“Idiots Fiddle While Rome Burns” – comforting and facile rhetoric

Now that the housing crisis is visible to all, let’s do what 21st century Americans do best:  point the fickle finger of blame at someone else.

Idiots Fiddle While Rome Burns“, Barry L. Ritholtz, posted at The Big Picture, 16 July 2008 — Bold emphasis added.  Excerpt:

The collection of ne’er do wells, clueless dolts, political hacks, and oh, let’s just be blunt and call them what they are — total Idiots — expands into an ever larger circle.

While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone — except their own horrific negligence.

This is financial incompetence writ on a scale far grander than anything seen for centuries.

As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role reached the point of malfeasance long ago. History is unlikely to be kind to the Maestro.

There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God’s sake, do not give us the worst of both worlds — do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.

That’s not capitalism, its not socialism, its not regulation, and its sure as hell isn’t what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

We have entered into a fit of Orwellian madness: The American Capitalists, long the globe’s leading advocates for free markets, have become near Socialists. Halfway around the world, the Chinese Communists have picked up the baton, and are moving rapidly towards a form of Capitalism. Ironically, it is the once largest communist nations — the Chinese and the Russians — who holds much of Fannie and Freddie’s paper.

Like most 21st century American analysis, this comforting rhetoric absolves us of any blame. 

(1)  For years we read of no money down, no documentation (liars’ loans) mortgages — how could we have known this would end badly? 

(2)  Home prices ascend beyond anything in our history, as people wildly speculate on further appreciation … how could we have known this was not fine and proper?

(3)  Our savings rates dropped to zero, as we plunged heedlessly into debt — each month Wall Street applauded as the increase in consumer spending exceeded that in consumer income.  We are just citizens, not rocket scientists; why should we have worried about this?

On a deeper level this is absurd:  “That’s not capitalism, its not socialism, its not regulation…”  This is both sensible and easy to understand.  Powerful groups have made uncounted billions during the housing boom — in finance, construction, and related industries.  Now the damage to the system must be repaired at the public’s expense.  This is a form of exploitation of the state common to both socialism and capitalism — just the form varies.

Correct diagnosis must preceed a successful cure.  Analysis like this is fun to read but helps not at all.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about this subject

  1. A brief note on the US Dollar. Is this like August 1914?  (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
  2. The post-WWII geopolitical regime is dying. Chapter One   (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
  3. We have been warned. Death of the post-WWII geopolitical regime, Chapter II  (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
  4. Death of the post-WWII geopolitical regime, III – death by debt  (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
  5. Geopolitical implications of the current economic downturn  (24 January 2008) – How will this recession end?  With re-balancing of the global economy, so that the US goods and services are again competitive.  No more trade deficit, and we can pay out debts.
  6. A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
  7. What will America look like after this recession?  (18 March 208)  — More forecasts.  The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
  8. The most important story in this week’s newspapers   (22 May 2008) — How solvent is the US government? They report the facts to us every year.

To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.

16 thoughts on ““Idiots Fiddle While Rome Burns” – comforting and facile rhetoric”

  1. I think you’ve misjudge Mr. Ritholtz’s comments. I regularly read TBP, and while the article you have quote makes for great reading and has all of the makings of ‘comforting and facile rhetoric,’ do not be fooled into thinking that Barry (or those who read his blog) didn’t see all this coming. He’s a great market commentator, and unlike the talking heads at CNBC, saw it coming, and like you, doesn’t see a real end for quite some time. Most of his posts are well thought out, well researched, throughly analyzed pieces, on wide-ranging topics.

    But your main point is right; rhetoric like this does nothing. But it is fun to read.
    Fabius Maximus replies: You are re-enforcing my point, which I consider an important one. That he — and so many others — saw this coming is in effect to spread the responsibilty to us (collectively, as citizens in a Republic). That we saw this coming but did nothing is our failure. We are citizens, not passengers, in America.

  2. I could not agree more. I think that the economic conditions will have to get much worse to get the public to act. The public has gotten into what I call the “Don’t rock the boat” mode. They don’t trust any of the current political options but are unwilling to make the personel sacrifice required to at least head in the right direction. Until it becomes evident to the citizens that some changes need to be made, sacrifice and change will not occur. That is why the government and the political elites keep spinning the data. I refer to “Shadowstats” website. They have continued to keep track of M3 as well as alternate methods of calculating inflation. It’s avaialable here.

