Difficult truth – cheap lies

In times of the Internet, historical memory shrinks. Who remembers today that for almost half a century the United States of America represented the realm of enlightenment, truth and progress, while the other side of the Iron Curtain was ruled by arbitrariness, gulags and politically decreed lies? This contrast was inflated by mutual propaganda, certainly, but forced labor camps and those millions of people Stalin had sent to their deaths were bitter reality. There was so little doubt concerning this gruesome past that Solzhenitsyn’s accusations were read worldwide, that is even in Russia. When Gorbachev finally dared to say the truth, the collapse of the regime was inevitable.

Truth in politics works like salvation.

In Nazi Germany, prescribed political lies had been on the agenda from the very beginning of the regime. After Hitler’s seizure of power, his oldest ally Ernst Röhm and the SA militias he controlled had suddenly become inconvenient (a thorn in the side of the Reichswehr and conservative circles, whose support Hitler could not do without). The Nazis therefore invented the fake news of a planned coup. Röhm and about two hundred other citizens were murdered in a cloak-and-dagger operation. This was a foretaste of the nihilism of power that would darken Germany for more than a decade. Hitler and his henchmen assumed that lie and truth had no meaning in politics (or anywhere else for that matter). What counts, according to their credo, is power and nothing but power, for whose sake no human sacrifice would be too great.

The Liberation of Germans

from the bloody rule of Adolf Hitler was perceived as a redemption not because the Nazis had been militarily defeated. In most cases, peoples still prefer to be ruled by local villains rather than by foreign saviors – after all, the latter show them their own failure and humiliation. The sigh of relief was due to the fact that now it was possible again to recognize reality for what it is and speak the truth. Truth and lies are not mere products of power, as diehard nihilists claim. During the last years of Nazi rule, citizen were aware that the constant reports of victory were nothing but cynical lies. Moreover, many Germans had resisted decreed racial hatred at least in such a way that they opposed the ordered lie with private exceptions – the Jews known to them personally were quite different from all others! When holding to this miserable remnant of truth, Germans did not endanger their life which they would have done when resorting to open protest.

The willingness of Germans to welcome the American liberators with open arms at the end of the war was based on the fact that lie and truth were not mere creations of power. American democracy, and soon the German one too granted every citizen the right to decide for himself what he considered true or false in daily life and in politics. This was experienced as an escape from the prison of state-imposed lies.

Between 1945 until the fall of the Iron Curtain

these feelings remained largely unchallenged. It was the scientists, the thinkers, yes, and also the politicians of the West who enjoyed most credibility. As it turned out, they were trusted even in the East. After all, the walls, barbed wires and watchtowers between East and West were not built on the Western side to keep the people of Western democracies from fleeing into Stalin’s empire. They had to be built on the eastern side because so many people were pushing from there to the West. And when the Wall finally fell at the end of the 1980s, it was the heartland of the West, America, that took the whole world by storm. Jazz, jeans, the movies of Hollywood, the internet and last but not least American science and the English language started a triumphal march all over Europe and Asia.

But, as so often happens, the climax was to be

the beginning of decline. Actually, clear-sighted observers were able to see much earlier that it was stupid to maintain that darkness reigned on one side only, and light on the other. Both great powers had no qualms about wearing down or completely exhausting in constant proxy wars the countries on the fringes of their respective spheres of power. Peace in Europe was paid for with enormous suffering in Vietnam, Chile and many African states. Great powers establish order in their spheres of rule – just as each individual state does within its own borders. The Roman Empire had already proceeded in such a way. It had successfully pacified most of the ancient world, so that people could travel safely from Britain to the borders of the Persian Empire. At the same time, the peripheral areas subjugated by the center were notoriously exploited and generally treated with unabashed brutality. The privilege of Enlightenment, peace, and a freedom that included the right to describe conditions truthfully applied to the centers of power, not to the disputed peripheries.

The year 1945 marked the greatest historical break

in the history of Europe. After more than two thousand years of domination, the Old Continent had deliberately catapulted itself out of the world’s center with a civil war lasting for almost 30 years. In its place, the US and the Soviet Union had now become the leading powers. This is how things remained up to now (except that China could outstrip both great powers in the coming decade).

In other words, Europe has become so marginalized and militarily insignificant that it can no longer withstand any encroachment without outside help. In 1989 it could still appear as if Russia too had to bid farewell to its former role as a superpower. From a superficial point of view, the United States had ended the Cold War victoriously by an arms race the enemy was unable to withstand. But there were deeper reasons for the incredibly rapid disintegration of the Soviet camp. The people in the GDR (1953), in Hungary (1956), in the Czech Republic (1968) and finally in Poland (1981) had already shown that they no longer believed the promises of the communist regime. According to Soviet ideology, communism had brought paradise on earth; but Eastern people soon realized that Western nations were much better off than they were. Such evident truths could however not be openly stated – they were taboo. On the other side of the Iron Curtain, people were forced to live with state-imposed lies and had to fear being banished to Siberia for speaking the truth. Gorbachev had only given the external impetus for the dissolution of the regime. In reality, the regime had already been broken down by its own lies – hence its incredibly rapid disintegration.

The meeting of Sergejewitsch Gorbatschow, the great Russian,

(today outlawed as a traitor in his homeland) with the American president Ronald Reagan was one of the great moments in recent world history. Two former enemies communicated in the same language of truth, proving to the world that there is an objective reality that unites people. Both men were aware of the gruesome madness that East and West were threatening each other with weapons of final destruction that at any time could trigger the end of humanity. Both wanted to establish a new peaceful order – and the whole world believed that this was possible indeed. The moment appeared like a release from the nightmare of potential self-annihilation.

Why does all this already seem so remote from present reality?

Why was Gorbachev, who had initially brought so much hope to his own country and to the world, later regarded rather like a traitor? Why did Russia under Putin once again become a great power armed to the teeth and a declared opponent of the West, though now without the communist creed? And yes, while we are asking these unpalatable questions, why not add an even more unpleasant one? Why is politics in the United States under Donald Trump dominated by lies just as much as in Russia under Vladimir Putin?

