The Heart's Dupe, Part II

Bill Bonner
The Daily Reckoning
Jan 22, 2007

The Daily Reckoning PRESENTS: Fads, fashions, cycles...booms and bubbles...public spectacles - all come and go. The disaster is that nobody takes it seriously anymore...because it doesn't deserve to be taken seriously. But there is probably a deeper cycle at work. Bill Bonner explains...

Elizabeth has been reading Paul Johnson's 'History of Christianity' and has gotten quite interested in it. She turns to me with occasional commentary and delight.

The Roman Empire peaked out a hundred years or so after the birth of Christ. People gradually, slowly turned their interest away from fighting...and gaining glory by expanding the Empire's borders...to merely holding off the barbarians and living as high on the hog as possible. Meanwhile, interest in religion increased.

From politics, to money, to religion; from war, to wealth, to faith; from Caesar, to Mammon...to God. This too seems to be the drift of thing...looked at with a particularly wide-angle lens.

"As people became more interested in Christianity," Elizabeth reports, "they began to take it more and more seriously. They had arguments over everything...tiny points of doctrine...abstract ideas. Emperor Constantine himself coined the word, consubstantiation, to resolve the dilemma of the Holy Trinity.

The problem was how could there be three divinities - Father, Son and Holy Ghost - when there was really only one God? Christianity is a monotheistic religion. On the surface of it, the Holy Trinity doesn't seem to make sense. We don't care much about it now, but back then it was the source of fierce argument and even some pitched battles. Different groups employed bands of armed thugs to go around intimidating those who disagreed with them on these issues. They often fought...and of course...the losers in these fights were branded as heretics. It must have been wild."

Well, back then, people were pretty excited about religion. They were wound up about it. Issues that mean nothing to us today were of such importance that people were willing to die - or to kill - for them.

In the centuries following, this fire of interest in religious doctrine gradually died down. The Crusades, the wars of religions, right up to the violence in Northern Ireland...might be better seen as struggles for land and power, rather than religious conflicts. What was really happening was that a new fad...a new cycle...a new bubble was forming - this one centered in Western Europe and focused on power, politics and war.

The twentieth century, in which we spent most of our lives, was when this trend reached the bubble stage...and finally popped.

We recall life as a student in Paris in the 1960s. It must have been like being a student in Constantinople 16 centuries earlier. We sat around in cafes arguing the most obscure and preposterous points of doctrine. But they were political doctrines ...not religious doctrines. Which 'ism' was better - Marxism, communism, Trotskyism, radical syndicalism, Maoism? How could the proletariat be radicalized in pre-industrial societies, we wondered? Who set up Che in Bolivia...the CIA or bourgeois counter-agents in his own movement? We tried to make sense of Sartre...thinking he was a kind of secular saint. We read and reread. We argued. And none of us had the slightest idea of what we were talking about.

Reading a history of the Spanish Civil War, we find the same effervescent enthusiasm for politics. All of a sudden, people felt compelled to take a position on something heretofore they had never thought about at all. One joined the Communist Workers. Another lined up with the Anarchist Militia. Still another thought his place should be with the Catholic Landowners League. And every one of them reached for his gun. Soon, they were killing each other with such vigor it would take another seven decades for the wounds to heal.

The 20th century was clearly the bubble phase of the world's great love affair with politics. The death toll was staggering - more than 100 million. And then it was over. People looked around sheepishly. They felt embarrassed. They prosecuted a few war criminals...but generally wanted to think about other things... and then they moved on. To Mammon!

Money never seems to have the hold over people that power and faith do. Still, from time to time, it seems to flair up as the 'main thing' in people's lives. Jesus said that it would be easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of heaven. In 2007, there seem to be a lot of people willing to take a chance.

Jesus said a great number of things that are inconvenient. In one instance, for example, he says you have to hate your father and your mother. We thought he must have been exaggerating, so we asked our brother-in-law, who is a Baptist minister in Southern Virginia. "Did Jesus ever use hyperbole to make a point?" we wondered.

"No, he nevah diyid," came the answer.

We see signs of this interest in Mammon all over the world. We traveled around the world a few weeks ago, and coming out of the Bombay airport, into one of the noisiest, dirtiest, poorest and most crowded cities on earth, what did we see - a Rolls Royce dealership! Apartments were selling for millions of dollars, and the Indian stock market index was at an all-time high.

In Paris, we just bought an apartment. We were staggered not only by the price of the apartment, but also by the cost of fixing it up. All we can say is thank god for the mining shares we bought last year. They're up at record prices too.

In Paris, also, our son Jules goes out to something he calls an Ice Bar. We don't get out very often ourselves...so we don't know if this is something unusual or not. But it sounds like an extraordinary way to waste money. The bar is literally covered in ice...and the whole place is like the inside of a giant freezer. Why anyone would want to go to such a place, we have no idea, but Jules says it is very fashionable and very expensive.

In New York, too, we've been told that young hedge fund managers and investment bankers go out to celebrate ripping off some poor pension fund by ordering $1,000 martinis. And of course, here in London, prices are so high that most people in the city would consider a $1,000 martini a bargain.

Everyone seems to want to show off, to splurge, to celebrate the one thing that matters most to them - making money.

