What’s Foreign about Success?

When President Clinton’s team left office, they warned the incoming Bush Administration that some military response had to be mounted against Al Qaeda in the aftermath of the Cole bombing. The Bush security team, dominated by Cold War hawks, dismissed the warning as a Clinton albatross, and set off to renegotiate the arms treaties with Russia to allow construction of a nuclear missile shield.

The rest, of course, is history. Osama bin Laden, encouraged by U.S. flaccidity to believe that one last strike in the heart of America would cause us to curl up in a fetal position, set about planning the 9/11 attacks.

In the Middle East, we face a similar situation with Israel, still living in the memory of the Holocaust, and even after 60 years unable to build a lasting peace with its neighbors. They turn to America again and again for financial and military aid, but do not heed our requests to negotiate a lasting peace. Instead, as recent perusal of the Jerusalem Times reveals, they rewrite the history of Israel to present themselves as victims rather than armed aggressors.

I agree that the state of Israel should survive, but the conditions of that survival have to reflect the realities of the politics of the Middle East. That means, if we are going to pursue conflict against those that seek to destroy it, we must establish impeccable moral credentials. That means talking to the leaders of Israel’s enemies, and giving them the opportunity to participate in the success that comes with liberal economics. It means eroding the “American + Israel = Axis of Evil” rationale for suppressing Iranian dissent. Simply beating Iran down because Netenyahu says so is going to inflame the entire region against American involvement, bring terror back to us at home, and – given the asymmetrical practical realities in the region – ultimately result in Israel’s destruction.

So, people of Israel, you need to elect a different leader. And Republicans in Congress – you need to stop playing politics with Israeli lives.

The situation in Russia has similar characteristics. Arguably, Vladimir Putin is criminally psychotic, having recently awarded medals of honor to two members of the personal hit squad that has assassinated those attempting to document the costs to Soviet society of Putin’s psychosis (Metsov being the most recent). But the very fact that Putin caters to these men is a revelation of weakness. Where once he was heralded as the guarantor of economic stability in Russia, recent military adventurism (in Georgia as well as the Ukraine) has caused the West to unite in economic sanctions against Russia, and stimulated weaker neighbors to seek NATO membership. The oligarchy recognizes this, and so Putin is left with only one tool for managing opposition: murder.

The Soviet Union experienced such a reign of terror under Stalin, and one of the causes of Russia’s declining global influence in the ’70’s and ’80’s was the creation of a Politburo that ensured no one man would ever again wield that kind of power. Russians have experience with this kind of tyranny, and while it may take time, the oligarchy will not allow Putin to purge them as Stalin purged his foes. Putin’s adventurism is the death knell for his regime.

That President Obama defers to Germany’s Chancellor Merkel in this matter should be considered a blessing to us at home. It allows us to focus on the worsening situation in Syria and Iraq that is fanning sectarian tension and generating powerful sympathy for Iran among Iraqi Shias. That Merkel counsels against providing advanced lethal assistance to Ukraine reflects her nation’s experience in winning the Cold War. It was economic power that brought Germany back together, and it is economic power that will eventually hold sway in the Ukraine.

So, again, Senate Republicans, try to be good neighbors. Stop playing politics with the lives of our allies.

Dawn of the Dread

At the Reagan Presidential Library, a plaque commemorating T. Boone Picken’s financing of the Air Force One hall also recounted his influence over Reagan’s financial policy. He had apparently explained to the President that “like Eastern Europe, money should be free.” One manifestation of that policy was the deregulation of the Savings and Loan industry. What had once been a sleepy industry used by the middle class to finance home purchases and college education became a cash cow for some of the nation’s most imaginative financial schemes.

The details of the ensuing Savings and Loan disaster invoked justifiable moral outrage. At the same time that the industry was liberalized, Reagan cut the regulators responsible for monitoring the industry. This meant that two banks in Colorado could trade an undeveloped property back and forth, increasing the purchase price each time, and treat the land as an asset to secure loans for ten times the final purchase price. When the banks went under, it was the government that was obligated for covering the depositor’s losses.

