The New Empire of Debt
The Rise and Fall of an Epic Financial BubbleBy William Bonner Addison WigginJohn Wiley & Sons
Copyright © 2009 John Wiley & Sons, Ltd
All right reserved.
ISBN: 978-0-470-48326-8
Chapter One
Dead Men Talking Tradition ... is the democracy of the dead. -G. K. Chesterton
One of the nicest things about Europe's cities is that they are so full of dead people. In Paris, the cemeteries are so packed that the corpses are laid down like bricks, stacked one atop the other. Occasionally the bones are dug up and stored in underground ossuaries that are turned into tourist attractions. Thousands and thousands of skulls are on display in the catacombs; millions more must be spread all over the city.
In Venice, a dead man gets-or used to get-a send-off so gloriously sentimental he could hardly wait to die. There is barely room within the city walls for the living and none at all for the dead. Cadavers were loaded onto a magnificently morbid floating mariah-a richly decorated funeral gondola, painted in bright black with gold angels on her bow and stern. Then, as if crossing the river Styx, the boat was rowed across the lagoon to the island of San Michele by four gondoliers in black outfits with gold trim.
How American versifiers must have envied one of their own, Ezra Pound, when he took his last gondola ride in such fabulous style in 1972. And then, what luck! The former classical scholar, poet, and admirer of Benito Mussolini got one of the last empty holes on the cemetery island. Today, when Venetians reach room temperature, the best they can hope for is a damp spot on the mainland.
We do not hasten to join the dead, but we seek their counsel. When corpses whisper, we listen.
"Been there. Done that," they often seem to say.
Reading Margaret Wilson Oliphant's history of the dead dukes, or doges, in her classic book, The Makers of Venice, Doges, Conquerors, Painters and Men of Letters, we felt as though someone should have sent a copy to George W. Bush. "Read this. Spare yourself some trouble," the author might have written on the accompanying note. But who reads anything but newspapers in the Capital City? Who reads at all? In the United States if it isn't on the evening news, it didn't happen. Ancient history is something that happened last week.
Too bad. For practically all the most preposterous ideas that emanate from the feverish swamps of the Potomac were tried out in the feverish swamps of Venice, hundreds of years ago.
LESSONS OF THE FOURTH CRUSADE
"Democracy! Empire! Freedom! Nation building!" The ideas are cast into the murky lagoon of human affairs as if the words were clarifying magic. Suddenly, wrong is as distinct from right, as day from night. Good from bad ... success from failure ... how clearly we see things in the crystal waters of our own delusions!
The United States congratulates itself as being the finest democracy the world has ever seen, but the system for ruling Venice eight centuries ago was also democratic. People voted for people who voted for other people, who then voted for yet more people who elected the doge. The whole idea was to allow ordinary people to believe that they ran the nation, while real authority remained in the hands of a few families-the Bushes, Kennedys, Gores, and Rockefellers of thirteenth-century Venice.
"So easy is it to deceive the multitude," says Mrs. Oliphant. "The sovereignty of Venice, under whatever system carried on, had always been in the hands of a certain number of families, who kept their place with almost dynastic regularity undisturbed by any intruders from below-the system of the Consiglio Maggiore was still professed to be a representative system of the widest kind; and it would seem at the first glance as if all honest men who were da bene and respected by their fellows must one time or other have been secure of gaining admission to that popular parliament."
To Mrs. Oliphant's dictum on the multitude, we add a corollary: It is even easier to deceive oneself. Today, rare are the Americans who are not victims of their own scams. They mortgaged their homes and thought they were getting richer. They bought Wall Street's products as though they were gambling in Las Vegas and believed they were as clever as Warren Buffett. They went to the polling stations in November 2004 and believed they were selecting the government they wanted, when the choice had already been reduced to two men of the same class, same age, same schooling, same wealth, same secret club, same society, with more or less the same ideas about how things should be run.
In Washington, DC, the United States Senate met in the same solemn deceit as the Consiglio Maggiore-pretending to do the public's business. While down the street, America's own doge, George W. Bush, took up where the Michieli and the Dandolos left off: trying to hustle the East.
Making a very long story short, at the beginning of the thirteenth century, as at the beginning of the twenty-first, many people saw a clash of civilizations coming and sharpened their swords. They were, then as now, the same civilizations, clashing in about the same part of the world-the Middle East.
What was different back then was that the effort to make the world a better place (at least in this episode) was being prodded forward by the French, who were then an expanding, imperial power. St. Louis (King Louis IX) went on two crusades with a French army and failed both times.