Apparently, after the fall of the Berlin Wall

and the dissolution of the Soviet Union, something went very wrong. Under Hitler, the Germans had brought forth a regime at least as totalitarian, bloody and cruel as Stalin’s rule. But the Americans were quick to help defeated Germany back on its feet with the Marshall Plan. We should never forget: Seldom was a defeated people treated so generously.

But what happened to Russia after the fall of the Berlin Wall? Not only was Russia lying prostrate on the ground, it was deliberately pushed to the ground. The West pursued an economic policy that Russia paid for with greater economic losses and misery than those caused by the Second World War. At that time, industrial production in the Soviet Union fell by “only” 24 percent, whereas in the ten years after the fall of the Iron Curtain it fell by almost 60 percent. The nineties under Boris Yeltsin were experienced by the Russians as a period of extreme humiliation. Instead of receiving thanks for having voluntarily shaken off a dictatorship and being willing to recognize the West as a model, they were completely beaten to the ground: entire branches of industry being dismantled, their scientists poached and (with the active cooperation of Jeffrey Sachs) privatization pushed through overnight so that the country’s most important resources were sold off to a few oligarchs. At that time it was an open secret that Russia’s oil wells should be open for sale in the West so that the Russian bear could be finally brought under control.

The comet-like rise of Vladimir Putin

is unthinkable without the thoughtless humiliation of Russia by the United States. That unique wisdom in dealing with defeated Germany, which had distinguished U.S. policy after ’45, was no longer an option in the case of defeated Russia after 1989. Today we have to admit that the increasingly hostile and extraordinarily successful Russian President Vladimir Putin is a creature of misguided Western policy.

The effects of such policy are becoming increasingly evident

While political lies were undoubtedly much more deeply rooted in the East until the fall of the Wall, from then on they began to spread more and more in both camps. It had always been easy for unscrupulous power to substitute lies for truth. Even science had to submit to political arbitrariness. Anyone who openly polemicized against the Nazis’ racial theory could end up in a concentration camp; anyone who questioned Lyssenkoism under Stalin had to reckon with spending the rest of his life in a Siberian gulag.

And what about truth in our time, for example in the United States? Until the 1990s, the denial of Darwin’s theory of descendance remained limited to a small number of crackpots, such as exist at any time in any country. But since about three decades, ideologically blinded crackpots have turned into the broad movement of anti-scientific Evangelicals, without whose votes Donald Trump would not have become president. Even a despiser of the truth like the current American president does not dare to declare the Darwinian theory of descendance a fake, but otherwise he confidently disregards scientific findings (on Corona, for example). And so does Vladimir Putin when he wipes off the table as “unproven” the unanimous finding of German experts that Alexei Navalny is the victim of a political assassination attempt with the nerve poison Novichok. In Russia this denial of truth is nothing new. Regularly occurring political killings were never admitted – see Sergei Yushchenkov (shot in 2003), Yuri Shchekochichin (presumably poisoned in 2003), Paul Klebnikov (shot in 2004), Anna Politikovskaya (shot in 2006), Alexander Litvinenko (poisoned with radioactive polonium in 2006), Stanislav Markelov (shot in 2009), Natalya Estemirova (shot in 2009), Boris Nemtsov (shot in 2015), Vladimir Kara-Mursa (presumably poisoned in 2017), Sergei and Yulia Skripal (poisoned with Novichok in 2018), Pyotr Werzilov (poisoned in 2018), and finally Alexei Navalny (poisoned with Novichok in 2020).

Of course, political murders are not a Russian specialty. Both superpowers never had any qualms about having them carried out in disputed peripheral regions. The CIA looks back on a long list of sins down to the violent overthrow of democratically elected President Allende in Chile, whose only mistake had been his intention to achieve a greater degree of social justice for his own people. However, in contrast to today’s Russia under Putin, the United States had maintained elementary democratic rules within its own territory – and this privilege applied just as much to its closest allies like Germany. Unfortunately, many indications give rise to the fear that President Trump – an admirer of dictators like Kim Jung-un and autocrats like Vladimir Putin – would like to override democratic rules even within his country. What we are seeing today gives no cause for optimism: Under Putin and Trump the two nuclear superpowers Russia and the USA have become alarmingly similar to each other.

A weak Europe

is doomed to become a plaything of the superpowers. Peripheral areas are being victimized without mercy. No moral superiority – whether real or imagined – may help them, indeed it has never benefited the weak. That was the case in the time of Rome, and it has remained so until today. Europe must be strong – it must become strong if it wants to escape this fate. Angela Merkel saw this clearly when she spoke of the need for Europe to strengthen its own defense capability.

Adam Tooze – An experts’s review of ten years of global economic crisis

Recently (on 14 August) I had the good fortune to follow an interview with the British historian Adam Tooze on Austrian Radio. I was so impressed that I immediately took to reading his book “Crashed. How a Decade of Financial Crises Changed the World” (Allen Lane 2018) ) – and so an important work finally reached me with a two-year delay. These are my comments:

When an author combines an immense range of detailed knowledge with the ability to see things in their context and interdependence, he constantly presents the reader with eureka moments. This is how I would describe the exciting experience of reading the great monograph by Adam Tooze “Crashed. How a Decade of Financial Crises Changed the World”, Allen Lane 2018. Of course, the study of history is inconceivable without value judgments. Natural science may talk about clockworks, chemical compounds or a virus without subjective valuation, but historians cannot deal in this manner with world economy. We should, therefore, right at the beginning take note of the position taken by the historian.

