Spy Stories 1.

During the Fifty Years War, the opponents spied on each other by every means possible.  The Soviet Union possessed marked advantages over its enemies in this arena.  On the one hand, it was a brutal police state that could tightly control its frontiers and limit the contacts between its own “citizens” and foreigners.  Soviets who went abroad were closely watched.  On the other hand, this reality did not penetrate the minds of many foreigners.  Foreign Communists and progressive-minded “fellow travelers” clung to an idealized view of the Soviet Union as rough-around-the-edges place where socialism and democracy were being constructed.  Actually going there did nothing to alter their opinions in most cases.[1]  During the “Devil’s Decade” of the Thirties, the Soviet intelligence services recruited many Western agents.[2]

The most effective (so far as we can tell) and attention-grabbing of these spies were the so-called “Cambridge Five”: Harold “Kim” Philby, Donald Maclean, Guy Burgess, Anthony (one is tempted to go the Full-Brideshead and call him “Antoine”) Blunt, and John Cairncross.  They were recruited while undergraduates, then allowed to develop over time.  During the Second World War they came to occupy important positions in British government.  The British intelligence community only caught on in the 1950s.  It chose to cover-up more than expose.[3]

The most satisfying book on Philby explores the dense network of friends and colleagues, British and American, he exploited.  Everything depends upon the barriers to entry and the acuity of the gatekeepers.  Once you are on the “inside” of a group, people tend to see your behavior as congruent with your supposed function.  If you seem to be good at what you do, then trust increases.  What if Jesus was actually the son of Satan?  What if Judas found him out?[4]

Intelligent, ordinary people surround spies.[5]  Often they see nothing unusual in the behavior of the spies.  Geoffrey Hoare[6], previously and subsequently the Middle East correspondent for the Times of London, lived near Donald and Melinda Maclean in Washington, D.C., then was in Cairo when Donald Maclean’s drinking got him sent back to London for “health reasons.”  He was on the same flight to London as Maclean, but saw no sign that Maclean was under immense psychological pressure.  “He had none of the external signs of someone suffering from a severe nervous breakdown.”  Later on, Hoare befriended Melinda Maclean, who had been left behind when Maclean and Guy Burgess disappeared in 1951 before they could be questioned by British security officers.  He was very surprised when she did a bunk herself in 1953.[7]  Tim Milne, a long-time friend of “Kim” Philby and himself a senior officer in MI-6, saw no hint of treason in him.[8]

On the other hand, there was Guy Burgess.  Burgess provided endless scandals: he was an outrageous drunk and an outrageous homosexual at a time when the former seems to have been common and the latter a felony.  The British security services turned a blind-eye in the worst version of Nelson.  “Surely he can’t mean goats” said one security officer briefed on the “peculiar tastes” of Guy Burgess.  Burgess managed to be recalled from Washington and this allowed him to tell Donald Maclean that they were buggered and had to bolt for the Soviet Union.[9]  The two, followed eventually by Melinda Maclean, simply disappeared for a bit.

Burgess and the Macleans reappeared in Moscow in 1956.  Then “Kim” Philby disappeared from Beirut in 1963.  Much gnashing of awful British teeth followed.[10]  Rebecca West had written one version of a book, The Meaning of Treason, in 1947.  It was all about the “quislings” and collaborators of the Second World War.  “A rum lot, what?”  Her second version, The New Meaning of Treason, in 1964, was all about the Soviet spies.  She lambasted the security service (MI-5) and the in-breeding of the upper classes who filled up the diplomatic service.[11]  While understandable and valid, her criticisms didn’t get at the heart of the matter.  Much later it was revealed that Anthony Blunt, a highly-esteemed art expert, had been among the “Cambridge Spies” who had been recruited by the Soviets in the 1930s.  His life revealed the essential puzzle.  How can someone hate a society so much that he would betray its secrets to another country, but still insist on enjoying all the fruits of that society?[12]

[1] Paul Hollander, Political Pilgrims: Western Intellectuals in Search of the Good Society (1997).

[2] Notably the members of the “Red Orchestra” in Germany and France, the Gold-Rosenberg group in the United States, and the “Cambridge Five” in Britain.

[3] At least three of the men—Maclean, Burgess, and Philby—were alcoholics.  Did this make them particularly adept at deception, rather than vulnerable to error and exposure?

