The Bubble Boys

The $700 billion bailout for the Wall Street poobahs looks ready to sail through the House of Representatives, which earlier – and uncharacteristically – listened to the popular will and voted a resounding “No!” heard ‘round the world. After going back to the drawing boards, and doing what they did with the war funding vote – packing plenty of pork into it – the Democratic-controlled Senate gave its assent, as expected.

The history of this tactic is recent. When left-wing Democrats rebelled and threatened to vote against war funding, Pelosi festooned the “off-budget” appropriations bill with plenty of midnight basketball and similar bridges-to-nowhere: in Washington, a little bribery goes a long way. Same with the bailout bill: it went from 3 pages to novel-size and by the time it gets through the House it may be the legislative equivalent of Atlas Shrugged – although, I fear, our story will have a different ending. The pressure is now on House Republicans – who make up the majority of nay-sayers – to get with the program and vote “aye.” One question, however, that is on everyone’s mind is: where is all this money going to come from?

The answer is that it is going to be added to the U.S. government’s already astronomical debt, which is being financed by foreign creditors – the Chinese, the Saudis, and various and sundry other governments flush with cash and looking to park it someplace. This has worked out, so far, although not without preliminary warnings aplenty of the gathering crisis. There is, however, a point where the credit rating of the U.S. Treasury reaches its limit – and it is about to do so. Past that point, foreigners will pull out their money, seeking safer havens than the increasingly hollow “guarantee” of our government’s “good faith and credit.”

Then what?

Then – real catastrophe, albeit not the one warned of by advocates of the bill, including the two “major” presidential candidates. To the solons of Washington, the downfall of the Bubble boyz – those who profited from Alan Greenspan’s irrational exuberance as he stepped on the gas and let it rip – is the greatest tragedy ever told. No more private planes. No more high class whores – and, speaking of whores, no more corporate slush funds and fat campaign contributions to cooperative lawmakers. Oh, boo hoo hoo!

Yet this sentiment is limited to the precincts of the Imperial City. The meteoric rise and fall of the Bubble boyz is a morality tale that the man in the street can understand – and applaud! – with unabashed schadenfreude. The offspring of the Greenspan bubble are several grades lower on the evolutionary scale than the old WASP elite. They are certainly not imbued with either the traditional spirit of noblesse oblige or even ordinary common sense.

This is what Ayn Rand – Greenspan’s old mentor – used to call “the aristocracy of pull,” as she put it in one of her fascinating and audaciously self-referential essays. The housing boom – and bust – was made possible by U.S. government-guaranteed loans, given to individuals who failed to meet minimum credit standards. This “backed by the faith and credit of the U.S. government” label created a market that continued to overvalue these “assets,” which were then bundled together into instruments of increasing complexity and sophistication. These “derivatives” and other exotic securities became progressively further and further removed from real market conditions.

The Greenspan bubble, pumped up to its limit, continued to expand – and quite naturally popped. Rand used to call him “the undertaker,” because of his dark suits and darker demeanor. Little did she realize that her loyal disciple – Greenspan used to give lectures on “The Economics of a Free Society” at the old Nathaniel Branden Institute – would one day become the undertaker of the U.S. economy.

The policy of bank credit expansion – inflating the money supply – benefited certain groups and disadvantaged others: it privileged the already-rich at the expense of the aspiring, and those on limited incomes, because new money trickles downward, from the commanding heights to the lower echelons of the socio-economic pyramid. By the time it gets near the bottom, this cash has already lost a good deal of its value, although the illusion of widespread prosperity lingers for a time.

Socialism for the rich, capitalism for the poor – that’s the first rule of state-capitalist societies everywhere. Aside from the financial whiz kids and the real estate moguls, however, it was the military-industrial complex, as Dwight Eisenhower called it, that was perhaps the single greatest beneficiary of the Greenspan bubble.

Our wars of ‘liberation” are financed by the age-old stratagem of inflating the money supply: this covert tax is no less keenly felt, yet our awareness of it is gradual, less shocking than a tax bill. Now, of course, we are feeling it, as even the most hawkish pro-war Republicans, such as Tom DeLay, admit. On MSNBC the other day, the “Hammer” was asked his opinion of what caused the fiscal crisis, and he somewhat sheepishly pointed to the costs of the Iraq war. By a conservative estimate, these costs will total some three trillion dollars, and today, as we approach our sixth year of war with no clear end in sight, even pro-war types such as DeLay, backed up against the wall by the fiscal crisis, concede war expenditures are the major obstacle in the path of “saving” the economy, bailout or no bailout.

