Folly Compounding in America: the Stuff of Broken Empires, Part 1

Note: This article has been sitting in my computer for nearly a year, beginning about the time that I felt  the subprime mortgage disaster was likely to be far more serious than we were then led to believe. So, I am bringing it forward now, at a time when it seems, well, more timely. But, while the crisis is self-evident, and its short-term causes are apparent, its long-term origins, the most significant source of understanding how to right our ship,  are not obvious and in fact are not even considered as an item on the discussion table.  As we look increasingly to Google FDR, searching for solutions to fix our fiscal crisis, we should look to Sputnik and our response to that challenge, to see how, just 50 years ago,  we began to invest in our infrastructure of higher education and how that investment can be used to rebuild our economy into a powerhouse based on saving the planet and reducing our dependency on something we don’t have very much of these days–oil.  So here are my thoughts on the issue of how we got to where we are.  I have broken it down into two sections, as I realize that even one of them may be a pill that will prove hard to swallow: FOLLY COMPOUNDING IN AMERICA, PART 1

Folly Compounding (FC) happens when you don’t recognize your error or Folly and allow Folly Interest (FI) to accumulate until you have one big, giant looming Folly that is hard to deal with. By that I mean how a country or a person makes a mistake, perhaps one of great colossal dimensions, though it may not seem so at the time, and then spends a long duration, perhaps a lifetime, or many lifetimes for a country, reaping the misery or the incalculable results of that mistake because the problem wasn’t fixed early on, when it was eminently more fixable. But, by not identifying the problem early in its development, FC is just that: the problem gets bigger and more unmanageable because compound interest on your Folly balloons by margins more than you ever thought possible. It’s like a retirement system in reverse, putting your future into debt rather than building up a nest egg. Instead of getting a check when you retire, you get a bill, maybe a very big one. That, unfortunately is where we seem to be today, this year, right now. Some say it took us less than thirty years to get here, but the reality is far far different. The place we stand today got started after WW II, when we sat at the very top of the heap and committed our most important and first Folly–that of dividing the World in two.

Have we seen this movie before? Today, we are witnessing a replay of the old movie that we saw twenty years ago, called the “Savings and Loan Scandal” which played in American theaters in the 1980s. It was the result of advancement in our free market economy, a result of deregulation of the Savings and Loan Banks. The difference between the new and the old release of the movie is that this time, it’s our entire financial system that we are bailing out and the bill will be proportionately larger. Indeed we are witnessing an almost daily enhancement to the bailout costs as Citi Bank has needed and received financial help and many other banks are known to be teetering. When you couple the bailouts for the financial institutions, with other funds that may be funneled into the American automobile manufacturers, with complete uncertainty as to whether any of these funds will be recovered or repaid, the number reaches into the $ trillions and a seemingly unlimited sea of national debt. And then folks, get ready for the really big one in 20-30 years or so because the bigger they get, the more likely they will have the Federal government as their ultimate guarantor. You saw the problem with Lehman Brothers–they were too small for Federal Bailout. AIG was larger however and seemed to have its sticky fingers in too many different financial pies. The message is clear, get bigger and then you can keep on truckin’. With an FDIC guarantee of $250,000 per deposit, as part of the new bailout agreement, our banks will grow and grow and if someone doesn’t monitor what they do with the largess of all this new money, then the really big one may be still ahead of us. Let’s hope we can fix it now and fix it for good. But, the fix we did earlier started at the wrong end of the problem and in all likelihood, its magnitude may prevent us from fixing the gigantic social problems that need our attention, the most serious of which is our badly broken health care system. But, there is a way out and it is spelled MILITARISM, the solution for which is to shrink the completely insensible budget of the military and eliminate our corrupt and incompetent intelligence system. It doesn’t protect us anyway! But let’s get back to the nature of Follies before we tackle the really big one.

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