Mrs. Oliphant's history tells of the arrival of six French knights in shining armor, who strode into San Marcos Piazza to ask the doge for help. They were putting together an alliance of civilized Western armies to reconquer Jerusalem, they explained-in the same spirit as King Louis centuries before.
They brought out all the usual arguments. But the Venetians were not so much convinced by the French as they convinced themselves. They were, they said to themselves (just as Madeleine Albright would repeat centuries later), the "indispensable nation." Without them, the effort would fail; therefore they must act. Yes, they could still fail, they acknowledged, but look what they had to gain! For not only would they being doing good, but they stood to do well, too-implanting trading posts and ports along the way.
And so a fleet of 50 galleys was assembled and set off, the old doge leading the way. Finding their French allies a bit worse for wear and tear, the Venetians proposed a new deal: Instead of attacking the infidels forth-with, they would warm up with an assault on Zara, a town on the Dalmatian coast that had recently rebelled against its Venetian masters.
The French protested. They had come to make war against the enemies of Christ, not against other Christians. But since they needed the Venetians' support, they had no choice.
In five days, the city of Zara surrendered; its defenses were no match for the armies in front of them. And so the city was sacked and the booty divided up. Soon after came a letter from Pope Innocent III, who wondered why they were killing fellow Christians; it was the pagans they were meant to be killing, he reminded them. He commanded them to leave Zara and proceed to Syria, "neither turning to the right hand nor to the left."
The pope's letters greatly troubled the pious French, but the Venetians seemed undisturbed. They ignored the letters and remained in Zara until a new comic opportunity presented itself.
This time Constantinople was the unfortunate target. A young prince from that city had come to them, asking support for a mission at once as audacious as it was absurd. His father had been blinded and thrown in a dungeon; the capital of Eastern Christendom was in the hands of men who must have been ancestors of Saddam Hussein-evil usurpers, dictators whom the people detested. If the Venetians would come to his aid, he promised, they would be rewarded generously. More than that, he and his father would return the entire Eastern Empire back to the one true church of St. Peter in Rome.
The Venetians couldn't resist. In April 1204, they set sail for Bosporus Strait. And in a great battle that must have been an undertaker's dream, they took the city. Historian Edward Gibbon describes the scene:
The soldiers who leaped from the galleys on shore immediately ascended their scaling ladders, while the large ships, advancing more slowly in the intervals and lowering a drawbridge, opened a way through the air from their masts to the rampart. In the midst of the conflict the doge's venerable and conspicuous form stood aloft in complete armor on the prow of his galley. The great standard of St. Mark was displayed before him; his threats, promises and exhortations urged the diligence of the rowers; this vessel was the first that struck; and Dandolo [the doge] was the first warrior on shore. The nations admired the magnanimity of the blind old man ...
It proved, however, that the young prince on whose stories and promises the campaign was launched had been a bit frugal with the truth. Like the intelligence services' warnings of weapons of mass destruction in Iraq, his depiction of the circumstances prevailing in Constantinople at the time was inaccurate. Much of it seemed fanciful.
Though the initial conquest was fairly easy and glorious, subsequent events were less so. The local population rose up against the invaders. The city had to be retaken; this time, the battle was bloodier, and thousands of innocent citizens were put to the sword.
As near as historians can tell, the Venetians earned no lasting gain or benefit. Dandolo died in 1205, never having set foot in his homeland again. As for his compatriots, what was left of them eventually returned to Venice.
"But there still remains in Venice," adds Mrs. Oliphant, "one striking evidence of the splendid, disastrous expedition, the unexampled conquests and victories yet dismal end, of what is called the Fourth Crusade. And that is the four great bronze horses, curious, inappropriate bizarre ornaments that stand above the doorways of San Marco. This was the blind doge's lasting piece of spoil."
"Been there. Done that," whispers the old doge.
THE TYRANNY OF THE LIVING
Who cares? Each generation needs to be there to do that, too. Though happy to turn on an electric light invented by a dead man, the living-in love, war, and finance-believe nothing they haven't seen with their own eyes, except when they want to.
"Avoid foreign entanglements," cautioned the father of the country. But corpses have no voice and no vote, neither in markets nor in politics. George W. Bush was undoubtedly better informed than George Washington. He may have neither the wisdom of a Washington nor the brain, but at least he had a pulse.
