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Generational Dynamics Web Log for 5-Apr-2010
More on the politics of the 'Generation Zero' movie

Web Log - April, 2010

More on the politics of the 'Generation Zero' movie

How the Republicans and Democrats worked together to create the financial crisis.

Professor David Kaiser, who writes for the History Unfolding blog, recently posted a lengthy criticism of the 'Generational Zero' documentary movie on the Fourth Turning forum.

Kaiser is a long-time online friend, and a strong supporter of the Democrat Party and President Barack Obama. His criticisms of the movie reflect that point of view. I, on the other hand, feel that the movie pretty much got everything right, and so I'd like to use this as an opportunity to develop some additional theoretical material on the the political aspects of generational theory, as it applies to the Democrats and Republicans today. (See "The politics of the 'Generation Zero' documentary movie" for previous discussion of this subject area.)

I'd like to focus particularly on the following of Kaiser's criticisms:

The movie didn't explain how the New Deal helped end the Great Depression, or even that World War II helped.

The movie unfairly blames Carter-Clinton policy of encouraging home ownership by minorities for the subprime crisis.

The movie ignored the repeal of the Glass-Steagall law as a cause of our problems, and generally ignored the lack of regulation as the problem.

"While there was a great deal of discussion of the economic excesses of the decade that just ended, virtually nothing was said about George W. Bush while a lot of specific responsibility was given to Clinton and his team (not that they don't deserve it too.)"

There were no concrete suggestions on what should be done.

At the top, I agree that the movie gave the appearance of being too one-sided politically. When the movie described problems that were occurring in the 1990s, there was always video of President Clinton on the screen, but there was rarely any presidential video when it described events in the 2000s. I found myself occasionally asking myself, "Gee, I wonder who was president when all this was going on?"

First, the movie did not explain the role of the New Deal getting us out of the Depression because the New Deal had absolutely nothing to do with getting us out of the Depression. Neither did WW II, for that matter. The New Deal can be thought of as a stimulus program, and WW II can be thought of as an even larger stimulus program, but no stimulus program can affect the huge generational waves that caused the Depression. All that a stimulus program can do is provide temporary spot relief to selected people.

Credit default swaps

The main feature of today's worldwide financial system is hundreds of trillions of dollars (nominal value) of credit default swaps and other credit derivatives in portfolios of institutions around the world. This is approaching the staggering value of one quadrillion dollars. A trillion or two dollars of stimulus money is totally irrelevant when compared to that -- just as a teaspoon of water is irrelevant to the ocean.

The most dangerous of these are the $50-60 trillion of CDSs sitting in portfolios, without anyone even thinking about them, until they explode because some corporation or country defaults. And since these CDSs are highly correlated with one another, one explosion can set off an entire chain reaction of explosions, resulting in trillions or tens of trillions of dollars of destroyed assets. Once again, a trillion or two of stimulus money is irrelevant.

This is all consistent with what was developed in the 1980s-90s by Neil Howe and William Strauss, the founding fathers of generational theory. In their theory, the great events that they describe are not caused at all by politicians. I'm tempted to say that politics is irrelevant to generational theory but that isn't true. What IS true is there's only one direction of causation. Generational trends cause political events, not vice-versa.

I'll repeat that I think it's a fair complaint that the movie tends to blame the Democrats more than the Republicans. If politicians do not cause generational events, then no politicians should be blamed.

However, while I'll agree that the movie presents an unfair perception, there's actually a generational defense that the Democrats are, if not "to blame" for the financial crisis, at least the principle actors in the financial crisis.

One of the concepts that writer/director Steve Bannon left out of the movie (for lack of time) was the role of Generation-Xers in the financial crisis. The movie focuses exclusively on the Boomers, but in fact the financial crisis could not have been caused by the Boomers, because everyone agrees that the Boomers are too dumb to have devised those brilliant structured securities that turned into toxic assets, and are also too dumb to have figured out how to defraud investors by convincing them to buy them.

The question that I keep focusing on on this web site is this: How is it possible that so many crimes were committed by so many people in so many different companies, and everyone looked the other way? How is that even possible?

The standard excuse that we hear from politicians, journalists, bankers and regulators is that they didn't know that there would be a credit crisis that would bring everything down. In other words, their defense is, "I may be an expert, but I'm way too stupid to have known I was doing anything wrong." This defense is absurd on its face, but as I've said many times, there's no way that they couldn't have known by 2006-2007 that the real estate bubble was collapsing. And yet, the rate of fraud only increased during this period, and the journalists kept gleefully reporting on it, and the regulators kept ignoring it. There's no way that these experts didn't know that fraud was going on, but they all had much to gain by ignoring the fraud, and even propelling it forward. And the same thing is still going on today, perpetrated by the same people.

So how is this even possible? It must be generational, because it would not have happened prior to the late 1990s, after the Silent generation had disappeared. As I've written many times, the only way that it could have happened is if Generation-Xers created the toxic assets and perpetrated the fraud, and if they received the full support of their Boomer managers who are totally incompetent as managers and leaders. I've referred to this frequently as the lethal combination of greedy, nihilistic Gen-Xers, managed and enabled by greedy, incompetent Boomers. Neither generation could have done it alone; they had to be working together. But the Gen-Xers were "active," while the Boomers were "passive."

