Bank Problems

I am concerned about declining confidence in the US banking sector.  Recently CNBC and Bloomberg have been discussing problems at the German bank Deutsche Bank.  More disturbing for Americans, declining stock prices for big American banks indicate a lack of confidence in the whole industry. Dodd-Frank was supposed to protect us from bank failures, but today Sen. Elizabeth Warren grilled Fed Chair Janet Yellen at length about problems with “living wills” for banks that fail. 

I am concerned that American banks are still too big to fail, and that Dodd-Frank has failed to keep them from engaging in risky activities that could create a global financial catastrophe.  Dodd-Frank and the Volker rule have failed to fill the gap created by President Clinton’s elimination of Glass-Steagall. 

I would like to see Glass-Steagall re-enacted.  At a minimum we need to make big banks smaller and rein in their riskier trading activities.  I am alarmed to see the stock market illustrate Wall Street’s lack of confidence in its own big banks like JP Morgan-Chase and Goldman Sachs. 

Related to this is, I believe, is the issue of income inequality.  There has been talk of lack of liquidity surrounding the current unsettled bank environment.  One problem with consolidating all the nation’s wealth in a few hands is that the few hundred families who control that wealth may all decide at once to do the same thing, e.g., sell bonds.  If they all act at once, there will be no one to buy bonds, for example.  Prices would plunge, and we would be back in another financial crisis.  To some extent this is what happened in the 1929 market crash, when like today, much wealth was held by a few extremely wealthy people.  The aggregation of wealth means that markets become smaller, controlled by a few people. and more susceptible to volatility.  As markets become dominated by a few players, the country becomes less capitalistic and more oligopolistic.  This is what happened to Russia under Yeltsin.  I hate to see America following the Russian model. 

Keep the Draft

As one of the last people subject to the draft during the Vietnam War. I am writing to support the continued existence of the Selective Service System in case we need a military draft sometime in the future.  I actually volunteered after being classified 1-A and passing the physical, rather than wait a month or two to be drafted. 

I am very disappointed that military service has become such a contemptible, dishonorable profession in the United States.  I came home from Vietnam to scorn for being a veteran.  Today, people praise veterans, but in my opinion, it is usually because the people heaping the praise are not willing to serve themselves.  They think, “If I tell this fool what a great job he is doing, then I won’t have to do it.”  When it comes to something more expensive than praise, like giving veterans jobs or health benefits, the country is less fulsome. 

The military likes having an all-volunteer force, but I think we need people who would not ordinarily serve in the military.  We need people from Harvard and Stanford who look at the world differently from the ordinary pool of recruits, who are mostly poor and less well educated.  Supreme Court Justice Elena Kagan hated the military so much when she was dean of the Harvard Law School that she prohibited military recruiting there.  The military needs a diversity of personalities, perspectives and talents, just like any other large organization.  This lack of intellectual diversity has hampered the military ever since Vietnam, when despite the draft, rich, smart, well-educated people generally did not serve.  That may be one reason we lost the wars in Vietnam, Iraq, and Afghanistan.  We sent our trailer-park trash to fight and we got trashy results. 

I realize that the proposal by Congressmen Coffman and Polis to abolish the draft is motivated by the recent call to include women in the draft.  I have no objection to including women in the draft, but I do oppose the recent decision to include women in all fighting units of the military, including the Army infantry and the Marines.  I think the problems with rape and other sex offenses in our universities illustrate the problems of putting young men and women with raging hormones together in situations where there are frequent romantic temptations.  I was in the artillery, where living conditions are better than in the infantry, but everyone slept together in one bunker, used the same latrine, etc.  Living conditions are probably manageable in rear echelon environments, where women could certainly serve, but I think forcing men and women to live together in combat situations is just asking for trouble in terms of sexual contact.  In any case, there are certainly military jobs for which America could draft women. 

I believe that the draft would strengthen the military by bringing in new blood, although the military leadership probably is not enthusiastic about the challenges to it that would emerge from a better quality of recruits. 