Tooze leaves no doubt that he feels close to the left wing of American politics. The reader is therefore confronted with the full extent of economic and social destruction caused by the 2008 crisis and the subsequent euro crisis. There is no glossing over the fact that, according to Tooze, these crises were even more devastating than the Great Depression of 1929.*1* This is true for the US, *2* but even more so for the rest of the world, especially southern Europe.*3*

The subprime crisis originated in the United States, and in particular in the leading American financial institutions that served the greed of wealthy investors through blatant fraud in both the United States and Europe.*4* The major rating agencies also actively supported fraud through incorrect ratings.*5*

So far the British historian’s observations on the crisis are not new, but they become quite interesting when Tooze analyses its mechanism, namely credit creation by a handful of large investment banks.*6* These institutions, he states, are by no means dependent on the money of savers. As central banks have always done when creating money, they can produce money and credit in exchange for real values (real estate playing a special role in this case).*7* A crisis erupts when the money created either has no counterpart in real assets (in which case the result will be inflation without “sterilisation” of the ensuing surplus) – or when, conversely, existing real assets lose their value (this was the case with the collapse of subprime real estate).*8* In this new and modern type of financial crisis, there is no run on the banks; instead, there is a freeze on internal banking transactions. No bank can be sure anymore that the securities of other banks still have any value. These findings are important because they confirm that the creation of money and credit – whether by central banks or by large private financial institutions – never occurs out of nothing, but in accordance with material values. At the moment when confidence in these values is lost (as was the case with subprime real estate), the modern banking system is thrown off course, just as the classic system is thrown off course by the run of savers on their house banks. After subprime securities had lost all their value, American government bonds remained the last anchor of stability still unchallenged.*9*

The convincing main thesis of Adam Tooze states that we should understand the euro crisis as a mere continuation of its predecessor of 2008, which in turn was brought about by neoliberal deregulation.*10* At this point, the British historian assumes the role of an outspoken critic. While the Americans had taken the right measures to make the American banking system functional again in a surprisingly short time,*11* the Europeans had great pains in doing so.*12* It was only when the ECB led by Mario Draghi took over the American therapy that the danger of the eurozone’s disintegration was finally averted.*13* Prof. Tooze is an expert on Europe and especially Germany, where he studied for quite a time. If he accuses German provincialism and its incorrigible and hegemonic behavior towards the rest of Europe,*14* then that should be taken very seriously.

At this point I feel entitled not to contradict the expert’s account – nobody knows the facts as well as he does – but to make a different assessment that to me seems to be equally compatible with the facts. Tooze sings a hymn to the expertise of the American financial and political elite (that belongs to both major parties and easily switches from the private to the public sector and vice versa as if through a revolving door)*15*. It was precisely this elite, I would like to add, that led the world into the abyss twice. It was its ruthlessness and greed that had produced the crisis of 1929. As another eminent historian, Eric Hobsbawm, explicitly pointed out, the Great Depression constituted the most important cause of Hitler’s rise and the outbreak of the Second World War.*16* And it was again – as proven by Tooze himself – the greed of this elite that made the 2008 crisis possible in both the USA and Europe.*17*

It is therefore somewhat surprising to see the British historian praise the achievement of that very elite that bears responsibility for the disaster in the first place – contrasting it with the inability of Europeans.*18* I think that Franklin D. Roosevelt may rightly be praised for starting the fight against monopoly and growing inequality with his famous New Deal.*19* But what did the American financial-political elite when it defeated the 2008 crisis? It had first of all created the existing monopolies and oligopolies and deepened inequality,*20* but when dealing with the crisis, it did not diminish these evils, but on the contrary further increased them! In other words, it eliminated the symptoms of the crisis but not its causes. Certainly, the financial jugglers who were responsible for the crisis have successfully ensured that there was no collapse or even – as in the 1930s – the rise of a dictator and the outbreak of war. This is a tremendous achievement – economic science has learned the lesson from the Great Depression. The cardinal mistake of deflationary policy was avoided. But the next major crisis can happen at any time, because only the symptoms have been eliminated. Shouldn’t it be the proper task of an elite to eliminate the roots of such crises – oligopolies and growing inequality? Should we call it progress if arsonists become firemen?*21*

At the very least, we should have expected the US elite responsible for the crisis to admit their own mistakes. But until today this did not happen. That’s why Trump the Terrible is to a certain extent right when, on the same day that Joe Biden made his glittering appearance as presidential candidate in his inaugural speech, he chose Biden’s birthplace in Pennsylvania for quite a different speech where he deftly exposed the weak point of his opponent. “Biden pledged to serve the American people every hour of his tenure as president. What did he do for the last half century when your jobs were transferred to Asia?”

Unless the elite acknowledges its mistakes, it does not regain its credibility. This is also true, I believe, of one of its most eminent representatives, the economist and former Clinton Secretary of Labor, Robert Reich, who in his book “The Work of Nations” provided the “scientific” justification for the outsourcing of American industries, but has since become a critic of inequality and monopolies *22* – however, without admitting his part in this development. Reich wanted to transform Americans into “symbol analysts”. He succeeded – the entire financial sector where the big money is made is populated by them, but the average American has lost his once well-paid job to the Chinese.

Tooze seems to be fascinated by the high technical skill of the US financial experts, and he laughs at the provincial stubbornness of the Germans, who still imagined they had to lecture the Americans, even though they have done just about everything wrong – especially when dealing with Greece. *23* It should have been clear to everyone from the start that Greece could not service its debts and that therefore a partial or even complete debt cancellation (restructuring, haircut at the expense of private creditors), as finally demanded by the IMF, was the only right solution from the outset. Instead, Schäuble and Merkel had pedantically insisted on debt repayment, only then Germany was ready to authorize aid funds. But that was absurd from the outset, because the billions in aid money from the IMF and the Eurogroup did not benefit the Greeks but were almost exclusively passed on to creditor banks in Germany and France. The people of Greece were subjected to an ordeal in order to set a warning example to all other potential exit candidates: “Look, this is the price to be paid by anyone who breaks the rules of the eurozone!

The monumental monograph of Adam Tooze demonstrates how closely the financial and economic interdependence of the leading global currency power, the USA, with the rest of the world has already become.*24* In concrete terms, this means that crisis shocks to the leading global power (and indeed to every leading power, not just the USA – I would add) inevitably spill over to the rest of the world. When American securities (the subprime bonds) started to falter, interbank traffic in Europe froze. Subsequently, it was also the FED as lender of last resort, which alone was able to put an end to this petrification by printing dollars. Those who make themselves dependent on the center, whether they like it or not, are also subject to the rules of the center. Tooze has demonstrated this elementary truth for the world’s dependence on the US and its dollar reserve currency. The same dependence, however, applies – and I think this is just as inevitable – to the dependence of the euro zone on Germany, the leading economic power in the region – regardless of whether Germany intends to do so or not.

