SubPrime The Sequel

The old cliché says that those who don’t learn from history are doomed to repeat it. The Obama administration is among those who don’t learn from history because it is preparing a repeat of the subprime mortgage debacle.
 The White House is about to give state and local housing agencies $35 billion to finance low interest mortgages for low income people who have a hard time getting housing loans, The Wall Street Journal reports. A plan soon to be submitted to President Obama and Treasury Secretary Timothy Geithner would have Uncle Sam issue $20 billion worth of bonds to finance the mortgages issued by local and state housing agencies. 
To make matters worse at least some of these bonds would be issued through federal mortgage giants Freddie Mac and Fannie Mae which are already in financial trouble because of the Subprime Mortgage Crisis. The plan includes another $15 billion in federal funds but the September 28, 2009 WSJ article by Deborah Solomon doesn’t say where that money is coming from.
For those of you who don’t remember Freddie Mac is the agency that lost $2 billion in 2007 but still managed to pay $210 in retention bonuses to its employees in 2008. Things at Freddie Mac are so bad that its acting chief financial officer David Kellerman killed himself on April 21. The Wall Street Journal reported that the agency’s accounting practices and governance are being investigated by the US Attorney’s Office for the Eastern District of Virginia. Yet President Obama is planning to give $35 billion to these guys. 
 This scheme is an effort to artificially prop up real estate prices and housing sales by having the local and state housing agencies take the place of discredited and bankrupt mortgage lenders like Washington Mutual. There are several reasons why the administration would want to do this, foreign investors have poured trillions into Freddie Mac and Fannie Mae which have been taking a beating in the financial market. The collapse of these agencies stocks could make the economy worse.
 It must be noted that a number of politically powerful special interests including real estate developers, real estate agents and contractors profit from cheap mortgages. Now that the subprime bubble has burst these predatory interests are looking to Uncle Sucker for a new payday. Turning local and state housing agencies into ATMs for these interests could generate a lot of campaign donations for Democratic politicians.
 The side effects of this plan could be catastrophic it could bankrupt the state and local housing agencies which have managed to avoid the subprime pitfall. These agencies help many first time homeowners and low income people get mortgages. The short sighted short term effort to increase these agencies’ funding could push these people out of the housing market.
 Publicity of this plan could destroy Freddie Mac and Fannie Mae’s reputation and cause foreign investors to pull out. Especially if they think the plan is a bailout and those agencies are about to crash. The collapse of these agencies could devastate the mortgage industry and cause a complete collapse in housing prices in the United States. 
 It goes without saying that further federal loan handouts will drive up the federal budget deficit and increase the money supply. Two moves that are bound to create inflation by lowering the value of the dollar. Just a few more of these cheap credit schemes could destroy the dollar and completely undermine the US economy. 
 There seems to some opposition to this scheme in Congress but sadly enough the money Obama could use for this was appropriated in the misnamed 2008 Housing and Economic Recovery Act. A better name for this would the Act for the Destruction of the Housing Market and the Economy.

http://online.wsj.com/article/SB125409967771945213.html?mod=WSJ_hps_LEFTWhatsNews

http://blogs.wsj.com/deals/2009/04/22/freddie-mac-tragedy-follows-trouble/

http://ml-implode.com/index.html#lists

Post Oil Fiction

From the headlines and the prices at the gas pump it looks as if Peak Oil has arrived or is very close. The end of the oil age is here and writers of fiction seem to have noticed.

In particular my good friend James H. Kunstler has attracted a lot of attention with his thought provoking and entertaining novel “A World Made By Hand.” Kunstler’s thesis is that the end of cheap readily available oil will bring modern technological civilization to a crashing halt. In the novel near future America has been reduced to a 19^th Century level of existence where people grow their own food, ride horses for transportation and make their own clothes. The average person’s universe is centered around their home town and technology is a fond memory. The idea is not a particularly new one but it’s one that hasn’t been well explored by writers and other artists.

Now I can’t think of any major novels set in a post oil world and of only one truly influential work of modern art set in such a world. “The Mad Max” movies of the late 1970s and early 1980s, in these films a lawman living in near future Australia the title character “Mad Max” played by transplanted American Mel Gibson struggles to survive in an energy starved wasteland ravaged by post modern barbarians. In the first film gasoline is a precious commodity and gangs of speed crazed motorhead bandits terrorize the highways stealing gasoline. In the second film, “The Road Warrior” a small community of civilized people struggle to defend an oil well from a warlord and his army of high speed punks long enough to get enough oil to fuel their journey to farms by the coast. In the third film, Mad Max Beyond Thunderdome” oil is a thing of the past and cars are powered by methane harvested from pigs raised in a post industrial trading post that features gladiatorial games and trial by combat for entertainment.

