Tuesday, August 31, 2010
Canada's Push to Claim the Arctic? The WSJ Says "Yes."
Today's Wall Street Journal carries a story about Canada's attempts to "burnish its position as position as [an] Arctic Power", which returns us to themes discussed in chapter 9 of the book and discussed last week here. Unlike the Foreign Policy story that I covered last week, the Journal story takes seriously Canada's military muscle-flexing. I'm just glad to see that my brother-in-law's favorite publication supports my position in the book!
Monday, August 30, 2010
Global Ecology and Food
In Chapter 4 of the book, I focus on how our current eating habits are putting serious pressure on global ecological constraints. It's always nice to know that other people share similar concerns.
Last week's New York Times carried a review of a book by Julian Cribb, The Coming Famine: The Global Food Crisis and What We Can Do to Avoid It, which makes a similar case.
One of the most striking passages in the review came toward the end:
The rise of India and China complicates the idea that the switch to more sustainable eating (eating less, eating locally, eating organic) will avoid a global crisis. Of course, population pessimists since Thomas Malthus have been worrying about the outstripping of food resources by population growth. Thus far, the globalized food system has been able to produce a seeming abundance of food through industrial methods. But at some point we really could run out of earth to sustain the kind of high calorie, high animal protein eating that millions of people now expect.
Eating locally and growing your own garden is a good start, but maybe we can all learn from the Amish (for more on this, see chapter 4). Simple practices of stewardship bear witness to the belief that God's Creation participates in his goodness. Living out stewardship is a practice that demonstrates hope to the world.
Last week's New York Times carried a review of a book by Julian Cribb, The Coming Famine: The Global Food Crisis and What We Can Do to Avoid It, which makes a similar case.
One of the most striking passages in the review came toward the end:
“Even if North Americans and Europeans halved their meat and dairy consumption,” Mr. Cribb writes, “the saving could be completely swamped by the demand from six hundred million newly affluent Indian and Chinese consumers.”
Eating locally and growing your own garden is a good start, but maybe we can all learn from the Amish (for more on this, see chapter 4). Simple practices of stewardship bear witness to the belief that God's Creation participates in his goodness. Living out stewardship is a practice that demonstrates hope to the world.
Wednesday, August 25, 2010
Sad day! Fun day!
The sadness of dropping off my son at college today was mixed with some excitement about recording an interview about the book with the Australian Broadcasting Corporation's Encounter Program -- a weekly program that focuses on theology and public life. It's sort of like the Australian version of Krista Tippet's Speaking of Faith program, which, if you haven't listened, promotes intelligent conversations on matters of faith. The list of programs on the Encounter site humbles me. I'm thankful to have been included.I was impressed with the questions that the interviewer, Margaret Coffey, asked. She'd read the book carefully asked about the deeper theological questions it raises. She says that the soonest that parts of this would air would be in early October. Once I hear anything, I'll put up links here.
Apart from getting to talk about the book, the other thing that was exciting was the chance to get inside the studios of WKSU, my favorite NPR station--actually, my favorite radio station, period. After hearing their voices on the radio all these years, it was cool to meet some of the programming and news staff.
Like I said, it was a day of mixed emotions. At midday, we left one-fifth of our family, our first-born, at the University of Pittsburgh. Three hours later, I was in Kent talking about the book with Margaret in Australia--actually practicing the kind of "healthy globalization" that the church has been modeling for over 2,000 years.
The Arctic Gold Rush
In chapter 9 of the book, I use the thawing of the Arctic region as a thought-experiment to think about the globalization of politics. This was the most difficult chapter to write, because the politics of globalization field is the one closest to my training. But the future of the Arctic region, I thought, helped to clarify three important issues: 1) the "tragedy of the commons," or the failure to protect collective resources (the polar environment); 2) the importance of territoriality, or states claiming earthly land or seabeds (Canada vs. Russia); and 3) challenges to state power and identity (global problems like climate change and the rise of global identities outside loyalty to the state).
(Whew! That was supposed to be a simple summary of the chapter!)
Anyway, the most recent issue of Foreign Policy magazine has a very interesting opinion piece by a geographer from Alaska who is an expert on the region. What I found interesting is that he affirms the importance of the oil, gold, and diamonds that lie buried under the region's melting ice. While he is sanguine about the possibility of territorial conflicts emerging there, and he says the climate change is only partly to blame for the warming, his description of the environmental situation is hardly encouraging. Because we are desperate for more natural resources and fish, corporations and governments are driven to exploring for them there (or so he contends). Overfishing and resource depletion are driving the "business opportunities" that NPR described a couple of years ago.
