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Nicholas von Hoffman on Kevin Phillips’ ‘Bad Money’

Posted on Oct 31, 2008

By Nicholas von Hoffman

(Page 2)

      He quotes an admonitory passage to the same effect from a 1904 speech to his nation’s bankers by British Colonial Secretary Joseph Chamberlain which might apply to the United States 104 years later: “Granted that you are the clearinghouse of the world, [but] are you entirely beyond anxiety as to the permanence of your great position? ... Banking is not the creator of our prosperity, but it is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth.”

      With the ascendancy of finance comes the maldistribution of capital. Money is invested in the wrong places. Gigantic amounts of capital are borrowed for unproductive purpose, for things which have no payback. “The debt the United States has been piling on in the last few years has provided only 30-40 percent as much stimulus per dollar to the national economy as did the debt added 25 or 40 years ago. Why?” Phillips asks. “Because money borrowed in 1970 or 1984 to be spent on factories, new jet fighter aircraft, teachers, or interstate highways had a lot more grassroots impact than money borrowed by 10,000 hedge funds to double the leverage of their various self-serving speculations.”


book cover


Bad Money


By Kevin Phillips


Viking, 256 pages


Buy the book


      Roads, factories, research, productive companies, education are undercapitalized, the money which might have been sent in their direction having been sucked off into the catastrophic frivolities of Wall Street, Greenwich, Conn., and wasteful finance. Capital which ought to have been used to lower costs and increase productivity was used to play the destructive games which have left once healthy corporate organizations gasping for breath, too weak to modernize, too depleted to compete and too fragile to prosper.

      The distraining of capital to all the wrong places was accompanied by the debt-credit explosion. As pesky and difficult as contending with public indebtedness, especially the federal deficit, is, Phillips foresaw that it is private-sector debt which is likely to destroy us. On this he quotes Warren Buffett, another figure who warned that the country was steering toward catastrophe: “You can’t turn a financial toad into a prince by securitizing it. … Wall Street started believing its own PR on this—they started holding the stuff themselves, maybe because they couldn’t sell it. It worked wonderfully until it didn’t work at all. Wall Street is reaping what they’ve sown.”

      Beyond Wall Street’s suffering for Wall Street’s crimes, Phillips describes the American descent into a debt-dependent economy in which the most important activities have been building subdivisions and erecting malls with money borrowed from abroad. The middle-class masses drive home to the houses they cannot afford and zoom off to overly hypothecated malls, using oil they have no means to pay for, in order to incur additional debt on their credit cards.

      The risks of a financial system constructed of toothpicks were plain to Phillips and scores of others outside of it and to none within. With the assistance of battalions of idiot savants from MIT and Harvard, the much admired math “quants,” the investment bankers boasted that they had found a way to ensure that the more borrowed the less the risk.

      While Wall Street entertained the fantasy that it had perfected an algorithm which had eliminated risk from the financial equation, ordinary people were finding their lives increasingly uncertain. The ascent of Wall Street to something approximating total power, however brief that reign may be, has brought with it awareness of the disparities of wealth and income. Less publicity has been given to how much riskier life has become for America’s middle class.

      Ordinary families face a 1-in-5 chance of seeing their incomes drop by half, according to figures compiled before the present “slowdown” or “slump” or “weakening” or recession. Phillips recalls the work of Harvard’s Elizabeth Warren, quoting her that “middle-class families have been threatened on every front. … Even with two paychecks, family finances are stretched so thin that a very small misstep can leave them in crisis. As tough as life has become for married couples, single-parent families face even more financial obstacles in trying to carve out middle-class lives on a single paycheck. And at the same time that families are facing higher costs and increased risks, the old-fashioned rules of credit have been rewritten by powerful corporate interests that see middle-class families as the spoils of political influence.” 

      As for the future, Phillips’ attitude is decidedly saturnine. Long years of national prosperity and success, he fears, breed political arteriosclerosis, making change next to impossible. His assessment of the Democrats is anything but hopeful: “Gone on the Democratic side is the southern and western geography of opposition to northeastern financial elites under the aegis of Thomas Jefferson and Andrew Jackson, Franklin D. Roosevelt and Harry S. Truman. Instead, there is a new democratic politics of new national elites—financial, high-tech and communications. … For both parties, the bottom line is usually the same: the bottom line. Fundraising. Money.”

      “Bad Money” was finished before Barack Obama secured the Democratic nomination, but the points Phillips makes about the connection between Wall Street and the Democratic Party are still germane. Robert Rubin, an oft mentioned Obama adviser, was Bill Clinton’s secretary of the treasury and is an ex-CEO of Goldman Sachs and presently in top management at Citigroup. Of Rubin and the other Wall Street Democrats, Phillips writes: “The new profinance Democrats were not the same as the older profinance Republicans. They were more engaging, less out of the Union League of Philadelphia or 1950s New Yorker cartoons. Behind the scenes, some might contentedly bailout endangered bondholders, put impoverished nations through the behavioral wringer of the International Monetary Fund, or operate consumer finance units that bilked a lower income clientele. But in their public personas, most took a different tack. In deference to their multiple Democratic coalition-mates, they donated to the NAACP; joined the boards of environmental groups; embraced technology, education, free trade and globalization; and worried about the growing international gap between the rich and the poor as well as the gap in the United States. There was also, as we’ve seen, another broader enabler: the new popular acceptance of finance.”

