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Recipe for Revolution / Reconstruction / RenewalDaniel Johnson Salem-News.com
If millions of Americans were to stop paying “obligations”, there aren't enough collectors, lawyers and courts to go after them all.
(CALGARY, Alberta) - This article is subversive. Read it at your own risk!
In the sixth century BCE, Athens was on the verge of either chaos or revolution, much, in the view of some, like America today. The Eupatridae, the aristocracy of birth, controlled the government, owned most of the land and used its power to drive the poorer farmers into debt during bad seasons. Those who could not meet their debts were reduced to being serfs on what had once been their own land. Some were sold into slavery. Year by year, the social/economic situation became more and more precarious.
In 594 BCE, leaders of the middle classes asked Solon, who had an established reputation of exceptional integrity in the eyes of all classes, to accept election as archon, but with dictatorial powers to deal with the imminent social war, establish a new constitution, and promote social stability. The upper classes acquiesced, albeit reluctantly because, as a conservative moneyed man, he was of their class. They trusted him.
Solon first introduced simple but drastic economic reforms. He did not attempt to redivide the land, but by his famous Seisachtheia, or Removal of Burdens, he cancelled all debts and in one decree cleared all Attic lands of mortgages. Historian Will Durant notes that “the rich protested unanswerably that such legislation was confiscation; but within a decade opinion became unanimous that the act had saved Attica from revolution.”
When Solon was working out his laws, some got wind of his intentions and bought properties that, when mortgages were cancelled, they were able to keep without ever having paid for them. Solon was briefly suspected of colluding and taking advantage for himself until it was discovered that, as a heavy creditor, he had lost by his own law.
Those persons enslaved or attached for debt were released. Those sold into foreign servitude were reclaimed and freed. He gave amnesty by freeing or restoring all persons who had been jailed or banished for political offenses short of those trying to overthrow the state.
By releasing both the people and the nation from paper chains of debt, he was able to re-establish social balance. He was then able to create a set of fair laws, repealing most of Draco’s legislation and setting the foundation for a democratic constitution which then evolved to become the foundation for Rome, then all of Western civilization.
Five centuries later Cicero could say that Solon’s laws were still in effect in Athens. Legally, his work marked the end of government by arbitrary and changeable decrees and marked the beginning of government by written and permanent law. Will Durant called “Solon’s peaceful revolution…one of the encouraging miracles of history.”
Solon’s changes set the stage for Athenian rebirth and the growth segueing into democracy. Trade and industry had been freed of political instabilities and financial inconveniences. This began the vigorous development that made Athens the commercial leader of the Mediterranean. The new aristocracy of wealth (timocracy—rule by merit) put a premium on intelligence instead of birth; stimulated science and education and prepared Athens, both materially and mentally, for the cultural achievements of the Golden Age. As historian John Ralston Saul concludes:
“Today we cannot move a step without some conscious or unconscious tribute to the genius of Solon and of Athens—a genius unleashed by defaulting on debts.” (underlining added)
2. France 17th century
Henry IV was probably France’s greatest king. He ascended the throne in 1600 after 32 years of religious wars had devastated the country. The French merchant marine had almost disappeared and three hundred thousand homes had been destroyed. Demobilized soldiers ran lawless through the countryside.
Tired of anarchy, the people of France allowed him, the business classes begged him, to make the Bourbon monarchy absolute. Royal absolutism had been the cause of civil war in England; it was the effect of civil war in France.
The first order of business was financial stability, which meant taxation. Henry made Maximilien de Béthune, the Duke of Sully, the superintendent of finance who moved against embezzlers and incompetents with such ferocious energy that he became the most valuable (and, of course, unpopular) member of the Royal Council. He is to this day considered to be one of the finest and most careful of public servants.
He was the pit bull of the administration and, as superintendent of finance also managed highways, communications, public buildings, fortifications and artillery; and, as governor of the Bastille and surveyor general of Paris, he was everywhere, supervising everything and insisting on efficiency, economy and integrity. He compelled 40,000 tax dodgers to pay their taxes. He found the national treasury in debt by 296 million livres; he balanced the books and produced a surplus of 13 million livres.
The first thing Sully did was refuse to pay the interest on the national debt. Then he negotiated lower rates of interest and, after that, refused to meet payment schedules. What he did was the equivalent of defaulting on the national debt.
Within a decade he and Henry rebuilt France. Not all reforms had matured before Henry’s assassination in 1610, but by the end of his reign France was enjoying prosperity it had not known since Francis I (1494-1547—considered to have been France’s first Renaissance monarch).
