February 2009
Rags and Bones
A monthly column
by Jonathan Wallace jw@bway.net
Origins
The
name of this column was inspired by the final lines of William Butler Yeats’
greatest poem, “The Circus Animals’ Desertion”:
Now
that my ladder’s gone,
I
must lie down where all the ladders start,
In
the foul rag and bone shop of the heart.
The poem describes a middle aged man
coming to the end of his illusions and beginning to see the world clearly, in
all its vanity and disappointment.
I am fifty-four and have been around
long enough to see some comedies repeat themselves: Vietnam reiterated in Iraq,
the savings and loan crisis of the eighties reconfigured in the bank
emergencies today, the Internet bubble of less than ten years ago reflected in
the stock bubble which is collapsing today.
I was forty when I began publishing The Ethical Spectacle and much more
optimistic. As I said in my original bio, one of the most inspiring statements
I knew was Gandhi’s that “We must be the change we wish to see in the world.”
In the fourteen years which have elapsed since then, I have become much less
hopeful.
As Yeats said in a much earlier
great poem:
O vanity of hope, sleep, dream, endless
desire,
The horses of disaster plunge in the
heavy clay….
The great depression
I have been reading books about the Great
Depression in order to get a better understanding of the present world
emergency.
I highly recommend John Kenneth
Galbraith’s The Great Crash 1929 (New
York: Houghton Mifflin, 1997), first published fifty years ago. Concentrating
on the run up to Black Tuesday and the immediate aftermath, and written in
an entertaining and sardonic style, the
work at moments sounds like an astute analysis of current events. Galbraith
describes how, the day after the crash,
numerous respected businessmen and politicians including President
Hoover, made soothing statements about the “fundamentals” of the market
(Hoover: “the fundamental business of the country, that is production and
distribution of commodities, is on a sound and prosperous basis”). This recalls
recent clueless statements by President Bush and John McCain and suggests that when anyone uses the word
“fundamental” it is time to run for the exits. A statement by John D.
Rockefeller that believing that “fundamental conditions are sound”, he had
begun to buy stocks, recalls a recent market-propping effort by Warren Buffet.
Galbraith describes how frauds which take place undetected in a bull market are
exposed during a crash; this presages Bernard Madoff and others yet to come.
Galbraith, in his conclusion, says that the biggest threat
to capitalism is a failure to act on foreknowledge because of a fear of
inconveniencing others who will not thank you for saving them from
catastrophe. “So inaction will be
advocated in the present even though it means deep trouble in the future. Here
at least equally with communism lies the threat to capitalism. It is what
causes men who know that things are going quite wrong to say that things are
fundamentally sound.”
Eric Rauchway, The Great Depression and the New Deal: A Very Short introduction (New
York: Oxford University Press 2008), is not on the same level. Very bland in
its style, it is one of a series which attempts to meet the daunting task of
reducing complex issues to about 150 pages of prose. Nevertheless, Rauchway
succeeds in summarizing the crash and the various efforts Roosevelt made,
successful and unsuccessful, to deal with the consequences. It follows the standard
modern day narrative that some of Roosevelt’s initiatives were beneficial (the
Civilian Conservation Corps), others counterproductive (balancing the budget)
or morally wrong (the court-packing plan), while it was the war which finally
ended the depression.
The book contains one delightful
quote on a tangential issue, the anti-Catholic prejudice which ensured Al
Smith’s defeat by Hoover in the 1928 election: he was accused of opening the
way to “card playing, cocktail drinking, poodle dogs, divorces, novels, stuffy
rooms, dancing, evolution, Clarence Darrow, over-eating, nude art, prize
fighting, actors, greyhound racing and modernism.”
Amity Shlaes’The Forgotten Man (New York: Harcourt 2008) focuses on Roosevelt’s
strengths (flexibility, imagination, charm) and defaults (authoritarian
leanings, lack of respect for law and process). As a history of the Depression,
it suffers from a lack of interest in the daily life of common people during
the era (the title is misleading). The book is also confusingly structured,
beginning with an extended prolog describing a visit some of Roosevelt’s future
New Dealers made to Stalin during 1927, then skipping the actual prelude to and
most of the events following Black Tuesday. Shlaes’ sympathies may be detected from
her resume (she has written for the Wall Street Journal and the National
Review) but she is by no means an invisible hand theologian, as she seems to
approve of at least some New deal initiatives. I found this book most useful
for its descriptions of some of the political battles surrounding New Deal
legislation such as NRA and TVA.
This time around
A good book summarizing the present
crisis is Mark Zandi’s Financial Shock (New
York: FT Press, 2008). Zandi, an economist who writes very lucidly, tells the
story of the real estate bubble of the last few years and its effects on the
rest of the world, with close attention to the failures of mortgage firms,
banks, and regulators. This book is
short (243 pages) but comprehensive. If you have time to read just two books
about financial emergencies, read Galbraith’s and this one.