[4] I’m not trying to get fired from my job at a Catholic college.  I’m just trying to illustrate a psychological tendency.  In any event, see Ben Macintyre, A Spy Among Friends: Kim Philby and the Great Betrayal (2015).

[5] “Roland Philipps on the Cambridge spies,” WSJ, date misplaced; “Jason Matthews on secret agents of the Cold War,” WSJ, ditto.

[6] Husband of the remarkable Clare Hollingsworth.  See: https://en.wikipedia.org/wiki/Clare_Hollingworth#Personal_life

[7] Geoffrey Hoare, The Missing Macleans (1955).

[8] Tim Milne, Kim Philby (2014).

[9] Andrew Lownie, Stalin’s Englishman (2014).

[10] See: https://www.youtube.com/watch?v=hOHiPvl2mWk  Unless you have British relatives from earlier generations.  Then you already know what I’m talking about.

[11] Rebecca West, The New Meaning of Treason (1964).

[12] John Banville, The Untouchable (1997).

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The Fifty Years War 1.

Nazi Germany, the Soviet Union, and the Peoples Republic of China threatened the survival of millennia of human progress.  They had to be fought to the death.  Otherwise darkness would spread over the Earth.  It would be easy to characterize this as the Children of Darkness versus the Children of Light.  Life isn’t like that.  Instead, squalid moral compromises imposed themselves in this titanic struggle.  So, from 1939 to 1989, we embraced the lesser tyrannies in order to defeat the greater tyrannies.  The United States allied itself with the British Empire and Stalinist Russia to defeat Hitler’s Germany.  Then the United States allied itself with Franco’s Spain, Salazar’s Portugal, Saudi Arabia, post-Nasserite Egypt, Asian dictatorships (Taiwan, South Korea, South Vietnam), Shavian Iran, then Saddam Hussein against the Islamic Republic of Iran, and a great many African dictatorships.

We got our hands dirty in the process.  Very dirty.  We tolerated the atrocities of inhumane regimes allied to our cause.  We ourselves–and not just the soldiers we sent to do our bidding–committed atrocities.  We advanced the interests of the private corporations that we used as instruments and proxies.  We slighted the humanitarian organizations that expressed an important strand of American idealism.

And we won.  Nazi Germany, Imperial Japan, the Soviet Union as created by Joseph Stalin, and Communist China as created by Mao Zedong have all been laid in the dust.  We won, but not we alone.  We had allies, notably Britain and its Commonwealth of Nations, and the Western European countries that created the European Union, and Japan.

Squalid moral compromises didn’t always have squalid outcomes.  One great story of the second half of the Twentieth Century has been the expansion of democracy.  Places where democracy failed in the Thirties and Forties (Italy, Austria, Germany, France) have become solidly democratic political systems.  One-time dictatorships (Poland, Hungary, the former Czechoslovakia, the former Yugoslavia, Spain, Portugal, Greece, the Baltic states, Japan) have become democratic societies.  Formal colonial empires have been dismantled, allowing many societies to make a mess of things on the own and for the advantage of their own elites, rather than by and for Western elites.  The idea of Democracy has expanded.  Women have the vote and a greater chance at participation in most Western societies.  “Democracy” has come to mean government action to promote material welfare and opportunity in many countries.

Still, the “Fifty Years’ War” had its costs.  Not all of them were numbered in economic terms or human lives.  The war cost us in social and psychological terms.  Chief among them seems to be the entrenching of a war mind-set.  This appears in the overblown hostility to Vladimir Putin’s Russia and the fear of radical Islam.  Loathsome as these are, neither poses an existential threat.

What have we done, what will we do with our victory?  That is, “What do we offer?”  NOT the “blood, toil, tears, and sweat” declared by Winston Churchill.  Rather we want to offer honest work at decent pay; family homes; the right to your opinion, even if it is nutty or you don’t care to say; equal treatment under the law; and a tolerance for diversity.

What we aspire to offer everyone isn’t what we do offer to everyone yet.  Still, it’s better than wearing a suicide vest into a steamy rural market or writing malware in a freezing tenement.

Default Setting.

