09 January 10, 2009 - ObserverXtra

THE OBSERVER | Saturday, January 10, 2009 COMMENT & OPINION | 11
»HARD TALK | RAFE MAIR
There were plenty of warnings along the road to a depression
I watch the automobile
giants lurch towards
bankruptcy,
slowed – but only
slowed – by government
handouts. I
see the economy
continuing its slide
into depression.
And I can’t help
asking this question: If my wife and I
had had enough of the bull market in
2003 and sense to get out accordingly,
how come the seven-figure prognosticators
in New York and Toronto
didn’t know?
I’m not trying to toot my own horn
in times of such pain for so many
people. I simply ask why the signs we
saw weren’t seen by those who make
markets go? (I’m bound to tell you
that when people say how lucky we
were, I emphatically reply that luck
had nothing to do with it.)
When we started to get scared, we
knew no more than anyone else, indeed
much less than the “experts.”
We’d had the savings and loan scandal,
bailed out by the U.S. Congress
and the Enron stench.
We could see that the U.S. trade deficit
was $750 billion, mostly to China,
which held most of the outstanding
U.S. dollars.
We knew that unlike Japan in former
times, China wasn’t a benign
creditor and it would use its leverage
to best advantage.
To us, the U.S. economy looked like
a big glass ball with a jillion little
cracks in it. You knew that a relatively
slight blow would smash it.
We knew that the U.S. was running
»INTERNATIONAL AFFAIRS | GWYNNE DYER
U.S. offer of friendship could finally lead to change in Cuba
I have learned one
thing from my various
visits to Cuba
over the years, and
that is not to predict
the demise of
the regime. I did
that sometimes in
the past, if only to
offer a bit of hope
to various despairing individuals
who thought that a visiting foreigner
might know more about their future
than they did themselves. But the
brothers Castro are still there, ever
more moth-eaten (in Raul’s case, almost
mummified), and they have just
celebrated the 50th anniversary of
their revolution.
Nevertheless, change may be lurking
around the corner at last, for
Barack Obama represents the greatest
danger that the regime has faced
since the collapse of the Soviet Union
and the end of its subsidies 17 years
ago. The survival of the regime is
due in large part to the unremitting
hostility of the United States, which
lets it appeal to Cubans’ patriotism,
and to the trade embargo that gives it
an excuse for its economic failures.
Obama is clever enough to understand
that the best way to kill the
Communist regime in Cuba is with
kindness, and he has no domestic
political debts that would keep him
from acting on that insight. In par-
a massive annual deficit and was
nearly eight trillion dollars in debt.
That’s as if Canada’s national debt
was $800 billion. The U.S debt is now
more than $10.5 trillion and climbing.
The U.S. debt and deficit had, since
Reagan’s time, for the most part financed
a false prosperity.
This was no secret. Anyone who
looked could see that far from reducing
the debt and deficit, the American
economy was adding to it with ever
more cheaper and cheaper money being
loaned out while the politicians
and the man in charge of money,
Alan Greenspan, acted as if everything
was peachy.
The housing market was red hot and
you had to know that it was riding for
a fall. I would look at all those real
estate ads and ask: How many people
are there with credit ratings of a million
dollars or even several million
dollars?
We were to learn that there were
not nearly as many as the market
thought there were, with foreseeable
consequences.
What happened?
It probably started when “junk
bonds” passed muster in the moneyraising
business. Then we had derivatives
and hedge funds and a host of
other “investments” that weren’t really
investments at all but wagers. It
was gambling with all the certainty
and speed of a floating crap game.
In 2003, it was obvious that the war
in Iraq was a hugely expensive and
ongoing mistake. In short, in 2003
when Wendy and I made our move
out of the market, all signs pointed
ticular, he owes nothing to the Cuban
exile establishment in Florida, which
mostly voted for Bush.
He could start right away by ending
the rule that allows Cuban-Americans
to visit their families on the island
only once every three years, and
limits their remittances to $300 every
four months. Even within the Cuban
exile community in the United States
those restrictions are controversial,
as it is hard to see how they hurt the
Cuban regime.
Once the question of where to send
the remaining Guantanamo detainees
has been resolved, Obama could
close the base down entirely. Indeed,
he could give the land back to Cuba
as a free gesture, since it has no
economic or strategic value to the
United States. That would seriously
undermine the Communist regime’s
argument that the United States is an
implacable enemy that Cubans must
confront with discipline and solidarity.
Then he could get to work on the ridiculous
embargo on trade and travel
to Cuba. The sanctions have been
written into law in recent years, so
he would need Congress’s assent to
remove them. But if he got it, all the
mechanisms of control built up by
Fidel Castro over the past 50 years
would probably begin to crumble.
