Pearl Harbor Caused the Financial Crisis of 2008
- Posted by James Altucher
Pearl Harbor ruined my life. I’m going to cut right to the chase. When the Japanese invaded Pearl Harbor, provoking our massive WW II response, in a very direct way, it cause the financial crisis of 2008, my divorce, my potential poverty, and most other problems in my life.
Yeah, yeah, yeah, and so did Lincoln’s assassination, right? No, I didn’t say that. Don’t put words in my mouth. In fact, originally I was going to say women caused the financial crisis but it’s not their fault and it’s a bit more accurate to say Pearl Harbor did. We are going for accuracy here. And through accuracy we will eliminate all of the BS, find the truth of what is happening to our financial system, and much more importantly, what is happening to us as a society, as a family, as individuals, and where we are heading. Without truth lies despair.
And why should we? For the past three years I’ve been reading non-stop nonsense about what caused the financial crisis. And even though the events are now three years old and its thoroughly boring to read about collateralized debt mortgages over and over again, the events of that foul period have reared their ugly heads again in the anger made manifest by the “Occupy” movements. And then another flurry of articles (and that’s what they are – a flurry - the first taste of snow in a new season of blame, anger,finger-pointing, she said-he said, we’re broke, they’re rich, world is over, contagion, storms that are hitting both coasts and will begin to move inwards.)
So let’s just quickly decide what didn’t cause the financial crisis: Bush and Obama were too clueless. They messed up the bailouts but whatever. Andrew Cuomo when he was Secretary of HUD under Clinton certainly contributed by lowering the lending standards of Fannie Mae so more people could buy a house. But lets not blame the sick and the ill: he had the best intentions, little knowing that allowing more people to get into massive debt is not necessarily a good solution to anything.
Greenspan kept interest rates artificially low for a long time, allowing the lending splurge to continue, but he did not really know what he was doing. He was afraid of the Internet bust, of 9/11, of Enron, of Bush, of congress, of his reputation falling to pieces, of his sycophantic lust for Ayn Rand. Psychotherapists are now handling him in the asylum so it’s a sad situation and we should let the mentally ill alone.
What we really want to get at is not the finger-pointing. It does me no good to blame you, her, him, them. I only care what’s going to happen for ME and my family NEXT. And here it is. I will be as straight as possible, Disagree in the comments but here’s the real historical and psychological roots of what happened and NOBODY has gotten to the heart of the matter until this very post:
Pearl Harbor was invaded.
- Men went to war. All of the men. Except for me. I wasn’t born but if I was I certainly would not have gone. But that’s another story.
- With all the men at war, women went to work.
- Suddenly the war was over (only several million civilians had to die from nuclear radiation or massive city-wide bombing) and the men came back.
- Along with the men, there was a new family that arrived on the block and try as we might we can’t kick them out: the Jones Family.
Oh those Jonseses. What a bunch of braggarts. They have everything we don’t have. And starting after World War II, they had two incomes.
The wife had gone to work in World War II and tasted the first sip of that syrupy but addictive monetary freedom and WILL NOT go back. So Mrs. Jones is hard at work so they can afford an extra station wagon, a pool, a watch, a television set (for those notborn then, that means “a TV”), a phone, two radios, a vacation, an HP calculator, and so on.
- And good for the Jones family! No more War! No more Depression! Let’s put t all behind us. We’re going to buy things now. Buy, BuY, BUY! There’s nothing we can’t buy in a no-inflation, two income world.
- But inflation creeped up. Recession happened. Our spending was cut off. HELP! We need to spend. We NEEDto keep up. Early 60s malaise. So we had to boost things. Kennedy started cutting taxes so we could have more take-home money. This spurred the stock market again. We had a boom for almost 8 years in the 60s.
Ahhh, now we can spend again. Stocks were going up. Money managers were starting to be superstars. With all that extra money what should we do? Johnson had an idea – “The Great Society”. Might as well have government join in the fun. Money was not only being spent by the Jones family but by the government. We were going to have one Great Society while we bombed another Great Society (Vietnam) all to hell. No problem, we had the money.
But then of course, inflation creeped in. We needed more money than we had. How were we going to KEEP UP WITH THE JONES FAMILY? So Nixon said, no problem, let’s get off the gold standard and we’ll just GIVE people the money to spend. PHEW! That solved that problem. For a micro-second. And then inflation got out of control. Which at first sounds good. People had more money to spend. But first Ford, then Carter, got scared about it. Ford even made these nifty little buttons (I own a few in my political items collection started as a kid): Whip Inflation Now.
Why did anyone think a campaign button would whip inflation?
So the Carter /Volker team decided to raise interest rates until everyone lost their jobs, lost their businesses, and spending stopped.
Let me tell you something: YOU CANNOT STOP THE JONES FAMILY from spending. So Carter was fired. In comes Reagan. Taxes cut, interest rates cut, stock market goes up.
Ahhhh, we can spend again. Relief!
And then let’s step on the gas pedal. Some crafty guy, Mike Milken, comes out of Wharton with this new idea about Junk Bonds (the first derivatives bordering on exotic). Now a trillion or so gets injected into the system via borrowing JUNK money. Beautiful. The Jones family needed a TV in every room, two cars, and Charlie Jones needed a computer in his room. A Macintosh.
