Intertwined Markets and the Armageddon to Come

Adam Tooze: Crashed. How a Decade of Financial Crises Changed the World. ISBN 978-1-846-14036-5 ⭐️⭐️⭐️⭐️⭐️ This book is a challenge and it is a challenge worthwhile to be taken up. A basic understanding of how bond markets work and how the yield of bonds is tied to the evolution of interest rates is helpful. An interest in economy and politics is indispensable.

Tooze retraces the three highly dramatic episodes of the financial Armageddon of 2008/2009: It starts with the crisis of the US mortgage system, becoming victim of deregulization and banks accumulating debts. Tooze walks us through the failing of American and European banks to provide sufficient liquidity to alleviate that first crisis leading to a European follow-up crisis. The final episode is the rescue attempts of the US Federal Reserve Bank and the European Union, the first being forceful and crowned with at least some success, the latter being timid, incremental and prone to create new problems without solving the old ones. The author shows the different crisis response mechanisms on both sides of the Atlantic and how intimately the two financial markets are linked. If one fails, it draws down the other. Forget all those dreams about national independence. People like Donald Trump, Michael Gove or Nigel Farage are either incompetent or liars. Or both.

Tooze points out fundamental problems of the financial markets and especially the institutional weakness of the European Union when it comes to crisis response. The system of checks and balances between the Commission, the European Central Bank and the Council may give the EU a democratic veneer, but it ties crisis management to the political doctrines of the bigger member states: Germany and France. Greece become an unvoluntary guinea pig and its economy suffered to such a point that is no longer clear what was worse: the disease or the cure. The newly created European Stability Mechanism may able to absorb future shocks, bu for how long? And having a fire-brigade ready never prevented a fire from breaking out. The inherent logics of the financial markets present a risk of their own and the question is whether we have enough safety rules and firewalls to either prevent or contain in a very early stage a would-be inferno.

I learned a great deal from the book. I had to look up a few things I had not learned at school. I still don’t feel comfortable with the concept of bond yields. But once I had worked my way through the first 150 somewhat technical pages I began to dive into a fascinating and scaring politico-economical thriller – John Le Carré for economists! And since the errors of the past tend to be the precursors of the errors in the future, I strongly recommend the book to anyone interested in current affairs. With Trump playing with fire and China holding large reserves of foreign assets – US bonds – we are heading for an uncertain future. If we can’t prevent the next crash, we may at least find some comfort in understanding it!

The potential risk of destabilisation and violent revolt after a collapse of financial markets is comparable to the French Revolution in 1789 and or the Russian Revolution of 1905. Dmitry Shostakovich has captured this spirit in his Symphony No. 11 in G Minor:

Managing Change – A Matter of Life and Death

Rescueing America’s Middle Class – A Woman’s Mission

warren elizabeth.jpg

Antonia Felix: Elizabeth Warren. Her Fight. Her Work. Her Life. ISBN 978-1-4926-6528-1 ⭐️⭐️⭐️⭐️⭐️ I had no idea how much I would love this book. It was fun to read, and it gave me an excellent insight into the plight of the American middle class, a fundamental factor in understanding how somebody like Donald Trump could become president of the United States. Senator Elizabeth Warren’s story, told by Antonia Felix, reminded me of Karl Marx’ description of how factory owners exploited factory workers in the 19th century and how the proletariat got caught in the trap of low-income, no education and no chance to rise from misery. An informed account of social injustice and the economic mechanism behind it.

Don’t get me wrong. Warren is not a Communist, not even what the Americans call a “Socialist”. She is labeled sometimes a “dangerous liberal”, and her Republican opponents mean it as an insult. But this only adds to her credibility. She is dangerous for selfish, arrogant politicians and bank CEOs, not for common mortals. Actually Warren is very much in favor of the market economy. She is also a staunch defender of the level playing field that should give all Americans a realistic and equal chance to live the “American Dream”. And there you have it: The playing field is not level. As a scholar she studied the income situation of the middle class for decades. She initiated the first large field study to find out why households file for bankruptcy. Investigating what circumstances pushed households over the cliff became her academic mission.