Tooze’s question of whether Merkel and Schäuble acted correctly at the time when they subjected Greece to such a murderous ordeal remains unanswered. Total debt cancellation, i.e. an official state bankruptcy, as Hans-Werner Sinn, if I remember correctly, demanded early on, would probably have cost far fewer victims. Greece would have had to leave the euro zone for a limited period, its creditworthiness would have been shaken for at least a decade – that fact alone should sufficiently deter all other eurosceptics. But Greece would then rely on its own strength to overcome the crisis and realize that its misfortune was caused by nobody but itself. In any case, this alternative would have spared the people of Greece the additional humiliation of the ordeal imposed on them by the troika of IMF, ECB and the European Commission. I even think that, in this case, the rest of Europe, and Germany in particular, would have cut a much better figure, because they could have voluntarily bestowed a modicum of aid and help on poor Greece. Since Greece was unable to pay its debts anyway and will never repay them (as the IMF recognized early on), debt restructuring or complete debt cancellation, i.e. state bankruptcy, would have been the more honest and probably the much better solution. After all Greece’s economy was far too small to pull the whole of Europe into the maelstrom.

In his analysis of the decade between 2008 and 2018, Adam Tooze speaks exclusively about acute crises – not about those that have been smoldering underground for at least half a century. For this reason, one searches in vain for words like “ecology” or “ecological sustainability” in his 700-page monograph. This is somewhat surprising as the awareness of an impending environmental crisis originated in the United States and that it was an American president too – Jimmy Carter – who had commissioned the major environmental study “Global 2000”. Moreover, it was Vice President Al Gore who saw the destruction of the environment as the greatest and most momentous challenge of our time, and it was President Obama who followed him in this assessment. Why do we find only five incidental references to “climate change” in the otherwise comprehensive book by Adam Tooze?

Unfortunately, Tooze proves to be a realist who faithfully reflects global political and economic reality. During the world financial crisis of 2008 and the euro crisis that followed, the environment was simply forgotten – and the same is true today of our reaction to Covid-19. All we then thought and now think about is how to get the stuttering fossil fuel engine going again – as quickly as possible or even faster than before. In other words, for the biggest crisis of all the elites are by no means prepared. Their motto is: Let everything just be as it was before (including growing inequality and environmental destruction)! I assume that Prof. Adam Tooze would without hesitation subscribe to this truth.

All quotes are taken from the ebook version of “Crashed” with the position indicated:

*1* On a global level, industrial output, stock markets and trade were all falling at least as fast in 2008-2009 as they had in 1929 (3456).

*2*  Across the country, class, not race, was the most important determinant of an American’s life chances, and the big story of his second term as president was rural white working-class despair. It was Appalachia—West Virginia and Kentucky—held back by structural change, educational failure and immobility, that lurched into the headlines (9176). Among white Americans, deaths from /drug/ overdose increased by 297 percent between 2010 and 2014 alone. Unlike in any other developed society, life expectancy among working-class white Americans had been decreasing since the early 2000s. In modern history the only obvious parallel was with Russia in the desperate aftermath of the fall of the Soviet Union (9181)…by 2013 the population of the urban core of Detroit had shrunk to 688,000, of whom 550,000 were African American. They were left behind in a city that was literally falling into ruin, burdened with debts running into the tens of billions of dollars (9067). As the crisis cut a swath across America, 65,000 homes in Detroit were foreclosed. Of those, 36,400 were considered of so little value that they were simply abandoned, joining a total stock of 140,000 blighted properties (9075). While the banks and lenders were bailed out, 9.3 million American families lost their homes to foreclosure, surrendered their home to a lender or were forced to resort to a distress sale (5938). As 2010 began, 3.7 million families were more than ninety days past due on their mortgage payments. Millions more were struggling to make ends meet, one or two months behind on their payments. Over the next twelve months 1.178 million homes would slide into foreclosure, the worst year of the crisis… The contrast in fortunes between Wall Street and Main Street was increasingly intolerable. The big banks had been bailed out. Some of the most unscrupulous bosses might face legal action, but they were not facing personal ruin. They retired to lifestyles of wealth and comfort.46 None had gone to jail… The bonus season in 2009 was better than ever, netting $145 billion for the executives at the top (6385). As 2010 began, 3.7 million families were more than ninety days past due on their mortgage payments. Millions more were struggling to make ends meet, one or two months behind on their payments. Over the next twelve months 1.178 million homes would slide into foreclosure, the worst year of the crisis… The contrast in fortunes between Wall Street and Main Street was increasingly intolerable. The big banks had been bailed out. Some of the most unscrupulous bosses might face legal action, but they were not facing personal ruin. They retired to lifestyles of wealth and comfort.46 None had gone to jail… The bonus season in 2009 was better than ever, netting $145 billion for the executives at the top (6385). The financial crisis of 2008 had revealed how in extremis national economic policy was subordinated to the needs of a cluster of giant transnational banks. Now, in the face of a dismal recovery, the correspondence between economic growth and the progress of a national society was being challenged from the bottom up. Could the national economy any longer be plausibly presented as a project common to all Americans? (9158). Obama insisted, there must be no more evasion, “this increasing inequality is most pronounced in our country …. [S]tatistics show … that our levels of income inequality rank near countries like Jamaica and Argentina” (9170).

*3*  Greece, Portugal, Ireland and Spain were driven into depressions the likes of which had not been seen since the 1930s (6608). In 2008 Greek unemployment had been 8 percent. Four years later it was rising inexorably toward 25 percent. Half of young Greeks were without jobs. In a nation of ten million, a quarter of a million people were fed daily at church-run food banks and soup kitchens (8717). As the housing market collapsed, Spain’s unemployment rate shot up. Of the 6.6 million increase in unemployment in the eurozone between 2007 and 2012, 3.9 million was accounted for by Spain—60 percent of that grim total. As bad as Greece’s situation was, it was small by comparison and accounted for only 12 percent of the increase in eurozone unemployment. Most catastrophic of all was Spain’s youth unemployment rate, which by the summer of 2012 had surged to 55 percent (8769).

*4*  The crisis… was… fully native to Western capitalism /genauer den USA/- a meltdown on Wall Street driven by toxic securitized subprime mortgages that threatened to take Europe down with it (Tooze 2018, 975). The competitive race for profit and market share among the banks… unleashed a regulatory race to the bottom (1821). The idea that social Europe” had deviated in any essential way from the logic of turbocharged financial capitalism” as exemplified by America was an illusion. In fact, Europe’s financial capitalism was even more spectacularly overgrown and it owed a large part of its growth to its deep entanglement in the American boom (2666). …every member of the eurozone was at least three times more overbanked” than the United States (2559).