The Arctic gold (and oil and fish) rush is on. Is that a good thing?
(Whew! That was supposed to be a simple summary of the chapter!)
Anyway, the most recent issue of Foreign Policy magazine has a very interesting opinion piece by a geographer from Alaska who is an expert on the region. What I found interesting is that he affirms the importance of the oil, gold, and diamonds that lie buried under the region's melting ice. While he is sanguine about the possibility of territorial conflicts emerging there, and he says the climate change is only partly to blame for the warming, his description of the environmental situation is hardly encouraging. Because we are desperate for more natural resources and fish, corporations and governments are driven to exploring for them there (or so he contends). Overfishing and resource depletion are driving the "business opportunities" that NPR described a couple of years ago.
The Arctic gold (and oil and fish) rush is on. Is that a good thing?
Friday, August 20, 2010
Durkheim on Sacred Time
My office neighbor, the wonderful sociologist of religion Mal Gold, lent me his copy so I could track down Shulevitz's references. Now, if I were a real scholar, I would have read the whole thing cover to cover, but instead I looked up Durkheim's reflections on time. (Mal assures me that even sociologists of religion don't enjoy plowing through the entire 450 page, densely packed tome.)
The book summarizes research on traditional, aboriginal religions of Australia, which Durkheim considers a good baseline for comparison with other forms of religion elsewhere. Leaving aside the validity of his methods and his larger thesis about religion, I found several of his points about time to be interesting (as did Judith Shulevitz). Durkheim helps us discover what the fullness of time might mean.
1. Time is a social and collective reality first and foremost
This contention is central to Durkheim's whole thesis about the collectivity of societies defining what religion is. He argues that individuals alone would not have consciousness of time. Instead, the regular intervals of time marked out by society give rise to time consciousness. All the divisions of time come from social life (p. 9-10). "Every call to a feast, hunt, or military expedition implies that a common time is established that everyone conceives in the same way" (444). Society comes first, constructing how individuals think.
2. Divisions of time into sacred and profane are basic in aboriginal religion and therefore in all religious practices
Durkheim says that Australian aborigines divided all of life into material pursuits (hunting/fishing/war) or religion (p. 311). Separate holy days for religious life allowed the time to be marked as different. "Ritual cessation of work is thus no more than a special case of the general incompatibility of that divides the sacred and the profane . . . (p. 312). As he puts it,
Religious and profane life cannot coexist at the same time. In consequence, religious life must have specified days or periods assigned to it from which all profane occupations are withdrawn. Thus were holy days born. There is no religion, and hence no society, that has not known and practiced this division of time into two distinct parts that alternate one with another according to a principle that varies with peoples and civilizations. In fact, probably the necessity of that alteration led men to insert distinctions and differentiations into the homogeneity and continuity of duration that it does not naturally have (p. 313).3. Religious festivals and holy days instill a collective "effervescence" (p. 385-86)
As Durkheim puts it, religious ceremonies "set collectivity in motion; groups come together to celebrate them" (p. 352). During ordinary times, we focus on "utilitarian and individualistic affairs. Everyone goes about his own personal business; for most people, what is most important is to meet the demands of material life" (352). By contrast, on feast days the people focus on "the beliefs held in common: the memories of great ancestors, the collective ideal the ancestors embody--in short, social things" (352). People feel "reborn . . . reanimated . . . reawaken[ed] . . . regenerated" (353). But this energy cannot be sustained forever, so society must return to ordinary times.
Seasons of feasting and fasting go way back to aboriginal practice. However, we've moved away from that practice. The philosopher Charles Taylor believes that the rejection of such "higher times" eventually led to a flatter kind of secular time (see chapter 1 of my book). I argue that we have flattened our experience of time to one dimension, cutting off our collective connection to higher, sacred times.
4. "The more societies develop, the less is their tolerance for interruptions that are too pronounced" (354)
In other words, the higher times of feasting and the lower times of work are less extreme in their highs and lows, "the contrast between them is less marked" (354). In the modern world we preferred less of a roller coaster and more of a flatness in our experience of time, with fewer highs and lows. Homogeneity, rather than differentiation between sacred time and secular time, became the norm.
But, as I noted in my post on Shulevitz, postmodern time, organized by cellphones and mobile electronic devices, may become more fluid than modern time. So are we headed back toward a more individualized experience of time, or are we opening up spaces for collective interruptions again? How are we experiencing time these days?
Wednesday, August 18, 2010
Pope Benedict XVI on Globalization
I found a few key themes informing what the former Joseph Ratzinger (now Benedict XVI) and the Vatican think about globalization. Many of these are worth pondering (even if one might disagree with them). Here are some of my favorite passages and themes from the letter.