      This is not the message of rebirth and hope of the Obama campaign, but Phillips has a long track record and a good one. He is no man to ignore. 

Nicholas von Hoffman, a former columnist for The Washington Post and a former commentator for CBS’ “60 Minutes,” is a regular columnist for The New York Observer. He is the author of numerous books, including “Hoax: Why Americans Are Suckered by White House Lies” and “Capitalist Fools: Tales of American Business From Carnegie to Forbes to the Milken Gang.”

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Purple Girl's avatar

By Purple Girl, November 2, 2008 at 9:25 am Link to this comment

While the nations was watching the 18 millioon cracks in the ceiling, 11 Trillion cracks were forming on the Glass Floor below US.
Paulson and Bereneke knew this meltdown was emminent, otherwise Paulson wouldn’t ahve pre written his ‘Ransom Note’ 6 months prior to this meltdown.
Why would the Clintons also prefer we look at the ‘ceiling’ because Bill’s Admin added the biggest fissure to the flooring called NAFTA.funny how Hillary claimed she never supported NAFTA.bu tthen again she claimed she was not acting as ‘Co President’ either in the ‘90’s….Yet became her Fundemental Claim to fame (and eleigiblity) to run for President during this campaign. She only had a two year jump on Sen Obama in th eSenate- during which time she voted for an Illegal invasion, failed her Duties of Oversight on the Armed Services Com (CON). Honestly I saw an immediate change in Hillary after she had a lucheon with Bush…did they Drug her, or just promise her the Crown if she played Covert operative for them (remember Hillary WAS a Republican Before She Hooked herself to the Rising Star called Bill Clinton)
Funny a Real Democrat would endorse a Republican contender over her Own Party contender. Funny She speaks so highly of McCain, but must be on th eBrink of ex communication from the Demcoratic party to utter any praise on Sen Obama.
I fought throughout the ‘90’s against the idea the Clintons were Just Opportunists with no real allegeince except to their own Elevation, her entire campaign was nothing but Opportunistic and Hypocritical. I now see the Clintons as nothing more than Neo Cons camoflagued in Blue. Infiltrators and Decievers. Where did the Oxymoronic Term ‘Reagan Democrat’ come from ...Hillary. A way to explain Why she appeared to hold Republican Ideologies while doning the Democratic Facade. No Such Beast Existed in the ‘80’s…It’s another Revision of History to justify current intentions. REAL Democrats HATED Reagan and still do to this Day..We saw his BS (Trickle Down aka Feudalism) and Knew his policies would ultimatley Undermine Our Countries Economy and Moral standing in the Glbal Community. Want to thank Someone for the last 8 yrs,Thank Reagan and the Clintons for setting up the environment for this Hostile Take over.

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By Tony Wicher, November 2, 2008 at 8:48 am Link to this comment

Kevin Phillips is great. I am going to get this book and attempt to overcome my FADD (flea attention deficit disorder. Phillips was once a Nixon backer and claims to be a Republican to this day. He is my kind of Republican. He hates the Bush family, he’s anti-war, he understands that work produces wealth - what’s not to like? I consider myself slightly to the left of Chomsky, yet Phillips has not written anything I can think of that I disagree with.

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By GW=MCHammered, November 2, 2008 at 8:17 am Link to this comment
(Unregistered commenter)

America’s New Motto:
“Knowing almost nothing makes it so easy to be certain.”

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G.Anderson's avatar

By G.Anderson, November 2, 2008 at 7:45 am Link to this comment

And yet here we are again, in an election where the neo con ideology continues to march foward in the person of John McCain, and the Republican party.

A little under half the country still believes in the irrational politics of the right, and to deny the evil that it has brought to our country and our world.

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By lodipete, November 2, 2008 at 6:12 am Link to this comment

Knowledge Bad,War Hero Good. No need facts or knowledge.

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By Irish Dog, October 31, 2008 at 10:46 am Link to this comment
(Unregistered commenter)

This is a very good presentation addressing this very topic and summarized concisely and clearly.  Worth the watch.

Interesting, the security code I need to replicate to post this is “try69.”
Not bad advice with multiple wars ongoing.

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By Spiritgirl, October 31, 2008 at 10:45 am Link to this comment

Neocon dreams and lies promoted with “religious conviction” have helped to dis-able the American people!  Americans have been working harder over the last 30+ years, yet many bought into the b.s. fear tactics that were being sold!  Of course we still have the “Jerry Springer” crowd that refuses to see the writing on the wall!

