Hi. Can We Talk Greenspanism?

Stirling Newberry | September 16

When you read these posts, I want you to imagine me in a grey suit, about that time in an office when the smoke up the ass phase of a meeting has come to an end, and the people who were the filler in the lunch meeting have filed out, and the real talk has started. People start telling something resembling the truth as they understand it. The cut the bullshit phase starts. All the pieties go out the window. If it is all guys there maybe a short phase of expressing more than is politically correct appreciation for the anatomy of some of the women who were in the meeting, some short phase of sports. These are meant to tell everyone that it is OK to talk in blunt terms about how you really feel about things.

So let’s talk about some stuff. Uncle Alan’s thick book more or less admits what realists have seen for a long long time about a lot of issues. That Iraq was about oil. That the Republican Party is a bunch of free spending crude Keynesians with a hard on for gay and brown people. He’s shocked, shocked I tell you to find out that what the Reaganites did: spend money on bombs and engage in social repression, is what Bushites did. Only Bushites wanted to use bombs to get the oil that they needed. He’s shocked!

He’s also clear on something else that the men in black have been saying for some time: that the current trade order wasn’t producing a generalized win in economic organization, it was winning because it was downscaling developed world workers to service jobs, and promoting undeveloped subsistence workers to the bottom of the economic industrial chain. As that trade off gets less efficient, and because of the downward pressure on wages in general and the upward pressure towards mechanization in China gets overwhelming, it creates less value to pink collar a blue collar worker in the US or Germany, and blue collar a farmer in China.

To spell it out: the Era of Corporate Free Trade is Over. Don’t take it from me, take it from one of the architects of the policy.

This is, as they say, important. Because of the insight that there was going to be a period of pink collarization of America, Uncle Alan was able to hand out free money. Now what happened is we spent that free money unwisely in the main, but there you have it, never expect the American people to think about tomorrow when they can have cheap gas today. Must be something in the fumes. Uncle Alan was victim to this too. He saw the housing boom as a way of cementing his pro-property ideology, so he backed. Now he bitches about a war for oil so that people can drive to and fro from all those houses. The free market fairy, someplace, is laughing her buns off at him.

However, Alan is right, the era of expanding the supply chain, rather than real comparative advantage, of free trade benefited some interest a great deal. For the rest of us, we got cheap junk at Wal-Mart and a few years of jobs. Now that it is coming to an end, it means that at the very moment when there is an aging population, interest rates must go up, which means less economic activity to support those people.

And this leads to the next reality, one of the other things that has been done the last 30 years is to break the link between capital expenditure and future liability. Let me explain this in really clear terms. In a business, as soon as you make spending money unavoidable, it shows up on your balance sheet as a liabilty. Promise to pay someone in 6 months? As far as your balance sheet is concerned, you just did. Or rather you just incurred a liability equivalent to the present future value of your promise to pay, which is not exactly the same thing. However, mostly it is, and the difference between your cash on hand, and your liabilities is the difference between your cash flow position and your net worth. Businesses like to be on the plus side of that: that is, having money in hand to play with before they have to give it back. Social Security and Medicare are liabilities – big ones as it turns out.

On the other side of the coin, if you spend money today on something that is going to return over a period of time, then that is a capital improvement. According to your balance sheet, you can spread that cost out over a period of years equal to the expected useful life span of the capital improvement.

OK, now for the fun.

The Federal Government does neither of these things. Ooops.

For a long time, these two mistakes basically cancelled each other out. We spent relatively wisely, we incurred liabilities relatively sparingly, and the economic wind was at our back. However, like all implicit deals, all it takes is one person willing to say “look! free money!”

That person was… drum roll please…

Alan Greenspan.


It was Greenspan who advised taking Social Security off of its then break even system, and start accumulating a “trust fund.” This was really a trojan horse for a regressive tax. Cut taxes on upper income, raise taxes on lower income. The trust fund was then spent like all the other money in the treasury. This is a lesson I am going to return to with Uncle Alan: the last 30 years has been the story of Reactionary Zealot Assholes fucking up liberal institutions as Greedy GI and Boomer Consumers stood on and watched, and then blamed Liberals for Not Stopping Them.

