Nixon, Bush, Palin

Nixon, Bush, Palin
By Roger Cohen
Wednesday, October 1, 2008
NEW YORK: In 1970, in the midst of the longest bear market since World War II, President Nixon declared: "Frankly, if I had any money, I'd be buying stocks right now."
The market soared.
Now, I've been asking myself, for the heck of it, what would happen if President Bush tried his own jawboning of the market and said: "Frankly, if I had any money, I'd be buying stocks right now."
My conclusion is: Mr. President, please, please, whatever your next whim, do not say that! I reckon the market could tank in ways that would make this week's 777 point one-day plunge look paltry.
I'm not about to write a paean to Nixon. I watched him quit in a bar in Bolinas, California; I can still hear the cheer. But even his tortured nature betrayed some essential seriousness about the fate of the United States of America. By contrast, the Bush crowd has gambled the future of this country with abandon.
(And Nixon did resign. Whatever happened to the notion that someone - a Cabinet member, a Wall Street CEO, the inventor of credit-default swaps - might actually fall on his or her sword? Shame has become a quaint chivalric notion, like honor, a thing of another American time.)
Let's take a closer look at the Bush gamble. It's worth doing, because the first person in this country to re-price risk on the basis that it no longer existed was the president. Now, that's leading by example.
The gamble involved going to war in Iraq at an estimated cost to date of about $700 billion (does that figure sound familiar?) while opting not to raise taxes but lower them. It involved going into that war, and another in Afghanistan, while asking not for shared sacrifice but a collective maxing-out in the service of shopping.
At the same time, Bush, who often seemed to need directions to the Treasury, opted to allow an opaque derivatives market to grow into the trillions without supervision, regulation or information. The market knew best. Turns out that what the market knew best was how to turn capitalism into a pyramid scheme for trading worthless pieces of paper.
The terrible cost is now clear. But we should be grateful for small mercies. Remember Bush wanted to throw Social Security into the gamble, too, by privatizing it!
Market capitalism is a sophisticated thing that calls for transparency, ethics and rules. Bush and his crowd gambled that some "new paradigm" meant these things were passé.
They're not. We have to be careful now. Already the contagion of bank failures has spread to Europe. People are asking of the United States: What became of this country?
The Chinese have been ready to treat U.S. Treasuries as a rock-hard store of value and loan us the dollars they accumulate at a very low interest rate. But what if they start to doubt the U.S. government will repay its debt?
"We are getting closer to a tipping point," said Benn Steil, an economist. "People are asking, can we really trust the dollar as a store of value?"
The Bretton Woods system of monetary management collapsed in 1971. Since then the dollar's been the primary reserve currency. Now, we're reaching another point where a rethink of the foundations for a global economy is needed.
Global trade and capital flows are essential to prosperity. But it's illogical to have a global system with no global reserve as insurance. Perhaps the trillions of Gulf and Chinese surpluses could be used to fund that. Or perhaps it's time for a return to the gold standard.
I know one thing: This is no time for further gambling. I'm grateful to Bob Rice of Tangent Capital for pointing out that the actuarial risk, based on mortality tables, of Sarah Palin becoming president if the McCain-Palin Republican ticket wins the election is about one in six or seven.
That's the same odds as your birthday falling on a Wednesday, or a flipped coin coming up heads three times running. Is America ready for that?
When power is a passport to gamble, people can end up seriously broke or seriously dead. There is one capable, sober guy in the Bush administration: Defense Secretary Robert Gates. He recently said U.S. forces in Iraq had to learn how to do counterinsurgency there. "But that came at a frightful human, financial and political cost," he noted.
Gates warned that "warfare is inevitably tragic, inefficient." He urged skepticism of any notion that "adversaries can be cowed, shocked or awed into submission, instead of being tracked down, hilltop by hilltop, house by house, block by bloody block."
In short, he lambasted the Rumsfeld-Cheney-Bush war effort for its gambler's irresponsibility. The same has been true on the financial front. The equivalent of "Shock and Awe" has been "Sub and Prime."
And people's houses across America really did go up in smoke while fear stalked the land.
Readers are invited to comment at my blog: www.iht.com/passages