*5*  … S&P had delivered just one more demonstration of how broken the ratings agencies were. It was their AAA certifications, handed out to hundreds of billions of subprime MBS /mortgage-backed securities/, that had helped to precipitate the crisis in 2008. It was their serial downgrades that were setting the pace of the crisis in the eurozone (8003). The regulators were utterly subservient to the logic of the businesses they were supposed to be regulating (1861). 

*6*  The overwhelming majority of private credit creation is done by a tight-knit corporate oligarchy… At a global level twenty to thirty banks matter. Allowing for nationally significant banks, the number worldwide is perhaps a hundred big financial firms (500).

*7*  Investment banks don’t have deposits. They borrow the money they lend on wholesale markets from other banks or institutional funds (1165). In modern finance, credit is not a fixed sum constrained by the ‘fundamentals’ of the ‘real economy’. It is an elastic quantity, which in an asset price boom can easily become self-expanding on a transnational scale (2436). Real estate is not only the largest single form of wealth, it is also the most important form of collateral for borrowing (998). Almost all human history can be written as the search for and the production of different forms of safe assets (1261). Without valuation the assets could not be used as collateral. Without collateral there was no funding. And if there was no funding all the banks were in trouble, no matter how large their exposure to real estate. In a general liquidity freeze, the equivalent of a giant bank run, no bank was safe (3150).

*8*  By the magic of independent probabilities, the worse the quality of the debt that entered into the tranching and pooling process, the more dramatic the effect. Substantial portions of undocumented, low-rated, high-yield debt emerged as AAA. In any boom, irresponsible, near criminal or outright fraudulent behavior is to be expected (1413). It was a bank run without deposit withdrawals. There had been no deposits. There was nothing to withdraw. For banks to find themselves a trillion dollars short, all that needed to happen was for major providers of funding to withdraw from the money markets (3190).

*9*  On a global scale over the next five years, the United States would be the only source of safe, Treasury-grade assets for investors worldwide. Whatever you might think of the Trump administration, if you needed to park a large volume of funds in safe government debt, there was no alternative to US Treasurys (11511). A huge class of AAA-rated private label securities had shown itself to be far from safe, so the demand for Treasurys was huge (6018).

*10*  It wasn’t the sovereign debt crisis of 2010 that halted Europe’s growth, it was the transatlantic banking crisis of 2008 (3351). America’s securitized mortgage system had been designed from the outset to suck foreign capital into US financial markets and foreign banks had not been slow to see the opportunity (1583). …foreigners owned a large portion of America’s houses. By 2008 roughly a quarter of all securitized mortgages were held by foreign investors (1586). …by far the largest purchasers of US assets, by far the largest foreign lenders to the United States prior to the crisis, were not Asian but European (1673). By the early 1980s both Britain and the United States had abolished all restrictions on capital movements and this was followed in October 1986 by Thatcher’s Big Bang” deregulation (1743). …the competitive race for profit and market share among the banks in turn unleashed a regulatory race to the bottom (1821).

*11*  Never before outside wartime had states intervened on such a scale and with such speed. It was a devastating blow to the complacent belief in the great moderation, a shocking overturning of prevailing laissez-faire ideology (3529).

*12*  In the United States and the UK the central banks were pushing liquidity into the banking system. By contrast, in the eurozone, it was the balance sheets of the banks that absorbed the sovereign debt (6037). … the failure to build new capital would leave the European banks in no position to absorb any further shocks. While the United States began to stabilize, in Europe the banking crisis of 2008 would merge a year later with a new crisis: a panic in the eurozone public debt market. The connecting thread between the crisis of subprime and the crisis of the eurozone was the fragility of Europe’s bank balance sheets (6573). As the Financial Times put it, the failure of the eurozone to restore stability on its own terms meant that by April 2010, the ‘rescue’ of the euro, ‘the ultimate expression of European integration’, depended on outsiders in international institutions and the US administration” (7037). Whereas tiny Latvia had needed only a few billion euros, now the IMF pledged 250 billion. It was by far the largest commitment the IMF had ever made to any program. The $1 trillion pledged to the IMF at the London G20 that was supposed to mark the advent of a new age of global firefighting would be deployed to rescue Europe (7115)

*13*  In retrospect, Draghi’s whatever it takes” speech has come to be seen as the turning point of the eurozone crisis. In the aftermath, markets immediately calmed (8910). ‘Whatever it takes’ was, in fact, a form of surrender. The eurozone was finally giving in to what Anglophone economic commentators had been calling for all along. If only the ECB had moved to the Fed model earlier, as Obama had spelled out at Cannes, the worst of the eurozone crisis might have been avoided. What Draghi now promised was what Geithner, Bernanke and Obama had been preaching to the Europeans since 2010: Do it our way.”… The eurozone was saved by its belated Americanization (8989). Though the ECB did not purchase newly issued government debt, what it did do was to repo sovereign euro bonds.27 As the eurozone deficits ballooned, the ECB operated what was known informally as the “grand bargain.”28 It supplied hundreds of billions of euros in cheap liquidity to Europe’s banks in the form of the socalled Long-Term Refinancing Operation initiated in May 2009.29 The banks then bought sovereign bonds” (6028).

*14*  In the spring of 2009 France and Germany had lectured the UK and the United States about financial stability. A year later they were reduced to calling on the IMF to help not just Greece but the eurozone as a whole (6611). In the space of barely three weeks, the German chancellor managed to tell the press that politicians should be responsible to markets and to tell the pope that politicians should make policy for the people” regardless of those markets (8064).

*15*  The revolving door that feeds government in America regularly rotates between public service and the corporate world (11398). Both the number one and number two positions at the Treasury were to be filled by men—Steve Mnuchin and Jim Donovan—with Goldman Sachs pedigree. Dina Powell, who moved to the influential assistant position at the White House, had formerly headed the bank’s philanthropic efforts. National Economic Council director Gary Cohn was formerly Goldman’s president.