    Go to the alternate data area. Pretty interesting. Before we start pushing for hard solutions our data must reflect the reality of the situation. The information we currently receive from the FED and other state organs just is not accurate at this point. It takes about 1/3 of the population to set a direction for the country and at this point they are not moving in any direction. My fear is this is typically when Republics head down the road to Empire. Fun to watch from afar but not something I want see up close.
    Fabius Maximus replies: I have discussed this many times on the FM site, in posts and comments.

    First, “inflation” and “GDP” are high level abstractions. They are not like counting apples. There is no “right” way to calculate them. Any methods has problems, and will fit some economic situations better or worse than others. For some apects of the measuring process there are no good solutions.

    Second, the methodologies have by most accounts improved over time in many ways. Our theoretical understanding of inflation and econometrics is much better than in 1970 (pre-Freidman and the the monetarist revolution), and this is reflected in the BLS methodologies.

    Third, the government’s statistical agencies do not operate like DoD — where money is no object. They are grossly underfunded, and do the best they can with what resources we give them. The best way to get better economic stats is lobby your representatives to better fund these agencies.

    Fourth, these worries about M3 are oversimplistic. M3 is largely driven by flows of funds into things like money market funds — and credit. Inflation is largely a function of changes in the lower “M’s.” The adjusted monetary base is up only 1.9% in the past 12 months, M-1 +0.4%, M-2 +6.3%.

  3. What’s left for that portion of the citizenry that is aware, following events and can do the math on the coming debt tsunami and coming energy crisis rolling towards the USA other than “comforting and facile rhetoric”?

    Yes, it was all of “our” fault that we got here. But how do you explain that or educate the public of that fact? How do you change the mental software and programming of several generations raised up in a time of vast abundance, cheap energy and relatively easy living? How do you get them ready for the hard times to come?

    1. Do we try to turn to history? History is ignored by the current crop of governing elites (Imperial Spain in her dotage, the debt collapses of various Latin American Republics over the past 5 decades, any basic textbook on economics, etc.) and also ignored by most of the populace.

    2. Do we turn to trends, hard facts, numbers, etc.? Former GAO comptroller David Walker tried this, using the bully pulpit of the GAO to hector Congress and a citizenry that lives in a Xanax-and-TV induced stupor for the most part. His words were ignored, except by the remnant of us who can do math, but not influence policy.

    3. Do we try to rally the public behind a well-funded plan led by someone with credibility? Well, T. Boone Pickens is trying that on the narrow, but unbelievably important topic of energy policy. He’s spent a great deal of time and money trying to round up a national consensus. While time will tell if it works, my bet is no.

    While I agree with Fabius that “[c]orrect diagnosis must proceed a cure” – it is my opinion that such a diagnosis is not what will stir the sluggish mass of American citizenry to action. That requires anger channeled by outstanding propaganda, such as Paine’s “The Crisis”.

    Blog postings such as the one skewered above do, in my opinion, serve a purpose – it helps build the fires of anger necessary to prepare people to wreck an entire system of finance, governance, economic ties and social interaction and try and replace it with a new, and hopefully more equitable and just system or at least prepare them for the hard times to come as the children, grandchildren and great-grandchildren of the Baby Boomers prepare for lives of debt servitude to the Chinese, Japanese and other holders of US Treasury debt.

  4. I don’t agree that correct diagnosis must proceed a cure — because it’s clear to me that such a diagnosis will blame the US voter/ homebuyer, and it’s certain that the guilty voters would rather vote for some demagogue who mostly blame others less guilty (NOT innocent, oh no).

    Too bad FabMax stopped quoting before the excellent:
    Perhaps the rescue of “Phony and Fraudy” are not so much a bail out of American homeowners as it is a desperate attempt to stay in the good graces of our friendly global bankers.

    Like the internet bubble of the prior decade (only 7 years ago!), the same bubble dynamic. Warnings about the coming disaster (1996 / 2003), but years of growth, profit, bonuses for those who followed the bubble before the pop.

    I wish Mike #3 was correct about the anger, but let me ask: did he (or you FM) buy a house or re-finance in the last 6 years? Doesn’t that make you part of the problem? The protection of the herd means the predator might get one, but with a larger herd, there’s a smaller probability of being the one picked off.