1. Globalization is unifying humanity and "to some degree" helping to advance the Kingdom.
Man's earthly activity, when inspired and sustained by charity, contributes to the building of the universal city of God, which is the goal of the history of the human family. In an increasingly globalized society, the common good and the effort to obtain it cannot fail to assume the dimensions of the whole human family, that is to say, the community of peoples and nations, in such a way as to shape the earthly city in unity and peace, rendering it to some degree an anticipation and a prefiguration of the undivided city of God (Paragraph 8, p. 16, emphasis in original)."To some degree" is a key qualifier here; otherwise, I think we are in danger of rendering globalization as a kind of natural force, like gravity, that advances the Kingdom. I am suspicious of such claims, since they can baptize social or economic systems that might be quite harmful to the advancement of God's reign on earth (see my book).
This concern is addressed in paragraph 42, where "the breaking-down of borders is [seen as] not simply a material fact: it is also a cultural event both in its causes and its effects. If globalization is viewed from a deterministic standpoint, the criteria with which to evaluate and direct it are lost" (p. 85).
The solution, argues Benedict, is "to promote a person-based and community-oriented cultural process of worldwide integration that is open to transcendence" (p. 85), and "to steer the globalization of humanity in relational terms, in terms of communion and the sharing of goods" (p. 87). This latter process, he contends, will come through grasping the theological dimensions of globalization (a challenge that a number of Christian thinkers are undertaking).
2. The cultural dimension of globalization is important (paragraph 26).
Today the possibilities of interaction between cultures have increased significantly, giving rise to new openings for intercultural dialogue: a dialogue that, if it is to be effective, has to set out from a deep-seated knowledge of the specific identity of the various dialogue partners (p. 49).3. The commercialization of cultural interaction threatens cultural flourishing (paragraph 26)
Benedict describes two dangers here: cultural eclecticism, which views cultures as "substantially equivalent" but separate blocs (shades of Samuel Huntington); and cultural leveling and "indiscriminate acceptance of types of conduct and lifestyles" (para. 26, p. 49). Similarly, chapter 10 of my book spends a few pages worrying about the shallowness of electronically mediated cultural communication, and about the clash of civilizations or global cultural hybridity.
4. Alternative business structures should be considered (paragraphs 38 to 41, also paragraph 46)
The Pope has put his teaching authority behind the efforts to build social responsibility into corporate structures, promoting what he calls "civilizing the economy" (para. 38, p. 76). Managers, he says, must not just focus on the interests of shareholders but on "all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference" (Para. 40, p. 79). This puts the Church squarely behind the Corporate Social Responsibility movement.
5. "Development" must focus on true human flourishing, which includes the environment and not just technological growth (paragraphs 43-77)
This was a particularly lucid passage on this, the central theme of the whole encyclical:
True development does not consist primarily in "doing". The key to development is a mind capable of thinking in technological terms and grasping the fully human meaning of human activities within the context of the holistic meaning of the individual's being. Even when we work through satellites or through remote electronic impulses, our actions always remain human, an expression of our responsible freedom (para.70, pp. 141-42).And "development," of course, goes far beyond mere physical or material improvement. "There cannot be holistic development and universal common good unless people's spiritual and moral welfare is taken into account, considered in their totality as body and soul" (para. 76, p. 151).
Above all, says the Pope, development requires "Christians with their arms raised towards God in prayer, Christians moved by the knowledge that truth-filled love, caritas in veritate, from which authentic development proceeds, is not produced by us, but given to us" (para. 79, p. 155). That is, we can only receive "truth-filled love" as a gift--a gift which can give us the courage to keep working to help all peoples move toward the love of God (para. 78, p. 154).
All in all, this was an interesting restatement of John Paul II's views on globalization, with some updating to take account of the recent global financial meltdown, making this analysis quite timely. For those who care about thinking Christianly about globalization, this is worthy summer reading.
Tuesday, August 10, 2010
Martyrdom in Afghanistan
Today's New York Times has a sympathetic portrait of the ten civilian aid workers who were recently killed by the Taliban in Afghanistan. Here's the Associated Press photo and caption from the Times:
Two thoughts come to mind at this sad time. First, I don't think it's a stretch to name these ten as martyrs who died for the faith, like Tom Fox, who died in Iraq in 2004 (his story is described in chapter 7 of my book). Unlike so-called martyrs (shaheed) in radical, sectarian Islamic groups, who kill others in suicide attacks, these folks were trying to heal. Second, this demonstrates the increasingly multinational, global nature of the Christian church (a theme of chapters 9 and 10 of the book).
