immediate future are.

Reading Phillips' books, I often get the feeling that I have walked
into a classroom where the professor is delivering his third lecture on
the subject and I must scramble to follow what he is saying. Bad Money is
no exception. I wish his editor(s) had pushed him to put in a few well
laid out examples that would endable the reader to properly understand
just what a CDO or an SIV actually consist of, how they function, how
they're handled in the marketplace and so on. Again, this is not an
easy read.

That said, however, the points Phillips makes are well backed up in
economic analysis and facts, and in historical relevance, both of which
areas Phillips is intimately familiar with. He is sounding an alarm to
anyone willing to listen, and what he lays out in this book is very
disturbing to anyone who has noticed the growing chaos in our financial
markets, the rising insecurity of our economic situation, and the
seeming inability and unwillingness of our political leadership to deal
with these growing problems.

The preface, with its subtitle "The Political Economics of Deception",
starts with these paragraphs that lay out in startling clarity the
central concern of the book:

"The most worrisome thing about the vulnerability of the U.S economy
circa 2008 is the extent of official understatement and misstatement --
the preference for minimizing how many problems there are and how
interconnected they are... Whether the U.S. government and the
Republican and Democratic parties can remedy the debt and oil-related
transformations of the last two or three decades is dubious enough. Far
more worrisome is the possibility that neither Washington nor Wall
Street is willing to confront the deeper problem -- the ascendancy of
finance in national policymaking (as well as in the gross domestic
product), and the complicity of politicians who really don't want to
talk about it."

One important point Phillips makes is one people can instinctively
relate to: the debasement of government statistics. People know from
their daily lives that the economy is not good, that prices of almost
everything are on the rise, that jobs are harder to come by, and that
overall, things just aren't as good as they once were. But at the same
time, the government keeps insisting that unemployment and inflation
are low and that the economy is growing, citing figures that people
can't reconcile with what they're experiencing every day. The reason is
because the numbers have been cooked to support the government's claims
and no longer represent any meaningful measure of the things they are
supposed to relate to. And the numbers they can't cook, they suppress.
For example:

"Beginning in March 2006, the new Fed chairman, Ben Bernanke, ordered
that the government cease publishing data on changes in the broadest
measurement of the U.S. money supply, the so-called M3. It was
expanding at a 10-12 percent annual rate in 2006; outsiders calculated
that as of August 2007, that growth had accelerated to a high-powered
14 percent.... Continued publication of M3 reports would have undercut
the assertion of Bernanke... that the inflationary expectations of the
public had been safely 'anchored' at a low level by the tame core
CPI... For 2007, the U.S. M3 numbers show runaway inflation in the
annual range of 14 percent."

Another point Phillips makes in the book is that our growing financial
problems are compounded by our energy and political problems:

"the prior eminence of the United states in global petroleum matters
has left not only an outdated infrasturcture but a spectrum of
disabilities, unwarranted smugness, vested interests, and booby traps.
These range from currency vulnerabilities and lack of a serious
national energy strategy to apparent policy inertia in Washgton, where
many officeholders seem unable to understand how much has changed for
the United States over the last decade."

Other warnings include the rise of oil consumption by countries like
China and India and the extent to which oil-producing countries are
already re-directing their output towards those markets.

"In the wake of the unpopular U.S. invasion of Iraq, the Saudis showed
their displeasure... continuing to reduce oil sales to the United
States... after peaking at the equivalent of 1.7 million barrels per
day in 2002, Saudi sales to the United States fell to 1.1 million
barrels per day in May 2004... China soon jumped ahead of the United
States in oil exports from the Saudi kingdom... the demand for oil in
China alone will, before long, equal the entire production of Saudi
Arabia... China stands to be the world's largest oil market of the
2030's, possibly replacing the United States in that capacity by 2025."

Phillips also touches on why the political leadership seems both unable
and unwilling to deal with the array of problems the country is facing
and shows how this same deadly political inertia has afflicted other
great powers in history, citing examples from the Spanish, Dutch and
British economic empires that preceded our American economic empire.
The comparisons are fascinating and disturbing at the same time.