*16* But for it /the Great Slump / there would certainly have been no Hitler”… “Would fascism have become very significant in world history but for the Great Slump? Probably not. Italy alone was not a promising base from which to shake the world…. It was patently the Great Slump which turned Hitler from a phenomenon of the political fringe into the potential, and eventually the actual, master of the country (Hobsbawm (1996), p. 86, 130).

*17*  Political choice, ideology and agency are everywhere across this narrative with highly consequential results, not merely as disturbing factors but as vital reactions to the huge volatility and contingency generated by the malfunctioning of the giant systems” and machines” and apparatuses of financial engineering (11989). The idea that ‘social Europe’ had deviated in any essential way from the logic of turbocharged ‘financial capitalism’ as exemplified by America was an illusion. In fact, Europe’s financial capitalism was even more spectacularly overgrown and it owed a large part of its growth to its deep entanglement in the American boom (2666).

*18*  In the spring of 2010, Schäuble’s scheme was shot down, by friendly fire.23 Chancellor Merkel was no European federalist. She had no desire to reopen the terms of the Lisbon Treaty for which she had fought so hard and which was only just coming into operation (6923). She /Merkel/ was not about to endow Brussels with its own monetary fund. She was far too skeptical of Europe’s capacity for self-discipline (6925). A committee of the EU, the ECB and the IMF would make up the soon to be infamous “troika,” dictating policy to Greece and the other “program countries.” What was ruled out was restructuring. On that Washington sided with the French and the ECB. Existing Greek debt would be paid off with new loans from the troika, whether or not the result was sustainable (6997).

*19* Throughout the Nation, opportunity was limited by monopoly… For too many of us the political equality we once had won was meaningless in the face of economic inequality… A small group had concentrated into their own hands an almost complete control over other people’s property, other people’s money, other people’s labor – other people’s lives. For too many of us life was no longer free, liberty no longer real… Franklin D. Roosevelt 1932

*20*  Globalization had pushed top incomes up and lower incomes down. Since the 1990s, the impact of these factors had only increased. Imports of cheap manufacturers opened up by NAFTA and Chinese accession to the WTO benefited consumers, but depressed wages and robbed blue-collar Americans of secure manufacturing jobs and the health and retirement benefits that went with them. By 2013, experts close to the American labor movement estimated that the trade deficit with China had cost 3.2 million jobs and the competition of low-wage foreign labor had depressed the wages of the 100 million American workers without college education by $180 billion (9187). Between 1977 and 2014 the share of national income going to the top 1 percent before taxes and benefits had risen by 88.8 percent. After fiscal redistribution their share increased by 81.4 percent. Nor did the tax and welfare state prevent the share of the bottom 50 percent from declining from 25.6 to 19.4 percent (9202).

*21*  The arsonists from Goldman Sachs: On April 16, 2010, the SEC announced that it would be bringing charges against Goldman Sachs for misleading the investors to whom it had sold inferior quality mortgage-backed securities (6402). The revolving door that feeds government in America regularly rotates between public service and the corporate world (11398). The firefighters from Goldman Sachs: In his early days as Treasury secretary, Geithner was quite commonly described as being formerly of Goldman Sachs (6216). In 1993 /Robert/ Rubin had moved from his position at the top of Wall Street, as cochairman at Goldman Sachs, to serve as the first head of the National Economic Council, which Bill Clinton had called into existence as a counterpart to the National Security Council. Two years later Rubin was appointed Treasury secretary (690). Hank Paulson, like Rubin, moved to the Treasury from the CEO job at Goldman Sachs. (948) It was surely more than coincidence that MontiDraghi and Otmar Issing, Merkel’s favorite economic adviser, had all worked for Goldman. (8401) It was Draghi—an American-trained economist; a Goldman Sachs associate; a paid-up member of the global financial community; a “friend of Ben” /Bernanke/; an internationalized, urbane Italian, not a provincial German—who delivered this conclusion to the agonizing story of the eurozone crisis (8992). Both the number one and number two positions at the Treasury were to be filled by men—Steve Mnuchin and Jim Donovan—with Goldman Sachs pedigree. Dina Powell, who moved to the influential assistant position at the White House, had formerly headed the bank’s philanthropic efforts. National Economic Council director Gary Cohn was formerly Goldman’s president (11382).

Harald Schumann had already spoken of “plutocratic nepotism” (Global Countdown, 2008, p. 121).

*22*  What Reich now recognized was that much of this was “insufficient,” if not “beside the point,” because it overlooked a “critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs …. The problem is not the size of government but whom the government is for” (9236)

*23*  If there was any justification for the protracted torture of Greece, it was the fear that an immediate debt restructuring would unleash contagion to other sovereign debtors across the eurozone and destabilize Europe’s banks, thus causing a far wider crisis (7372). Restructuring would have had immediate and devastating implications for the Greek banking system, not to mention broader spillover effects.” This was what was ultimately decisive (7159). …restructuring was an unpopular option with the creditors. As recently as 2007 Greece’s bonds had traded at virtually the same yield as Germany’s. They were widely held. At the end of 2009, of Greece’s 293 billion euros in public debt outstanding, 206 billion were foreign owned, 90 billion were held by European banks and roughly the same amount by pension and insurance funds (6644).

*24*  What drives global trade are not the relationships between national economies but multinational corporations coordinating far-flung value chains (424). … the world economy is not run by medium-sized “Mittelstand” entrepreneurs but by a few thousand massive corporations, with interlocking shareholdings controlled by a tiny group of asset managers (562). In 2008 that flow of dollars grew to such proportions that it rendered any effort to write a separate history of the American and European crises anachronistic and profoundly misleading” (4333). Obama was left to remark: “We now live in a global economy where everything is interconnected, and that means that when you have problems in Europe and in Spain and in Italy and in Greece, those problems wash over into our shores” (8016). Greenspan declared, because “(we) are fortunate that, thanks to globalization, policy decisions in the US have been largely replaced by global market forces. National security aside, it hardly makes any difference who will be the next president. The world is governed by market forces.”… As Fed chair he had made the markets into the ultimate arbiter of American economic policy” (11293).

I would like to add that the book is also rich in information about Asia and Russia, which I could not include in this brief review.

Is Democracy still alive?

