x Abu Dhabi, UAEMonday 24 July 2017

Double down

The big idea Seven years after 9/11, the fall of two more Manhattan giants punctuates an era, writes Max Rodenbeck.

Wall Street, transformed into a staging area for rescue workers after the attacks of September 11.
Wall Street, transformed into a staging area for rescue workers after the attacks of September 11.

Seven years after the terrorist attacks that destroyed the World Trade Center, the fall of two more downtown Manhattan giants punctuates an era marked by American recklessness, writes Max Rodenbeck.
On September 11, 2001 the world gasped in horror at the spectacular destruction of New York's twin towers. Seven years later the world again held its breath in mid-September, as another pair of Wall Street colossi came crashing down. The collapse this time may have been virtual, and its casualties financial rather than physical, with Lehman Brothers, the giant investment bank, declaring the biggest bankruptcy in history and its troubled rival, Merrill Lynch, succumbing to a humiliatingly cheap takeover by the Bank of America. But the damage was comparable, with well over a trillion dollars in global stock values sent billowing skyward as panicked investors fled markets from Taipei to Toronto.

The symmetry between these events, one geopolitical and the other economic, one seen as a shock catalyst for action, and the other as the predictable culmination of previous actions, may appear merely metaphorical. Yet the two events frame a sequence of poor choices that, by the plodding process of history, can be seen to have dragged the superpower, and along with it much of the world, directly away from one defining calamity and into the embrace of another.

American leadership in the Bush years has, to put it baldly, been marked by mistakes in conception, failures in character, and flaws in execution that, taken together, were bound to reap a whirlwind of misfortune. Yet although it is tempting to pin blame on the bumbling of a singularly inept administration, the failings point to deeper, systemic woes. It is said, cruelly, that peoples get the leaders they deserve, and America's wantonly aggressive reaction to the tragedy of September 11, along with the irresponsible behaviour that led to the current financial meltdown, indicate something of a national predilection for what might be termed the George Bush style.

That the man was elected twice suggests that his swaggering insouciance, his lack of curiosity, and his preference for gut instinct over rational analysis, and for high-blown rhetoric over the hard work of problem-solving all reflected prevailing attitudes in the America of the Noughties. Bush's reign began, let us not forget, with the Enron scandal, when another of America's brash corporate titans was proved to have been run by scoundrels, who assumed that because they funded powerful politicians they could get away with baldfaced cheating. They were not entirely wrong. Bush's economic policy has been characterised by a look-the-other-way approach that has encouraged greed, shifted wealth massively from the working poor to the idle rich, swollen America's fiscal and trade deficits, and undermined the government's capacity to do its primary job of promoting public good and preventing evil.

A leading economist describes the current illness of America's financial system as resulting from "a spectacular failure of risk management". What happened was that banks lured millions of poor people into borrowing money that the lenders should have known would be difficult to repay. Repackaged in bundles, the loans were then passed up through a chain of bigger financial institutions, in increasingly complex transactions that obscured the underlying insecurity of the debt from its new holders, as well as from the understaffed and overstressed regulatory agencies that might have signalled an early alarm.

But perhaps more importantly, the general atmosphere of heedless competition for profits, combined with intense pressure on the public to spend beyond their means, encouraged the pretence that America's credit was unlimited - until it was too late. Everyone joined happily in this game, not just those who pocketed corporate rewards, or the politicians who revelled in the feel-good factor of false prosperity, but the watchdog institutions, such as the press, that failed to challenge it. America's geopolitical response to the dramatic challenge of al Qa'eda might be described in similar terms, as a spectacular failure of threat management. As we know, the September 11 attacks were the work of a tiny cult of violent radicals. Their unprovoked viciousness presented an opportunity to rally the world against their brand of obscurantist extremism. Yet instead of identifying the aggressor accurately and launching a response that was proportional, appropriate, and designed to enhance American power and prestige, the Bush administration constructed an imaginary adversary, a vague array of rogue states who were said to be plotting to place weapons of mass destruction in the hands of a giant Islamofascist ogre. Countries that failed to share this same vision were condemned as villains, or derided as snivelling "surrender monkeys".

As a result of this mistaken assessment, America's leaders rushed into spendthrift policies that wasted untold thousands of lives, as well as national treasure and international legitimacy. What appeared to be America's steroid-pumped belligerence alienated much of the world, creating a backlash of mistrust and resentment that will take years to subside. Worse, it diverted crucial time and attention from the pursuit of the actual culprits responsible for September 11, allowing them to escape, regroup and continue to wreak havoc in other parts of the world.

Again, instead of challenging the very concept of a Global War on Terror, or the rationale behind invading Iraq, America's mainstream establishment, and most egregiously its famously free press, rode along on the wave of blind self-righteousness. Most Americans may cringe at the memory, but in 2002 Donald Rumsfeld, the now-disgraced Secretary of Defense, really was gushingly hailed by People magazine as "America's sexiest cabinet member", by Fox News as a "Beltway babe magnet", and by the Wall Street Journal as "the new hunk of home-front airtime." Nor should one forget the almost wilful glee with which politicians and TV pundits fanned such tall tales as the Iraqi origin of the 2001 anthrax scare and the supposed connection of Saddam Hussein with Osama bin Laden. The obsessive focus on military action came at the expense not only of the international co-operation, quiet police work and patient communications strategy that confronting global jihadism demanded, but also at the expense of distracting Washington's attention from America's own, pressing internal problems.

In short, the Bush administration acted as if its credit were unlimited. But, as with the current financial crisis, creditors did call in. The "coalition of the willing" that was meant to accompany American troops on their Iraq venture dwindled into a trickle of reluctant allies. The loss of prestige, as Iraq descended into ever-grimmer bloodshed, and America's own image was tarnished by scandals such as Abu Ghraib, weakened the superpower's hand elsewhere. It made it difficult to rally support against the far greater threat of a potentially nuclear-armed Iran, and undermined the administration's own declared agenda of promoting democratic reform. Much as the misguided Anglo-British attack on Egypt in 1956 muted protest at the Soviet invasion of Hungary, and as America's messy engagement in Vietnam provided cover again for the crushing of the Prague Spring in 1968, America's invasion of Iraq made Western opposition to Russia's recent advance into Georgia look hypocritical.

It is easy to argue against a direct causal link between the 2001 and 2008 catastrophes on Wall Street. Economists will assert that there is no direct connection between deficit spending by the federal government and the dangerous overexpansion of consumer debt. Champions of defence spending will protest that in spite of the immense cost of the Iraq war, America's $600 billion military budget still represents only 4 per cent of the superpower's GNP. Yet it may prove instructive that many historians now link the financial crisis of 1971, when the United States was forced to drop the gold standard that had previously bolstered the US dollar, and the ensuing high inflation that bedevilled Western economies throughout the 1970s, with the huge US government deficits generated by the Vietnam War.

It is hard not to feel that the current economic crisis represents, by some roundabout means, and ultimately at the expense of poorer Americans, a similar form of payback for imperial overreach. And it is hard not to hope that, just as America, in the wake of Vietnam, entered a period of self-questioning and readjustment, that the same may happen again.
Max Rodenbeck is the Middle East Correspondent for The Economist.