The 10 civilian aid workers killed Thursday in Afghanistan, from top left: Glen D. Lapp, Tom Little, Dan Terry, Dr. Thomas L. Grams, Cheryl Beckett, Brian Carderelli, Dr. Karen Woo, Daniela Beyer, Mahram Ali and Ahmed Jawed. (New York Times)
I had heard that these folks were with a Christian organization, but today's story mentioned the NGO they were working for--the International Assistance Mission--and it makes clear that these were not crazy or naive Christians trying to convert Muslims by preaching. Instead, the father of one of the victims made clear that they were savvy.
Even Charles Beckett, the father of one of the victims, defended his daughter’s colleagues. “These are brilliant people,” he said. “It’s not like they’re naïve and uneducated and have some fantasy about going on trips to help some people in dangerous areas.”This was a terrible tragedy: brilliant people with medical knowledge and good hearts trying to demonstrate God's love by binding up wounds and healing diseases.
Two thoughts come to mind at this sad time. First, I don't think it's a stretch to name these ten as martyrs who died for the faith, like Tom Fox, who died in Iraq in 2004 (his story is described in chapter 7 of my book). Unlike so-called martyrs (shaheed) in radical, sectarian Islamic groups, who kill others in suicide attacks, these folks were trying to heal. Second, this demonstrates the increasingly multinational, global nature of the Christian church (a theme of chapters 9 and 10 of the book).
Friday, August 6, 2010
"Glimpses of a Different Order of Time"
A review of The Sabbath World: Glimpses of a Different Order of Time, by Judith Shulevitz
My wonderful colleague Jane Hoyt-Oliver lent me her copy of this new book by freelance writer Judith Shulevitz. It's a deeply thoughtful compilation of semi-autobiographical reflections on her practice of the Jewish sabbath, mixed with some thoughtful research on the history of sabbath-keeping and brilliant speculation on its wider significance. I'd like to share some of my favorite quotes as a way of glimpsing what Shulevitz does so well, with beautiful prose (I wish I had read this book before completing my own!).
The difference between modern standardized time and holy time:
Shulevitz describes the importance of sabbath keeping to the Maccabean rebels against Rome (c. 167 B.C.), and points out that some of them may have felt that if they were martyred for keeping the Sabbath, "the end of time would come and they would rise again . . . . [T]hey felt that to keep the Sabbath, was to assert that time had a beginning, a middle, and an end." This kind of apocalyptic imagination echoes New Testament scholar/theologian N.T. Wright's view of Judaism at the time, which he argues was crucial for understanding the New Testament imagination. The gospels and epistles were written with this kind of urgency, with the authors inspired to believe that the events of Jesus' life were indeed the inauguration of God's rule in history, the fulfillment of Israel's longings.
The contrast between modern time and the Fullness of Time
The shift from modern, railroad time to postmodern, cellphone time
One of her most striking observations, based on a book by Richard Ling entitled The Mobile Connection: The Cell Phone's Impact on Society (2004), is that our practice of time is becoming more fluid, so a static concept of a one-day Sabbath may be harder to embody and live (pp. 194-96). "In the embryonic progressive [flexible cellphone or Facebook time], nothing ends. The Sabbath, by contrast, demands of us a hard and tragic sense of beginnings and endings" (p. 197). She's onto something here. It will be harder to maintain practices like Sabbath-keeping with their temporal rigidity. Yet we need this kind of rest so badly (see chapter 6 of my book on Lent).
Her final words on why we need the Sabbath
The difference between modern standardized time and holy time:
Holiness scandalizes, as well it should. It's the very incarnation of unreason. Once Isaac Newton convinced us that time was a mathematical quantity, wholly measurable, infinitely divisible, and expressible in numbers, and economists showed us that time could be a commodity, exchangeable for money, we were bound to find implausible the notion that certain times were holy while others weren't. How could some points on a graph be charged with supernatural power while others rest inert? Where, precisely, would the holiness lurk? If it can't be measured, how do we know it exists (p. 61)?The importance of apocalyptic time in creating narrative
Shulevitz describes the importance of sabbath keeping to the Maccabean rebels against Rome (c. 167 B.C.), and points out that some of them may have felt that if they were martyred for keeping the Sabbath, "the end of time would come and they would rise again . . . . [T]hey felt that to keep the Sabbath, was to assert that time had a beginning, a middle, and an end." This kind of apocalyptic imagination echoes New Testament scholar/theologian N.T. Wright's view of Judaism at the time, which he argues was crucial for understanding the New Testament imagination. The gospels and epistles were written with this kind of urgency, with the authors inspired to believe that the events of Jesus' life were indeed the inauguration of God's rule in history, the fulfillment of Israel's longings.
