by Larry Mongoss, guest blogger
I figured I had either heard of, or conceived in my own imagination, every possible way one might think about the current financial crisis. Thus my surprise and delight, while watching Charlie Rose, to hear David Faber of CNBC compare it to China’s Cultural Revolution.
Well, in all fairness to Mr. Faber he didn’t actually mention the Cultural Revolution, and probably would be baffled by the comparison, but he said something that really resonated. For a CNBC special on the financial meltdown called House of Cards he had been talking to many people. Lots were mad, he said, but also said that both the victims on Main Street and the culprits on Wall Street must carry some of the blame for what happened. Without borrowers willing to take on houses beyond their means the bubble would not have been there to pop in the first place. Or more thematically, given the name of the special, the cards would not have been stacked so high.
And that brings me back to the Cultural Revolution. The borrowers and the Wall Street bankers believed in the miracle, that prosperity will yield prosperity. Somewhere in the excitement, common sense went out the door. It is human nature to get caught up in the moment, and this time the factions, instead of fighting amongst themselves, were all pulling together till the cards began to topple.
So if the bankers and the borrowers where different Red Guard factions, then who was Mao? That one is pretty easy, and he is one of the featured speakers in the special. Even today, Alan Greenspan basically says he could not have taken any action to make this adjustment less painful. It is kind of funny to hear him say that. If you ever chewed bubble gum as a kid, and can remember back to that time, you can probably see the bubble forming in front of you. Some of those bubbles were amazing: huge, round, perfect. Others did not look so good: lopsided, weak and just plain ugly. When I saw that things were not working out I would suck the air out, and chew some more. Some of my friends, however, would simply blow hard and force the bubble to pop. Apparently Mr. Greenspan was like them.
Getting past Mao to the Gang of Four is a little bit more of a stretch, but Mr. Bernanke certainly seems like he ought to be included. Then, given Mr. Geitner’s much awaited, and astonishingly underwhelming, announcement of his plans, or lack thereof, I have to add him to the roster. Rounding that out with Mr. Paulson and Mr. Summers seems to make sense, though I wouldn’t care to hazard a guess as to which of them is Jiang Qing. They are, it seems, unhappy allies in this boondoggle we find ourselves in.
Ridiculous and absurd you say? Though that is true, there may actually be something in the comparison beyond what is, hopefully, a bit of comic relief in the face of so much dour news. And that is what happens next.
The end of the Cultural Revolution marked the beginning of China’s emergence as world economic power. A very important ingredient in that spectacular rise has been the development of businesses, activities and really just ways of doing things that simply did not exist before. This has been done in the face of a large and well established bureaucracy that, at first glance, should have doused any attempt of the country to lift itself.
A similar situation exists in America today. Too big to fail is something that people might have said about the Chinese Communist Party, but in America it is banks, car companies and insurers that get the tagline. The number of entrenched interests in America is substantial, and they are guided by very powerful people. So the challenge is similar to that faced by China in the 80s, to keep all that from standing in the way of progress. This is always difficult, but has become much more so as the very existence of many of yesterday’s most powerful institutions is threatened.
Can Barack Obama, through reason and persuasion, accomplish what Deng Xiaoping did through concentrated power? It seems unlikely, but I am ever hopeful. So I will watch the drama on Wall Street and Main Street as well as in Washington unfold with that picture in my mind.