'Passive' Republicans versus 'Active' Democrats

That was all stuff that I've written about before, but now I want to move on to something new: translating this into politics.

If you go back to the period following WW II, there was a highly risk-averse culture which, for lack of a better name, we'll refer to as the "Silent culture," named after the Silent generation that was in power at the time (along with the GI generation).

In the Awakening era of the 1960s, the "Boomer counterculture" came into existence, caused by the "generation gap" between the Boomers and their parents.

So now we can translate the split between Generation-X and the Boomers into a split between the Democrats and the Republicans. Basically, the Republicans have adopted the "Silent culture," while the Democrats have adopted the "Boomer counterculture."

Moving forward to the present time, this means that in perpetrating the crimes of the financial crisis, the Democrats were the "active" perpetrators, and the Republicans were the "passive" enablers. Both parties are equally greedy and equally guilty, but their roles were different. This explains why the Democrats, more than the Republicans, are featred in "Generational Zero."

Regulation

But now let's carry this one step further, into regulation.

The biggest criticism that the Democrats have of the Republicans is that their "free market" philosophy caused the entire regulatory structure to be weakened, starting with the Reagan administration in the 1980s.

Kaiser particularly points to the repeal of the Glass-Steagall law in 1999 as causing the financial crisis. But that can't be the cause, since the tech bubble and the worldwide real estate bubble were already in full swing at that time, and Fannie and Freddie were already deep into fraudulent securities and obscene bonuses by 1999. Still, the repeal of this major 1930s era law is part of the fabric of deregulation that was going on, starting in the 1980s.

If I were to pick laws that "caused" the financial crisis, I would pick the fair housing and fair lending laws, championed by Democrats, that put poor people, black people, women and children into homes that they couldn't afford. The Democrats wouldn't hesitate to take full credit for those laws, but now that those laws have fucked over those same poor people, black people, women and children, it's only fair that they get the blame. But of course, the Republicans were just as guilty, since they shared in the benefits.

This brings us back to the differing roles played by Republicans and Democrats. The fair housing and fair credit laws were championed by Democrats, but it was Republicans that favored the deregulation that made abuse of the fair housing and credit laws possible. This fits exactly into the "active/passive" template that I'm proposing.

That is, we have the following:

Up until the 1980s, the highly risk-averse Silent Generation was in charge. Republicans and Democrats cooperated on sane laws matched by well enforced regulatory policies.

As the Silents disappeared in the 1980s, especially after the false panic of 1987, things really began to change.

At that time, the Democrats began passing laws that gave additional rights to poor people, black people, women and children. These were the "active" actions.

At the same time, the Republicans used "free market" arguments to remove any regulatory restrictions on the lawas that the Democrats passed. These were the "passive" actions.

Both Republicans and Democrats shared in the "benefits" of these changes. They got rich, they got bigger budgets, they got bigger organizations, they got more campaign contributions, etc.

The above description isn't 100% correct, of course. Nothing like this ever is. But the general description is correct, I believe. The Democrats DID push extentions to the fair housing and fair lending laws that were so abused during the 2000s decade, and the Republicans DID push the deregulatory atmosphere that made the abuse possible.

The 'Solution'

Kaiser's final criticism of "Generation Zero" was that it didn't present any solution. That's true, but the problem is that there isn't any solution. This is the whole generational aspect of what's going on today. You have hundreds of millions of people (billions worldwide) who are committed to the path we're on, and the momentum cannot be stopped. The world's financial system is like a boat floating faster and faster toward the waterfall, and nothing can stop it. How long it will take to get there, and what will trigger the collapse, cannot be predicted, but collapse cannot be stopped.

Once again, I have to talk about this whole inflation/deflation thing that keeps coming up.

I read a lot these days from pundits who are predicting hyperinflation, or a hyperinflationary depression. This usually comes from Republicans who base this belief on the size of the stimulus program. As I keep saying, and have been saying for years, inflation is absolutely impossible.

With hundreds of trillions of dollars in credit derivatives, including $50-60 trillion in credit default swaps, about the implode, there there is no way that any stimulus program is going to make even a small dent.

What we're headed for isa very sharp, very deep deflationary crash, where the only asset of value will be cash. This crash could happen at any time -- next week, next month, next year. It's impossible to predict what will trigger it, but the situations in both Europe and China look very bad right now. It's hard to believe that China could be worse off than the U.S. right now, but they are.

"Generation Zero" hints at a hyperinflationary future at the ending, but as a whole, I believe that this movie hits everything right.

This is a very powerful movie, because it shows how devastating the financial crisis is. If you want to understand what's coming, so that you can prepare yourself and your family for it, then you and your kids should see this movie when it comes to movie theatres.

(Comments: For reader comments, questions and discussion, see the Generation Zero - The Inconceivable Truth thread of the Generational Dynamics forum.) (5-Apr-2010) Permanent Link
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