I’m not sure that History weighs on us, but Memory certainly does.[1]  For example, inflation and deflation are subjects of learning and memory for those who experience them.  Deflation (falling prices) plagued American borrowers and benefitted American lenders in the last quarter of the 19th Century.  People looked at inflation (rising prices) with longing or loathing.  If you were, say, 64 in 1934, then you were born in 1870.[2]  Growing up, you would probably have heard about reams of paper money printed without any fixed relationship to gold in order to finance your particular country’s search for victory in the Civil War.  As an adult, you would have read with exultation or dread, depending on your social class, William Jennings Bryan’s “Cross of Gold” speech and the Populist calls for the free coinage of silver at a ratio of 16:1.  That is, you would have been familiar with inflation as a good thing (for debtors) or a bad thing (for creditors), rather than as just a normal thing.  In the wake of the election of 1896, a conservative victory, Congress enacted American adhesion to the gold standard.  However, that was just Congress, a bunch of gutless poltroons (why else would you bribe them?) who might change their minds with the wind.  As a result, many lenders inserted “gold clauses” in contracts.  These obligated borrowers to repay in gold coins of “present weight and fineness” or in paper of equivalent value.  Basically, “gold clauses” were inflation-proofing insisted upon by lenders.  They applied to various contracts, but especially to bonds—government and corporate IOUs.

OK, skip ahead to the Great Depression of the 1930s.  Taking the leadership of a country sunk in the slough of despond, Franklin D. Roosevelt opted for inflation over deflation.  He severed the United States from the Gold Standard, which kept currencies fixed at specific rates of exchange, and then revalued the dollar.  This allowed Roosevelt to “raise” the price of gold held by the United States and print more dollars to accommodate its higher price.  The “price” of gold rose from about $21/ounce to $35/ounce.  So, by about two-thirds.  This inflated prices and devalued debts.  Great!  For anyone who had debts not inflation-proofed.

At this point, Roosevelt’s policy slammed into the “gold clauses” on many bonds.  Because of the two-thirds rise in the price of gold, debtors had to pay lenders about two-thirds more than they had borrowed.  One of those debtors was the United States government, which owed about $20 billion in gold-clause bonds.[3]  In 1935, the Supreme Court—in the “gold clause cases:–held that the government could abrogate public and private gold clauses.  That is, the U.S. government is not obligated to pay its debts and it did not pay them in this case.

Still, it is a commonplace that the United States has never defaulted on its debts.  That reassuring belief keeps people buying Treasury bonds when the deficit and national debt keep growing to extraordinary levels.  Except, maybe Bill Gross when he was at PIMCO.[4]

[1] That’s probably why “we” never learn from the past, but individuals often do learn from the past.  There is no way to transmit the acquired knowledge.  They why study History at all?  Because smart people will be among the few who learn lessons and for everyone else, it’s pretty entertaining.

[2] Sebastian Edwards, American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold (2018).

[3] Worth about $380 billion in 2018 dollars.

[4] https://www.theatlantic.com/business/archive/2011/03/pimcos-gross-asks-who-will-buy-treasuries-when-the-fed-doesnt/72276/ ; https://www.theatlantic.com/business/archive/2011/05/bill-gross-on-deficits-and-the-fed/238682/

Pakiban II.

Americans idealize a government based on a division of powers, in which different branches of government can check—or authorize—the claims to power of other branches.  In contrast, Pakistan is a country dominated by un-elected, but highly regarded elites.  The military and the courts occupy pride of place, while elected legislatures and governments receive little respect.  This reflects a deep distrust of the idea of elections as a source of authority.

Pakistan also is an unusually corrupt country.[1]  In 2015, the “Panama Papers” hit the internet.  Essentially, these were secret records of a Panamanian law firm that had facilitated the creation and management of secret “off-shore” bank accounts for people around the world who had a lot of money whose origins they didn’t want to have to explain.[2]

One chief culprit was a Pakistani politicians named Nawaz Sharif.[3]  Pakistan has experienced only one peaceful, election-based, transfer of power at the executive level.[4]  Sharif has been prime minister of Pakistan three times so far.  He opposed the powerful role of the military in domestic politics.  He favored working out a deal with India.  The first two times, the army gave him the heave.  In July 2017, Pakistan’s Supreme Court evicted Sharif from office yet again.  The evidence is that Sharif is a crook.  Still, voters have put Sharif in power when his kleptomaniacal tendencies were well-known.[5]  The bum’s-rush he gets every time suggests that powerful institutions within Pakistan claim the right to issue voters their acceptable leaders.[6]