This broke the link between capital expenditure and liabilities. The implicit cash basis accounting, which had sort of worked despite the defect, suddenly stopped working. Instead of spending money on real infrastructure, real education, real technology, we started spending on billionaires and the pork barrel projects that keep corrupt cronies happy. There had always been some of that, but now, with the foxes guarding the hen house, it was all waste, all the time.

You know the money to convert American to a non-Carbon economy? You gave it to Bill Gates and Steve Chase and a bunch of Saudi Princes. They are very appreciative. Thank you.

Over in the corner of this page there is an ad for “The Big Con” by Jonathan Chait. It is a pretty good book. It’s also not exactly correct. Sure, the crackpots were allowed into the room for the part of the meeting with sandwiches. But the real damage was done by people who were nominally sane, like Greenspan, but who breathed the air of crackpottery and thought they really could overthrow the evil Lincoln-Wilson-FDR empire by, well, subverting it. On the other side, they are shocked that it didn’t work out that way. Memo to Randroids, Ayn Rand said that everything would be fine if the assholes ran the world. The gag is, they already do. And always have. And always will.

Breaking that link, to get off my digression, means that here we are, with a fuckload of of debt, a metric fuckload of liabilities, and heaping metric fuckloads of retiring boomers, and an economy whose primary win was firing good people from good jobs and giving them crappy jobs. This is not a recipe for dealing well with the problem. Now in horse/barn door kinda way, we can get back on track by closing the cash accounting loophole: overhaul the budget process to make it so that capital expenditures are counted over many years, and liabilities are incurred when promised. The current “budget deficit/surplus” will be our cash flow position, while the real national debt will be closer to our net worth. Doing these numbers out makes it clear that there has been an even more marked deterioration in our financial position than the present budget numbers suggest, because we have been piling on the liabilities, and skimping on the capital. In China the Dowager Empress took the money meant for the navy and built a marble barge. In Ancien Regime France Marie Antoinette took money destined for the army to pay for playing in the country side. These kinds of things are symptomatic of late empire.

So what’s going to happen? Short term? More of the same of course. It’s a no brainer. The right that most people will kill for is the right to a free lunch. The right to overconsume what is underpriced. The right dump the costs forward. Right to vote? Eh, maybe yes, maybe no. Right to free speech? Eh, if they feel like it. The right to a fair and speedy trial? Eh, not for swarthy people and subversives. But the right to suck oil out of the ground, take the profit now, and spew the carbon into the future? Damn it! We need another war!

What this means is that all over the developed world we are seeing a lurch to the right. It was predictable, because, well I predicted it. The lurch to the right is driven by a coalition of people getting benefits now, combined with people who want to lock in their benefit flow because they are very close to retirement. They want to sell the house and move south. Or they want the social service package for themselves, and are willing to shaft everyone and everything else to keep it. Shark, Bush, Merkel and Harper are all about keeping the soon to be retired fed. Her Royal Clintoness, Cameron in the UK, and who ever replaces Abe, will be all about the same things. That’s what the number say. They know the roof is on fire, and they are going to burn the mother fucker down to toast their marshmellows for one last cook out. Bank on it.

OK, so they fucked up Iraq, so Iran is next!

Greenspanism was, more or less, the ability to find ways of getting the future to pay in some future tomorrow, for profits to be taken today. And now he’s admitting that, oh my fucking god! the people taking the money weren’t going to create a freer society. However did that happen? Doofus.

But wait! There’s more!

“Of course there’s more, that’s what more means!”


One of the chains of logic that leads to liberalism is this:

Big disequilibria require social response. Let me put that in street language: when things go to hell in a bucket, we are all in that bucket, and everyone has to act in concert.

This creates the realization that drove the ideology of “Unionism” of the post-civil war era. Societies and governments have virtually unlimited power to act to survive. It’s in supreme court decisions.

This is good, it means that when it comes down to them or us, us can do what us is needin’ to do. However, it creates a problem. That problem is called “moral hazard.” If you know that if everything goes to hell in a bucket that someone will bail you out, then, if you have the power to do so, why not take the betray side of the prisoner’s dilemma, collect the sucker’s pay off. This is the way to make it look like you are a genius speculator. Just make it so that the down side is the “eat babies case.” “Well if this investment goes sour, we will all be eating babies anyway, so it doesn’t matter.”

