Friday, November 9, 2012

The Long View

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

            "Communications" ended with the long view advocated by a nine-year old. An adult may slot the family of Henry VIII as a model for modern dysfunctionality; while a child, unburdened by classification and definition, may see to the heart of the matter. Human tendencies echo across time under somewhat similar circumstances. "Somewhat" is where art and concentration must divine the applicable (or not).

The court of Henry VIII was followed, in due time, by that of Elizabeth I. The Virgin Queen had, like many leaders then and now, no convictions when she inherited the throne. Unlike many leaders (then and now) she understood the importance of staking her claim and betraying no qualms. The great 19th century Swiss historian Jacob Burckhardt wrote: "[H]er main characteristic was a queenly one: her strength of soul. When she trembled, at least no one was aware of it." (Quoting Burckhardt, as is true in all the below, unless stated otherwise.)

            In "Communications," Wall Street's best and brightest trembled at the mention of monetary policy. They are afraid of their own shadows.

            Elizabeth's "own religiosity was dubious, to say nothing of her creed." The pope's intervention established her solidity with the Church of England, after which, "complete supremacy was enforced" in the Anglican creed. "Elizabeth was the sole fount of truth and every authorization. This made Catholics who remained Roman guilty of treason ipso facto, even if they were perfectly quiet.... Elizabeth brooked no deviation. The persecutions did not stop short of the scaffold."

            We know there were martyrs, but they are always in a minority. As to the population at large, Burckhardt contends the "[p]eople were willing to put up with anything but a fight between heads of factions. They gave up parliamentary rights and safeguards against judicial arbitrariness, even the salvation of their souls, if only there was a firm government that steered the ship of state with a firm hand."

            (Gibbon preceded Burckhardt, writing of ancient Greece: "More than they wanted their freedom, they wanted security. They wanted a comfortable life, and they lost it all - security, comfort, and freedom, when the Athenians wanted not to give to society but for society to give to them, when the freedom they wished for most was the freedom from responsibility, then Athens ceased to be free." Too-Big-to-Fail bankers, stock-option-motivated CEOs, and politicians in cahoots with Fannie and Freddie come to mind.)

            The-then current attraction of Protestantism, the Reformation, "must have had an enormous attraction for all those who enjoy not having to do something any longer." [Burckhardt's italics.] A case could be made that today the something is "work." (Not to make light of those who have struggled years to find a job, at least in the United States, home of The Silent Depression.)

            There are seasons for impulse and inertia, for restlessness and repose. Christianity found favor and developed when "paganism, classical and otherwise" was still oriented to a "no longer existent middle class, its exhausted poetry and literature...and so on" The October 26, 2012, New York Times published an opinion: "How Food Has Replaced Art as High Culture." True or not, this is an acknowledgement that Western Civilization has exhausted most lines of achievement, of advance. It is, at the least, following the pattern of Will Durant's observation that civilizations are born stoic and die epicurean.

            The Reformation found sympathy in several countries of Europe at approximately the same time, at the end of another age; one that had exhausted its resources, leaving the people at loose ends. A few hundred years before that, Mohammed "hits upon a moment when a large strata of his nation were evidently highly receptive to an extreme simplification of the religious; his genius lies in his divining this." Elizabeth I not only achieved obedience by the stick but also by the carrot: "Her ministers, above all Cecil and Burleigh, were in the fortunate position of knowing their interests to be generally identical with the queen's." And to, Mohammed: "[F]rom the hegira addition to Mecca, which he promised [his followers]... [there was] the conquest of Arabia and the resulting booty."

            Circumstances differ. Today, the path to riches for the mislabeled "elite" combines the enjoyment of not having to do something any longer with extreme simplification. For example, and as addendum to "Communications," a Wall Street veteran with over 45 years of experience estimates that not 2% of the so-called professionals on Wall Street know how the Federal Reserve functions. That is, of the strategists, analysts, portfolio managers, and technicians quoted and interviewed, one in fifty understand the process by which the New York Fed buys (or sells) dollars for securities (or vice versa), the machinery by which interest rates are cut and bank balance sheets ebb and flow.

            Posing this proposition to a veteran with two decades of prying answers from Federal Reserve officials, he responded: "I'll go further than that. Not two percent of the people working at the Federal Reserve understand how the Fed operates. The same is true for those interviewed on TV. Most of them have no idea what the interviewer is asking. They say something they heard before they were interviewed, so the same opinions are repeated over and over."

The know-nothing club predicts the direction of the stock and bond market, both of which are .99999 correlated to the Federal Reserve's open-mouth policy, an institution of which a Norwegian telemarketer knows as much.

            The Latin poet Juvenal wrote:

"Nunc patimur longae pacis mala, saevior armis
Luxuria incubuit victumque ulciscitur orbem."

"Now we suffer from the ills of a long period of peace. Luxury, more destructive than war, has engulfed us and imposes retribution for our conquest of the World."