Sharif’s dismissal opened a can of worms.  First, the fact that other politicians were incriminated by the “Panama Papers” leak, but were not prosecuted suggests that the courts singled out Sharif.  On what grounds?  At whose behest?  Second, the Transparency International corruption ratings (see fn. 1.) suggest that almost everyone in Pakistan’s public life is as crooked as dog’s hind leg.  Is compliance with the desires of the powerful the condition for survival—and continuing chances for graft—in Pakistan’s politics?  Terms like “hidden hands” and “string-pullers” are common in the language of troubled states.  In Pakistan, these terms often refer to the Inter-Services Intelligence agency (I.S.I.) or the great landlords who hold the fate of millions of peasants in their hands.

Western observers object that the Sharif case makes it appear that “justice is often a means to a political end.”  That is, if you play by “their” rules, you’ll be “rich as Nazis!”—as Mr. Burns put it on “The Simpsons.”  If not, you end up in a bug-infested cell wearing red burlap as your gallows apparel for the morrow.  Tens, hundreds, of millions of ordinary Pakistanis go “Well, duh.”   Then, there’s “Traffik.”   https://www.youtube.com/watch?v=WW8qcbGRZ4U

[1] Transparency International rated Pakistan 113 out of 176 countries on its corruption index.  Wait, there are 63 countries even more corrupt than Pakistan!

[2] For a useful introduction, see: https://en.wikipedia.org/wiki/Panama_Papers

[3] See: https://en.wikipedia.org/wiki/Panama_Papers_case

[4] Max Fisher and Amanda Taub, “Pakistan, Ousting Leader, Dashes Fair Democracy Hopes,” NYT, 29 July 2019.

[5] Imagine Donald Trump being re-elected president in spite of his many vulgarities and incessant rule-bending.  It would not be that American voters didn’t know what they were getting.  Should such an election be allowed to stand? Should, instead, the courts or the legislature, or—Heaven forfend—the military be allowed to over-ride the will of the People as mediated through the Electoral College?

[6] Benito Mussolini once claimed that Italian fascism was an improved form of democracy because it was a qualitative, not merely, quantitative, democracy.  That is, some people’s opinions counted for more than did those of other people.

Annals of the Great Recession XV.

The TARP and the stimulus bill were intended to recover from the financial crisis of 2008-2009.  What about preventing a re-run in the future?  The Dodd-Frank Act required banks to hold larger capital reserves and to submit to “stress tests” to evaluate how well they could deal with a future financial crisis on the scale of 2008.   Curiously, the law also limited the trade in “credit default swaps.”  Admittedly, the wholesale trade in these insurance policies against a collapse of the bubble seems to have been what sunk the AIG insurance group.  On the other hand, they were an investment by people who saw the bubble for what it was rather than blindly believing what they were told.

One effect of the new legislation appears to be that it has encouraged the consolidation of the banking system.  It has been argued that the costs of complying with the new regulations are more than smaller banks can bear, so they have sold out to already big banks that are better able to shoulder the burden.

It is said that generals are always preparing to fight the last war.  Banks and investors are on guard against sub-prime mortgages.  However, “bubbles” can develop in any asset.[1]  So, some kind of new crisis is always possible.  Can the government and the financial system respond effectively to a new crisis?  The answers are not encouraging.

First, a flight from Keynesian demand-management policies followed quickly on the financial crisis.  President Bush encountered considerable difficulty in getting Republicans to accept the TARP.  President Obama opted for a stimulus bill that Paul Krugman warned was half as big as it needed to be, spread over two years instead of front-loaded into one year, and contained a bunch of tax cuts that would be used to reduce debt instead of engaging in new spending.  Both Republicans and Democrats have proved critical of deficit spending plans.

Second, in the absence of a Keynesian policy on the part of the Congress and President, the Federal Reserve Bank launched a long program of “quantitative easing.”  It bought huge amounts of both MBSs and U.S. treasury debt as a way of pumping money into a slow-recovering economy.  It has only recently begun to unwind this position and to raise interest rates.  That means that it would be difficult to counter a new recession by cutting interest rates.

