I sense fear, anger and a deep feeling of injustice reminiscent of the climate on the eve of the French revolution

TO BE NOTED: From the FT:

"What the French revolution can teach America

By Dominique Moïsi

Published: April 2 2009 18:13 | Last updated: April 2 2009 18:13

“Eat the wealthy.” The ferocity of the words used by some demonstrators in London on the eve of the Group of 20 summit evokes the worst excesses of the French revolution. Anti-capitalist anger in the west is not confined to Europe. Alexis de Tocqueville’s The Ancien Régime and the Revolution is as relevant to understanding today’s America as his deep and eye-opening thoughts on the young American republic in his Democracy in America.

Of course, America in 2009 is not France in 1788, the year before the fall of the Bastille (the prison that embodied the oppressive nature of the monarchical regime) and the symbolic beginning of the French revolution. The fall of Lehman Brothers in September 2008 has nothing to do with the fall of the Bastille; symbols of wealth should not be confused with symbols of oppression. There is no guillotine around the corner and it would take a lot of imagination to compare President Barack Obama to Louis XVI, or Michelle Obama to Marie-Antoinette.

Yet as a European living in America – watching news on television every night, talking to friends, colleagues or my students – I sense fear, anger and a deep feeling of injustice reminiscent of the climate on the eve of the French revolution. Just replace bread shortages with foreclosures, aristocrats with bankers, and privileges such as the right not to pay tax with stock options. Add to that support for the king but rejection of many of his ministers, and the comparison looks less far-fetched.

The explosion of populist rage that has accompanied the AIG scandal, amplified by an opportunistic Congress and by media that play to the tune of their audiences when not reinforcing their passions, reflects the depth of suffering in the US. Main Street, like much of France at the end of the 18th century, is outraged. Fear for its own present and future is combined with anger at those it considers responsible, and who are much less affected than they. Are not senior bankers today like the aristocrats of yesterday, their privileges no longer justified by their social functions – to serve the king with their swords or to contribute to the creation and dissemination of wealth?

The problem with the economic team of the new president is that, like the court of the king of France in pre-revolutionary times, it has inherited all the bad reflexes of the ancien régime, mixing excessive sympathy for the outdated logic of the world of finance, which it helped to create, with insensitivity to the emotions of the ordinary people, which it tends to ignore. This sympathy is perceived to contrast with the harsh treatment of carmakers.

Bankers and financiers have to reinvent not only their trade but also their way of life and, above all, their value system. In the Madoff scandal, just as shocking as the crime of an individual was the behaviour of many of his rich customers, who combined greed with a lack of financial common sense.

An interesting incident was reported by CNN last week. A group of protesters – very few, to be honest – rented a bus in Connecticut and stopped in front of the mansions of AIG executives to express support for those who had returned their bonuses and outrage against those who had not and were still living in grand style, in contrast with the many more who had lost nearly everything.

The greed of some was tolerated as long as most of society continued to progress. But today’s combination of fear and humiliation with a deep sense of injustice leads to anger that is potentially irrepressible. The strength of the American republic has been bolstered by the popularity of its new president. This capital should not be squandered on reliance on a media-savvy communication culture. As can be seen so often in history, less is more. The president of the US simply speaks too much.

Revolution is not around the corner; at least, not in America. But there are lessons Mr Obama can learn from the French king’s failure to manage dissent. He must not fall prey to populism. His goal is to save the economy, not punish the bankers. At the same time, he must not be seen to have too much sympathy for the world of finance and its excesses or to cut himself off from the suffering of his people. If he fails, the corporate laws of today will face the same fate as the ancien régime rights of yesterday.

World leaders’ agreements, substantive or superficial, will not suffice. It is the trust of their respective citizens, translated into hope and confidence, that will make the difference.

The writer is a visiting professor at Harvard University and author of the forthcoming The Geopolitics of Emotion"

"“For the first time in my life I have sympathy with the Bolsheviks; with the French revolutionaries who put up the guillotine.”

A Burkean view of what happens if a society doesn't have a thriving Middle Class on the FT:

"Iceland gives Christmas frosty reception

By Sarah O’Connor in Reykjavik

Published: December 23 2008 20:14 | Last updated: December 23 2008 20:14

On the ground floor of one of Reykjavik’s gleaming office buildings, a well-dressed crowd shuffles and waits. Tinny Christmas songs blare from a small hi-fi by the door.

As numbers are called out one by one, people file into the next room where rudimentary shelves are filled with free tins, fish, clothes, books and wrapping paper.

Some 2,500 people have applied for Christmas relief packages from Iceland’s three main charities in recent weeks, a 30 per cent rise on last year, as growing numbers of the middle class lose their jobs in the wake of Iceland’s banking collapse.

Jon Omar Gunnarsson, a pastor at Hallgrimskirkja, Reykjavik’s main church, says applications to the Church Aid group have doubled.

“It’s mostly middle class people who have all these obligations, mortgages that are going up, many are losing their jobs ... they just can’t carry the burden alone,” he says.

Iceland is still reverberating after its economy crumpled in October in the face of global financial turmoil.

Inflation and interest rates are both at 18 per cent as the country struggles to shore up its currency, which plunged after its three banks collapsed. It has borrowed $10bn from the International Monetary Fund and others which it needs to repay, meaning taxes are rising even as recession deepens."

So, they have:

1) Interest rates at 18%

2) A Falling currency

3) Borrowed $10 Billion from the IMF

4) Higher taxes

5) A recession

"The charities believe more people need help but are too ashamed to ask.