This kind of bet, that is, the bet that the downside is a low probability high consequence event, to use the technical jargon, means that in a society where the government will act to prevent really frickin huge dislocations because they are bad for business, bet on the free insurance that that provides. This creates what conservatives, particularly in the UK, fret about as “lack of moral hazard”. Which is upper class finance speak for “why the fuck not?”

In game theory we have what is called “rollback”. Rollback is when you start from the end state and work backwards through the steps that got you there, because what you are looking for is the point on the chain where a change could be made to the dead variables that will change the outcome. If you know that rich and powerful people are going to place big bets on the eat babies case being the downside, then you have to do something about that. Otherwise they will keep doing it until it happens. And then they will do it again, because you just bailed them out from eating babies, so they are going to double up the bet that you will do it again.

This happened too. One of the first things that Uncle Alan faced was the stock market meltdown of 1987. 25% in one day. Talk about the indicators saying “Jump!” So he did what any central banker would do: he flooded the world with liquidity. This is the realization of 70 years of studying the Great Depression: that to avoid it, the central banks should have ditched the gold standard completely, and eased dramatically in the late 1920’s. The reason they didn’t was because of two important traumatic facts. They didn’t want to ditch the gold standard, and they had just seen the larges bout of inflation since the Napoleonic Wars, and the most dramatic example of hyper-inflation in memory. Easing wasn’t to be done, because the results of inflation were burned into their brains.

So once again, there is Uncle Alan, at the right place at the right time to put his thumb on the scales in favor of people of great wealth and privilege. Or more accurately, people who are in power and can spend OPM – Other People’s Money – without consequence. The result was a massive bailout of the S&L system which we are still paying for.

This is the lesson of insured economies: that if there is a social insurance, then sooner or later every crisis will be passed along to some entity which the government has said, or is believed, to be committed to bailing out should shit and fan get together for a tango.

Which, rolling back, means that the government should be interfering in bets on the eat babies case, or charging high enough taxes on the very wealthy to pay for insurance against the eat babies case. This is the logic of the FDIC: charge banks insurance for the case of the bank imploding. It is also the logic of a central bank under the control of political authorities, rather than some foobarbazz theory of central banks should be independent so that arabs will credibility believe that when it comes time to fuck the population or keep Arabs in money, that the population should bend over and lube up, because here it comes.

In otherwords, liberalism people. Liberalism is the idea that collective and social action must be used to correct those points where individual action leads to the failure of emergent systems. Or let me put it another way. If you believe in individual freedom and liberty, you want as much as possible to be done through self-organization. Culture, community and the free market are all self-organizing. However, there are points where self-organization pessimalizes rather than optimizes. The first realization, sort of the 19th century one, was that one function of government must be to prevent things from going to hell in a bucket. Bank collapses and the like, are bad things. Once, however you do this, you have to then prevent anyone from profiting in the short term by bringing the system on a collision course for the iceberg and taking bets on whether we will hit it or not.

The cost of this is not small: the military budget is one giant exercise in preventing things from going to hell in a bucket. So to are social insurance schemes. This means that the government must then interfere in the market enough to stop people from betting on these things being broken. Iraq is an example. Lots of people bet that should oil get scarce, we’d steal it from Iraq. They were betting, in short, on a military bail out of the sprawlconomy. Ok, so Bush managed to fuck up the military bail out of the economy, but the belief in Washington is that sooner or later someone in Iraq is going to have to pump oil. The belief that it will happen in time to bail out their political butts is fading, so they are looking at Iran next, which is the next low hanging fruit that we can generate an excuse for war against.

Looking back on Greenspan’s career, we see a consistent pattern – a betrayal of logic and principles in favor of a greedy hope that he could stack the deck in favor of his preferred ideological outcome. And now the result that he looks back over that time, and thinks it was one of turbulence. Ha! This has been one of the most stable times in history. The collapse of Communism was a reduction, not an increase, in the global level of uncertainty. It was the safest time to be a financier in decades, with a big population in its peak earning years, an economic energy culture that worked, a global swing to the right, inflation on the downside. It resembles nothing so much as the 1870-1910 period of the classical international gold standard and imperial globalism.

Turbulence, is what is coming, as people who have had promises made to them find out that there is insufficient oil to make good all those promises with the level of technology that we have.