This pattern was paralleled in the history of the hedge fund industry and the mortgage arbitrage disasters of the 1990’s and 2000’s. Industry professionals lobbied extensively against regulation, citing the power of innovative methods to reduce overall financial risk. In both cases, the sense of security encouraged risk-taking at unprecedented levels, until major players in the market collapsed.

In all cases, it was the public that bailed out the industry, not just through tax receipts, but also through the release of trillions of dollars in low-interest or no-interest money to the financial industry through the Federal Reserve. This is money that the government must nominally pay interest on through the promissory note mechanism. Through that method, the nation’s money supply is issued by private money-center banks, and the government pays interest to the banks for the privilege. Is it any wonder that the financial industry accounted for 50% of corporate profits in the year immediately following the 2008 mortgage disaster?

The recent disasters reflect a more dangerous trend: the complexity and speed of modern market mechanisms make it almost impossible for either regulators or consumers to assess the nature and value of the services provided. The use of complexity to defraud consumers was most visible in the health insurance industry. The availability of health care outcome data allowed new players to enter the insurance market and target only those subscribers least likely to need health care. Obviously, these subscribers were those that in their prior plans funded the claims of patients needing extended services. As they were siphoned away, existing health plans went into the red, and premiums skyrocketed. A large number of chronically ill patients fell out of the pool of insured, and their conditions worsened. To ensure access to a doctor, they began to lie on their health insurance applications. Carrying an insurance card, they would then be admitted to a hospital, which by law could not discharge them until their condition was stable. The hospitals would find out after the provision of services that the patient was not covered, and would have to pass the unrecouped billings on to regular patients, which drove up their premiums. And on the insurer’s side, a whole army of bureaucrats was hired with the goal of finding cause to deny coverage. Thus the system was further burdened with administrative costs.

The net result was that, prior to the Health Care Affordability Act, health insurance was on its way to being a “pay-as-you-go” system with enormous administrative overhead. The rational choice for those that could finance their own care was to be uninsured.

The complexity of market mechanisms also played a large part in the Enron fraud in the California electrical supply market, which saw traders calling up friends at power plants to take generators off-line during brownouts to create leverage over state regulators. It also was a major factor in the Madoff financial fraud.

If the myth of efficiency and rationality in financial markets wasn’t bad enough, the pathological influence of the philosophy has extended to the provision of basic public services. When workloads at forensic laboratories exploded with the war on drugs, private contractors stepped in, claiming that they could adapt more rapidly to the increasing work load. What has become apparent as these laboratories entered the Physician Health Plan market is that they have accomplished higher throughput by cutting corners on procedures. The profit motive drives all other factors aside. As those profits grow, these providers have used their resources in the political arena to generate legislation that opens new markets for their services.

What is truly frightening in this last case is that the failure to adhere to scientifically defensible practices has made the public at large responsible for huge claims for wrongful incarceration. Prior to privatization, local law enforcement had some visibility and control of the forensic laboratories. Now they are completely beholden to them, and the possibility of class-action civil lawsuits brought for lost income and privileges during incarceration makes disciplining the contractors unpalatable.

So I see patterns emerging, and those patterns all point in the same direction: siphoning of resources from the public to those with control of the nation’s financial and social infrastructure.

What is the impact on the spiritual plane? I’ll offer an experience I had in the aftermath of 9/11. I was struggling with fear in an intimate, and decided to go spelunking one night to find out what was driving their anxiety. After plunging through their personal fears, I found myself on a wavelength of fear that had as a fog enveloped the entire nation. Curious, I put my psychic mitts under it and lifted it up to look around. When I let go, it fell back down to earth.

What is the solution? As an act of will, stop being afraid. Love those that are close to you. Recognize that the financial elites, as always, are divorcing themselves from the reality that sustains them, and will fall when we organize ourselves around relationships that create value, rather than relationships that promise us security.

And seriously consider whether God isn’t a key asset of that discipline.