The drift
We are in the period when newly elected
presidents typically start drifting away from the promises they made during the
campaign. A watershed moment for Obama will be what he decides to do about
Guantanamo and the enemy combatant issue. This is not one which can be deferred
or spun out; crucial briefs in the Supreme and lower courts must be filed
immediately. In general, there is a huge gap between critiquing the way others
play with their toys and the stunning moment when the toys become your
responsibility. The result is typically
inertia, the continuing of the status quo, the realization that it is easy to
talk and hard to do. I hope President Obama will have the courage to keep most
of his promises.
Billionaire suicides
Adolf Merckle, a German billionaire
who made a bad bet on Volkswagen stock a few months ago and was facing the ruin
of his financial empire, killed himself the other day. There have been more
than a handful of these suicides reported recently, including one guy who was
apparently ashamed to have steered so many friends and acquaintances to Bernard
Madoff. (By the way, despite the anecdotal interest of such stories, the books
I read on the Great Depression maintain that there was no statistical spike in
suicides in `1929 and after, and there probably won’t be this time either.)
The irony is that virtually all of
these “victims” of the economy would have been able to emerge from their
emergencies with a few million, or tens of million, left. In a world where eighty percent of the
people live on less than $10 a day, that would still be pretty damn good (http://www.globalissues.org/article/26/poverty-facts-and-stats).
Of course, there’s no way to tell how many super-rich suicides kill themselves
because they can’t face being “poor”, as opposed to the shame and loss of face
involved in tanking their empires.
Madoff and mana
Last month, I invoked the Pacific concept
of “mana”, the power people acquire over time due to success in warfare,
politics, finance and other realms of endeavor. I think people acquire a zone of protection around them due to
their perceived power, which dissuades
any investigation by law enforcement or even by journalists (or the public
revelation of information commonly known about these individuals by other
insiders). The fact that racist Senator
Strom Thurmond had an illegitimate African American daughter, not revealed
until after his death, seems a remarkable effect of mana’s discouragement of
reporting. The daughter was in her seventies when he died; her mother was the
Thurmond family maid and her existence must have been known to many people
close to the family.
The SEC’s failure to investigate
Bernard Madoff is also best understood in terms of the prohibitive effects of
mana. The public explanation, that the SEC looked at him a few times in twenty
years, but failed to find anything, is ludicrous. A reasonably smart college
student with no financial background, asked to
determine if Madoff’s hedge fund was a Ponzi scheme, could have found
out everything in five minutes:
“Mr. Madoff, can you show us where
all these billions of dollars are being invested, and at what rates of return?
Can you walk us through the investing methodology by which you get ten percent
per year in good times and bad?”
The regulators obviously thought Madoff was too big to take down
(and why would they think that any of our last few presidents would back such
an effort?) . They did not even begin to do their job where he
was concerned.
An interesting element of Madoff’s
story is his extreme niceness and blandness.
While many people exercise mana via bullying and threats (Alan
Dershowitz is an example I wrote about recently), Madoff didn’t have to. He had
no flair to him whatsoever, no John Gotti ties, no street palaver, no gossip
column assertions that he ordered thousand dollar bottles of Cristal at such
and such a club, no affairs with supermodels, no sense of edginess or
danger whatever. Like the Sta-Puft
Marshmellow man from “Ghostbusters”, Madoff suggests that if you’re big enough,
it doesn’t matter how soft you are.
Labor
One topic I have never written about in
the Spectacle is unions, possibly
because any book or essay with “Labor” in the title puts me to sleep in
minutes.
My parents were doctors; while
growing up, I don’t think I ever knew anyone who belonged to a union. I was enrolled in one for a few months while
working as an EMT for the New York City Fire Department, but I was probationary and when I had my
own dispute with management there, the union rep (though friendly and eager)
could not do very much for me. I don’t
think I was even able to get a phone call returned by the office of the union
president.
Like anyone else who grew up in New
York, or had a liberal arts education, or has vaguely leftist sympathies, I
know a few things about why unions were needed: the Triangle Shirtwaist Company
fire, company goons murdering mine workers who went out on strike, company
violence joined with scrip and stores to create an environment of virtual
slavery.
However, like most human endeavors
started to address a laudable goal, unions seem to me to have become rather
monstrous. (“Out of the crooked timber of humanity, no straight thing was ever
made.”—Isaiah Berlin.) When I was an executive with a software firm, we used to
exhibit at a leading trade show in the Jacob Javits center in New York. I soon
discovered that if we wanted to carry a computer from one end of the booth to
the other, we were not permitted to do so ourselves, but had to call for a
union employee and wait, often several hours. Finally a palsied retired
carpenter would show up, often so feeble that I would help him by carrying the
computer myself. This was more than trivially annoying and made me want not to
attend this show in New York any more, as opposed to shows in places like Texas
where I could carry my own damn stuff around the booth.
Unions almost since their inception
have been incubators of corruption, centers of mob influence, opportunities to
pillage everyone in sight, including members.
In 1990, the first year I attended that trade show, the Carpenters’
Union was sued by the United States attorney who alleged it was controlled by
the Genovese crime family.