Losers and winners

Globalization divided the United States into losers and winners, it turned Main Street against Wall Street. The unbridled capitalism, marked by a deregulated banking sector and highly fragile financial constructions, proved to be one of the traps in which the middle class got caught. Lay-offs and the lack of adequate social security were part of the problem. Another element was the easy money that flooded US consumer pockets. You have bills to pay? Use the credit card? You default on your credit card? Take another credit card! Never mind that the bank will charge you outrageous fees later. And African-Americans and Latinx become more easily a prey for ruthless lenders as they are more often targeted by such lenders and often lack the education to see the trap closing.

Then there is the housing issue. A house in a good neighbourhood – one with a good school and other public infrastructure – is an expensive investment. Mortgage financing seems to be the quick and easy solution. But many are not aware of the dangers and the expertise needed to work through the paperwork. Add the risk that many take in refinancing their consumer credits through their mortgage. A grim picture. “Americans are drowning in debt”, Felix writes. “One in four families say they are worried about how they will pay their credit card bills this month […] Last year [2017], 1.2 millions families lost their homes in foreclosure.”

On the brink of poverty

A situation all too familiar to Senator Warren. She grew up in a poor family in Oklahoma. Both parents had to work, and at some moment, their home was at risk. Young Elizabeth was expected to marry a good man and not to start expensive studies to become a teacher as she wished. Gender roles were an issue, but already as a young girl, Elizabeth Warren knew how to persist. Persist – it became one of her winning formulas and quite a few members of Congress and staffers at the White House have experienced Warren’s tenacity. She became an outstanding researcher and teacher wining multiple awards.

Warren’s desire to learn and to teach brought her to the pinnacle of law studies in America: Harvard. However Warren’s career did not stop there. Having situational awareness is one thing. Finding ways and means to remedy the situation is another. But is it the job of a Harvard scholar? Warren’s expertise, her savvy use of TV shows and her publications made her a well-known person all over the United States. And soon after the financial crisis, Democrats from Washington started to reach out to her. In her youth she had been a Republican, her study of the consequences of “laissez-faire” capitalism have converted her.

A scholar turned politician

In October 2008, Congress authorized 700 billion US dollars to stabilize the economy through the Troubled Asset Relief Program (TARP). It targeted the failing banking sector, and Warren joined the Bankruptcy Review Commission to supervise the implementation of TARP. She got a first taste of Washington politics and was appalled. It was all about saving the banks, and still no one cared about those who had their savings and pensions wiped out. She wrote a brilliant article with the title “Unsafe at Any Rate” and requested safety standards for credit card contracts and mortgages similar to those in force for electrical appliances, toasters for example. At the end of a long political battle stood the Consumer Financial Protection Bureau, announced by President Barack Obama in 2011.

Partisan infighting prevented Warren to become the agency’s first director as Republicans had vowed to take the agency down, no matter what the political costs were. And a retired senator, Barbara Mikulski, gave Warren a piece of advice: “Don’t get mad; get elected.” What she did. After some hesitations, she resigned from her post in Harvard and went on an election campaign targeting the people who were the subject of her studies: the impoverished and weakened middle class that did not seem to have a champion in Washington.

Serving the people

Warren’s desire to serve the average American has become her hallmark. She appears genuine in championing this cause, and it’s a worthy, noble cause. She knows as much about the issues at hand as anyone in the United States. As a senator she forged bipartisan bills by reaching out to other female senators with common sense. She has a strong sense of community, visible to anyone who cares to watch, and being elected twice to the Senate proves that she stands a chance to accomplish even more. A “Washington Post” writer has her in the first slot of the Democrat’s candidates for the presidential elections in 2020. People like Elizabeth Warren do not claim to make America great again. People like Elizabeth Warren actually make America a better place.