There may also be a deep hostility to government intervention on the part of many voters.  The policies that saved the American—and world—economy from a new Depression looked very much like a privatization of gains and a socialization of losses.[2]  Thus, in 2007, the top 10 percent of income-earners held 71 percent of the nation’s wealth; now the top 10 percent hold 77 percent.  That is about an 8 percent increase.  The Fed’s quantitative easing pushed up asset prices when ownership of stocks and bonds is concentrated in the upper income groups.

In 2007, the bottom 90 percent of earners held 29 percent of the nation’s wealth; today the bottom 90 percent hold 23 percent.  That is an average 20 percent drop in assets for the vast majority of Americans.  Even so, it is worse for some than for others.  Back in 2007, the median lower-income family had about $18,000 in assets.  Today they have about $11,000 in assets.  Doubtless that fall largely represents the loss of the houses they bought without being able to pay for them.  Would Congress tolerate a new TARP or a new stimulus bill?

Maybe.  The combination of the recent tax revisions and the huge spending bill that enjoyed bipartisan support seem likely to massively expand the deficit.  Maybe stimulus is back in style if you put in enough treats for everyone.  Locking up a bunch of bankers might have to be one of those treats.

[1] See: Alexandre Dumas, The Black Tulip (1850).

[2] President Obama may have contributed to this with his denunciation of the rich as “the people who tanked the economy.”  Bill Gates and Warren Buffett tanked the economy?

Annals of the Great Recession XIV.

To review, the presidents from 1981 to 2017 were Ronald Reagan (1981-1989), George H.W. Bush (1989-1993), Bill Clinton (1993-2001), George W. Bush (2001-1009), and Barack Obama (2007-2017).  The chair-people of the Federal Reserve Bank were Alan Greenspan (1987-2006), Ben Bernanke (2006-2014), and Janet Yellin (2014-2018).  So, those are the people upon whose watch various things happened.[1]

Between 1997 and 2006 the government eased regulations on lending and encouraged home-ownership among new groups.[2]  Mortgage originators—banks or mortgage companies—did what they were allowed and even encouraged to do: they issued mortgages (loans) to “sub-prime” borrowers.[3]  These amounted to hundreds of billions of dollars of risky loans.  Rather than hold these dangerous loans on their own books, the loan originators re-packaged the mortgages as collateralized debt obligations (CDOs) and mortgage-backed securities (MBS), then sold these packages to investors.[4]  With many previously-excluded buyers seeking a limited stock of housing, housing prices rose by a national average of 124 percent.  The value of the CDOs and MBSs also rose.  Prices for both exceeded their real value.[5]

Then, in 2007 and 2008, it became apparent why sub-prime borrowers had previously had trouble getting loans.  The number of defaults started to rise sharply.  The MBSs and CDOs dropped toward their real value.  Financial institutions that had purchased these “instruments” suddenly found immense sums wiped off the asset side of their ledgers without their liabilities (what they owed other people) being reduced.  Bankruptcy loomed for the banks unless they could get rid of these dogs in a hurry and replace them with more valuable assets.  First Bear, Sterns, and then Lehman Brothers failed.  Seeking to stop the bleeding, banks pulled in the reins on all lending, including for productive investment.  The whole economy rapidly slowed during 2008.  The Dow Jones Industrial Average fell by 50 percent.  This reduced the values of many assets held by the upper and middle-classes, causing them to cut spending in order to reduce their own debts.  With consumption spending and investment both falling, the unemployment rate jumped to 10 percent by late 2009.

Acting quickly, the George W. Bush administration pushed through a Troubled Asset Relief Program (TARP) that bought $700 billion worth of bad debt from the banks.  The Obama administration launched a mini-Keynes stimulus program of $757 billion.  The Federal Reserve Bank cut interest rates to near zero and held them there for a long time.

[1] “The long shadow of the financial crisis,” The Week, 13 April 2018, p. 11.