The contrast between modern time and the Fullness of Time
Marx was the first to point out that divorcing time from context and commodifying it as money leads directly to temporal compression. When time is money, speed equals more of it (p. 97). [I say something very similar in the book in chapter 1.] . . . [But] the fullness of time is the moment when God (through Christ and the Holy Spirit) invades the present and fills it with his presence (p. 98, after describing kairos time and citing both Paul and Kierkegaard).I would argue that Christians need to rediscover this notion of the Fullness of Time from both Paul (Gal 4:4) and Kierkegaard (The Concept of Anxiety [Princeton, 1980], p. 90). I really wish I had come across her Kierkegaard reference earlier! I knew he had used the phrase but couldn't find it in his writings.
The shift from modern, railroad time to postmodern, cellphone time
One of her most striking observations, based on a book by Richard Ling entitled The Mobile Connection: The Cell Phone's Impact on Society (2004), is that our practice of time is becoming more fluid, so a static concept of a one-day Sabbath may be harder to embody and live (pp. 194-96). "In the embryonic progressive [flexible cellphone or Facebook time], nothing ends. The Sabbath, by contrast, demands of us a hard and tragic sense of beginnings and endings" (p. 197). She's onto something here. It will be harder to maintain practices like Sabbath-keeping with their temporal rigidity. Yet we need this kind of rest so badly (see chapter 6 of my book on Lent).
Her final words on why we need the Sabbath
We could let the world wind us up and set us to working, like dolls that go until they fall over because they have no way of stopping. But that would make us less than human. We have to remember to stop because we have to stop to remember (p. 217).Take a 24-hour break this weekend. It's a way of living in the story that we are called to enter.
Thursday, August 5, 2010
Even More Summer Reading on the Global Financial Crisis
First off, thanks to Google for making a new template available that works well for a blog about "the flat world." For those who've seen the blog before, this should be a less cluttered look and a better pairing of medium with content. (Let me know if you disagree!)
And now on to my post-World Cup summer obsession: reading interesting books about the global financial crisis. (Yes, such things exist!) I just finished two more books that help explain the mess the world economy got into by 2007 or 2008. The first, although prophetic, is now slightly dated and probably too technical for the average reader; the second is a current and compelling story that most people would grasp.
Dated and a bit technical, but prophetic
Charles Morris' 2008 book The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash was one of the first books published on the mess, coming out even before the full scope of the disaster was apparent. Morris was a former banker, with some high-level Wall Street connections (he thanks Nouriel Roubini, an early prophet of doom; George Soros, a world-famous currency speculator and intellectual; and Satyajit Das, an expert on the crazy financial products called derivatives, for helping him). Interestingly, Morris blames the free market ideology of the so-called Chicago School and of former Fed Board of Governors Chairman Alan Greenspan for a hands-off approach to regulating finance. In Morris' view, the roots of the crisis go back to the rise of "monetarism"--the belief that money supply drives inflation--in the 1980s. Deregulation was in, so financiers were left alone to police themselves.
But he goes beyond ideological polemics to explain the history that preceded the current mess. Three precedents are the 1987 "Black Monday" stock market crash, the 1998 Long Term Capital Management collapse, and the 2000 popping of the dot-com stock market bubble--all of which illustrated the flaws of applying mathematical models to manage the risk of market downturns. History doesn't obey the law of averages but has a way of coming up with never-before-anticipated events--events that don't fit on a "normal" bell-shaped curve. Globalized finance is not like physics and its mathematical expression:
A compelling story for most readers
David Faber, a reporter for CNBC, has the courage to say that he honestly missed this story as it was unfolding. But thanks to a hedge fund manager in Texas named Kyle Bass, who called him to clue him in, he eventually started piecing together what was really happening at multiple levels. In other words, Faber figured out the story that only a few experts on the edges of Wall Street like Bass (the same people that are heroes in Michael Lewis' The Big Short) had told up to that point. Once he "got it," he needed to tell the story.