I have issues with even cleanly run
unions, principally the fact that they are legalized monopolies. In certain
professions, one’s chance of getting into the union are slim to nonexistent
unless a parent or relative works there. I read recently that if you want to
compose music for Hollywood films, you’d better have a relative already doing
so. In other cases, the rules seem
ridiculously arbitrary and exclusive. One thing I’ve never heard of is any kind
of a guarantee that the people in the union are better at their trade than
those who aren’t. In the small world of
Off Off Broadway theatre productions, I
know wonderful actors who have never had the opportunity to join Equity, and
some mediocre ones who have.
For us left-leaning types, the
things we set on a pedestal tend to be the broadest-based protections
available: international human rights, eliminating world hunger, etc. Although
we were raised at least until the 1960’s to give unions the same uncritical
adoration (the songs of Woody Guthrie and Pete Seeger had a lot to do with it),
unions are not big umbrellas. They are in the business of driving up wages by
limiting the number of people who can work, leaving the rest to fend for
themselves. In a world of broad labor protection, anyone who wanted to work in
a particular discipline would be able to join. (You could at least set some
minimal requirements for experience or internship while still seeking as broad
a membership as possible.)
Greedy unions have caused or
contributed to the destruction of industries. I lived twenty years near the
Brooklyn docks, and rarely saw a ship being unloaded there. Everyone knew that union restrictions made
it so costly that business fled to New Jersey and points South. As for the failure of the United States auto
industry, there is plenty of blame to go around, but the unions certainly share
it.
As vice president of operations of a
software development firm during the ‘90’s, unionization of the programmers was
one of my nightmares . These individuals were already highly compensated for
what they did, making eighty thousand a year at the low end and up into the
hundreds for people with rarer skills (Java programming) and the willingness to
work substantial overtime. I remember seeing an article in a leftwing economic
review to which I subscribed, complaining that software people were being
denied employee status and forced to work as independent contractors. My
experience could not have been more different: we wanted them to be employees
(the IRS was on a crusade to assess us millions in withholding and penalties
when we used independents), but the most skilled and sought after developers
refused.
I used to imagine a developers’
union insisting that they receive a fifteen minute break every hour, like
musicians, or limiting the day to eight hours. At the time, American software
development still led the world (I don’t think it does today). Placing union
restrictions to protect highly compensated people who were not being exploited
would have ensured the end of that primacy, sending software down the same road
as manufacturing.
Market abstractions
In last month’s main article on
securitization, I discussed the phenomenon of taking a real home mortgage and
wrapping it in the abstraction of a “mortgage-backed security”. What happens is
that the paper assumes more importance to us than the underlying house . Yeats
again: “Players
and painted stage took all my love,
/And not those things that they were
emblems of.”
This has been a huge contributing
factor in the decline of the American economy. From the mid-1980’s onwards,
there was a complacent sense that we no longer needed to be good at anything
concrete because we were all about the information. An often mentioned example
at the time: there was a moment when TV Guide (which more recently was sold for
a dollar to V.C. firm Opengate) was valued at more than the TV networks were.
The moral was supposedly that information about television was worth more than
television itself.
During that same period, we lost the
ability to manufacture televisions in this country. According to Funtrivia.com,
the last American-owned TV manufacturer is Five Rivers Electronic Innovations
of Tennessee, employing just seven hundred people. However, it makes only the
cabinets, and buys all the electronics from China and elsewhere.
Even as I worked in the information
marketplace in those years, I had a confused sense that all this abstraction
must still depend on someone being able somewhere to drive a nail. Once the
information lost its link to anything objective, real and substantial, I
worried that the house of cards would collapse. In a way I predicted the
Internet bubble, but not with enough clarity to quit the industry or get my own
money out in time.
In the old west and well into the
twentieth century, people needed a
variety of skills to survive; everyone was expected to be able to do a bit of
carpentry. In the last thirty years, with the elevation of the nerd to primacy,
we have seen in effect the rise of Isaiah Berlin’s hedgehog, the person who
knows how to do only one thing well. With the enablement of the nerd has come
an arrogant sense that the carpentry isn’t important. The result has been that
we have literally been basing securities, and ultimately our own security, on
houses that won’t stand.
An economist
joke
Which reminds me of a joke which
isn’t really very funny, but has the
distinction of being about economists.
A physicist, an engineer and an
economist are stranded on an island with a can of tuna fish and no tools. They
decide to each come up with a proposal.
The physicist calculates that if
they build a fire and place the can in it, as the contents heat and expand, the
can will burst open in a certain period of time.
The engineer sketches in the sand,
designing a device which can be built with tree branches, rocks and other
available material.
They look at the economist who
raises one finger in the air:
“Postulate a can-opener!”
Benjamin Button
“The Curious Case of Benjamin Button” is a case study of Hollywood’s rare decision to attempt an art film. The result is reminiscent of the hippos in tutus
from “Fantasia”.
It’s a noble effort, and has its moving
moments. It fails in large part because, paradoxically, it cost too much money
to make.
Brad Pitt plays a man born looking
elderly, who turns into a child as he ages.
There is unfortunately much less to this than meets the eye. Unlike the
protagonist of Time’s Arrow,
Benjamin is not actually living his life backwards in time. His problems are,
effectively, more cosmetic and dermatological, which makes them less
interesting as metaphors (but probably more central to everyday life in
Hollywood). At most, what makes
Benjamin special is that everyone regards him as a strange child, and from age
8 as an elderly man.