We are used to measuring this form of government above all by the degree of freedom that a government grants its citizens. Viewed from this perspective, the picture is as bright as it is gloomy. No one prevents me from expressing even the most absurd opinions. I may even call publicly for the overthrow of the government, provided that this is done without insulting specific individuals and without denouncing the democratic constitution as such. We should not regard this as a matter of course. In Putin’s Russia, we see opposition members disappearing under unresolved circumstances; in China, they are simply eliminated under resolved circumstances. Countries such as Germany or Austria not only allow an almost unlimited freedom of speech but to a certain degree even of action. I am not forbidden to organize my life according to personal preferences living as a single person, in a homosexual relationship or as a protester with long hair or full body tattoo or even as an accepted dropout somewhere in the province. In the leading democracy of the West, in the US, I am even allowed to publish books in which I offer detailed descriptions of how to best crack the safes of rich people. Yes, and nobody prevents me from selling the tools that are best suited for this purpose. I am only forbidden to realize such recipes or to put those tools to a practical test.

This distinction is generally valid in the US. No law forbids me to openly confess my liking for human butchers like Hitler, Stalin or Pol Pot as long as I do not take concrete steps to translate their ideas into practice. Even a cursory glance at history teaches us that individual freedom, as it seems self-evident in the US or in contemporary Western democracies, never existed to such an extent.

Seen from this perspective, we have good reason to be grateful

for not being citizens of Putin’s Russia or Xi Jinping’s China. Many people who do not want to keep their own opinions in check would have to spend their lives in a prison cell – unless, that is to say, they are threatened with something even worse. These are facts that are hard to argue about. And yet, we have to say that such gratitude is not very widespread and rather meets with sneering smiles. We may be astonished by such reactions but they are not so difficult to understand. Let us for this purpose take a second look at Russia or rather at the international broadcaster RT (Russia today). It is striking how many outstanding Western intellectuals regularly appear at this platform – by no means only those who are sympathetic to the policy of the new Russian Tsar. They take this as a welcome opportunity to familiarize a wider audience with their thoughts, because they have little chance of being invited by the media in their own country.

It is true that in western democracies

everything may be said. Nobody wants serious thinkers to shut up, even annoying oppositionists, unscrupulous quacks, radical do-gooders or incorrigible reactionaries are allowed to speak out unhindered. The question is whether what they say will be heard.

Here the odds are definitely against them. Media concentration in a few hands has so much progressed in Western states – above all in the US – that opinions are now sifted and controlled by a handful of press moguls. This means that only those they admit as politically correct have any chance of being published and known by a broad public. Of course, social media such as Facebook etc. still open an almost limitless field to the freedom of expression, but at the cost of being unnoticed and unheeded. Utmost freedom is indeed perfectly compatible with an undemocratic control of media-effective opinion. The end of this development could very well be a de facto opinion dictatorship.

The fact that high-ranking US intellectuals such as Noam Chomsky are barred from public appearance in the media of their own country so that in order to be heard they accept invitations by RT, suggests that we are already heading in this direction.

Western societies suffer from a paradox

On the one hand, their people are doing better than ever before. Material living standards have never been as high as in modern welfare states. In earlier societies people regularly starved to death – as we know, in some parts of the world, this is the case even today. That is not to say that we do not witness premature deaths in Western societies, but instead of being caused by want as in earlier times they are the result of excess: obesity and other luxury diseases of present-day civilization.

On the other hand, we do experience a process of creeping disempowerment of the democratic sovereign. Many people are painfully aware that their vote counts for less or even nothing; the trend towards abstention should be an unmistakable warning. People feel the same with regard to their electoral participation as with regard to their personal opinions: they may freely indulge in both, but in the end they hardly matter.

Is this resignation justified

or does it only indicate an oversaturation with benefits that one takes for granted? After all, it is still up to the voter to decide whether Mrs. Merkel or the AfD, Bernie Sanders or Donald Trump come to power! And it is still up to the voter to elect a social regime like in Sweden or a decidedly neo-liberal one like in Great Britain. Such alternatives continue to be full of meaning! The democratic sovereign may still decide to use his voice for the sake of more social peace at home and greater respect from outside.

And yet the suspicion that even Western democratic states are granting their citizens less and less power is more than just an illusion. If Western peoples were really the lords of their own destiny, they should be happy with what is, after all, the outcome of their own choices. The barometer of satisfaction in Sweden or Great Britain would have to show a higher value than in autocratic China (before the Corona epidemic). But this is definitely not the case. A majority of Chinese look to their own future with optimism, while people in Western states – whether under left-wing or right-wing governments – face it with concern and fear.

But let’s leave psychology aside,

as it is subject to great fluctuations, and turn instead to those objective conditions that increasingly limit democratic freedom. Regardless of whether they are democratically governed or not, all modern states are forced to measure and align their own policies with those of their most successful competitors. Not only the latest inventions of technology, but also the most efficient organization of work or the most effective ways of attracting investment and international corporations are spreading like wildfire across the globe. Large companies always copied the best strategies of their competitors lest they fall behind. External pressure tends to be so overwhelming that they pay little or no attention to the needs of their workforce. But the same thing is happening between countries. These are increasingly behaving as if they were nothing more than variants of big corporations. Democratic self-determination is well on the way to being replaced by undemocratic external conditioning.

The progressive choking of democratic self-determination

is not the work of malicious conspirators against democracy – it is the result of external conditions. Without Germany and Austria succeeding in maintaining a presence on global markets through innovation, they will not be able to maintain their current standard of living. But in order to remain at the top, they must subject their people to the same degree of performance – and ultimately the same working conditions – as their most successful competitors. They must even allow the same concentration of banks and corporations as soon as mere size becomes an advantage in global competition.

And even more: they will have to sacrifice their own industries if their competitors gain an advantage by doing so. The policy of outsourcing industrial production to Asia was not the result of democratic decision nor of government planning – not even the CEOs of German industries wanted to do so, but it was dictated from outside by Germany’s most powerful competitor, the US. After the United States had embarked on this path, giving it a huge cost advantage, the Europeans had no choice but to follow suite, otherwise European products would no longer be able to compete with American products on world markets.