The real question is: what happens
then? The last time the fall of the Cas-
to very bad economic news ahead.
The answer as to what happened has
I think, two levels.
First off, the monetary system
around the world is a nest of optimism.
Every banker and financier
must loan money or he’s not in the
game. When money is not “tight,”
that is, the prime lending rate is low,
financiers have more money available.
Because times seem to be so
good, optimistic lenders find optimistic
borrowers and the race is on
to see who can loan the most money
at the lowest rate. If the people and
businesses see nothing but big profits
ahead, the sky’s the limit and it’s
not long before a sturdy economy becomes
a house of cards.
The crash of 1929 ought to have
taught us that if moneylenders on
the stock exchange allow too much
margin or leverage, which is to say
they require “investors” to put up
less and less money, sooner or later it
all hits the fan.
Stockbrokers never tell any but the
most sophisticated of their clients
to “sell short.” Selling short means
selling what you don’t have and buying
the shares later when they have
dropped in price. This transaction
acts as a brake on the market. One
has to wonder why a broker will
advise you to bet on stocks going
up even when the better bet is that
they’ll go down?
Secondly, because everything
seemed to be so perfect, RRSP portfolios
swelling, and the price of homes
going up 30 per cent a year, what was
there to worry about?
Why, nothing much happened to
tro regime seemed likely, a couple of
years after the collapse of the Soviet
Union in late 1991, I went to Cuba in
the guise of a tourist (there’s nothing
like having a baby along to make you
look innocent) and talked to a great
many people informally.
Most of them expected the regime
to fall soon, and a majority (though
not an overwhelming majority) welcomed
the prospect. However, they
were all frightened of what might
come next, for two reasons. One was
the fact that at least 10 per cent of the
Cuban people – more than a million –
were true Communist believers, and
they were armed to the teeth. Would
they let their dream die without fighting
to save it?
The other was that the exiles would
come back from Miami and take over.
Their money would let them buy up
everything of value, and those who
had endured decades of poverty under
Castro would stay poor and marginalized.
Even the few good things
about “socialist” Cuba, like the health
care system, would be destroyed.
Well, my last trip to Cuba was less
than two years ago, and things had
changed. The poverty, the oppression
and the despair were the same,
but the true believers who would kill
and die to save the revolution were
noticeably scarcer.
This visit was part of a project in
which various Western embassies,
these good things when the U.S. government
bailed out the savings and
loans corporations, did it?
The Enron scandal didn’t seem to
hurt the economy much, did it?
Why worry? The “dot com” collapse
only really hit the high rollers, didn’t
it?
If the markets and the players all
said that they could police themselves
and that if the government
poked its nose in it that would ruin
everything, why not believe them?
What could go wrong with companies
like Merrill Lynch and Lehman
Bros. looking after things under the
watchful eye of Alan Greenspan. He
was a financial genius, wasn’t he?
Lastly, we were convinced and let
ourselves be convinced that things
were much different than in 1929.
There were safeguards in place –
though no one seemed to know what
these were.
In fact, 2008 isn’t much different
than 1929. Over optimism bred careless
credit controls and in due course
the bubble burst. The more things
change, the more they stay the same.
It’s all governed, of course, by
Mair’s Axiom I, which is, in case
you’ve forgotten: “You make a very
serious mistake thinking that people
in charge know what the hell they’re
doing.”
We will have a depression. We’ve
felt the earthquake, but the tsunami
has yet to arrive. In the agony, we’ll
tighten our rules so it will never happen
again.
And, as sure as God made little
green apples, it will happen again. It
always has and it always will.
thinking that Fidel Castro’s illness
might mean that big changes were on
the way, brought in “experts” to talk
to the Cuban elite about how things
were done in democratic countries.
It was pretty pointless work, frankly,
but it did offer unusual access to
the apparatchiks who really run the
show in Cuba.
Most of the officials were about
what you’d expect: loyal, fully institutionalized
servants of the regime.
But very few of them were passionate
ideologues who would launch and
fight a civil war to save it. Generational
turnover had done its work,
and these were just people who were
glad to have their jobs and the few
privileges that came with them.
Generational turnover has been at
work in Miami, too. Fifty years on,
the original generation of Cuban refugees
is gradually giving way to an
American-born generation that still
cares about the country, of course,
but are much less interested in going
back and re-creating the Cuba of the
1950s.
So change is a lot less dangerous for
Cubans than it would have been if
the regime had collapsed in the early
1990s. If Obama sets out to destabilize
the Communist regime with offers
of help and friendship, it might
well work. And even if it doesn’t work
right away, it would make the lives of
Cubans a lot easier.