The movie follows his entire life
from birth to death, a demanding genre I have always appreciated. Benjamin is
raised by a black adoptive mom in a nursing home where he fits in among the
elderly people, falls in love with Daisy, a girl about ten years younger,
begins crewing on a local tugboat when he still looks too old to do the job but
is actually a teenager, meets his biological father, has a few sexual
encounters and love affairs, and serves in World War II on the same tugboat.
In a large, expensive war scene, the
tug runs over and destroys a German submarine and Benjamin is the sole
survivor. Rescued, he throws a life preserver from the tug into the sea and a
metaphorical hummingbird, resonant of a tattoo on the chest of hjs recently
deceased captain and friend, rises from the waves. Does it represent the soul
of his lost (and only) friend? At the end of the movie, as Daisy lies dying in
a hospital in New Orleans as Hurricane Katrina approaches, we see the
hummingbird again, beating against the outside of the window improbably in the
downpour. Is it the human soul? Hopes and expectations? Life and loss? Perhaps
it is a mega-metaphor standing for everything?
Daisy shows up in New Orleans a young woman; Benjamin declines a
one night stand but misses her and later tracks her down in New York, where she
is a professional dancer; she has a boyfriend and he leaves disappointed. Their
minuet of missed cues ends after her leg is crushed in a car accident in Paris.
They live together, have a daughter, create a small but contented life, but
then Benjamin leaves because he feels the signs of age coming on (its now the
‘60’s) and he doesn’t want Daisy to be forced to care for two children at once.
For the movie to work, the director
and actors would have to sell this decision, and they don’t. Benjamin gives up
the chance to know his daughter, to watch her grow up, in a moment which the
writer seems to have intended to play as selfless but which seems selfish
instead (as Benjamin, getting younger, becomes a hippie nomad in India).
Another large problem is the lack of
spark between two fine actors, Cate Blanchett and Brad Pitt, both of whom
deliver flat performances. There is a phenomenon in large, expensive movies
where the acting is overwhelmed by the prosthetics and CGI. This may have
happened here.
Another problem the movie
experiences is its occasional descent into kitsch with repetitive lines of
dialog like “You never know what’s coming for you.” The scriptwriters would
have been well-advised to avoid all similarities to “Forrest Gump” with its
repeated “Life is like a box of chocolates. You never know what you’re gonna
get.”
“Benjamin Button” has two framing
devices, the only slightly related story of a man who builds a clock which runs
backwards, and Daisy dying in a New Orleans hospital as Katrina approaches. We
momentarily see the clock, in storage, starting to run forwards as flood waters
wash it away in the last moments of the film. Daisy, meanwhile, has narrated
the story of Benjamin to her semi-estranged adult daughter, including the
highly predictable revelation that Benjamin is her father.
If anyone in Hollywood could have
pulled off “Benjamin Button”, its director David Fincher would be my nominee.
His much better “Fight Club” is one of my favorite movies of the last decade.
The main thing I took away from
”Benjamin Button” is how heavy-handed Hollywood is with metaphor, which it typically
signals and then overwhelms with the swelling of a million violins. “Benjamin
Button” muddles its metaphors, the
man-as-child, the backwards clock and the hummingbird. Here’s to small movies,
made for much less money, but with a more consistent authorial vision.
A modest
proposal
In order to end Constitutional
confusion and inefficiency, and to put the ACLU on a more consistent footing,
let’s merge the First and Second Amendments by decreeing that the bearing and
use of arms constitute acts of speech. Every time anyone brandishes or fires a
weapon, we would simply have to analyze what he was trying to say. Use of a weapon in an “obscene” context,
such as mass killings of one’s classmates in high school, would receive no
protection, while the use of guns to make political statements would be
privileged. This would certainly satisfy the NRA, which believes that the right
to bear arms is the cornerstone of liberty, and that people with bullet holes
in them are the price we pay for our freedom. And this way, the ACLU could no
longer ignore the Second Amendment while investing huge time and energy in the
First. So everybody wins!
Gaza
The Times for January 10 reports another imam, this time in Egypt, preaching that Jews (not Israelis, note) are
“pigs” and “monkeys”. Certainly, the
stories of civilian loss in Gaza verge on unbearable. The Times also reports a family shepherded by Israeli
troops into a house which was later shelled, where wounded children lay next to
dead mothers for three days before the Red Cross arrived. What is getting lost
in all this is any sense of what is “normal”
in all wars, and some remarkable attempts Israel has made to depart from
the normal by protecting and warning civilians.
The United States, in its various
wars including the present one in Iraq, has never received the same kind of
real time, on the ground pressure to protect civilians as Israel gets every
time it sends troops into a Moslem area. And, as far as I know, it has never
tried to do so. During the last “good” war, World War II, there was no concept
whatever that civilian populations were an inappropriate military target;
wholesale bombing of German cities included some, such as Dresden, which had no
military installations or war-related industry whatever. While actions such as rounding up and
executing civilians were regarded as war crimes, no special attempts were made
to protect civilian populations during street to street fighting in the
invasion of enemy cities. As a moral basis, everyone was aware that the Germans
had actually chosen Hitler and the Nazis in the nation’s last democratic
election, supported him with their lives, and never made any mass effort to
overthrow him. All of these considerations are also true in Gaza, where the
people voted for Hamas.