Good night to Greenspanism, that belief that by back room intransparent manipulation of the system that the great dictatorship of the propertariat can be brought about. Because that is what Libertarianism really is, that there is a revolutionary class, and that in the end the struggles of capitalism must bring about the dictatorship of that revolutionary class, and then government will wither away. They just think it is a different group of people who have the revolutionary consciousness to never betray the interests of the structure. They are wrong, as well.

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Stirling Newberry


25 CommentsLeave a comment

  • Great article!!! I always enjoy your commentaries, but I a big fan of biting sarcasm, and particularly in this case, where it better illuminates and explains things.

    I’m pretty sure that the people I forward this article to will better understand your point, because it’s well illustrated in very clear and well-demonstrated analogies.

  • that Americans don’t know how to have fun anymore.

    You know, real fun–necktie-party fun. Tar and feathers fun.

    We just sit here and watch teevee and drive the SUVs and believe the “We’re number one!” crap.

    The politicians have no fear of the public.

  • ______________________________________________________________________
    “Our lives begin to end the day we become silent about things that matter” – Martin Luther King Jr.

  • Actually, I want to sell the house and move north. Hope I don’t have to go all the way to Canada, but we may…

    Everyone in town was all excited about the big Chargers game today! The whole grocery store was full of people buying their beer and wearing their jerseys!If only they knew and understood what the really interesting great game was, and maybe paid attention to it.

    Nah, too complex for their little minds to comprehend. Yay America! Go, Chargers! More beer! Wait, whattya mean, we can’t borrow another 20K outta the house? What happened ?!?

    “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

    Charles Darwin

  • I am disappointed if not totally surprised about what Greenspan’s book says. Of course, if you want to sell a lot of books…….

    One might argue that the fight in Iraq is indeed for oil, especially if Sadaam had thought of using it as a tool to hurt the US in any way. But I guess that’s OK since it’s only oil and it’s only us.

    Don’t’ forget a few things:

    -Sadaam had threatened the US and Israel with chemical weapons and he had already used them against the Kurds–in his own country.

    -True or not, Sadaam had threatened the US and Israel with a nuclear weapons and had jerked the US Nuclear Inspection Team around so much no one could ever, without a doubt, say he did or did not have the weapons to kills us all.

    -Sadaam did welcome Al Qaida into Iraq to train so they were in Iraq. He also gave $25,000 “rewards” the families of Palestinian “martyrs” in an attempt to encourage the killing of Israelis.

    Why do we have to wait until people get killed over here first before we attack a country/Dictator who threatened us, has killed his own people and who brags of nuclear power that he will use against us?

    By solving the problem of the threat we also, hopefully, guarantee the availability of oil.
    BUT>>>>>> I don’t think we use that much Iraqi oil. Does anyone have a breakdown of where we get our oil and how much? I would like to know.

    I may actually buy Greenspan’s book. Sounds interesting. It’s hard to dispute someone of such high character, but he sure didn’t mind working for the reprobate George Bush. I guess his 401K plan hadn’t matured yet.

  • Well under the 1% doctrine, where we have to invade if there is a 1% chance, we should also invade every country that has used chemical weapons in the last 100 years.


    UK, France, Germany, Russia and… the United States.

    If the invasion had been about war crimes, then there was a way to do it. It wasn’t done, ergo it was window dressing.

    And just so you know freeper, we are all laughing at you.

  • missing a few things are we?

    what chemical weapons exactly, the ones saddam bought from the us, cause those are the only wmds they found. and those were from the iran-iraq war.and its not like isreal and the us dont have the worlds largest stockpiles of their own chemical weapons.

    what nukes, the ones that were never found, that saddam could not have made, or if purchased were never used at all even when us troops marched across the boarder.or ever had a seller as little as speculated about let alone actually investigated before the war. so much for a threat, he didnt use the (non-existant)weapons even in self defence. and id like to see some of these threats, any links? oh and nice old rhetoric about the inspectors, why is it that those bullshit claims depends on all the inspectors and all the western intelligence services being utterly retarded. if they moved anything prior to inspectors showing up then it would have been caught on satellite or spy plane, or disclosed by informers/intel gathering. dont belive what your goverment tells you, especially when they tell you they didint know the truth. please dont tell me you also believed in regan’s trickle down economics, they sure as hell knew exactly what was going on.

    what links to al-quada? the ones that were debunked before the war because they were patently rediculous. why would a secular dictator welcome religious extremists that would only bring internal strife and international hostility? even the taliban
    why is it that all the hollow claims about these pesky countries of iraq and iran all depend on their leaders being suicidal and utterly crazy?
    ive never heard about the palastinian thing, anybody care to link something.

    dont defend a guy who has no excuse and is embarrassingly trying to cover his ass way too late into the game to feign ignorance cause hes afraid of actually taking responsibility, hes not the first nor will he be the last.