Few people complain about this tyranny of the living. Most accept it as a fact of life. They would not want people to be excluded from the pleasures of life because of an accident of birth. But they are perfectly happy to have the oldest and wisest of our citizens systematically barred from the polling stations and the trading floors by the accident of death. The departed shut up forever, leaving behind them their car keys, their stocks, and their voter registrations-that is all there is to it. Goodbye and good riddance. It is as if they had learned nothing useful, noticed nothing, and had no ideas that might be worth preserving; as if each generation were smarter than the one that preceded it and every son's thoughts improved on those of his father.
Oh, progress! Thou art forever making things better, aren't thou? Throw out the sacred books-what are they, but the thoughts of dead imbeciles? Forget the old rules, old wives' tales, old traditions and habits of old generations, old-timers' superstitions, the old fuddy-duddies' doubts! We are the cleverest humans who have ever lived, right?
Maybe. But if we could convene a council from the spirit world and invite the dead to have their say, what would the corpses tell us?
Veni et vidi. Gaze on the dead, and learn their secrets.
No one seems to care about dead people. No stockbrokers ask for their business. No politicians pander for their votes. No one cares what they think or what they may have learned before they shucked their mortal shell. They get no respect, just a quick send-off, and then they are on their own.
What did the old-timers know of war? Of politics? Of love? Of money? If only we could ask!
Years ago, investors wanted more from a stock than just the hope that someone might come along who was willing to pay more for it. They wanted a stock that paid a dividend out of earnings. When they heard about a stock, they asked: "How much does it pay?" That was what investing was all about.
But by the 1990s, the old-timers on Wall Street had almost all died off. Stock buyers no longer cared how much the company earned or how large a dividend it paid. All they cared about was that some greater fool would come along and take the stock off their hands at a higher price. And the fools rushed in. And now the market is full of greater and greater fools who think the stock market is there to make them rich. What would the old-timers think of them?
And what would our dead ancestors think of our mortgages? Most of them had small mortgages, if any at all, on their homes. And if they had them, they couldn't wait to get rid of them. (Even our own parents held little parties to celebrate finally paying off the mortgage on the family home.) What would our forebears think if they were to learn that the richest generation in American history has mortgaged a greater share of its homes than any in history? What would they think of no-money-down mortgages, minimum payment plans, and negative amortization schedules?
And what would the old-timers think of our government debt? The unpaid liabilities and obligations, expressed as though they had to be paid today, come to about $56 trillion, depending on the source you choose to believe.
And what do the generations of Republicans, now in their graves, who believed so strongly in balanced budgets for so many years, think of the recent republicano in the White House, who proposed the most unbalanced budgets in history?
And what about the millions of dead Americans who immigrated to the United States to find freedom; what do they think of the country now? They came believing that if they minded their own business, they would be left alone to do what they wanted. But now, every pettifogging Pecksniff with a government service (GS) rating is on their grandchildren's case.
And what about those millions of dead people who scrimped and saved-who got by on almost nothing-so their children and grandchildren might live free, prosperous, and independent lives? What would they think of their descendants, so deep in debt and so dependent on Asian lenders that they can barely pass a Chinese restaurant without bending over and kissing the pavement?
Each generation seems to think it is the first to stand upright, that its mothers and fathers walked on four legs and howled at the moon! Even when the living feign admiration for same fallen forebear, it is usually without paying the least attention to what the poor schmuck actually said or knew. The dead leave us their memoirs, their gospels, their histories, and their constitutions-for what is a constitution but a pact with the dead?-and we ignore them. We seem to believe that all that they suffered, all they went through, all the mistakes they made, hold no more interest for us than a comment by a sunstruck contestant in a TV survival show: "This is ... like ... weird...."
WISDOM OF THE FOUNDING FATHERS
A dead man, Edmund Randolph of Virginia, attended the Constitutional Convention in Philadelphia in 1789. He explained why America needed a constitution: "The general object was to produce a cure for the evils under which the United States labored; that in tracing these evils to their origins, every man had found it in the turbulence and follies of democracy."
Another dead man, James Madison, made it even clearer: "Democracies," he wrote, "have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death."
So, we leave you "a Republic, if you can keep it," added Ben Franklin.
Well, we couldn't keep it. Now, we have a curious empire, with a constitution as flexible as its money.
(Continues...)
Excerpted from The New Empire of Debtby William Bonner Addison Wiggin Copyright © 2009 by John Wiley & Sons, Ltd. Excerpted by permission.
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