3. America, 19th century
The 19th century was primarily a century of American defaults. Loans which financed large capital investment programs, and had been assembled by private groups, were continually defaulted on. The history of the American railroads is a history of default. The history of American capitalism is largely a history of default, particularly during the panics of 1837, 1857, 1873, 1892-3 and 1907.
None of these occurred in a civilized way, à la Solon or Sully, but instead involved panics, crashes and massive bankruptcies which in turn wiped out massive debts. The result was always a short, widespread depression before the economy rebounded. In 1892-3, for example, four thousand banks and fourteen thousand businesses collapsed. As historian John Ralston Saul summarizes:
“The difference between Henri IV and the American railway crashes is one of method, not content. The great depressions of the last hundred and fifty years can be seen as the default mechanisms of middle-class societies. Depressions free the citizens by making the paper worthless. The method was and is awkward and painful, particularly for the poor, but it destroys the paper chains and permits a new equilibrium to be built out of the pain and disorder of collapse.” (italics added)
He offers this key observation: “In other words, the non-payment of its debts was central to the construction of the United States.”
Repayment of debt has become a middle-class value, with some vaguely religious, moral value attached to the repayment of debts. This probably stems from the insertion of God as the official supporter of capitalism and democracy in the 19th century. How many millions of middle-class Americans today have worried themselves sick—even to real illnesses—over how they were going to pay their bills?
At the same time, Wall Street bankers and brokers defaulted on tens and hundreds of millions of dollars with no apparent moral compunction whatsoever. This is the difference between people and fictitious people (corporations). If you loan me $100, I have a moral obligation to return it, no different than if I had borrowed your lawn mower. But if I borrow money from Bank of America, who have I actually borrowed it from? Certainly not a person and definitely not the loan officer. Bank of America has exactly ZERO feeling or regard for me so there is no obligation for me to feel any differently towards the company.
But, notes Saul: “The new respectability of bankers has added weight to the argument that paying debts is a moral obligation. And yet it is hard to forget that whenever a society had defaulted on a crippling debt, its economy has been the better for it—sometimes so much so that, as in the Athenian or American case, the whole fabric of society was catapulted into growth and creativity.” (italics added)
America is the most religious society outside of the Islamic countries. Yet America’s religious culture is twisted and distorted by money. The social contract has been replaced by a financial contract. As Saul observes:
“The simple truth is that the collecting of interest on debt contradicts the entire history of Christian doctrine. It is not a matter of fair versus unfair interest rates. To lend money for profit was and remains a basic venal sin. In this sin of usury it is the lender who is in the wrong. The borrower has weakened in a moment of need and the lender is exploiting his weakness. This theme has reappeared constantly throughout history to justify not only default but often the confiscation of the lender’s goods and sometimes his life..”
4. America, now
4.1 The Creation of Debt
In 1983, T. Boone Pickens made a run at Gulf Oil, then the country’s fifth largest oil company. Through various forms of debt he owned 13.2% of company shares which were, at the time, selling for around $40/share compared to an estimated $114/share if the company were broken up and sold. Gulf management found a way around Pickens’s strategy and he was foiled. Pickens still made millions—money that became debt to someone else through the process. Corporate raiders gain respectability because they are backed by the nation’s top banks and financial publications like the Wall Street Journal and the Financial Times. His action was treated as if it were a bona fide takeover instead of what it was—a simple stripping operation.
In 1987 the consumer products giant Beatrice, found itself the object of a takeover by Henry Kravis and associates. They used a miniscule fragment of equity—about $40 million—to leverage a buyout of the company at $6.2 billion.
They then broke up the company and sold off pieces of it for about $3 billion. The whole process—over about 16 months—produced not a single penny of growth, but Kravis and company walked away with the $3 billion. The new owners of the spun-off units, found themselves laboring under a newly created burden of $3 billion of debt while the entire Beatrice entity—before and after—had not substantially changed. This is the reality of the modern economic system. Money and debt are created out of nothing—from thin air.
This is the basis of the modern economic system. It’s almost entirely smoke and mirrors—a paper chain of debt, profit and obligations. The machinations of the denizens of Wall Street which almost brought down the global economy demonstrated this. They created all sorts of fantasy financial instruments that, when the bottom fell out, turned out to have no value at all—none, nada, zilch, zero. As Joseph Mason, a professor of finance at Louisiana State University in Baton Rouge summarized: “The industry was self-financing, using loopholes in rules. Regulators weren’t keeping track of ownership of the capital, which became more difficult to do with the use of CDOs. The losses fed on each other.”
(A CDO is a “collateralized debt obligation”. It’s far too complicated to try to even summarize, so the interested reader can try Googling, or just go to this overview piece at: Wikipedia)
4.2 Dealing with debt
“The federal budget appears to be on an unsustainable path,” said Federal Reserve Board Chairman Ben S. Bernanke during a House Budget Committee hearing on June 9 in Washington. Is it time to consider the lessons from Solon, Sully and the 19th century American railroads? Perhaps.
