Is the American political system on the brink of collapse? The dire signs of collapse are clear.
Our nation is irretrievably divided on virtually every issue, big and small, important and trivial, neither party is able or willing to compromise on solutions, and the political debate is more vicious than ever, relegating truth and facts to irrelevance.
The most dangerous sign, unprecedented in American history, is that both parties view the other as a threat to democracy.
President Joe Biden argues that the threat of our time is between democracy and dictatorship. Abroad, China, Russia, North Korea and Iran are the leading powers of dictatorship. At home, former President Donald Trump, if elected, would end democracy as we know it and become a “dictator.”
Trump Calls Biden is the “worst president in American history.” Trump accused Biden of using the Department of Justice as a weapon against him. Trump, who initially vowed to “retaliate” and “revenge” by running a successful administration, has now reversed course. Revenge will be against political opponents. And, think tank And one former aide has drawn up a blueprint for “revolutionary change” to the Constitution.
This simultaneous attack on democracyFinancial SystemIt will be doomed in 2008. Both sides are expecting a catastrophic outcome. But what happens when the assumptions go wrong?
Past crises were driven by the assumption that rising house prices, securitization of mortgages into safe financial instruments, and the ability to make huge profits based on monthly payments and cash flows could all be achieved.Credit Default SwapandCollateralized Debt Obligations.
InvestopediaDefineA credit default swap is a “financial derivative that allows investors to exchange or offset the credit risk of other investors” through an arrangement in which “the buyer pays ongoing premiums similar to insurance contract payments. In exchange, the seller agrees to pay the value of the policy plus interest in the event of a default.”
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thatDefineCDOs are “complex structured financial instruments that are backed by pools of loans or other assets and sold to institutional investors.” They are “derivatives,” meaning that “their value is derived from separate underlying assets,” and “these assets serve as collateral in the event the loan defaults.”
In 2006 and 2007, low interest rates made owning not just a home but multiple properties very attractive. Real estate agents, mortgage companies, and banksThere is little oversight.
AAA to subprime mortgages were converted into credit default swaps and collateralized debt obligations.combineAAA Home Loan.BettingA further assumption for these instruments was that their prices would rise.Had madeAbout other bets.
This process has become the financial equivalent of nuclear reactions.NinjaLoans (loans that could be taken out without income, a job or assets) became common. Too many unqualified loans were made to people who couldn’t afford them. Rating agencies like Standard & Poor’s and Fitch continued to back these products. The money was made, and it was until the music stopped.
Defaults on payments began to rise. This escalated into a crisis. Loans could not be repaid and defaults increased dramatically, bringing the banking system to the brink of collapse and making credit default swaps and collateralized debt obligations into financial weapons of mass destruction.
Fortunately, the Federal ReserveIntervenedThey have huge capital. Among the victims are:Lehman BrothersandBear StearnsBanks collapsed. It could have been much worse. But despite the fraud and illegality,1 bankerI went to prison.
In the political world, there is no Federal Reserve to step in to save the system. Both parties have declared that democracy is at risk, so the legitimacy of the system will be undermined just as NINJA loans and defaults caused the financial crisis. And the equivalent of credit default swaps and collateralized debt obligations is today’s social media and the willingness of both parties to use any means (fair or unfair) to attack and defeat the other.
What can be done? Political systems could become more resilient and stronger, the dangers could be exaggerated, and checks and balances could limit what either party can do or will do if its candidate wins.
But what if those assumptions turn out to be wrong, as happened with the financial crisis?
Dr. Harlan Ullman is a senior advisor at the Atlantic Council and lead author of “Shock and Awe” Military Doctrine. His 12th book, “The Fifth Horseman and the New MAD: How Massive Disruption Attacks Became a Looming Existential Crisis for a Divided Nation and the Entire World,” is available on Amazon. Follow him on Twitter at @harlankullman.