Now most of the post petroleum novelists won’t admit it but Mad Max is their inspiration. The original film was supposedly based on some Australians violent reaction to fuel shortages in the 1970s. The film’s writer and director George Miller says it was inspired by the auto related injuries he treated as an emergency room doctor in the early 1970s.

Today’s post oil novels of which Kunstler’s is the first to achieve some press attention are vastly different vehicles. They seek to warn and inform the reader as well as entertain. I won’t survey these books here, Frank Kaminski has already done an excellent of job of that over at www.energybulletin.net.

I will offer some criticism here these novels seem to be driven by a number of conflicting intentions. The first being very good intention to warn average people that the oil is running out and we should do something about it. I applaud this it’s about some time somebody made a serious effort to alert the public and prepare them for the looming catastrophe that is Peak Oil.

Underlying these good intentions are some darker and more questionable trains of thoughts. The first being technophobia the fear and suspicion of technology and the thought they’d we’d all be better off without all these confusing new fangled gadgets like computers and cell phones. Some of these writers like Kunstler (who as far as I know makes use of all these gadgets in his personal life) try to demonstrate that we can live without these things and be better off without them. Now technophobia is nothing new it is a natural and perhaps logical reaction to technological change which isn’t always progress (the replacement of rail travel by automobiles for example). On some level these novels represent a desire for a simpler less technological way of life and wishful thinking that all the technology will go away so we can live like people again.

Such novels also feed into our irrational fears that we can’t live without the technology. They are based on the premise that technological civilization is a fragile thing that will easily breakdown and collapse. The fear that all the things we take for granted and depend upon will disappear overnight. It’s a powerful fear and a good one for novelists to exploit so on some level these writers are like Stephen King. They’re stoking our fears to sell books, which is nothing new or wrong. Tales of a dark future where civilization has collapsed or the bad guys have won have always sold and will probably always sell.

There is also a strong nostalgia in such writing, the age old dream that people will return to a simple life close to the soil where they live by the fruit of their hands. Such glorification of country life and peasant culture is age old and found in almost all cultures. In America we see it in everything from Thomas Jefferson (who was the owner of a factory farm that utilized slave labor)’s vision of a republic of small farmers to the Andy Griffith Show. The farther we get from real country life twelve hours of back breaking labor on the farm, no electricity, no running water, no medicine, the specter of starvation at the door and sharecropping, the more appealing such nonsense will become. Only people whose grandparents enjoyed running water and supermarkets can fall so quickly for such fantasies. The idea that the old traditional America of small farmers and shop owners which was itself a fantasy will come back and save us once big business and big government has failed is appealing but not necessarily realistic.

Now it’s obvious that the post oil writers are cherry picking the future and naturally choosing one that confirms to their hopes, fears and desires. That’s fine and natural, it’s what science fiction writers have always done and should do. Still it makes me a little hungry for a different vision.

What about a post oil future where civilization hasn’t collapsed where the cities still function and most of us still work for a living. Where computers still work and most of us still bank at the ATM. What would that look like? My guess something like modern Japan rabbit warren cities, most people using mass transit to get around and far more authoritarian government with a much more militaristic police force to make people behave. I haven’t seen many books like that although Paul Dinni’s wonderful animated TV show “Batman Beyond” gave us an intriguing vision of such a future where average people try to cope amid diminished expectations and technological wonder.

Now I’m that up on modern literature but I haven’t seen many books with such a vision. Although I clearly see the beginnings of it here in my hometown of Denver where developers are putting up lots of apartment blocks and rowhouses and the government is building an efficient electric powered rail transit system to move us around. I take the light rail everyday, its clean efficient, fast and often crowded. I also notice that there’s a Wackenhut transit cop who wears a brown paramilitary uniform and carries an automatic pistol on almost every train. I have a feeling that’s our future so it’s what I’ll write about. So perhaps what we need is a post oil novel with a different vision. So maybe I’ll try and write it.

The Definative Post Oil Novel is Here

Post oil fiction the subgenre of science fiction about what happens to society when the oil runs out has been around for awhile. The best or at least the definitive post oil novel so far Julian Comstock: A Novel of 22^nd America has been written.

Most of these novels are set more or less in the present or a few years from now. They generally show modern technological civilization collapsing and society reverting to something more traditional and less technologically oriented. Some like James Kunstler’s “World Made by Hand” extol the virtues of small town life and the common people that will replace today’s wicked society. Others seem to be a pretext for authors to glory in violence and destruction worthy of a Mad Max Movie.