Again, in looking at what I have written, I know that I have barely
scratched the surface of all there is in this book that merits being
read. All I can do is urge anyone who wants to understand why the
economy seems to be in such bad shape, why the government figures seem
to be so contradictory with what is happening, and why our political
leaders seem neither willing nor able to deal with the problems, this
is the best book you can possibly read and the time to read it is
_now_, before the election, so you can see through the utterly
meaningless drivel that politicians are putting out instead of talking about the very real problems we're facing, about what our options - however painful - are, and about what the consequences to us as as nation are if we continue to do nothing.

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The Financialization of America

`Bad Money' tends to jump from subject to subject but the main point is that increased financialization is a sign of a nation in decline and the U.S. is traveling a path previously taken by other world powers including Britain, Spain and Holland. Mr. Philips writes that in the 1980's "elements of the U.S. government decided... that finance, not manufacturing or even high technology, had to be the sector on which Washington would place its strategic chips" The wisdom of the "efficient market" is seen as the apex of decision making and with enough creativity and guile Wall Street believes it can literally create money from thin air. The evidence of finances most favored status is all around us. Financial services have shot past manufacturing as a percentage of the GDP and finance is the one sector of the economy that the Feds have decided must be preserved at all cost.

It is within this protective cocoon that financial institutions have operated with reckless abandon knowing that the rules of the game are heads they win, tails the rest of us lose. Quoting the author, "over five years, the housing sector seems to have provided some 40 percent of the growth in U.S. GDP" but the cost of that growth has been devastating. Lenders felt free to engage in incredibly risky loans knowing that they had little if anything to lose. The author is not the first person to suggest that the Federal government was complicit in growing this bubble as lenders let rationality fly out the door in their mad quest for profits. In fact like an overprotective parent the Federal government has demonstrated that it will go to extreme lengths to shield the market from bad news. In 2005 the Feds changed the criteria for calculating inflation lowering it by 2 points. Of course the classic is the absence of food and energy costs in calculating inflation.

The middle of the book is jam packed with descriptions of money making schemes cooked up by Wall Street. Reading through the myriad of acronyms, confusing loan setups and baffling hedge funds left my head spinning but that's kinda the point. Finance has become so obfuscated and non-transparent that debacles like the sub-prime mess are inevitable.

The Bush administration seems to have two settings, wild overreaction ala Iraq and Social Security and near total disinterest as in global warming and Katrina. I firmly believe that it is the administrations stubborn refusal to address global warming that will damn them by history but as the author writes Bush has pretty much put the country in neutral for the past eight years particularly when it comes to Bad Money's other main topic, peak oil. The author suggests that the invasion of Iraq may have been the sum total of Bush's oil strategy.

`Bad Money' is really an extension of the ideas presented by Kevin Philips' in his previous book `American Theocracy' with updates for recent events. This book is significantly shorter than his previous effort which is fine with me. One change in the authors is to push the threat of religion to the back burner as much larger looming problems of financialization and peak oil take center stage. I was a little bothered by the authors' `a pox on both houses' desire to blame both Democrats and Republican's for this mess particularly when it comes to alternative energy sources. The Dems may put up modest resistance against some oil exploration but the Republican's have been absolutely manic in refusing to address peak oil and global warming. I was also getting a little tired of the constant parallels between the U.S. of today and previous nations in decline. After `American Theocracy' and this book I kinda got the point.

It's a very good book if a bit unfocused. The author tosses out some major accusations including implications that the Federal government personally pumps money into Wall Street in times of worry and a suggestion that the Bush administration may be actually pursuing a weak dollar strategy (may not be so far fetched). I wish the book had spent a bit more time on these two topics.

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Bad money, good book

I don't have much to add to the other reviews except that, as a professional writer and editor, I think Phillips's style is pretty smooth and non-fatiguing, considering the complexity of the subject. He does as well as anyone can explaining such man-in-the-moon concepts as collateralized debt obligations. It is true, though, that Bad Money is probably not the ideal introduction to the story of our colossal economic undoing for any reader who is entirely unfamiliar with modern financial terminology and practices.

I mentioned this book in a blog posting: .

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