  • did you suck all that disinformation?

    I turned out in the streets in 2002 and early 2003 with thousands of folks from all walks of life who knew it was all lies, who said it was all lies. It turned out we were right and you were wrong.

    It didn’t take sophisticated espionage in Iraq to know that the case for war was a ration of horseshit, it only took a sober evaluation of the credibility of those who were shoveling it.

    What I find difficult to believe is that there are some still around like you, who still buy it.

  • tell me do you think the fractional reserve system could work if countries had control of 20% of their debt? i.e. in times past ‘some’ countries, I’m not sure about the United States, were able to loan themselves monies at low interest rates for infrastructure and important social programmes. By doing so, it means they aren’t paying high interest for what the country needs to operate.

    That system is a compromise. It isn’t free wheeling market-based capitalism, nor is it communism.

    Countries central banks do play an important stabilizing role and they need the freedom to operate efficiently such as above. Several times my country has adopted ‘socialistic’ policies because our spartan population spread over an enormous geographical area couldn’t attract private industry to build stuff like a country-wide national railroad. NAFTA and similar global agreements destroyed our ability to be independent. Looks to me globalism implies that ‘all’ countries adopt a single culture. And in my view, one size does not fit all.

    As far as Iraq is concerned, Saddam was contained but I do understand America’s need to build an oil pipeline in the Middle East that is a reliable source of oil that fuels the US economy. There are miniscule incentives to get off the dependency on oil, which translates, to future wars over black gold. I.e. the threat to international peace has escalated once again because countries are fighting for their share of resource wealth. The cold war turned hot again.

  • I saw a program once long ago that studied left/right brain functions. IIRC it was about epilepsy. Anyway, the ‘tubz’ were cut between the left and right lobes preventing communication between the two in an attempt to diminish seizures.

    The researchers inadvertently found something very interesting, something we can observe in real time with Republicans across the land. — Making silly sh*t up to make sense of, or justify, two incongruent thoughts held simultaneously.

    In the study an image of a bird was set next to an image of an orange in such a way as each eye could only see one image, accomplished by putting a divider in place. The patients were asked to draw what they saw. What the researchers found was that the patients would make every effort to rectify their confusion brought on by two disconnected realities. They invented something else entirely, something that doesn’t exist to satisfy the incongruity.

    People defend asinine positions on the Iraq war, George Bush, etc, not because that’s what they believe –presumably these particular ‘patients’ have had any brain surgery or suffer from epilepsy– but because they are too craven to let go of thier own dubiously constructed reality when faced with the real thing. So, they will contort their feeble minds like a pretzel to make sense of it all and stop the pain.

    Interventions can be effective when caught early. A telltale sign of the phenomenon in its initial stages can be determined by observing the vocalization, “My brain hurts.”

  • Hussein made world headlines by promising a house and $25,000 to each Palestinian family in the West Bank and Gaza Strip that had a member killed while attacking Israel. Palestinians were not allowed to become Iraqi citizens under Hussein’s rule and were discouraged from purchasing property, but they were given housing and free utilities and were exempt from military service. They were also favored for government positions and allowed to travel more freely than Iraqi citizens http://www.danielpipes.org/blog/4

    Yes, Hi WW. ( I’m getting back into the saddle, it’s been too long.)

  • As a friend concerned I would respectfully advise to never cite Pipes as validation for anything, save, perhaps, as an example of how wretched our species is capable of being.

  • I did spend some time trying to locate the BBC reports of Saddam presenting the monies, but had no joy.

    Pipes comments about what has happened to the Palestinians since the invasion of Iraq made interesting reading.

