America for Sale: An Exclusive Excerpt from Matt Taibbi’s New Book on the Economic Meltdown

When you're trying to sell a highway that was once considered one of your nation's great engineering marvels — 532 miles of hard-built road that required tons of dynamite, wood, and steel and the labor of thousands to bore seven mighty tunnels through the Allegheny Mountains — when you're offering that up to petro-despots just so you can fight off a single-year budget shortfall, just so you can keep the lights on in the state house into the next fiscal year, you've entered a new stage in your societal development.

You know how you used to have a job, and a house, and a car, and a wife and a family, and there was food in the fridge — and now you're six months into a drug habit and you're carrying toasters and TVs out the front door every morning just to raise the cash to make it through that day? That's where we are. While a lot of this book is about how American banks used bubble schemes to strip the last meat off the bones of America's postwar golden years, the cruelest joke is that American banks now don't even have the buying power needed to finish the job of stripping the country completely clean.

For that last stage we have to look overseas, to more cash-rich countries we now literally have to beg to take our national monuments off our hands at huge discounts, just so that our states don't fall one by one in a domino rush of defaults and bankruptcies. In other words, we're being colonized — of course it's happening in a clever way, with very careful paperwork, so we have the option of pretending that it's not actually happening, right up until the bitter end.

Let's go back in time, to the early seventies. It's 1973, and Richard Nixon's White House makes the fateful decision to resupply the Israelis with military equipment during the 1973 Arab-Israeli War.

This pisses off most of the oil-producing Arab states, and as a result, the Organization of the Petroleum Exporting Countries, or OPEC — a cartel that at the time included Saudi Arabia, Kuwait, the UAE, Libya, Iraq, and Iran, among others — decided to make a move.

For the second time in six years, they instituted an embargo of oil to the United States, and eventually to any country that supported Israel. The embargo included not only bans of exports to the targeted countries, but an overall cut in oil production.

The effect of the 1973 oil embargo was dramatic. OPEC effectively quadrupled prices in a very short period of time, from around three dollars a barrel in October 1973 (the beginning of the boycott) to more than twelve dollars by early 1974. The United States was in the middle of its own stock market disaster at the time, caused in part by the dissolution of the Bretton Woods agreement (the core of which was Nixon's decision to abandon the gold standard, an interesting story in its own right). In retrospect we ought to have known we were in trouble earlier that year because on January 7, 1973, then–private economist Alan Greenspan told the New York Times, "It is very rare that you can be as unqualifiedly bullish as you can be now." Four days later, on January 11, the stock market crash of 1973–74 began. Over the course of the next two years or so, the NYSE would lose about 45 percent of its value.

So we're in this bad spot anyway, in the middle of a long period of decline, when on October 6 Egypt and Syria launch an attack on the territories Israel had captured in the 1967 Six-Day War. The attack takes place on the Yom Kippur holiday and the war would become known as the Yom Kippur War.

Six days later, on October 12, Nixon institutes Operation Nickel Grass, a series of airlifts of weapons and other supplies into Israel. This naturally pisses off the Arab nations, which retort with the start of the oil embargo on October 17.

Oil prices skyrocketed, and without making a judgment about who was right or wrong in the Yom Kippur War, it's important to point out that it only took about two months from the start of the embargo for Nixon and Kissinger to go from bluster and escalation to almost-total surrender.

On January 18, 1974, Kissinger negotiated an Israeli withdrawal from parts of the Sinai. By May, Israel agreed to withdraw from the Golan Heights.

This is from the U.S. State Department's own write-up of the episode:

Hilariously, the OPEC states didn't drop the prices back to old levels after the American surrender in the Yom Kippur episode, but just kept them flat at a now escalated price. Prices skyrocketed again during the Carter administration and the turmoil of the deposition of the shah of Iran, leading to the infamous "energy crisis" with its long gas lines that some of us are old enough to remember very well.

Then, after that period, the United States and the Arab world negotiated an uneasy détente that left oil prices at a relatively steady rate for most of the next twenty-five years or so.

So now it's 2004. The United States and George W. Bush have just done an interesting thing, going off the map to launch a lunatic invasion of Iraq in a move that destabilizes the entire region, again pissing off pretty much all the oil-rich Arab nationalist regimes in the Middle East, including the Saudi despots — although, on the other hand, fuck them.

The price of oil pushes above forty dollars a barrel that year and begins a steep ascent. It's also around then that the phenomenon of the sovereign wealth fund began to evolve rapidly. According to the Sovereign Wealth Fund Institute:

Dr. Gal Luft, director of a think tank called the Institute for the Analysis of Global Security, would later testify before the House Foreign Affairs Committee about the rise of the SWFs. This is what he told the committee on May 21, 2008:

In fact, oil would go up to $149 that summer. Luft went on:

Luft's analysis would square with a paper written by the San Francisco branch of the Federal Reserve Bank in 2007, which concluded that "analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion. This amount is projected to grow sevenfold to $15 trillion in the next ten years, an amount larger than the current global stock of foreign reserves of about $5 trillion."

The San Francisco paper noted that most SWFs avoid anything like full disclosure, and there is little information available about what they may have invested in. One source I know who works at a Middle Eastern SWF explains that this is very much part of their investment strategy.

"They don't want publicity," he says. "They just want to make the money. That's one reason why you almost always see them buying minority stakes, as majority stakes would cause some countries to make issue of foreign ownership of investments. Sometimes it's multiple SWFs buying minority stakes in the same investment. But it's always thirty percent, twenty-five percent, and so on."

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