Every bubble era, too, has its winners and losers...its kings and queens as well as its cannon fodder and concentration camp victims.

Most of the new bubble royalty - of this era - work here in the City or on Wall Street. They run hedge funds...or investment banks, making a fortune from the huge gush of liquidity that is flooding the world. The Economist estimates liquidity to have risen at 18% per year for the last four years - "probably the fastest pace ever," it says. Liquidity lifts up almost all financial boats. So, the captains of industry and finance have never had it so good. Too bad the galley slaves aren't doing better too.

But someone has to row the boat. That's one of the big problems with public spectacles. They turn the ordinary voter...the patriot...the soldier...and the saver...into chumps! He has to go fight and die...in wars that mean nothing to him personally. He has to be set up and then wiped out by inflation and stock-market crashes. He has to be hornswoggled by every bit of mass thinking claptrap that comes his way...he ends up trapped into believing the most absurd things...and then he is ruined when the inevitable disaster finally comes.

For every excess has to be dealt with; every bubble has to be pricked. Market bubbles have to sell off. Imperial armies are eventually defeated; all empires - like all paper currencies - eventually disappear. Religious heresies are stamped out - or, sometimes, they exterminate themselves - with belief systems so pure they do not even permit themselves to procreate, such as the Albigensians, or the Cathars.

But back to the here and now...and back to the bubble kings.

Corporate managers are also riding high, especially those in the financial industry. But, after a long surge in salary increases, corporate boards are starting to stiffen up. Executive compensation rose in 2006, but much less than the year before, say the estimates; corporate compensation boards were both embarrassed and afraid of getting sued. Poor Robert Nardelli, CEO of Home Depot, may have marked the turning point. He was just ushered off the corporate ship with a mere $20 million in bonuses.

Do we envy the corporate over-achievers? No, not at all. Now, everyone has it in for them - prosecutors, tax collectors, ex-wives and even the gods themselves. "It's the fat pig that gets the butcher's knife," goes the old Cantonese saying.

What bread do these people eat? What water do they drink that makes them so extraordinarily valuable? At $15 million, top executives are now making about $300,000 a week...or $60,000 a day...or $7,500 an hour - more than a thousand times more than the average guy.

Do any of these corporate stars deserve even $1 million, let alone $17 million or $250 million? There are probably plenty of people who would do the job just as well for less money. We say that from experience as well as theory. We have been CEO of our own publishing business for nearly 30 years. If ever we did anything worth $1 million in a year, it was an accident. Granted, ours is a very small business. But running a small business is harder in many ways than running a big one. In a big company, you have squads of highly-paid professionals to help you cook the books. In a small company, you have to work in the kitchen alone.

The aforementioned Mr. Fairbanks owes his fortune to two things: he heads a company that is in the debt mongering business at a time when debt has never been more popular and he heads up a business whose owners are idiots. In theory, Capital One Financial's profits should go to the capitalists who own it. Instead, a big chunk of them go to the managers, the wily hustlers who figure out how to hijack the enterprise for their own interests.

The press gives us two ways to look at this phenomenon. On the one hand, the plebes and finger-pointers are outraged. Greed, they shout. Excess, they chant. Regulation, they demand. Something should be done, they say, to cap executive salaries. Apparently they think executive salaries should be determined by politicians rather than businessmen, that is to say, by muggers rather than by swindlers.

Of course, there's another way to look at it. Capitalism is the finest system ever devised, say believers. It is great because it permits shareholders to run their businesses anyway they want. If it gives huge incentives to corporate managers to increase 'shareholder value,' well, that's just what makes it work so well. Besides, every mother's son in America, 2007, hopes he might someday be able to work his way to the top of a big corporation and get that kind of money for himself. He's not worried about heaven; he figures he'll be able to grease his way in somehow.

Will he? We don't know, of course. But in the here and now, is there anything out there that supports Emerson? Is everything in the world really moral? Have not all these people got away with something?

Again, it depends. From one point of view - the point of the view of the people who get them - enormous bonuses are something to celebrate. From another - from the point of those who don't get them - they are terrible examples of waste and extravagance. Since the people who don't get enormous bonuses clearly outweigh those who do, we can imagine a time of rebellion among the unbonused masses.

But then again- we are not sure we think that bonuses make such a big difference either way. After all, they will ultimately be spent, and usually in as inexplicable a way as they were earned. The waiters at the Ice Bar, Rolls-Royce salesmen, condominium boards, a host of workers and middlemen stand ready to relieve the rich of their riches. It is not simply that in the long run we are all dead, as Keynes said. It is that in the short run we all have to live, and there is nothing to say that a Goldman bonus is necessary to do that well.

But that is the delusion of the current public spectacle, and who are we to stand in its way?

All of it in the end, after all, is God's world too...a world full of cycles of delusion...and vanity...alternating with despair - where the rules can be forgotten but never suspended. It is this exquisite jewel of a system that we celebrate today...rich, rewarding, uplifting...full of humbug and hallucinations...but where all wealth...and all things...and all the public spectacles...and all of us...fold back into the mantle too...and eventually get what they've got coming.

Regards,

Jan 19, 2007
Bill Bonner
email: DR@dailyreckoning.com
website: The Daily Reckoning

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