    I recall reading Buffett’s 2000 letter, bemoaning that he wasn’t invested in dot.com stocks, and didn’t understand them, and wasn’t going there. But Berk lost some 50% of value and investors from 1996; yet it didn’t lose much in the dot.com bubble pop, and the more gloating 2001 letter talked about investments in brick “I know you are all excited” (quote from memory).

    The elites capture most of the upside benefit, the taxpayers pay the uncovered risks when the problems occur; taxpayers forced to pay by the gov’t. That systemic pro-elite gov’t bias will never change by bigger gov’t, or more gov’t control, altho there may be gov’t programs that reduce the bias.

    I notice again no talk about the income tax deduction for interest, which encouraged more borrowing and risk rather than more equity and less risk — perhaps equity to the people should be an explicit gov’t home purchase program.
    Fabius Maximus replies: I believe that your post is evidence that correct diagnosis must preceed a successful cure. You seem to consider the problem to be the mtg interest tax deduction and people buying primary homes. I do not understand how this could cause the present problems.

  5. You misunderstood my Idiot’s Fiddle post — I had already assessed blame for the mess LAST summer. http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2007/08/27/the-ongoing-impact-of-the-housing-sector.aspx


    “Now, we come to the fun part of today’s commentary: assessing blame for the whole shebang.

    I have some bad news for you fans of schadenfreude: The responsibility is widespread, with plenty of blame to spare. I assess the responsibility for the mess to the following:

    * Federal Reserve (FOMC)
    * Borrowers
    * Mortgage brokers
    * Appraisers
    * Federal Government
    * Fannie Mae
    * Lending banks
    * Wall Street firms
    * CDO Managers
    * Credit agencies
    * Hedge funds
    * Institutional Investors (pensions, insurance firms, banks, etc.)
    * And back to regulatory role of the Federal Reserve

    Let’s look at each of these in turn…”


    The “Idiots Fiddle” rant was just that — But for those of us who recognized the danger way in advance, it is frustrating to see the worst case scenario play out.
    Fabius Maximus replies: I do not understand what you are saying. I agree with the fault of all these agencies, but said that there is another level of responsibility — that of citizens who watched all this, read the warnings, did nothing — and now must pay for the result (the world is cruel but just that way).

  6. In discussing this lunacy, our dictionary of euphemisms, How Not to Say What You Mean, equips us with the following moon related vocabulary:

    Fly-by-night: 1) An absconding debtor. 2) drunk

    Bolt the moon: the clandestine departure of an absconding debtor. See shoot the moon.

    Moonlit flit: see “bolt the moon.” See moonlight flight, moonlight march, moonlight touch, moonlight walk.

    Other “moon” euphemism:

    Moon: to expose the buttocks
    Moon people: lunatics
    Moonlight: 1) associated with smuggling, 2) to work a second job
    Moonraker: s smuggler
    Moonshine: whiskey

  7. Pingback: Business as Usual « Mountain Shout

  8. Hey Tom,

    Great points all. Personally, I sold out and have been a renter for several years and so the housing part of the various FedGov giveaways doesn’t directly impact me, but I’ll be the first to admit that when I fill out my taxes, I take “advantage” of varoius credits that I do qualify for, so in that sense, I am just another part of the problem.

    I do like your analogy about the herd mentality. There may be a lot more there than most realize. The herding instinct is deeply wired into the species. Just as you pointed out, with a big herd, only a few on the edges may get picked off when the herd goes stampeding, even if in the wrong direction.

    What I worry about is the the herd stampeding towards off a cliff and ass over teakettle into the abyss…

  9. Is the person who voted against disastrous policies and was overruled by the majority voting for them (or as is more often these days, majority allowing anything by saying nothing and not voting) still responsible for the predictable result? Does he deserve to suffer from the fallout?

    And what else could he have done? Stormed Washington and NY and put guns to the heads of Fed/Congress/etc? – anything less would not have stopped it.

    The establishment is feeding on the decay and there is no realistic AND legal way for the citizens to replace the entire establishment.
    Fabius Maximus replies: I am not speaking of responsibility before Man or God, but of collective responsibility — we are all on the same boat, which will survive or sink. The basic elements of a citizens’ responsibility in a republic are voting, contributing time and money to canadates’ campaigns (think of the widow’s mite), and lobbying others (like writing posts or comments on the Internet).