Some people are already going in that direction all across America as they just stop paying their mortgages, giving lenders an ultimatum—force me out if you can. Alex Pemberton and Susan Reboyras in Florida stopped paying their mortgage last summer.
Mr. Pemberton’s mother, Wendy, stopped paying her mortgage two years ago after a bout with cancer. Her lawyer, Mark Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since.
Foreclosure has been initiated against 1.7 million American homeowners. Resolving foreclosures is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of lenders to cope with so many failing mortgages. Because of the ways that mortgages have been packaged, repackaged, sold and resold, an increasingly common defense for a borrow is to challenge the action, saying: “Prove that you own the loan.” Easier said than done in many cases.
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008. In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days Ten years ago the average number of foreclosure cases in St. Petersburg, Florida, and surrounding county was about 4,000 says J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Now there are about 34,000 active foreclosure cases. “The volume is killing us,” he says.
4.3 Here’s the bad news
Speaking at the Institute of International Finance in Vienna on June 11, 2010 financial-predator-turned-respectable-investor George Soros says Europe’s financial troubles means the world has “just entered Act II” of the financial crisis. Some of his other comments:
“The collapse of the financial system as we know it is real, and the crisis is far from over. Indeed, we have just entered Act II of the drama, when financial markets started losing confidence in the credibility of sovereign debt. Greece and the euro have taken center stage, but the effects are liable to be felt worldwide.“
“We find ourselves in a situation eerily reminiscent of the 1930s. Keynes has taught us budget deficits are essential for counter-cyclical policies, yet many governments have to reduce them under pressure from financial markets. This is liable to push the global economy into a double-dip.”
"The simplest case of a purely financial bubble can be found in real estate. The trend that precipitates it is the availability of credit; the misconception that continues to recur in various forms is that the value of the collateral is independent of the availability of credit."
(You can read the full text of Soros’s speech at this link)
5. Promoting subversion
What America sorely needs is a Solon or a Sully or, at the very least, the courage to face up to the economic fact that most of the nation’s debt, individually and collectively, is artificial—made up, smoke and mirrors. If you are living near the edge with your mortgage and credit cards and your credit rating is already damaged or precarious, you have nothing to lose but your paper handcuffs and leg irons. If millions of Americans were to stop paying those “obligations”, there are not enough collectors, lawyers and courts to go after them all. It would give people the opportunity to start life anew—obviously without credit or debt, but it would be a different life, one I would argue to potentially be far superior to the debt/consumption treadmill.
5.1 Adding insult to injury
There is nothing “so afflicting and fatal to every honest hope as the corruption of the legislature,” said Thomas Jefferson. Think George W. Bush.
In March, Dan L. Duncan, died at 77 of a brain hemorrhage. Had he died three months earlier, in December 2009, his wealth, which Forbes estimated at $9 billion, making him the 74th richest in the world—would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher—55 percent.
But, because Congress allowed the inheritance tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have been taxed. The one-year lapse in the estate tax was signed into law by President Bush in 2001, an accounting loophole in his package of tax cuts which the Democrats had promised to close but didn’t.
It’s remotely possible that the loophole may be closed and a tax applied retroactively. But Duncan’s heirs have both the motivation and the resources to fight and defeat such a development.
One of Solon’s laws was that the sons of those who died in war should be brought up and educated at public expense.
One thing Henry did in ending the religious wars was taught the Catholics and Protestants to live in peace. The religious liberty he granted was imperfect, but it was the most advanced religious toleration in Europe to the time.
Culturally the same discord exists between Democrats and Republicans. If someone could teach them to at least tolerate a peaceful co-existence, they would be doing everyone in the world a favour.
To paraphrase John Ralston Saul from above: The non-payment of debts may be central to the reconstruction of the United States.
Daniel Johnson was born near the midpoint of the twentieth century in Calgary, Alberta. In his teens he knew he was going to be a writer, which is why he was one of only a handful of boys in his high school typing class — a skill he knew was going to be necessary. He defines himself as a social reformer, not a left winger, the latter being an ideological label which, he says, is why he is not an ideologue. From 1975 to 1981 he was reporter, photographer, then editor of the weekly Airdrie Echo. For more than ten years after that he worked with Peter C. Newman, Canada’s top business writer (notably on a series of books, The Canadian Establishment). Through this period Daniel also did some national radio and TV broadcasting. He gave up journalism in the early 1980s because he had no interest in being a hack writer for the mainstream media and became a software developer and programmer. He retired from computers last year and is now back to doing what he loves — writing and trying to make the world a better place
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