Israel, remarkably and without
receiving any international credit, has gone so far as to make calls to
hundreds or thousands of Gazan cell-phones, warning families in targeted areas
to evacuate, as well as dropping the more traditional leaflets. Hamas fights
from civilian areas, and there is no way to combat Hamas without large-scale
violence to these neighborhoods. In that context, Israel seems to be doing the
best it can to limit civilian casualties.
If it emerges that the extended
family whose members were first concentrated in one house, then shelled, were
attacked deliberately, that would be a war crime. It is much more likely that
it was just one of those fog of war incidents which happen every day even in
the justest of wars.
The way to avoid civilian casualties
is to negotiate solutions which avoid or end wars and are fair to all parties.
War, once it happens, will always be a bloody mess; anything else is a
delusion. No-one can argue in fairness that a nation should refrain from war, no
matter how bloody and violent the provocation. What is outrageous about most
criticism of Israel’s Gaza incursion is that it presupposes that the Israelis
have an obligation to tolerate shelling, rockets and suicide bombers, all of
which are official acts of Hamas. Some commentators have even pointed out how
ineffective the Hamas rocketing and shelling was, as if Israelis have an
obligation to tolerate being murdered as long as it does not reach a certain
level.
However, the incursion seems to be
shading over from a limited counter-attack with specific goals to a potentially
open-ended occupation of Gaza. That might not be a crime, but it would be a
mistake. Hamas would delight in and thoroughly exploit the opportunity for a
long war of attrition, like the one Hezbollah fought against the Israelis in
Lebanon or the Algerians versus the French.
The Israeli flight from Lebanon after nineteen years’ occupation, and
its confused re-invasion of that country in 2006, substantially undercut
Israel’s deterrent in the region.
Enron
I like to feel that the Spectacle has touched on most of the
significant controversies of the time, but one I missed was the Enron scandal,
probably because most of it played out right after the September 11 attacks,
when I had other preoccupations.
I just watched a fine documentary,
“Enron: the Smartest Guys in the Room”. While booking nonexistent or inflated
transactions to keep the stock price up is a common feature in worldwide
business fraud, one action of Enron’s which was completely unique outside a
third world country was the deliberate institution of the rolling black-outs in
California to drive up the price of electricity. This is capitalism at its most amoral, and failure of the “invisible
hand” at its most obvious. California had deregulated its electricity market a
few years before, opening the way for this piratical behavior. Naturally, even
while their traders were calling power plants and requesting that they shut
down while reporting phony failures, Enron management was blaming the remaining
wholly ineffective government regulation for the problem.
This is a classic cycle which seems
to occur in every business emergency. 1. Powerful businesspeople, funneling
contributions to favored politicians,
prevail upon government to deregulate an industry. 2. The salespeople go
apeshit, selling fraudulent stocks/loans/mortgages, etc. with the people above
them egging them on or turning a blind eye. 3. The bubble collapses. 4. Those
who caused the problem blame the remaining ineffective stub of government for
the disaster.
Invisible hand theology, as argued
by earnest young Libertarians who really believe what they are saying (smart
people made blind by ideology), holds that businessfolk unfettered by
regulation will always take the long view and will never do anything so stupid
as cheating or exploiting their customers, the public and the government
because that would result in putting themselves out of business. Well, where is
Enron today?
Commission and bonus-based systems, where
everyone from the CEO on down to the front line traders, gets paid for churning
business and elevating the stock price, bear responsibility for the short view
everyone seems to take during a bubble. Enron traders got paid for driving up
the price of electricity, mortgage brokers got paid for slamming in deals no
matter how shaky, and their CEO’s get paid for the cumulation of all this
dishonest activity. “Everybody has his reasons”, and businessfolk at the height
of a bubble seek comfort, both in their private moments and public utterances,
from rationalizations like, “The price of housing can never go down,” “Internet
stocks will continue to rise based on faith in the technology, and we will
figure out how to make profits later,” or in Enron’s case, “we are the smartest
guys around.”
Of course, a common background to
all such emergencies is a lack of public morality, and a government willingness
to allow private companies to manage matters of critical public importance like
electricity supply (health care is another broken example).
My involvement with investment
bankers during the Internet bubble provides me with some personal reasons to
think that all Wall Street wizards are essentially pirates, who behave with
restraint only when government forces them to. A banker at a staid, ancient
firm steered us a public company which wanted to buy us for stock. While we
decided whether to take the very attractive offer, the banker wandered into my
office and looked at my CD’s. Wed had a strange little male bonding moment,
discovering that were both fans of Talking Heads. This somehow caused him to issue a coded warning he didn’t have
to: He looked me in the eye and told me quietly that the acquirer’s stock
“should stay good through the end of the year. Do you understand me?”