    If you did all those things to the greatest extent practical for you — but the majority were unmoved — then you have learned a valuable lesson. The universe is unfair, and nature does not care. The Old Testament Prophets discuss this at length. God seldom spares a city because of the five good men in it.

  10. ‘The establishment is feeding on the decay and there is no realistic AND legal way for the citizens to replace the entire establishment.’

    If what you say is true the Republic is dead. The Republic is dead. Long live the Republic.
    Fabius Maximus replies: You have defined the problem in such a way that our failure is guaranteed. The nice aspect of your view is it means you have no responsibility for the outcome. This last point seems to be the most important thing for many Americans — which suggests that your formulation might be too optimistic, that we are better suited to be serfs, and there will be no next generation Republic.

    Fortunately I believe that this is not the America of our ancestors (that is, Americans before us — not in a genetic sense). They tackled proplems as necessary, without calculating or being deterred by the odds. Nor do I believe this attitude represents the America of today, which will rise to meet our challenges — without facile resignation.

  11. Thanks Fabius for reply to my post earlier. Since I’m a newbie to your site I have much reading to catch up on.

    To basically buy off the the citizens you have to pay them off in one fashion or another. My reference to M3 is more of a way of measuring this. With loose monetary policy we can hide many things. The biggest shift came under Richard Nixon when he moved us away from the Breton Woods accord. Greenspan used loose monetary policy to inflate the economy to get past the tech bubble in stocks thus creating the housing bubble. Bernanke has tried the same thing but since we are now in a credit crisis it has only increased the cost of imported goods. Oil being the best example. Until the citizens decide that they should rock the boat and change things we will stay on this road. The military approval ratings are much higher than the politicians, lawyers and the press. I’m sure many temptations abound.
    Fabius Maximus replies: There is little evidence that the US has a loose monetary policy now or during the past few years. The high rate of growth in M3 results from technical factors relating to money and credit flows (esp the flow into money funds from asset-backed commerical paper and variable rate securities).

    Inflation is largely a function of changes in the lower “M’s.” The adjusted monetary base is up only 1.9% in the past 12 months, M-1 +0.4%, M-2 +6.3%. See the St. Louis Fed’s weekly report “US Financial Conditions” for details.

    Also, allowing massive growth in credit — spending beyond our national income — is not the same as a loose monetary policy. As a result of decades of overspending and weakening power vs. the rest of the world, the US dollar is too strong. Only then will our exports again be competitive in global markets, the trade deficit shrink, and the flow of jobs overseas slow.

    Our position is similar to that of the UK after Churchill set the pound too high after WWI. It took decades for the pound to work itself down, with the UK fighting every step of the way. They were painful decades for the UK.

    See these for details:

    * “Death of the post-WWII geopolitical regime – death by debt

    * “Geopolitical implications of the current economic downturn

  12. ‘You have defined the problem in such a way that our failure is guaranteed. The nice aspect of your view is it means you have no responsibility for the outcome. This last point seems to be the most important thing for many Americans — which suggests that your formulation might be too optimistic, that we are better suited to be serfs, and there will be no next generation Republic.’

    Do not confuse my cynicism on a blog post with a lost faith in my country. While I see the many problems in our country, I also see the good and the people that have grown tired of having their efforts thrown away by populist politics and bad policy. I am young, determined, learning, and trust me, not alone.

  13. Hi Fabius
    The kind of apocalyptic rhetoric I am reading on this post always frustrates the hell out of me. The problems we face today are problems of perspective to wit: the post war generations have never had to face up to REAL problems such as WW 2 and the Depression. So it seems like any economic bump in the road is cause for hand wringing, breast beating and forecasting of doom for western civilization.

    What is going on right now is a mildly painful correction of excesses produced by conventional wisdom, hubris and other mass psychology pathologies. The reason the correction SEEMS so severe is because there is a LOT of money floating around the world and credit markets have been able to snatch a major portion of it. So when the bubble bursts it has a lot of fallout. But these same capital flows will self-correct the financial system sooner than you might think. You know the recovery is under way when you read on the cover of “USA Today” (as I did in a hotel last week) that the financial system is heading to wrack and ruin.