This book should be required reading in h.s and college, so future generations learn from our mistakes and not repeat them!  In the meantime, we need full employment for all Americans that need jobs!  We need fair and equal pay!  We need to cut back on the amount spent for “Defense” as that takes money from badly needed core programs: education, alternative energy R&D;, health-care, infra-structure improvements, etc.!

Most important, we need to close those loopholes for corporate taxes, the top 5% earners, and off-shoring of jobs!  I don’t know how much a President Obama can do, but I do know that he can not do it alone - it will take all of us writing Congress, picketing if need be to ensure that they stop stonewalling and do what needs to be done for the country!

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By woody, October 31, 2008 at 9:33 am Link to this comment
(Unregistered commenter)

It has been understood since the days of the Hebrew prophets that it is the LOVE of money which is at the root of much evil.

No, actually, it’s money itself.
“Money” signifies a fundamental change in the shape and construction of social life.
“Money” is a surrogate for ‘real’ value—e.i., labor.
When “money” takes over, labor loses it’s value, and money becomes an end in itself.

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By Sitting this one out, October 31, 2008 at 6:10 am Link to this comment
(Unregistered commenter)

It turns out that you do not have to read Marx to understand the present situation.  Just read Philips!

I read this book in September, while the scenario laid out by Philips was happening.  His insights give context to the disaster, and spell out what needs to be done.

The question is, can President Obama summon the wherewithal wean us off the low tax, high debt house-of-cards economy that the Republicans and their Democratic fellow travelers (especially Clinton) built for us over the past 30 years?

I suggest that the number one priority—one that any democratic electorate should demand—is full employment. 

And not some neocon definition of full employment, which leaves millions sitting at home to   preserve labor discipline and high stockholder dividends. 

But real full employment that would give every working person a good wage and job security, full retirement and health benefits, and excellent working conditions.

Thanks to the neocons, most workers missed out from the benefits of the nearly doubled productivity of our labor in recent decades.  Instead, our productivity funded the bubble that caused the current crisis. 

If we have learned anything over the past thirty or forty years, it is that a modern economy must be based a fairly equal distribution of wealth.  The more workers are paid, the more they consume, and the economy hums instead of halting.  A few (relatively) rich consumers simply cannot consume enough to create wealth.  Instead, we get what we got:  accumulated capital and bereft workers. 

By the way, if an economy driven by consumption is unsustainable in light of our severe environmental problems, we should join forces with the visionaries who have been toiling in the margins and use the current crisis to transition to an economy built on human rights and fairness.

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By Peter Belmont, October 31, 2008 at 6:08 am Link to this comment
(Unregistered commenter)

In regard to the financial meltdown, and to the global warming and other population-induced tidal-waves presently rushing towards us:

A train rushing at 100 MPH toward a washed out bridge is surely going to stop, either because the engineer applies the brakes or because the train tries to cross the bridge and falls into the chasm. The question is not “whether” the train will stop, but “how”. 

Same with population size (and continuing population growth, of course).
      Policy-makers are (implicitly) assuming that someone will repair the bridge so that the train can continue rushing along at 100 MPH, heading toward the next washed-out bridge.  We assume A MAGICAL RESCUE. 
      The “GREEN REVOLUTION” of the 1960’s was such a MAGICAL RESCUE, and its magic was an example of “repairing the washed out bridge” instead of stopping the train. Although it granted the world TIME to consider population, no-one was ready to grapple “out loud” with population and, thus, the “green revolution” merely left the run-away train rushing toward the NEXT washed-out bridge—this time, exhaustion of petroleum, global warming, exhaustion of potable and agricultural water, etc.
      I don’t find this very sensible. But it is exactly what we’ve done so far on Global Warming and what we did on economic meltdown (until late in 2008).
      Ostriches with their heads buried in the sand are ill-equipped to see the approaching enemy and are thus   able to remain calm until the enemy arrives. REMAINING CALM is all very nice but should not be our goal.  That’s how we dealt with the “sub-prime” loan debacle. 

Our “carpet” is getting very “lumpy” because of all the desperate problems “swept under” it.

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By eileen fleming, October 31, 2008 at 5:56 am Link to this comment

It has been understood since the days of the Hebrew prophets that it is the LOVE of money which is at the root of much evil.

Greed and gluttony have brought US to our current state of bankrupcy.

“We live in the midst of a suicidal economy, motivated by love of money. We have reached a dead end. What we need to turn it around are hearts in love with life. How do we do it?

“We first must move from domination to partnership, and we begin by educating our young in awe and wonder, not how to take tests.

“Awe leads to reverence, which leads to gratitude, which will reinvent our species. This is the task of our generation: to regain awe.

“The three R’s need to be balanced by the ten C’s: contemplation, creativity, chaos, compassion, courage, critical consciousness, community, celebration, ceremony, and character.

“In community, people remain united, despite everything that divides them. In capitalist society, people are isolated, separated, despite everything that should hold them together.

“We are in the midst of an epic struggle between community and capitalistic society.

“We need a new narrative. It is the economy of materialism; it is the virus of affluenza that has weakened family life.”

excerpted from:

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