[2] In part, this seems to have had a worthy purpose.  Houses are a key middle-class asset, but “red-lining” by banks had long restricted access to home purchases by African-Americans and other groups.  See: https://en.wikipedia.org/wiki/Redlining

[3] Sub-prime borrowers are ones with poor credit-worthiness.  For an explanation of how credit-worthiness is determined, see: https://www.investopedia.com/terms/f/ficoscore.asp  Very often, these are referred to in public discourse as “sub-prime loans,” as if the problem existed only with “predatory” lenders.  This seems to me to resemble referring to illegal immigrants as “un-documented immigrants,” as if the only problem is a bureaucratic foul-up with issuing them some documents.

[4] Apparently, it was possible for the purchasers to discern that the CDOs and MBSs were very risky—and possibly worthless—investments.  Most people did not do so.  A few did.  See: Gregory Zuckerman, The Greatest Trade Ever (2009) and Michael Lewis, The Big Short (2010).  The bets against the housing buble were called credit default swaps.

[5] This is called a “bubble.”

The Missing and Ulzana’s Raid.

From “Broken Arrow” (1954) through “Little Big Man” (1970) to “Dances with Wolves” (1990), Hollywood Westerns fell into step with the spirit of the times.  They took an ever-more sympathetic view of the Indians and an ever-more negative view of the white Americans who conquered the West.  Occasionally, some people have taken a more “classical” view.  In particular, “Ulzana’s Raid” (dir. Robert Aldrich, 1972) and “The Missing” (dir. Ron Howard, 2003) focused their attention on Apaches out for blood.  In part, they are effective because they take Indian beliefs seriously as a motivation to action.

In “Ulzana’s Raid,” an Apache warrior named “Ulzana” (Joaquin Martinez) jumps the San Carlos Reservation.  Basically, he’s fed up with the smell of women, children, dogs, and old people.  He wants to smell ponies running, burning, and blood.  In short, he chooses Life over Death.  He takes along his teen-age son and a few other young warriors.  He gets right to business, while the Army tries to track him down.  The Army patrol is “led” by a young lieutenant fresh from West Point (Bruce Davison).  The lieutenant’s father is a Protestant minister in favor of “humane” treatment of the Indians.  The real leader of the patrol is an old scout named “Mr. McIntosh” (Burt Lancaster).  The scout is assisted by an Apache from the San Carlos Indian Police, who happens to be Ulzana’s brother-in-law (Jorge Luke).  (This seems more credible once you’ve been married for a while.)  The patrol revolves around the education of the lieutenant.  Ki-Ne-Tay, the Apache policeman, explains that Apaches torture prisoners to obtain their power: “in this land, you must have power.”  He also learns to command, although his commands are not always for the best and are not always well-received by his troopers.  The movie ends badly for a number of those concerned, as was common in that time and place.

http://www.youtube.com/watch?v=ZCFiO3Kb1ms

 

The Missing.

In “The Missing,” Samuel Jones, a white man who “went Apache” years before (Tommy Lee Jones) appears at the ranch of his daughter, Maggie Gilkerson (Cate Blanchett).  She is a “grass widow” who also works as the local “healer.”  She hates her father and rejects his effort to make amends.  At that same moment, an Apache called “El Brujo” jumps the reservation and goes on a rampage.  He kills white settlers and other Apaches, and kidnaps young women of both races for sale as sex-slaves in Mexico.  One of the kidnapped girls is Maggie’s rebellious daughter, who wanted bright lights instead of the homestead.  Maggie’s ranch-hand/lover is among the slain.  The local sheriff can’t help because it’s outside his jurisdiction.  (Sound familiar?)  The Army can’t help because it is busy with other stuff.  (Plundering the homes of murdered settlers for example.)  Maggie tells her father that he can make amends by helping her get the kidnapped daughter back.  So Maggie, and her youngest daughter, and her father set off in pursuit of the Apaches.

One problem is that “Brujo” is the Spanish word for “witch.”  This “El Brujo” has mystical powers and can change into a wolf or an eagle.  Probably he found this a stressful experience as a child because he’s crazy and sadistic.  (There having been too few trained talk therapists in Arizona in the 1880s.  Sad, but true.)  Eventually, the dysfunctional little family teams up with a couple of Chiricahua Apaches who are hunting “El Brujo” for the same reason.  They get the girls back and kill “El Brujo” and his merry men, but at a cost.  On the other hand, there’s a certain amount of reconciliation between the generations, a la Mark Twain.

http://www.youtube.com/watch?v=UI3IKUa9HyA