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BA RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISIvl By the author of American Dynasty and American Theocracy E PHILI IPS BOOKS & THE CULTURE Digging a Hole BY JAMES K. GALBRAITH Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism By Kevin Phillips Viking 239 pages, $25.95 ad Money is a short book by a practiced artist who specializes in identifying the defining trends of American life. Here Kevin Phillips takes on financial practice in the age of Robert Rubin, Henry Paulson, and the global rule of Goldman, Sachs. It’s not meant td be pretty, and it isn’t. Phillips argues that financial recklessness, combined with peak oil and the rise of Asian economic power, will doomhas already doomedAmerican world leadership and our standard of living, which depend on the value of the dollar. The leading edge of collapse, in the form of the subprime mortgage and banking crises, is already on us, and the consequences will make future imperial adventures untenable, in Iraq and elsewhere. The problem begins with private debt. According to a chart early in the book, total private credit market debt was nearly constant, as a share of national income World War II until the rise of Reagan. It then started growing, passing the 1929 peak in the early part of the 21st century and continuing upward to well over three times GDP by 2006more than double the value of thegolden years. Most of that was mortgage debt. And a vast share in 2005 and 2006 was subprime mortgage debt: ticking financial bombs, carefully packaged and marketed to pension funds, hedge funds, sovereign wealth funds, and gullible foreigners. Phillips correctly notes the roles of former Federal Reserve Chairman Paul Volcker’s radical high-interest policy and of financial deregulation in starting us down this road. He might have said more about Reagan’s tax policy. “Supplyside economics” gave corporate chiefs huge incentives to divert retained earnings, until then the mainstay of business investment, into executive pay. Alan Greenspan’s 1983 Social Security “reform” squeezed workers by raising the payroll tax. And then came the 1986 Tax Reform Act, which for political reasons left mortgage interest as the only type that could be deducted. This created a huge incentive to expand home ownership, and so to financialize the housing sector. There followed a shift in the means 24 THE TEXAS OBSERVER MAY 16, 2008