“We should just forget about Christmas, just cancel it,” says Sigridur, 57, waiting for her number to be called.

“My husband lost his job, I don’t have one either – I am recovering from cancer. We cannot even pay for the house.”

Sigridur and her husband are considering moving to Norway where there are jobs in construction. “We would just post the house key back to the bank.”

Asa, 44, will give her children Christmas presents provided by charity this year. “You have to take off your pride,” she says. “It’s very difficult to do it.

“There will be a lot of people who leave this country, just go away. Think of the future here for the children. When they are 95 they will still be paying for this( YIKES ).”

Although growing, the number of people needing food aid is still small. Many of those who have lost their jobs will continue to get paid until February. The government, which owns the three main banks, has promised mortgage holidays for people who cannot meet repayments. But even those who have not been badly hit are changing their lifestyles. This Christmas, people are giving each other books, home-made trinkets and practical presents such as warm socks.

Last year’s must-haves, flat screen televisions and games consoles, are on the list of things people here call “so 2007”.

For many, Christmas brings a welcome distraction from the crisis. But others find it impossible to get into the seasonal spirit.

Sitting in an old fisherman’s cafe by the port, Orn Svavarsson shakes with rage. He sold his health food business three years ago when he was 54 and, like many of his countrymen, put the money into the stock market. It has been wiped out.

“The Icelandic people are too lazy,” he says. “Why don’t we go to the airport and block it until we get answers?

“For the first time in my life I have sympathy with the Bolsheviks; with the French revolutionaries who put up the guillotine.”

Note well the last sentence. If Icelanders should come to lose confidence in the social system as well as the economic system, then things could actually get ugly.

" Now how do you organise a new French Revolution? "

Bronte Capital and John Hempton also get it:

"Credit Agricole SA is a bank which obsesses me – and on which I have lost some loot.

The problem is that it is a bank with very good bits and very bad bits. And the good bits are excellent (and mostly outside Paris) – and the bad bits are atrocious.

Charlie Munger observed that if you mix turds with raisins you still have turds. Charlie was right and it shows in Credit Agricole SA’s stock price.

The bank is controlled by a bunch of regional mutual banks who – for reasons that are not apparent to me – have never got around to closing the bad bits. Those regional mutuals are in turn controlled by five million voting mutual certificate holders – a reasonable proportion of French households.

The super-bad bit is their investment bank. It’s a mathematical finance type investment bank in the French mould. As has been noticed by more than a few people – the market recently has not been too kind to mathematical finance.

I just want to extract the results – quarterly – for just investment banking business. Please click for detail...

These numbers really deserve looking at. The first observation is that revenue can go very strongly negative at an investment bank. That is nothing that Lehman et al have not discovered before – but the trading revenue was negative for several quarters in a row. You might conclude the traders were not much better as traders than say the average French farmer.

The second thing is that the costs line doesn’t seem to move much. Now when I was young and naïve – say 2006 – I thought the investment banks would have a very rough trot – but that the staff would take a fair bit of it in the hip-pocket. The argument being that the very high salaries were at risk – and you could at least assume that when time got rough for an investment bank the staff would be paid salary without bonus. Capital risks were lower than it would appear because at least variable expense would go close to zero.

Now I read lots of stories about how children are getting less allowance due to the credit crisis. Such stories always seem to wind up high in big-media’s “most read” and “most emailed” lists. And that is only because we – dear readers – are doing it to our own kids.

And if it is good enough for our kids it is surely good enough for our investment banker!

Anyway – it is noted that Wall Street bonuses remain stubbornly high – but this is France with all its equality and fraternity. And they can’t control this crap either.

But with numbers like these – if the investment bank were not owned by the rich French parent (Credit Agricole SA) then it would be bust – and the children (sorry investment bankers) would be out on the street.

But bust is better than it would have been in 1792. In those days – faced with a class as egregiously and hypocritically greedy as investment bankers they would have set up the guillotine in the Place de la Concorde and we would be treated to the public spectacle of mass beheadings.

These days of course it is easier. The French farmers and middle class all have a vote – its their mutual share. Executing a vote may be less grizzly than executing investment bankers – but it might be just as effective (though somewhat less theatrical).

Now how do you organise a new French Revolution?"

Hempton's not far wrong. Now you know why I sound like a certain Whig who's trying to prevent himself from having to write a book about Major Social And Economic Changes wrought by this crisis. Only, in this case, I'm getting more help from my own party than the opposition. This need not happen. It's a remote possibility as of now.

A True Burkean would be thinking about the Pragmatic and Effective Policy Decisions that will allow us to keep our system intact, and yet deal with the crisis before us. Paradoxically, we need more government intervention in the short run to prepare the possibility of less government intervention in the future. We also, and I know I'm sounding Quixotic here, need to root out Fraud, Negligence, Fiduciary Mismanagement, and Collusion, and deal with it strictly and publicly, in order to forestall a collapse in the belief among many voters that this system is worth preserving, and that this presevation will not come at their expense.

Do I agree with everything Burke says? No. I see him as a Whig with a distaste for Radical Change, which often strays very far from its stated goals. So say I. Political Economy and Politics dictate that we deal with this crisis in a way that both appears and is benefitial to all parts of the citizenry. I'm fine with looking towards Keynes for help, but a quick but focused glance towards Burke is seldom, if ever, amiss.