World War I Memorial

I was struck by the fact that the announcement of the new Washington memorial for World War I veterans, and the exposé of high administrative costs for the Wounded Warrior Project came out at almost the same time.  It’s interesting that the Vietnam War was the first American war in which veterans were widely reviled and hated, not counting the Civil War, which was a special case.  Other small wars were not widely supported, perhaps the Mexican War or the Spanish-American War, but there was not widespread contempt for the men who participated in them.  Teddy Roosevelt came out of the Spanish American War a hero, like John McCain came out a hero of the Vietnam War, unlike most of his fellow servicemen.  Similarly, there were some heroes of the Mexican-American War, like Zachery Taylor.  About the only heroes Vietnam produced were POWs.  General Westmoreland is usually considered a failure.  It was a case where the common soldiers won almost every battle, but the generals and the politicians lost the war.  So, in order to honor the common soldiers who died, the nation created a Vietnam Memorial to offset to some extent the general disrepute in which the soldiers were held. 

For previous wars there was no need to build a memorial, because those who fought were generally held in high regard.  There were many local memorials in small cities and towns, because everyone knew someone who had served.  Soldiers came from ordinary people’s homes, their relatives, their neighbors.  They often came from good families, and those who returned often went on to take leadership roles in their communities.  The reverse was true for Vietnam, people from good families refused to fight, and veterans who returned often found themselves treated like outcasts.  Homeless Vietnam veterans became a common sight in most cities. 

Now, people who grew up in the shadow of the Vietnam era have little idea what national service is like.  There was a burst of patriotism after 9/11, but it was squandered in a pointless war in Iraq that had nothing to do with 9/11.  After an initial rush to join the military after 9/11, veterans of Iraq and Afghanistan began to be ignored or disrespected like their Vietnam predecessors.  Nevertheless, people who don’t want to fight themselves want someone to fight for them.  So, they tell the veterans how much they love and respect them, when their actual attitude is, “I’m glad they went so that I didn’t have to.”  They tend to see veterans as people who can’t get a real job and have no choice but to join the military.  We have an all-volunteer military, but one that does not include many of the country’s best people. 

It’s the people who don’t remember when serving in the military was a well-respected calling who now want to build memorials.  The men who fought in World War I and II did not think that they needed memorials.  They thought that their service was their memorial, and that their sacrifices lived in the hearts and minds of their friends and relatives.  But that remembrance has died out, and average people today think World War I and II veterans were as worthless as the veterans of Vietnam, Iraq or Afghanistan.  Today many people think they have to build memorials so that poor, stupid people like me will still go off to war when the country wants to fight a war.  It’s all about themselves, not about the veterans.  At least superficially, it is a better welcome home now than during Vietnam.  But is it reasonable that people today care more about the veterans who fought in World War I than America did 100 years ago?  And is it reasonable that people today care more about World War II veterans than their loved ones did fifty years ago?  No, if anything, the memorials are a penance for not caring.  

Dangers of Global Wealth Inequality

A Credit Swisse Report says that the top 0.7% of the world’s population, those with net wealth of $1 million or more, about 34 million people, own 45% of all global wealth.  It says there are 123,800 Ultra High Net Worth individuals worldwide who have a net worth of more than $50 million.  Fortune summarized the report. 

The Guardian says that there are 199,235 Ultra High Net Worth individuals, whose combined net worth is around $27.7 trillion, about 40% of the world’s GDP. 

This increasing concentration of wealth may have implications for financial liquidity.  To be liquid, markets need buyers and sellers, and this means there needs to be some diversity.  You need people who are looking for different things from their investments.  As you narrow the group making investments, you narrow their interests.  At some point you might end up with a small group of people who all want to sell.  The people who would in the past have been  buyers, now would not have enough resources to buy the huge amounts the superrich want to sell.  The result might be a violent dive in the price of the assests in disfavor, whether they are stocks, bonds, or real estate.  The same would be true if all the superrich wanted to buy some particular asset.  The result would be at best increasing volatility, and at worst market crashes.  These crashes might have less effect on the superrich than on ordinary people, because the superrich would probably be diversified.  For example, a big loss in their real estate investments would be cushioned by their investments in the stock and bond markets, or the art market, etc.  However, for ordinary people a big loss in the value of their home might be devastating, because they would not have other big, valuable assets to cushion the loss of their home value. 

This is more or less what happened in the 2008 subprime mortgage crisis. 

The other side of that crisis was what happened to the banks.  A few banks then and now were humongous, dominating the market for complicated financial instruments, like bonds made up of home mortgages.  Having only a few huge banks is like having a small group of superrich people, the chances of some event affecting all of the players becomes larger as the group of players becomes smaller.  Dodd-Frank and the Volker Rule were supposed to help remedy this, but so appears to have done little, despite (or because of) the loud protests of the big banks against any restrictions.