Who Is Rocking the American Tower?

After the USSR’s collapse and the failure of its political economy, the free market became the ideological beacon for the former socialist republics. To be honest, at the time, it seemed as though this guiding light would last forever. But in less than two decades (a trivial length of time by historical standards), the light became noticeably dimmer in the darkness of the strongest storm in the global financial sea. Even America, the main lighthouse keeper, is trying to stay afloat during the disaster it inflicted on itself and others by seeking shelter in the harbor of government regulation.

The new Democratic president, Barack Obama, became the embodiment of America’s changing course. His political turns were so sharp that the conservative opposition now considers him a socialist. After he practically put two of the three largest American automobile companies under the White House’s control and defiantly dismissed the head of General Motors, Rick Wagoner, the opposition deemed him a despot-autocrat. (Prior to this, in the U.S., authoritarianism was considered a priori to be something practiced exclusively by disadvantaged people who were only able to manage the economy from a single political center, which resulted in stagnation.) In turn, his liberal supporters see Obama as a heroic savior of not only the American homeland, but of world capitalism as a whole.

In the private sector, respectable people are humbly repenting their past sins and asking the authorities not to permanently remove them from their post. That’s exactly how the heads of the Institute of International Finance (the global association of leading banks, funds, insurance companies, brokerage houses, etc.) addressed the G20 leaders. While recognizing their responsibility for the significant risk management weaknesses that led to the crisis, they expressed the hope that their industry would still remain mostly private after the storm has calmed.

In general, when looking from the outside in, everything that happens looks like some sort of forced convergence. Remember the “bourgeois” theory, according to which the differences between the capitalist and socialist systems would gradually smooth themselves out, and the two would eventually merge? In the USSR it was considered harmful ideological heresy. People knew the theory mostly by hearsay, and primarily in connection with the academician Andrei Dmitrievich Sakharov, who was harassed for believing it.

American authorities did not seem to get in the way of convergence theorists, from Pitirim Sorokin to John Kenneth Galbraith. But it also felt like they did not want to merge with anyone, but rather hoped that as a result of their work, their ideological enemies would simply disarm and surrender. They probably supported Sakharov for the same reason. And when the Cold War ended with the USSR’s collapse, the American authorities began to believe that they were right all along, never suspecting how quickly they’d be humbled.

But the crisis broke out – and how! In the U.S., the crisis is habitually compared to the Great Depression, when the economy was reduced by a third in the previous century. By the way, when the USSR broke up, the economic decline was roughly the same. This means that the magnitude of the current U.S. decline may be comparable to the one that recently happened in Russia.

A good friend of mine from the IMF confirmed these calculations, but scoffed that the comparison seemed forced. But just a couple of days later, the well-known financier George Soros warned that the current economic turmoil is even more dangerous than the Great Depression. From Columbia University (in New York), he said that the crisis is very serious, and closely parallels the collapse of the Soviet system.

Here is a curious example of how similar starting points can produce completely opposite conclusions, which in my opinion is also in the spirit of convergence: I remember how, while in Washington, Anatoly Chubais defended his privatization program in Russia. The logic was clear and simple. There were no buyers in the country who could afford to pay a real price for government assets. Reformers feared a “communist revenge,” and didn’t know how much time they had left. They deemed a prompt distribution of property to private owners as the lesser of two evils.

Now, experts say that there are no private investors in the U.S. who are able and willing to pay a real price for large commercial banks and finance companies that are currently in the midst of a crisis. Meanwhile, without resurrecting these “zombies” (a term used by The New York Times columnist and a recent winner of the Nobel Prize in Economics, Paul Krugman), the financial system’s performance will not be restored. From this, however, a conclusion can be reached that rather than “giving away” these assets, they should be socialized.

Newsweek recently wrote, “It's not whether nationalization should happen, but what sort of nationalization will happen and when.” The actions of Obama’s administration (from owning capital in commercial banks to sharply tightening regulatory framework in the financial sector) in many ways have already put the industry under government control. All that’s left is for the authorities to “execute” one of the big bankers (in the same way as Wagoner) to finally show everyone who is boss, especially since the public is making loud and persistent demands to bring them to justice.

I tried to ask a wide variety of people about the relationship between the recent collapse of the Soviet Union and the current crisis in the United States ( the "two towers," as I call them, analogous to the tragically famous collapsed twin towers of the World Trade Center in New York), from the head of the U.S. Federal Reserve Ben Bernanke to the director of the Institute for the USA and Canadian Studies at the Russian Academy of Sciences Sergei Rogo, the famous Russian businessman familiar with America, Viktor Vekselberg, and even the ex-Soviet President Mikhail Gorbachev. Bernanke simply steered away from the conversation, saying only that the subject is too complicated. All of the Russians rejected the hypothesis, except Vekselberg, who said that everything in the world interconnected.

Gorbachev gave an interesting example of how the Soviet "tower" was “rocked.” He reminded me that during the second year of Perestroika oil prices declined to $10-12 per barrel. Later, it turned out that the U.S. had a secret agreement with Saudi Arabia to lower the value of oil. Ronald Reagan's National Security advisor, Robert McFarlane, later admitted it.

But now, who is rocking the American tower? And why is ideologically foreign government regulation suddenly in demand? Is this a historical coincidence? I, for one, do not believe in coincidences.