Female heroes are not exactly abundant in classical music, but this does not mean that they do not exist at all. Judith, who gave her name to a chapter of the Old Testament, is such a hero, and Wolfgang Amadeus Mozart composed at the age of 15 “La Betulia Liberata”, an oratorio about Judith’s deeds:

A Mozart oratorio about women empowerment

Out of Control

Woodward Fear

Bob Woodward: Fear. Trump in the White House.  ISBN 978-9-526-53299-8 ⭐️⭐️⭐️⭐️⭐️ I knew that reading this book would not be a source of joy. Though it is meticulously researched and extremely well written, its subject, as it unfolds, comes close to a political horror trip. Welcome to the White House of President Donald Trump aka @realdonaldtrump. In Bob Woodward’s book, he is more real than ever, and it’s not a pretty sight.

I will not go into the details of Woodward’s description of how amateurish the Trump campaign was organized, how he hijacked the Republicans and how willfully unprepared he arrived at the White House. The old warhorse of the “Washington Post” does it much better than I could ever do. I will not delve into the daily chaos that marked the White House after Trump had taken office, triggered by the president’s emotional tweets, the absence of rules and procedures, the exit of hundreds of experienced public servants and the arrival of ignorant nobs. Woodward has interviewed hundreds of people, and his fact-checking team must have spent thousands of hours verifying each statement illustrating the pervasive anarchy. It’s all in the book, and it’s worth reading it.

You may be asking why. Perhaps you think the worst is over, now that the Democrats rule the House of Representatives. I would like to temper your optimism. It’s not yet over. Trump has already profoundly changed politics in Washington, and one may even say that he has profoundly changed the United States. Here are a few take-aways related to the book.

Polarize the Nation!

Steve Bannon, the alt-Right ideological sharp-shooter, the brain behind Trump’s electoral success and the first presidential decisions in 2017, set the tone for the political dialogue in Washington: Polarize the Nation! Attack the establishment! Annihilate any enemy, left, right, centre! Republicans inside and outside Congress went along with that strategy. And many subscribed to it in the recent mid-term elections. Us versus them. No prisoners taken.

This style appeals to those who voted for Trump in 2016: Disenchanted people, with no optimistic outlook that the “American Dream” will ever become a reality for them. The forgotten ones in the Midwest, in the Rust Belt, in the conservative south, those for whom globalization brought unsecurity and often misery. These people and their legitimate griefs will not go away. They will embrace Trump again or anyone emulating him. For they have nothing to lose.

Life in the Trump bubble

Since Inauguration Day, the White House is ruled by a man who seems to have lost touch with reality long ago. He lives in a bubble, shaped by excessive TV consumption, Fox News mainly, by the yes-sayers around him, by rallies with adulating crowds and the absence of any knowledge about economics and politics. According to Defense Secretary Jim Mattis, Trump has the comprehension of “a fifth- or sixth-grader”, as Woodward writes.

Trump lives in a world where smoking factory chimneys mean progress and prosperity, where climate change is a scientific fraud and where the United States is a self-sufficent country, capable of handling all kind of challenges on its own. This makes it so easy to manipulate the president, with unforeseen consequences for the United States and the rest of the world. You just need to dangle the right type of carrot in front of Trump. Russia quickly understood this, Steve Bannon’s alt-Right too. That reminds me of that wonderful bon mot “Now we have them exactly where they want us.”

Outbursts and lies

Trump’s virulent attacks on all kind of multilateral agreements, from the “Iran Deal” to the Paris Climate Agreement and free trade treaties, have changed the international landscape already. Stockmarkets are wary of trade wars, while former allies will distrust the US government for as long as Trump and his ideas are around. And for good reason. There is no coherent foreign policy and there is no orderly policy-making process in the White House anymore. It’s all emotions. The president gets set up by CNN or the “Washington Post”, by the investigation on his ties to Russia, by a staffer taking longer than 10 minutes to explain an issue, and all hell breaks loose. Trump throws a tantrum and has to break something: a treaty, the relationship with an ally, anything.

Speaking about the Russia investigation, I relished Woodward’s account of the US president’s interaction with his lawyer John Dowd, who did everything possible to protect Trump from himself. To do so efficiently, he needed Trump to trust him, to faithfully recall what had been said and done during the campaign… are you laughing already? That’s precisely the point. Trump didn’t know, didn’t recall, didn’t trust. Dowd faced a pathological liar, for whom reality and fantasy have become one. One must assume that most of the time, the US president doesn’t know himself which of his statements are true actually.