Julian Comstock by American-Canadian author Robert Charles Wilson is very different. Its set a century or so after the end of oil and the collapse of our civilization when society is slowly rebuilding itself. Our society has been destroyed and most of our science and technology lost but enough survives for America to begin rebuilding.

What I like about this novel is that Wilson seems to share none of the prejudices that bind most post oil writers. He doesn’t show the pre industrial past as a friendly and peaceful place where people lived simple and happy lives in communion with nature. He doesn’t see the end of technology or the civilization it supports as a good thing. Instead Wilson reminds us that in pre industrial times most people lived a short brutish life of back breaking labor and vicious exploitation.

Instead of a pastoral utopia Wilson’s future America is a hellish place where most people are indentured servants, slaves by debt, laboring away on huge plantations controlled by a ruthless aristocracy. The majority of people are slaves who can’t leave their homes because they can’t pay their debts. National government in the form of a militaristic monarchy led by a hereditary “president” who claims to be a successor of George Washington has been restored but the only national institution that functions is the army. The monarchy is propped up by a fundamentalist Christian theocracy called the Dominion which tries to impose its vision of Orthodoxy on society.

By the time of the novel, the year 2174, some industry has been restored to America and the railroads are being rebuilt. Some technology like electric lights, submachine guns, movies and typewriters are making a come back. The resources used to make these things are harvested from the ruins of the old cities.

The story is an interesting one based on a real historical figure Julian the Apostate. Julian the Apostate a late Roman Emperor and a descendant of the first Christian Roman Emperor was a war hero who tried to replace Christianity with a pagan church and restore classical culture. His efforts were cut short when he died under mysterious circumstances while leading a campaign against Rome’s arch enemy Persia.

The novel focuses on a friend of the title character Julian, a writer who follows his hero to war against the Dutch and later to the national capitol in New York and the Presidency. Along the way the young writer becomes obsessed with an old book that proves the popular fairy tale that Americans walked on the moon was true. Meanwhile Julian becomes obsessed with the story of Charles Darwin and tries to make an epic movie about the father of evolution which leads to conflict with the Dominion and his down fall. It’s a good read and nowhere near as dreary or dead beat as most post oil fiction. Nor is it as violent.

As for plausibility well that’s hard to say. I’m not one who buys into the idea that the exhaustion of oil will end civilization or lead to collapse. Some Mad Max type violence perhaps but not collapse.

Yet Wilson’s future is more plausible than most because he doesn’t see it through rose colored glasses. Wilson’s political speculation is quite probable and what would probably happen after a collapse. America becoming a third world nation with a military dictatorship, an aristocratic elite and ending up a nation of sharecroppers.

Although I might note that the absence of automobiles in the book seems a little far fetched. If people could build an electric dynamo or a submachine gun they could certainly build an automobile or a tractor. Automobiles and tractors are simply too useful and versatile a technology to be let go of. They can also run on a wide variety of fuel including diesel, alcohol, methane and coal oil. My guess is that the automobile like the gun is here to stay in some form or another.

I might also note here that the book might have been a little stronger if Wilson had a little more military knowledge. The post collapse army he envisions would probably have tanks, Browning Automatic Rifles, grenades, bazookas and machine guns. It would also have a few airplanes another useful technology that won’t disappear.

Another criticism here, I can’t see either the Catholic Church or the Mormons rolling over and playing dead before the Dominion as they do in the book. Indeed there’s a very good chance that the American theocracy Wilson envisions would be a Catholic one dominated by the bishops. I might also add that the non white non Anglo population of the United States wouldn’t disappear and would be a big part of the post catastrophe society.

Despite its flaws which are minor, Julian Comstock is a great read and a compelling warning of what life without modern technology would be like. He reminds us just how precious science and technology are and why we shouldn’t let them get lost. This book deserves the Mad Max prize as the best post oil novel yet.

A Lesson From History for America

Americans who want to see where our economy is headed in the near future should read an interesting little book called Fiat Money Inflation in France by Andrew Dickson White which chronicles the French 's use of paper money to finance national recovery during the French Revolution of the 1790s.

When nations enter into times of economic distress, as the United States is today, sensible and educated people often turn to unsound crackpot schemes that offer free money or easy to credit all backed by some magic formula. This was the case in France between 1789 and 1796, the nation's ruling body tried to create prosperity by issuing vast amounts of paper or fiat money. The money was supposedly backed by the value of land confiscated from the Church and opponents of the revolution.

At first the system worked quite well, the money supply grew and the economy boomed. Seeing that issuing paper money brought prosperity the politicians began issuing more and more paper money.