There’s an interesting short book, What We Could Have Done With the Money, that details what could have been accomplished with all that cash flushed down an Iraqi rat-hole. (Obama’s plan is to increase the flow of tax dollars to the region, but instead divert it to an even deeper rat-hole: Afghanistan.) The war and the frantic arms build-up that have been the chief “accomplishments” of this administration leave behind a legacy of debt and misspent resources, and during the GOP primary campaign Ron Paul did a very effective riff on this theme.

Without the costs incurred by the war, the economy would be far stronger and able to resist, or ameliorate, the pressure that caused the bubble to burst so dramatically.

The main effect of the Greenspan bubble was that wealth was diverted away from its best and most efficient use, and toward the war profiteers. The War Party was personally enriched – lots of that freshly-minted cash went to the booming “homeland security” industry, and international military “contractors,” aside from which they were handing out crates of cash in Iraq, as you’ll recall. We bought our great “victory” in Anbar province, and thought we had bought the Afghan clans, or some of them. We’re just beginning to learn that empire-building can be pricey, and that the Afghans don’t stay bought for long. In the meantime, we’re shipping cash overseas to virtually every nation outside the Axis of Evil (expanded version), while ordinary middle class Americans are being forced to bail out the rich on the home front.

Yet all these billions add up to very little, as advocates of “foreign aid” are fond of pointing out, relative to the total U.S. budget. While questioning the relevance of such a calculation, I would add that in comparison to the U.S. military budget alone, our foreign aid program is indeed a minor affair.

Our misnamed “defense” budget is more than the combined military expenditures of every other nation on earth. This is quite apart from the costs of the Iraq war, and the Afghan campaign, both of which are operating on “off-budget” “supplementary” appropriations, a method of accounting that would soon result in foreclosure and worse if applied to an ordinary American household. We don’t even know how many multi-billions we’re spending in covert operations around the world – and on the home front, as well, given the parameters of the PATRIOT Act and subsequent legislation. The bloated monster of the American state, and the doings of its officials and minions, is so skillfully wrapped in a thick veil of official secrecy that the costs are literally incalculable.

America has developed along a very narrow evolutionary path, like some species of animal that has developed a single attribute so specialized and out of proportion that it winds up in an evolutionary dead-end. That way lies extinction. There is, however, another path.

We could begin by making very large cuts in the “defense” budget: this would show the markets that we are serious., as Paul Craig Roberts suggests in the latest Counterpunch, about getting our economic act together. Ending the war would stop much of the heavy bleeding immediately, and give an anemic economy time to correct previous distortions generated by the Federal Reserve’s easy money policy. Of course, only a gold-backed dollar can stop these boom-bust cycles, which are inherent in state-capitalist bank-centered systems such as ours – but that’s a subject for another day, and, perhaps, another venue.

Just remember, all you left-wing foes of U.S. intervention, that it isn’t just the banks that are getting bailed out. As you get behind Obama, and rationalize his backing of welfare for the well-connected, remember that the War Party, too, is getting bailed out.

The limitations imposed by finally facing the reality of bankruptcy, and doing something about it, would be fatal to the imperial project. Once we realize we’re flat broke and act to turn things around, our government won’t be sending tax dollars to, say, the former Soviet republic of Georgia, recent site of pilgrimages by Joe Biden and Cindy McCain. (Can Sarah Palin be far behind?)

Like lightning at midnight, what the economic crisis throws into stark relief is the corruption at the heart of our system. The Empire is like a towering tree hollow at its center, its core eaten out by termites and dry rot. It will surely make quite a crash when it falls, or is pushed over.

Author: Justin Raimondo

Justin Raimondo passed away on June 27, 2019. He was the co-founder and editorial director of, and was a senior fellow at the Randolph Bourne Institute. He was a contributing editor at The American Conservative, and wrote a monthly column for Chronicles. He was the author of Reclaiming the American Right: The Lost Legacy of the Conservative Movement [Center for Libertarian Studies, 1993; Intercollegiate Studies Institute, 2000], and An Enemy of the State: The Life of Murray N. Rothbard [Prometheus Books, 2000].