He was wrong; the company was buying
too many firms too quickly and not auditing them well enough, and its stock
cracked a few weeks later and was ultimately delisted. We had decided not to do the deal, partly
based on the warning. Had the deal gone
through, the banker would have made a nice commission. His warning to me, while
it revealed that he had a couple of scruples, reveals an astonishing amoral
backdrop: he was at that moment in the business of finding acquisition targets
for a company he knew was going to crash; and he threw a bone to his own
unusual internal moral watchdog by inviting me to become a pirate with him:
sell my company but pull my own money out by the end of the year (while
throwing my employees, possibly even my partners, to the wolves).
A coda to that story: both the
century old private banking firms we were close to sold themselves to
commercial banks within a year or so after, as the Internet bubble deflated.
Its hard to prove, but I believe a
substantial percentage of the bankers who crashed their companies and careers
in the past few years knew that the product was shit, but assumed the prices
would stay up a day longer than they did. Timing is so difficult. Personally, I
don’t engage in any activities which require precise timing, from dancing to
day trading.
Retirement
The saddest part of the Enron story,
beside that of the people killed or harmed by the black-outs, was the huge
number of company and subsidiary employees whose 401k’s were wiped out. In the
documentary, one line employee of a utility owned by Enron explains how all
accounts were frozen when the stock dropped below thirty-two, and not reopened
until it hit nine dollars. Another employee recounts how at its height, he had
more than $300k in his retirement account, which ultimately declined to just
$1200. The Enron fraud affected not just current employees, but a large number
of people already retired and living in large part on their retirement account
returns.
Of the Bush administration’s horrible
initiatives, one that did not come to pass because it ran into even Republican
opposition was social security privatization. This would have created one more
potential target for the pirates, as well as vast masses of collateral damage
in any recession like the one we are experiencing.
The almost universal replacement of
pension plans by individually managed 401(k)’s
has already created a similar mess. While pensions themselves are not
invulnerable—companies have been known to loot their own pension plans, or
simply file for dissolution and stop paying retirees, witness the situation of
the automakers right now—privately managed accounts have created a higher level
of opportunity for the pirates. A
fascinating clip from the Enron documentary shows the president advising
employees to put their 401k’s entirely into Enron stock, at a time when he was
busy selling his own. Of course, brokers more fraudulent than the norm have
persuaded none-too-sophisticated investors to put 401(k) money into inappropriately
risky transactions. Today, we are seeing a case study of what happens even to
careful 401(k) investors who diversified and invested cautiously.
I am one. I left my employer in 1999
with $240,000 in my 401(k), which I rolled over into an individual IRA in a
huge, respected mutual fund company. I worked out an allocation between stock
and bond funds which was fairly cautious, and which did not place more than ten
or fifteen percent of the total in any one fund. I bought no individual stocks
at all. In the next six years or so, my account grew to $440,000 at its height.
Today, almost the entire gain of the last ten years has been stripped away and
I am back almost where I started. I did nothing wrong, but my ability to live
in retirement is terribly threatened—by the behavior of the pirates, which I
did not participate in or endorse.
Retirement savings, like social
security, is too important a matter of public policy to leave to the tender
mercies of the pirates.
Vocabulary
One more interesting insight from the
Enron documentary: CEO Ken Lay in a series of appearances. In one, he tells
financial analysts that the “fundamentals” of Enron are good (that word again!)
In another, he tells a Congressional committee that he can’t be held
“responsible” for things he knew nothing about. This theory of responsibility,
coming from a chairman/CEO, is astonishing; the person at the top of the
organization chart should be responsible for whatever happens, regardless of
whether he instigated it or knew about it. Isn’t that the reason for org
charts, to know who is responsible? If Lay wasn’t, nobody is, and we are back
to the theory of the responsibility “buck” passing everywhere at light speed,
and becoming a quantum particle.
Hamas and Al Qaeda
Young, progressive, big-hearted people
around the world, agonizing over the Israeli incursion into Gaza and the
heart-breaking photographs of injured and dead children, might profitably ask themselves what the
difference is between Hamas and Al Qaeda? Not much, as far as I can tell. Both
are Sunni fundamentalist terrorist groups which use suicide bombing of
civilians as a central tactic. Both believe that any act of violence is
acceptable in support of their goals—the torture, kidnapping, and murder of
civilians including women and children. There are small pragmatic differences;
Hamas has avoided killing Americans and Europeans, who are favored targets of
Al Qaeda. But Hamas’ avoidance to date
of attacks on Westerners is not founded in any deeply held belief; it’s close Shi’ite
cousin in Lebanon, Hezbollah, may have
been involved in the bombings of the US embassy and marine barracks in Lebanon
in the 1980’s, and has more recently been accused of (and apparently taken
credit for) training insurgent forces in Iraq to attack American troops and
even direct participation in some attacks. Both Hamas and Hezbollah are Iranian
proxies, and the Iranians hate us and will promote whatever harm they can
inflict remotely while maintaining deniability. Hamas will avoid alignment with global Sunni fundamentalist
terror goals for exactly as long as it thinks it is more likely to win in
Palestine by staying local and leaving Americans alone. Also, please don’t forget that the parents
of those wounded and dead children voted for Hamas in parliamentary elections
and have allowed them to use their civilian neighborhoods as military bases and
launching places for rockets and mortars.