The more paper the government issued the less value the paper had hence the term "Fiat Money Inflation."

Eventually France's money was worthless and the nation was impoverished. Average people couldn’t buy food and other essential products. Businesses shut down because they couldn’t pay their workers and unrest spread through the land. The response of France's National Assembly was to keep issuing paper money because politicians and speculators were profiting from it and getting rich. The average people got poorer while the speculators and their friends the politicians got rich.

As the economic situation got worse all sorts of crackpot solutions were tried including price controls. Business owners were forced to accept the worthless money at pain of death, merchants who refused payment in worthless paper were sent to the guillotine or imprisoned. People caught using or hoarding gold coins were imprisoned or killed. The Draconian measures failed and the money=s value kept falling and falling. Eventually the situation got so bad that the printing press used to create the worthless money was smashed and publicly burned. France was in chaos and primed for the dictatorship of Napoleon.

The modern American equivalent of paper money is easy credit created through artificially low interest rates generated by the Federal Reserve. The Federal Reserve is the American printing press every time the gang in Washington needs more money they use it to crank down the interest rate. The lower the interest rate the more easy credit available to the mob. This fuels the consumer society and like the French paper money creates the illusion of prosperity. Easy credit works just like paper money by increasing the buying power of the average person without creating real value.

A classic easy credit scheme was sub prime mortgages by getting rid of all sensible requirements for mortgages the government made mortgages available to people who couldn’t afford them. This gave the working poor the illusion that they were "middle class" could “buy” a house. It made politicians feel good because they could say they were “lifting people out of poverty.” This fantasy was compounded by easy access to credit cards and car loans made possible by low interest rates which enabled the working poor to purchase the trappings of middle class life without a middle class income. This house of cards has now collapsed and the working poor have been reminded that they are poor. Government efforts to restore easy credit such as the Federal Reserve's .25% interest rate will fail and make things worse.

Like the paper money speculators in France, the beneficiaries of the American easy credit fantasy are turning to government for "help." In other words the predators having consumed all the private capital are turning to the public purse and the taxpayer. We’ve already seen the "Wall Street Bailout" and “Cash for Clunkers." I imagine demands for bailouts for the movie industry, broadcast television, newspapers and other industries will follow. If the bailout cycle is allowed to go on, we’ll see a new bubble based on public financing that’ll burst sooner or later and bankrupt the government and the entire nation.

The sensible course of action would be for government to let the market work by allowing these businesses to suffer the inevitable effects of their own greed and incompetence. The competent and strong businesses would survive to build the economy up, the incompetent and weak would perish. This would form the basis of true economic recovery and real prosperity. Getting rid of easy credit would force people to live within their means and save which would help the economy. Unfortunately it doesn’t look like that will occur because our leaders haven=t learned from history or read Andrew Dickson White.

*White, Andrew Dickson (1959) Fiat Money Inflation in France Irvington on Hudson, New York, the Center for Economic Education.

A few notes on modern war

War is no longer profitable for the nation state as many observers point out but it is still profitable for a lot of people. This is why war persists in our modern world and is now sleazier and bloodier than ever in some ways.
 The United States government maybe loosing money on the wars in Iraq and Afghanistan but a lot of other people are profiting from them; defense contractors, professional mercenaries, professional soldiers, drug lords, warlords, terrorists, all profit handsomely from this kind of fourth generational warfare which is why it persists. The professional soldiers get to have their war, the professional criminals profit from the chaos war generates, the defense contractors and munitions makers profit by supplying the weapons, the mercenaries profit because they get a paycheck from the trade they enjoy and the terrorists get to have the fun of wrecking havoc. The bill of course is footed by the American taxpayer who at the end of the day is simply confused by the conflict.
 The situation becomes harder and harder to control because so many non state actors are involved. The US government can’t stop its enemies or allies from growing opium or its so called employees at the embassy in Kabul from behaving like drunken frat boys. This simply isn’t our fathers’ or grandfathers’ war it’s something new and frightening.
 We’re conditioned to think of war as a massive conflict with us on one side and the bad guys on the other. That’s the way it was in World War I, World War II, Korea and Vietnam. It isn’t in this war, there’s no all inclusive ideology like Communism here, almost everybody in Iraq and Afghanistan is a good Muslim. The people trying to kill us are good Muslims but so are the people fighting by our side. The American soldier trained and indoctrinated to fight something World War II simply doesn’t know how to react. 
 It’s a new war for a new world, and we’re not prepared for it. The old rules don’t work anymore and the new rules haven’t been written yet. Until they are everybody is flying blind.