As a result, Faber's book And Then the Roof Caved In (2009) does a nice job framing the crisis as a compelling narrative, with real characters taking actions that drove the story from its beginning to its end. It looks like Faber basically converted his reporting for the CNBC documentary House of Cards into book form. Unlike Morris, he limits to the story to the critical period between 2001 and 2008, focusing on the links between 1) ordinary homebuyers who were trying to use increasing house prices to get ahead financially, 2) unregulated subprime mortgage lenders who were eager to lend at high rates of interest, 3) Wall Street banks desperate to buy up "physical" mortgages to pool into mortgage-backed bonds, 4) global investors desperate for high returns above the low interest rates set by the Federal Reserve (Fed), 5) credit rating agencies (Moody's, Standard & Poor's, and Fitch) that were complicit with the Wall Street firms that paid them to rate bonds issued by the same firms, 6) a Fed that failed to regulate the subprime mortgage market or take action to ease the housing bubble (the steady increase in housing prices and the flow of overseas capital into the mortgage bond market), and 7) Wall Street bankers (like Stan O'Neal, the head of Merrill Lynch) who were more interested in playing golf and paying themselves huge bonuses than in what was going on.
These seven are the main characters in any accurate rendering of the drama (is it a tragedy or comedy?). I want to comment briefly on ordinary people, Wall Street banks, and global investors.
I was especially glad to see the attention paid to the impact of all this financial maneuvering on ordinary people (#1 above). Faber focuses on the story of Arturo Trevilla, an upwardly mobile Mexican immigrant to California, and his family. They bought a house for $584,000, signing papers that said he took home $16,000 a month when he really earned $3,600 a month. (Arturo's English wasn't great, and even if it was, loan papers are hard to understand.) He also borrowed money for the down payment (a so-called "piggyback" loan). He was hoping to get out of his subprime loan in the future by borrowing against the expected future value of his home, which he, like everyone, assumed would keep increasing. Then he could borrow $70,000 of his home equity and start the embroidery business he was dreaming of. Unfortunately, by the time his adjustable rate mortgage payments zoomed up to $5,000 a month, he was in trouble. Then he lost his job, and he, his wife, his three kids) moved into an apartment with another family. Predatory lending or irresponsibility? A little of the latter, but mostly the first, I think.
The issue of ordinary people "flipping" homes for profit was also a major contributor to the crisis. Kyle Bass, the hedge fund guy, knew there was a problem when he chatted with a bartender in Las Vegas in 2007 who told him that he wasn't doing so well because his "three houses are killing me" (151). He'd been borrowing to buy and flip houses but couldn't sell them. Yes, a regular old bartender was doing that. And, yes, the inability to sell suggested that the real estate price bubble had popped--especially in places like Las Vegas (or California, Arizona, or Florida).
Why was Wall Street so stupid? In passing, Faber mentions a study of 24 housing busts that had happened since the 1970s (p. 175). In the last post, I reviewed John Lanchester's I.O.U., who had lived through a real estate bubble in England And yet really smart people all over the world were convinced that housing prices in the US would keep rising? Everyone knew that things were getting risky, so why did they keep investing in mortgage-backed bonds? According to the former CEO of Citigroup, they were afraid of losing market share (p. 168).
The global dimensions of this crisis are significant. Without the "giant pool of money" held by investors outside the U.S.--something like $70 trillion in 2008--this crisis wouldn't have started or become so widespread. According to Faber, "In 2005, 80 percent of subprime mortgages were being securitized and sold to voracious investors around the world. The subprime mortgage had become the chief export of our country" (p. 78). Message to the world from the USA: "Sorry about that."
On two controversial, politically charged points in the narrative, Faber weighs in with his own reading of the evidence.
First, he doesn't blame Fannie Mae and Freddie Mac, the two federally supported mortgage guarantors, for driving the crisis. After delving into the story, he attacks the "myth" that "the lax lending standards of Fannie and Freddie promulgated the current crisis. It is not true. Wall Street rushed into the vacuum created by the absence of Fannie and Freddie in 2003-2005 [because they were under pressure to be more cautious and accurate in their financial statements]" (p. 66). 70 percent of U.S. mortgages originated in 2003 were sold to Fannie and Freddie. By 2006, only 30 percent of mortgages were (p. 65). However, he does note that Congressman Barney Frank, the Chair of the House Financial Services Committee, later encouraged Fannie and Freddie to increase lending, on the theory that extending credit to less creditworthy borrowers would help expand the American Dream of homeownership. Still, in Faber's view, Wall Street is the one that drove the game.
Second, probably because he scored an interview with Alan Greenspan in 2008, Faber gives a wide berth to accusations that Greenspan and the Fed failed to take appropriate regulatory actions (in contrast to Morris, as noted above). However, he does point out (on pp. 50-54) that Edward Gramlich, one of the Fed's Governors, and Sheila Bair, the head of the Federal Deposit Insurance Corporation (the main regulator of banks), tried to persuade Greenspan to tighten lending requirements for mortgages. No dice.