White phosphorus
The allegation that the Israelis are
using white phosphorus in their military operations in Gaza is highly
disturbing. Phosphorus is used to create intense smoke clouds to cover
operations (“obscurant” is my new vocabulary word of the day). As such, it is
legal under international law. Used for the purpose of burning people,
particularly civilians, it becomes an illegal chemical weapon.
Apparently it is well known that
Israel used phosphorus in Lebanon in 2006. Today, Gazan civilians are
describing a substance that burns for hours and can’t be extinguished by water,
and doctors are reporting bone-deep burns of a type they have never seen
before. Israel at first denied using
phosphorus, but now has modulated its response to say merely that all its
munitions are legal under international law.
Gaza is an extremely densely settled
area packed with civilians. Israel
should not use phosphorus for any purpose on such a battlefield.
I am also startled by the lack of US
reporting on this story, other than on CNN. Unless I missed something, the only
mention in the Times since the story
broke has been a denial many paragraphs deep in an article reporting other
developments in the incursion.
Being married
I love being married, having a life
partner share my days, happiness and worries.
We might have continued living together as we did for four years. We got
married in 1988 and celebrated our 20th anniversary recently. The
legal state of marriage permits two people to assure each other they are fully
dedicated to one another and holding nothing back; it has tremendous symbolic
importance. It also is a legal back-up for things you might forget , like a
will, and gateway to things you can’t otherwise give your partner, like health
insurance or your pension. I love all these aspects of marriage so much
that I want everyone, including same
sex couples, to have the same joys my wife and I have had.
Failed hopes
Among the most optimistic
developments in my lifetime were the decisions of two powerful authoritarian
governments not to exist any more: South Africa and the Soviet Union. On the
long list of future projects for the Spectacle
has been (for fifteen years) a study of the circumstances under which
governments which survived by murder and torture decided to go gently into that
good night.
I never knew which of two dueling
theories to endorse. I leaned towards an idea, which I have haltingly expressed
in the Spectacle a few times, that
humans have an innate tendency towards peace, co-existence, democracy and
reason. On the other hand, there are
those who, without such confidence in human nature, advocate for economic and
demographic theories which are much more mechanistic and even brutal in
character: the Soviet Union went broke, or the South African ruling class
recognized that given comparative birth-rates of blacks and whites, the future
was quite hopeless without an accommodation. And then there is the never-ending
song of Memetic Capitalism, that people everywhere will, given access to the
right bit-stream, want to listen to the White Stripes or drink Red Bull.
Among the possible proofs of my human
nature theory are certain developments in Iran, which in the years since the
revolution, while continuing to be dominated by mullahs, has developed a large
liberal middle class, seemingly desirous of settling down as a middle of the
road democracy, or as middle of the road as a devout Islamic society can
be. A proof of the memetic capitalism
theory is the fate of China, which continues to be run by ostensibly Communist
autocrats who encourage getting and spending.
A severe blow to my confidence in human
nature was dealt by the present day circumstances of the former Soviet Union
and South Africa. In the latter, which at least is a functional democracy,
people of immense ignorance are in charge; the man about to become president
was tried for raping an AIDS patient under his protection; admitting
intercourse, he described showering afterwards to avoid infection. Under his
predecessor, AIDS spread rampantly as the government officially denied the link
between HIV and AIDS. And the
desperately poor people in places like Soweto are still desperately poor, and
inclined to riot and murder the even less fortunate immigrants among them from
even poorer, more desperate places.
By contrast, Russia has completely
failed as a democracy. Putin, the ex-KGB man, is well on his way to ensconcing himself as president for life;
industry, utilities and energy companies are being nationalized again, or
seized and handed over to the nominal control of individuals acting under government
direction; the peaceful democratic opposition has been co-opted, jailed or
driven from public life, and the remainder can’t even rent a hall to hold a
rally; and adversaries of government, economic, political or even journalistic,
are more likely to be mysteriously murdered than at any time since Stalin. If
forced to live in Russia in some kind of science fiction Hobson’s choice, and
offered only two alternatives, the eras of Kruschchev or of today, would you
not seriously think of choosing the former? He was a lot less brutal and ambitious
than Putin. What we have in Russia
today is the resurgence of Stalinism without the ideology.
Isaiah Berlin said, “Out of the
crooked timber of humanity, no straight thing was ever made.”
A plane in the Hudson
The amazing story from a few days
ago of the calm, confident pilot who landed his plane in the chilly Hudson
River without losing a soul, feels like a throw-back to the 1950’s. You have
the impression that the man, in his fifties, had waited his whole life for a
test like this, and when it finally was administered, he aced it: made every
correct decision, flew in the right direction at the right velocity, and
without engine power glided the plane to the water with the nose up, landing on
the river as if on tarmac, avoiding
flipping the plane, tearing the wings off or throwing the passengers aroundlike sacks. He even stayed
behind in the plane, checking it twice (twice!) for panicked, hidden
passengers, while everyone else was on the wing, being rescued.