Why does the struggle between left and right political camps

seems rather unimportant after Tony Blair in England or Gerhard Schröder in Germany? Not at all because these two ideological positions suddenly lost credibility. It still makes a big difference whether we want to realize a maximum of material equality or a maximum of freedom.

The loss of significance of both positions is the result of external constraints. It is due to the fact that the individual state is no longer able to enforce its preferences when these are in conflict with the demands of global competition. In other words, the margin left to the democratic sovereign is increasingly restricted by globalization. Freedom only exists where neither a nation’s economic and military position nor the standard of living of its population is at stake. In the election of its President, Austria was able to choose between Alexander Van der Bellen and Norbert Hofer – a difference like between light and darkness. In Francois Hollande’s France, millions of people could take to the streets for or against homosexual marriage – the pressure from outside triggered by global competition only played a role insofar as the decision for this form of human bonds was considered “progressive” by most Western states. But even a decision against homosexual marriage would not have had any influence on the French standard of living.

But in a globalized world

it no longer depends on the decision of the democratic sovereign whether or not the country’s economy continues to follow a path of growth, whether or not it is dominated by international corporations and banks, whether or not Greta Thunberg’s demands are applied.

No – this observation needs to be corrected. It still depends on the democratic sovereign, because theoretically he could indeed elect a party that prohibits economic growth as well as any further increase in the consumption of resources. A democratic majority could even impose a radical green turn and initiate a basic transformation of the economy by reducing the current ecological footprint from more than two globes to the sustainable consumption of just a single one.

But this is precisely the step that no single state will take

Not because government or citizens are too stupid to recognize its necessity. After all, man has never been so foolish as to voluntarily devastate his own garden when he owes his survival to its fruits. The real situation is much more difficult and much more dramatic because the democratic sovereign literally fights against himself as he is torn between two insights that both have equal strength. Of course, every informed person would like put an end to ecological destruction rather today than tomorrow. But at the same time, everybody is equally aware that it would be of no use to his nation or to nature – if a single state sets an example that others do not follow. This applies both to sustainability in our dealing with nature and to the use of increasingly deadly weapons. The state that offers the world a truly Christian example by scrapping from one day to the next its entire nuclear armament will find itself the following day under the guardianship of villains who did not for a moment think of following its lead. Europe, militarily utterly weak when compared to the US, Russia and soon even China, likes to regard its weakness as proof of a higher moral stance. But it could one day bitterly regret this as fatal mistake if the superpowers exploit its weakness by making it the next theatre of war between them (like they did before to so many militarily defenseless states).*1*

The limitations of democratic sovereignty due to global competition

are a lot more pervasive than the interventions of the Brussels Commission in the sovereignty of European member states. In all central matters of national existence industrialized countries such as Germany, France or Canada follow the lead of the world’s most successful nations, just as every successful company constantly looks to its competitors in order to remain competitive. That is why consistent growth and the concomitant sell-out of nature remain categorical imperatives of governmental action as long as they give the individual state greater economic power in the race of nations and its citizens a higher material standard of living. States that would decouple themselves from this trend fall back to the level of developing countries or may even end up among “failed nations”.

The fear of relegation explains why CO2 emissions and the destruction of nature are constantly in the rise, although the need for green policies is being talked about more loudly every year. Every educated person is perfectly aware that progressive growth – both economic and military – is bringing humanity ever closer to its own ruin and that of the planet, but as long as the race of nations continues, they will not be able to do anything serious about it.

The question of whether we still live in democracies

thus allows for a twofold answer. Yes, we may still decide in favor of Merkel and against Höcke (AfD), in favor of Van der Bellen and against Hofer (FPÖ) – and that is an enormous asset. But unless being content with economic marginalization or imposed militarily domination, we must adapt to the most successful “role model” of leading competitors – in other words, we are forced to exchange a substantial part of democratic self-determination for a determination from outside – even doing so in the knowledge that it is precisely this race of competing nations that is leading all of them into disaster.

This insight amounts to an admission of powerlessness. But we must have the courage to face the truth, because only then will we be able to find a way of escape. This can only consist of a willingness in all states to renounce part of their sovereignty in order to put an end to the disastrous race that threatens everyone with both environmental and nuclear destruction. True, this demand too reduces sovereignty but it does so on a voluntary base in preventing disaster while current constraints from outside, that is the race of nations, make us involuntarily court disaster. In a globalized world, where each state influences the fate of all others by consuming scarce resources and destroying precious environment, events do no longer follow man’s true needs and intentions: democracy is in danger of degenerating into a mere farce. In the 21st century, man will reemerge as the master of his destiny only when he entrusts to an international authority the care for the tiny boat that (despite Mars and the Moon) will probably remain forever the only one for mankind.

1 How I hate to write this sentence! On a globe that already resembles a powder keg, every additional atomic bomb means another step towards the apocalypse. Unfortunately, strict pacifism is no alternative either when applied to a shark tank. The global race of nations has maneuvered mankind into a situation from which it can only rescue a supranational authority that ends this race.

Austrian Chancellor Sebastian Kurz – statesman or ingenious juggler?

This question offers no foregone conclusion. Before the chairman of the Austrian People’s Party achieved his sensational election success, the judgements of friends and foes could well be subsumed under these two terms: statesman or juvenile juggler. Continue reading Austrian Chancellor Sebastian Kurz – statesman or ingenious juggler?

Sarrazin reloaded

The best known example of a shitstorm of recent origin is, of course, the “case Sarrazin”. In his book “Deutschland schafft sich ab” (Germany is about to abolish itself), 95% of his evidence had been drawn from relevant scientific publications, while the last 5% (particularly his comments on the relative importance of the environment versus genetic predisposition) were a matter of legitimate scientific controversy. The professional publications he used had, however, only reached the tiny audience of researchers with similar interests, that is why they had practically escaped all public attention. Continue reading Sarrazin reloaded

To „sinn“ or not to „sinn” – that is the question

Since the old Babylonians looked up to the stars, man has been thinking about the future, trying to read it from tea leaves, from the livers of sacrificial animals or derive it from the stars of the zodiac. Nowadays, we tend to be more modest: at most we ask what will happen in the next ten to twenty years – for example, how people will judge the Merkel era after her successor occupies her position. Continue reading To „sinn“ or not to „sinn” – that is the question