Because of this reverence for Greenspan, Faber ends the book on a rather futile note, with no lessons for possible future corrective actions. As he puts it, in the final paragraph of the book,
Do you buy that?
And now on to my post-World Cup summer obsession: reading interesting books about the global financial crisis. (Yes, such things exist!) I just finished two more books that help explain the mess the world economy got into by 2007 or 2008. The first, although prophetic, is now slightly dated and probably too technical for the average reader; the second is a current and compelling story that most people would grasp.
Dated and a bit technical, but prophetic
Charles Morris' 2008 book The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash was one of the first books published on the mess, coming out even before the full scope of the disaster was apparent. Morris was a former banker, with some high-level Wall Street connections (he thanks Nouriel Roubini, an early prophet of doom; George Soros, a world-famous currency speculator and intellectual; and Satyajit Das, an expert on the crazy financial products called derivatives, for helping him). Interestingly, Morris blames the free market ideology of the so-called Chicago School and of former Fed Board of Governors Chairman Alan Greenspan for a hands-off approach to regulating finance. In Morris' view, the roots of the crisis go back to the rise of "monetarism"--the belief that money supply drives inflation--in the 1980s. Deregulation was in, so financiers were left alone to police themselves.
But he goes beyond ideological polemics to explain the history that preceded the current mess. Three precedents are the 1987 "Black Monday" stock market crash, the 1998 Long Term Capital Management collapse, and the 2000 popping of the dot-com stock market bubble--all of which illustrated the flaws of applying mathematical models to manage the risk of market downturns. History doesn't obey the law of averages but has a way of coming up with never-before-anticipated events--events that don't fit on a "normal" bell-shaped curve. Globalized finance is not like physics and its mathematical expression:
The mathematics of big portfolios analogizes price movements to models of heat diffusion and the motions of gas molecules, in which uncountable randomized micro-interactions lead to highly predictable macro-results. Although it's theoretically possible that all the air molecules in my room will shift to one corner . . . the laws of large numbers ensure that the actual frequency of such events is way beyond never. Large securities portfolios usually do behave more or less as the mathematics suggest. But the analogies break down in a time of stress. For shares to truly mirror gas molecules, trading would have to be costless, instantaneous, and continuous. In fact, it is lumpy, expensive, and intermittent. Trading is also driven by human choices that often make no sense in terms that models understand. Humans hate losing money more than they like making it. Humans are subject to fads. . . . [I]n real financial markets, air molecules [real human beings] have a disturbing knack for clumping on one side of the room (pp. 56-57).Even though the crisis was just beginning to unfold, Morris identifies several new financial products that contributed to making the crisis so massive: collateralized mortgage obligations, collateralized debt obligations, and credit default swaps. If all these terms confuse the heck out of you, then try watching the "Crisis of Credit Visualized" video, which is very helpful. Credit default swaps are what led to the Fall 2008 near-collapse and $85 billion bailout of AIG, a giant global insurance firm, which had not yet happened when Morris was writing, but he could claim to have seen it coming (at least in general). Which just goes to show you that this thing was entirely possible to anticipate. While it took a while for President George W. Bush to realize that "this sucker could go down," people like Morris saw it coming well ahead of time.
A compelling story for most readers
David Faber, a reporter for CNBC, has the courage to say that he honestly missed this story as it was unfolding. But thanks to a hedge fund manager in Texas named Kyle Bass, who called him to clue him in, he eventually started piecing together what was really happening at multiple levels. In other words, Faber figured out the story that only a few experts on the edges of Wall Street like Bass (the same people that are heroes in Michael Lewis' The Big Short) had told up to that point. Once he "got it," he needed to tell the story.
As a result, Faber's book And Then the Roof Caved In (2009) does a nice job framing the crisis as a compelling narrative, with real characters taking actions that drove the story from its beginning to its end. It looks like Faber basically converted his reporting for the CNBC documentary House of Cards into book form. Unlike Morris, he limits to the story to the critical period between 2001 and 2008, focusing on the links between 1) ordinary homebuyers who were trying to use increasing house prices to get ahead financially, 2) unregulated subprime mortgage lenders who were eager to lend at high rates of interest, 3) Wall Street banks desperate to buy up "physical" mortgages to pool into mortgage-backed bonds, 4) global investors desperate for high returns above the low interest rates set by the Federal Reserve (Fed), 5) credit rating agencies (Moody's, Standard & Poor's, and Fitch) that were complicit with the Wall Street firms that paid them to rate bonds issued by the same firms, 6) a Fed that failed to regulate the subprime mortgage market or take action to ease the housing bubble (the steady increase in housing prices and the flow of overseas capital into the mortgage bond market), and 7) Wall Street bankers (like Stan O'Neal, the head of Merrill Lynch) who were more interested in playing golf and paying themselves huge bonuses than in what was going on.