The 1950’s was the era of a
perceived Cool White Gray-haired Male Competence of a type that was completely
exploded in the Vietnam era and exists not even in fragments in the Age of
Sub-Prime Mortgage Securitization. I would love to see this pilot as a modern
archetype, but he would have to elbow out the following:
The Latin American pilot who
confused the three letter acronym of his destination with that of another city,
mis-set the autopilot, and sat back
complacently as the computer flew his plane into a mountain, killing everyone
aboard.
The Egyptian pilot, deadheading home
aboard someone else’s flight and admitted to the cockpit as a professional
courtesy, who left alone there for a moment, took the stick and dived the plane
into the ocean, shouting “God is great!”, and killing everyone aboard.
The commuter train engineer in
California, who was so busy sending text messages to teenage acquaintances that he crashed the train into another one,
killing himself and many passengers.
“Out of the crooked timber of
humanity, no straight thing was ever made.”
Frauds from the woodwork
When Bernard Madoff was exposed,
various pundits made the prediction that he would be the first, and not
necessarily the largest, of a series of cheaters exposed as the economic tide
sinks ever lower. Ponzi schemes flourish in good times, and run out of money in
bad ones.
While no-one bigger than Madoff has
yet been exposed, we have had a couple of other enlightening stories. The first
actually happened a few days before him, was overshadowed by him and disappeared
from the papers quickly. This was the famous, well-respected founder of a 250
person law firm, who as an apparently insane avocation, was using other
people’s business cards to sell millions of dollars in forged commercial paper
to hedge and pension funds. His very reputable law firm dissolved overnight
after his arrest.
More recently we had the story of
the Indiana annuity millionaire, who attempted to fake his own death with
complete incompetence (what a contrast to the Hudson pilot). He radioed from
his small private jet that the windshield had imploded, then parachuted out.
What was supposed to happen: the jet would fly on autopilot to the Gulf of
Mexico and ditch, and would never be found. In reality, it ran out of fuel, and
crashed on land—but with the windshield intact! (Just one of those exquisite
“God must hate me” details.) In the meantime, the fugitive, in a real Murphy’s
Law nightmare, soaking wet, got a ride to a local motel from a cop, was seen
running from there into the woods wearing a black cap and (most remarkably of
all) retrieved a garish red motorcycle from a local storage facility and rode
it to Florida. He was arrested at a
commercial campgrounds after the manager got a phone call from local law
enforcement asking if anyone unusual was on hand.
The focus of the Madoff story,
meanwhile, is switching to the feeder funds, people like Ezra Merkin who
solicited billions of dollars of business on the strength of their own names
and reputations, often promised careful, detail oriented management and
accounting, then simply handed the money over to Madoff. While I feel sorry
even for those people naïve enough to hand their entire net worth to Madoff
himself, imagine the rage of those who lost everything but had no idea they
were investing with him. One of the New York educational institutions which
relied on Ezra Merkin (a classmate of mine from law school whom I vaguely
remember) had vetoed a Madoff investment, but that’s where their money
allegedly ended up anyway.
The outcome in Gaza
Talleyrand remarked of the murder of a
pesky Duke that it was not only a crime, but a mistake. The Gaza incursion in
my opinion was not a crime, but may well have been a serious error.
Even while the Israeli government
congratulates itself for a victory, Hamas members are emerging from hiding,
more defiant—and popular—than ever; their ability to fire rockets has been
compromised for now, but certainly not ended; the abducted Corporal Gilad is not free; the Arab street is more
enraged than ever; and Arab ruling parties everywhere at peace with Israel,
including Fatah in the West bank, have been undermined.
I’m having a really hard time
detecting the differences between this incursion and the 2006 invasion of
Lebanon, which is now widely viewed, even in Israel, as a symbolic victory for
Hezbollah. As with all guerilla and terrorist groups, the universe skews
towards Hamas in certain ways; like Hezbollah, they win by merely surviving,
while the criteria for Israeli victory are far more demanding.
What did Israel accomplish? There
will be a few less rockets for some months. The smugglers’ tunnels under the
Egyptian border are already being re-dug. Moderates and any remaining
apolitical people in Gaza have been radicalized.
This suggests to me that the agenda
for the incursion was entirely internal: for a weak government to show its
people that it can still fight , after 2006; and possibly an even more sinister
agenda, of ending any remaining hope for a two state solution. The news, barely
reported in The Times, that the
Israeli election council has just disqualified the Arab parties from fielding
candidates, along with the continuing radicalization of the Arab citizenry of
Israel, underlines the essential and possibly fatal contradiction inherent in
the operation of a Jewish state with Arab citizens.
As I have said several times before,
if I had been a member of a hypothetical group, voting whether to create Israel
in 1947, I believe I would have voted against the idea, on the grounds that it
would not add to the security of the Jewish people or promote world peace. And
it hasn’t. There is no clear end in
sight for Israel’s perpetual status as a beleaguered, problem country, and a
head-ache for its friends.