    My last magazine article forecasted that NEW housing has bottomed out and recovery will become obvious by 2010. I still believe that. The holdup is, of course, existing housing. So don’t get your panties in a bunch people. We will be okay!
    Fabius Maximus replies: (1) Before we take too much comfort from your forecasting ability, when did you predict the nature and extent of our current crisis? (I would love to see the citation).

    (2) “What is going on right now is ”

    We are speaking more generally about the downcycle that has begun, speculating about its duration, magnitude, and effects. All we can is guess, as past recessions show that even on the brink major economists could see neither the downturn nor what lay beyond. Nor can we. Nor can you.

    (3) “The kind of apocalyptic rhetoric I am reading on this post”

    This repeats your comment on 13 July: “Haven’t read this site yet but now I understand your resistance to seeing short term changes in the futures market when your mind is occupied with long term Amageddon.”

    To which I’ll give reply:

    Yes, you have not yet read much on this site, as this directly contradicts my most frequent statement about the coming events. A few examples…

    * “That would be serious, but should not be confused with Armageddon.” from “The US economy at Defcon 2“, 11 March 2008.

    * “But nothing like the Armageddon described in doomsters’ forecasts.” from “Peak Oil Doomsters debunked, end of civilization called off“, 8 May 2008.

    * “This is a harsh scenario, but even so it is not Armageddon.” from “Consequences of a long, deep recession – part III“, 20 June 2008.

    I suspect we have entered into a period of regime change, a historically common event. Not the end of America, not the end of life itself.

  14. Apologies if I was unclear. I am not saying that the changes cannot be done and the problems cannot be solved – I just do not see how it could be done from within the existing political system (which does NOT mean violence is neccessary).

    For a simplistic example: Soviet Union in its last years tried to save itself by becoming more “free” and “capitalistic” but legacy power structures and ideologies limited its options. Unable to achieve enough change and unwilling (or unable?) to go back to a controlling/repressive regime like Stalinism, it fell apart and a new political system was established. And many people there consider themselves better off now.
    Fabius Maximus replies: I understand the concept, but applying lessons or insights from the USSR to the US seems a bit of a stretch, imo. More of an excuse, I suspect.

    There is one powerful similarity, however, between Marxism and the widespread belief of US citizens in their helplessness and impotence, from Allan Bloom’s The Closing of the American Mind (p. 149, slightly paraphrased to this context):

    “One of the charms of Marxism is that it explains the injustice of our society in such a way as to exculpate the people, who are said to be manipulated by corrupt elites.” This is comforting, but (once internalized by a majority) disqualifying its people from citizenship (de facto, by the harsh workings of life).

  15. Hi Fabius
    A little late in replying to your slightly facetious comment. I will take no offense as I can send you my first public statement from May 07 or power point sheets from my speeches of the period.

    I was calling for this crash in 2005 but unfortunately I was a company president in those days and did not have a lot of time to write. But my forecasts on housing starts and lumber consumption (my old industry) from 05 on happen to be almost perfect so I thought what the hell I might as well take it up in retirement.

    If you would like testimonials from well known industry figures I can supply those as well.
    Fabius Maximus replies: It was not at all a facetious comment. Confident predictions about the future by folks totally surprized by the present are commonplace. Almost a distinguishing quality of economists, for example. Successful forecasting, at least to the small degree possible, is IMO (I stress, opinion) is a useful criterion to filter out the dross. And we have a large number of individuals and institutions to choose from even considering only whose warnings — ignored warnings — might prove prophetic.

    I would find links to or emailed doc’s of interest. No testimonials, please — their utility I find usually ranges from zero to negative.

  16. BTW if you want to test my forecasting abilities please note oil prices. If you remember several weeks ago I called for a $40 correction in crude by fall. At the time it was in the mid-high 140’s. We are half way there now. The rest remains to be seen.
    Fabius Maximus replies: There is a massive body of research showing that single predictions of this sort prove nothing. Zero. Belief in this sort of “evidence” accounts for the popularity of astrology and dial-a-psychic services.
    Any reasonable accuracy at price predictions of this sort would lead to awesome wealth via options and futures. Much as Las Vegas tests for existance of telekenic and certain other forms of psi power.

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