These seven are the main characters in any accurate rendering of the drama (is it a tragedy or comedy?). I want to comment briefly on ordinary people, Wall Street banks, and global investors.
I was especially glad to see the attention paid to the impact of all this financial maneuvering on ordinary people (#1 above). Faber focuses on the story of Arturo Trevilla, an upwardly mobile Mexican immigrant to California, and his family. They bought a house for $584,000, signing papers that said he took home $16,000 a month when he really earned $3,600 a month. (Arturo's English wasn't great, and even if it was, loan papers are hard to understand.) He also borrowed money for the down payment (a so-called "piggyback" loan). He was hoping to get out of his subprime loan in the future by borrowing against the expected future value of his home, which he, like everyone, assumed would keep increasing. Then he could borrow $70,000 of his home equity and start the embroidery business he was dreaming of. Unfortunately, by the time his adjustable rate mortgage payments zoomed up to $5,000 a month, he was in trouble. Then he lost his job, and he, his wife, his three kids) moved into an apartment with another family. Predatory lending or irresponsibility? A little of the latter, but mostly the first, I think.
The issue of ordinary people "flipping" homes for profit was also a major contributor to the crisis. Kyle Bass, the hedge fund guy, knew there was a problem when he chatted with a bartender in Las Vegas in 2007 who told him that he wasn't doing so well because his "three houses are killing me" (151). He'd been borrowing to buy and flip houses but couldn't sell them. Yes, a regular old bartender was doing that. And, yes, the inability to sell suggested that the real estate price bubble had popped--especially in places like Las Vegas (or California, Arizona, or Florida).
Why was Wall Street so stupid? In passing, Faber mentions a study of 24 housing busts that had happened since the 1970s (p. 175). In the last post, I reviewed John Lanchester's I.O.U., who had lived through a real estate bubble in England And yet really smart people all over the world were convinced that housing prices in the US would keep rising? Everyone knew that things were getting risky, so why did they keep investing in mortgage-backed bonds? According to the former CEO of Citigroup, they were afraid of losing market share (p. 168).
The global dimensions of this crisis are significant. Without the "giant pool of money" held by investors outside the U.S.--something like $70 trillion in 2008--this crisis wouldn't have started or become so widespread. According to Faber, "In 2005, 80 percent of subprime mortgages were being securitized and sold to voracious investors around the world. The subprime mortgage had become the chief export of our country" (p. 78). Message to the world from the USA: "Sorry about that."
On two controversial, politically charged points in the narrative, Faber weighs in with his own reading of the evidence.
First, he doesn't blame Fannie Mae and Freddie Mac, the two federally supported mortgage guarantors, for driving the crisis. After delving into the story, he attacks the "myth" that "the lax lending standards of Fannie and Freddie promulgated the current crisis. It is not true. Wall Street rushed into the vacuum created by the absence of Fannie and Freddie in 2003-2005 [because they were under pressure to be more cautious and accurate in their financial statements]" (p. 66). 70 percent of U.S. mortgages originated in 2003 were sold to Fannie and Freddie. By 2006, only 30 percent of mortgages were (p. 65). However, he does note that Congressman Barney Frank, the Chair of the House Financial Services Committee, later encouraged Fannie and Freddie to increase lending, on the theory that extending credit to less creditworthy borrowers would help expand the American Dream of homeownership. Still, in Faber's view, Wall Street is the one that drove the game.
Second, probably because he scored an interview with Alan Greenspan in 2008, Faber gives a wide berth to accusations that Greenspan and the Fed failed to take appropriate regulatory actions (in contrast to Morris, as noted above). However, he does point out (on pp. 50-54) that Edward Gramlich, one of the Fed's Governors, and Sheila Bair, the head of the Federal Deposit Insurance Corporation (the main regulator of banks), tried to persuade Greenspan to tighten lending requirements for mortgages. No dice.
Because of this reverence for Greenspan, Faber ends the book on a rather futile note, with no lessons for possible future corrective actions. As he puts it, in the final paragraph of the book,
Greed is the fuel that makes our capitalist system run. It is a powerful emotion. When I asked Alan Greenspan about it, he agreed, and then he gave me a sideways look from that famous 82-year-old face and said: "And you're going to outlaw that? Go ahead and try it."Well, there's nothing we can do. There is No Alternative to letting the market run. You might as well try to pass a law against gravity.
Do you buy that?
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