    I pondered posting Pipes, the alternative was Hitchens, but that would be crossing the line 😉

  • thanks, i should have looked myself, but im sure you will appreciate my skepticism when the assertion came mixed with other untrue claims. i actually didnt realize saddam had really anything to do with palastine considering the probationary nature of his situation after the gulf war.i figured that would be a policy easily remedied with a few extra bombs or a tightening of his oil allowance.

  • was oh so corrupt, with the abuse of the oil for food programmes, the wheat supply fiasco, and the billions of dollars paid to Saddams’ regime by western countries to “enable” stability, and to polarise Iran.

    You may think the other claims were untrue, but there is a modicum of truth in them.

    Sadly history is being subtly re-written. There was implicit and tacit involvement in Saddams regime, and the US economy benefited. Democracy and freedom were the losers.

    edited to add:
    http://agonist.org/20070917/the_death_of_history details the historical / cultural loss. The mess is huge on all fronts.

  • “Good night to Greenspanism, that belief that by back room intransparent manipulation of the system that the great dictatorship of the propertariat can be brought about. Because that is what Libertarianism really is, that there is a revolutionary class, and that in the end the struggles of capitalism must bring about the dictatorship of that revolutionary class, and then government will wither away. They just think it is a different group of people who have the revolutionary consciousness to never betray the interests of the structure. They are wrong, as well.”

    I’m sorry, could you back up a sec and expand that thought for us slow people? Revolutionary Class?

  • yeah im aware of the sheer corruption of everything that had anything to do with saddam and how we were complicit from the day we helped him into power.

    i just figured that considering the us-isreali relationship that would have been something that would have been either quashed or met with reductions in the program. the us would do anything else for isreal but risk oil i guess.

    and a grain of truth salt dosen’t mean much in a fresh water ocean of lies.

    the first point, threats for sure, just like the threats of kim. hollow and meaningless, touching again on the point that saddam was a dick(tator) not suicidal. why(or rather how) could you threaten nations with far more weapons and far more destructive ones at that. that we took the threats seriously is all well and good and is a reasonable and responsible action, but to actually give them any thought of actually being carried out is kinda giving saddam far little credit than he deserves. why dosent the skinny meth head kid threaten the football team, sure it makes him look good to his fellows but even he knows carrying out the threats is second only to suicide. we defined the cold war as two relatively equal superpowers full of threats and bluster but even they were too scared to tempt the inevitable consequences, who in their right mind would tempt the consequences of a one sided war that they could only lose.
    an as to the actual use of the weapons, well they were ours and we sold them knowing full well what they would be used for, we even practically provoked the kurds to begin with. not to mention we didnt mind him having stockpiles when he was killing iranian civilians.
    i dont like blaming just the bully when we were the crowd enabling and cheering him on, at least until he lost the crowds favor.

    the second,empty threats aside, nothing was found. and if we actually ever considered the threats legitimate dont you think we might have negotiated with a nuclear power instead of attacking him conventionally and risk having those nukes used on us? if there was any truth to saddam having nukes we would not have invaded, we certainly aren’t suicidal.

    third point, for having earlier ties and bases in iraq prior to the war al-quada sure does seem to be a pretty pathetic force consisting of only a tenth of the entire insurgency and even then many are just groups who take the name or are actual foreign fighters.
    so yeah, simply not true, why would saddam want a group that would only hurt his authority and would be unresponsive to his method of force. that al-quada was in iraq, absolutly (they were in america) that saddam wanted them, no. even the taliban would have issue with al-quada considering they antagonized the nations that provided lots of money to the taliban government(we needs that sweet sweet heroin and opium, uhhh for umm legitimate medical uses yeah,,,) and ultimately got the taliban removed from power.

    saddam boasted and made threats as petty dictators are want to do, he was militaristic and wanted prettier toys, but he was still our puppet. he may have cut some strings at one point but we fixed that(mostly by killing innocent iraqis…), he behaved for the most part until we decided we would rather have fire wood. nobody is so deluded as to act on their own distorted projection of reality, except the neocons it seems, and they set the whole play house on fire for thinking they could.

  • > When you read these posts, I want you to imagine me in a grey suit…

    What’s this–have the Men in Blacks’ fashion tastes mellowed? 😉
    Delicious article, Mr. Newberry. Forceful, passionate, and all that.

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