Donald Trump’s presidency is about destroying the current order without replacing it by anything else – just for the sake of media coverage. Trump’s presidency is about an embattled ego, longing for recognition. Trump’s presidency is about Trump. Nothing else. The title of Woodward’s book stems from a quote of the presidential candiate: “Real power is, I don’t even want to use the word, fear.” Trump spreads fear, no doubt. But his anger and his destructive actions are the symptoms of a suffering man.

As Woodward subtly shows, Trump himself is filled with fear. The fear to fail. He was filled with that fear probably since he was a boy, growing up in the shadow of his successful father, the New York real estate tycoon Fred Trump. What makes Trump dangerous, is his fear to fail. It makes him weak too. The first step to counter Trump and his disruptive potential is to let go any fear, to think for ourself and to speak our mind. There’s nothing to fear except our own fear that makes us helpless.

A dysfunctional system, not unlike the White House, has been described by the composer Aribert Reimann in his opera “Lear”, based on Shakespeare’s play:

Lear – You are men of stone

On Over-Seized Egos and the Rule of Fear in Politics

Alan Bullock: Hitler and Stalin – Parallel lives. ISBN 978-0-679-7294-5 ⭐️⭐️⭐️⭐️⭐️ This book is a brick. It is some 900 pages long, but it is an exceptional book about world history and power politics, meticulously researched and well written. It covers the history of the first half of the 20th century seen through the eyes of Adolf Hitler and Josef Dugashwili, later known as Stalin. The book, published before the dissolution of the Soviet Union, is a huge scientific achievement and a book of utmost relevance today. It touches a number of psychological points highly interesting to anyone interested in how political leaders see and shape today’s world.

Propaganda is key

The way Adolf Hitler, a low profile soldier and artist, conquered political power and managed to put Germany under the spell of a racist ideology leading to World War II and the long list of atrocities committed by German soldiers and the SS is significant as Hitler used means very similar to those used by Donald Trump to gain access to the White House. A key element is and was the spreading of fear deriving from wild conspiracy theories among the political constituency – the Jewish worldwide alliance against Germany in the case of Hitler, Europe and China cheating on the US and the threat posed by the establishment in Washington (the “swamp” that still waits to be drained) in the case of Trump.

Both Hitler and Trump achieved this through a constant propagandistic drumbeat. Hitler excelled as an orator and dispatched Nazi speakers with a road-show to all corners of Germany saturating the public debate with his populist slogans and his foul speech while Trump uses friendly media outlets and social networks to spread lies, slander rivals and spin the public debate to suit his personal ambitions.

Vying for the disenchanted masses

Building a political career on the resentments of the constituency is another parallel. Germany’s already weak economy was heavily hit by the Great Depression and political stability was shaky after 1918. Thus Germans were hard to convince of the benefit of their first truly democratic experience and readily listened to anyone suggesting a firm leadership and quick fixes, however unrealistic they seemed to an unbiased observer. Today globalization has produced a great number of people losing out in all industrialized countries and specifically in the US. Many of those became easily convinced that Trump could make America great again and thus restore their former personal position in society.

Stalin came to power in a very different way than Hitler. He gained a foothold in politics by becoming a professional revolutionary in Georgia, his native region, and by joining the Communist cause. Once he had become part of the inner circle of Lenin, he made sure to become Lenin’s successor instead of Lev Trotzky as the leader of the Communist Party by eliminating all rivals through bureaucratic manoeuvring or by inventing conspiracies and having his rivals arrested. From the 1920s on until his death in 1953 Stalin ruled by fear. He succumbed to many economic, political and military mistakes that cost the lives of hundreds of thousands of Soviet citizens, but very few people were allowed to contradict him. They could all too easily lose their position, their privileges or their life.

Alan Bullock’s description of Stalin’s grip over the Soviet Union reminds me in many respects of the ways the president Vladimir Putin rules Russia today. Of course, there are no Gulags anymore and the FSB does not deport hundreds of thousands to Siberia. The means have become more subtle, more polished to maintain the illusion of the rule of law. But the basic logic remains unchanged: Shut up or else!