But even that wasn’t enough. The junk bond thing was nice but fell apart. Milken went to jail and his prostate went on fire. This is really unpleasant. How can we kick up that spending again?
Oh thank God! The Soviet Union disappeared AND the World Wide Web was created. No more military spending and suddenly the stock market was booming again despite our irrational exuberance for it. Clinton stepped on the gas pedal when he took off all ecommerce taxes. And Cuomo stepped it up again by lowing lending standards for houses. No problem. It’s good when people spend. We don’t want a 1930s Depresson after all. Do you? The only way the economy grows is when people spend faster than it (they have to spend faster than the economy because some people put money in the bank and that takes the money out of the system.)
Phew! We’re ok. And then thanks to a good ol’ fashioned crisis out of Asia plus the blow up of a major hedge fund, Greenspan kept interest rates particularly low. So you can now borrow, buy stuff cheap on the Internet, buy a house if you live in the ghetto, and use any leftover money to buy stocks. BAM!
Uh-oh, but even that wasn’t enough to feed the spending monsters the Jones Family created. Dot-com bust, 9/11, Enron, unemployment ticking us up. Help us Obi-Wan Greenspan! You are our only hope.
So let’s get creative. We’ve used almost every tool in our tool chest. So he kept interest rates low. And mortgages started to get bundled together and sold as AAA bonds to pension funds (why not? In a billion years, people haven’t defaulted according to all the statistical models, COMPLETELY ignoring that the rules changed in 1997 and there wasn’t enough data yet).
Housing boom! I even got a credit card off of my house. We all did! PART-EEEE!
But it had to end. We couldn’t keep spending. Eventually houses ran out of steam, all the bonds defaulted, the banks went out of business. People stopped spending.
Ok, ok, don’t worry. Tim Geithner, Hank Paulson, Jamie Dimon, Lloyd Blankfein – the smartest minds since the Manhattan Project times ten, got together and figured out one last place where we can get the money so the party could continue: and it wasn’t stocks, or lower taxes, or junk bonds, or no gold standard, or bundled mortgages, and houses, and internet stocks, and getting rid of monogamy (think about it – how about triple income homes?) – the GOVERNMENT can give us money. Just print it up and hand it out to people on the street. Or themselves. Same thing!
So Bernanke has now printed up about 2.5 trillion. The stock market doubled from a low of S&P 666 (seriously, I’m not going to be a “Left Behind” conspiracy theorist here but that is a little spooky. Did Lloyd Blankfein do that on purpose?). But what’s going on? The bank reserves have gone up by almost an equal amount – they decided to not lend the money after all. And unemployment went up 50%. What the..!?
But consumer spending is still at an all time high? I spoke to a vice-chairman at a top 3 bank a few weeks ago. I was told (not giving up the gender of the person in question) that “the foreclosure problem is so great we can’t even count how many are out there.” That’s just great actually. If the Jones family is unemployed, and stocks are going down, and taxes are too high, and healthcare has gone up three times faster than inflation in the past 40 years then there’s only one place to get the money we need to up our spending – let’s stop paying the mortgage! As millions have done. So now they can buy a motorcycle. I hope they buy helmets also. It’s the law!
Who is left? It’s been 70 years since Pearl Harbor started this long national nightmare of spending just so we can keep a little bit ahead. We’ve tried everything to keep our spending up since. Double incomes, stocks, houses, government, etc. What the hell is next?
To me this is much more important than finger-pointing about 2008. Above I describe what really happened. The roots of it back 70 years. The non-stop fear that we slip back into the Great Depression. And it points to only two obvious answers. The classic route, which allows us to spend more. And a new innovative approach, which will save everything.
The classic route: there is only ONE new source of new dollars we can go to to increase our spending: CHINA. China has two trillion of our dollars. We only have about $80 billion in the US treasury. So China has to give our consumers money somehow so they can spend. And believe me, they will do this. It’s already too late. We’re the biggest economy by far still and still the most innovative but bit by bit China will start buying everything up and we’ll inflate the prices of the things we sell to them (they can’t avoid this, they have all our money and it’s like a game of musical chairs – they don’t want to be the last ones holding onto it) and we’ll have more and more money to spend…until about 2050. Then we will run out of things to sell to them. Then we need to learn Chinese.
The new approach: Sell everything now before China gets it’s grubby hands on it. The government needs to shut it all down. Every state should sell their highways (they break even on the highways because of poor management.), sell all the schools, the hospitals. Sell the post office which is horribly mismanaged. Shut down the education department (which has spent hundreds of billions and yet higher education costs have gone up 10 times the rate of inflation since the Department of Education was started). Shut down the FDA and let people get the medicine they need at 1/100 the price. Shut down every department (do we even really need a State Department? Are there any treaties we really need to get our grubby hands on?) Obviously Abolish Congress (if you read the post that links to you’ll see there’s zero reason for Congress) and save billions if not trillions. And once you’ve sold everything (can we even sell Alaska to Canada?) we can shut down the Presidency. Job well done.
The result: A country with no debt. A country where everyone has jobs (someone has to work at all the schools and highways and hospitals that have just been sold and are now finally making profits with proper management). We’re right back to 1945. A clean, fresh start. We can let our great grandkids worry about what happens 70 years from now. Let’s let the spending begin again – gray skies are going to clear up.
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