Denying reality and “fake news”

Both Stalin and Hitler show how far leaders can become removed from reality, : Hitler never visited the front, he locked himself up in his bunker during the last months of World War II, unwilling and unable to acknowledge that the war was lost and that he had sacrificed Germany for a fantasy i.e. conquering “Lebensraum” (living space) for racially pure German colonists and to satisfy his own ego. Up to the last days he maintained that he was the saviour of Germany, finding an astonishing variety of scapegoats: the  General Staff of the armed forces, the officer corps and the leadership of the SS, all of them having betrayed him at some point, and of course Great Britain who had failed to understand the benefit of a coalition with the Nazi regime.

Stalin isolated himself no less from reality by surrounding himself with legions of yes-sayers. Any reports not fitting with his opinion would be deemed a fabrication. The psychological mechanisms at work in the case of these two leaders remind me very much about reports on how the White House handles current affairs and the time Trump devotes to identify and denounce “fake news”.

Leaders are vulnerable

Finally Bullock’s study shows that the paramount driving force for both leaders was fear. Hitler had to prove himself everyday that Providence had chosen him to save Germany, that Germany adored him for his spiritual leadership and that Germany could rule Europe through the sheer power of will (Thank you Schopenauer for giving this man such grand ideas!). He had founded a religion and cast himself in the role of God. Omniscient, omnipotent. Fear to be proven wrong kept Hitler going until his last days in Berlin. The war could not be lost, because it would have called into question his abilities and the fate that Providence had reserved for him, Germany and the rest of the world for that matter.

Stalin fared no better: His early career as a revolutionary, forced to operate in clandestine ways, made him prone to a paranoia that took exceptional dimensions under the strain of conducting a war first against Russia’s peasants and then against Germany. Stalin would not have trusted his own shadow. And he had plenty of reasons to fear to be assassinated: He had made himself legions of enemies during the purges of the Communist Party and the armed forces, and his dramatic miscalculations in the early stages of the German offensive had led many to believe he was unfit for office.

When appreciating today’s world leaders this book offers a key to understand their true motivations and the decision-making processes that define their policies irrespective of the time. At the centre is the concept of fear – the fear to lose the power they have gained, the very same fear they use to come to and stay in power. They use fear and they know it works. And they fear it could be successfully used against them. This fear makes them corruptible for it makes them vulnerable. If we want to get rid of them, this is the weak spot we have to strike at. But before that we need to overcome our own fear.

This post would not be complete without a reference to music and I suggest Dmitry Shostakovich’s Symphony No. 7, Op. 60 “Leningrad”. Shostakovich lived in constant fear of Stalin’s animosity, and the siege of Leningrad was an early example of the contest of will-power between the Soviet Union and Nazi Germany:

A symphony born out of rubbles

Living in an uncertain world


Zygmunt Baumann: Liquid Times. Living in an Age of Uncertainty.
ISBN: 978-0-745-63987-1 ⭐️⭐️⭐️⭐️⭐️ A modern day prophet explains why we feel uneasy in a globalized world, how we became disconnected from our neighbours and what shapes our existential fears. A thoughtful book, very appropriate in a time marked by “alternate facts”, delusional politicians, racism and simplistic solutions to complex problems.

Laure Mandeville: Qui est vraiment Donald Trump? ISBN 978-2-84990-3 ⭐️⭐️⭐️⭐️⭐️ Short and to the point. A portray of the 45th US president and the Unites States at a historical landmark.

Arlie R. Hochschild: Strangers in their own land. ISBN 978-1-62097-225-0 ⭐️⭐️⭐️⭐️⭐️ Climbing the empathy wall to see how people in the red states of the US feel about past, present, future and why Trump’s message appeals to them – a fascinating, frightening journey.

The ascendance of a populist like Donald Trump, the United Kingdom set to leave the EU, Turkey betraying its modern history – western societies face widespread discontent with the current state of political affairs. The contemporary Armenian composer Tigran Mansurian has written an interesting piece that came to my mind while I contemplated a world that seems to fall apart:

Before and after#Brexit