Category Archives: Deeper Thoughts / Think Pieces

Living Inside the Whale, Part II

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Words matter.  Ideologies matter.  The trend of both, for the last thirty years at least, has been to push us ever further inside the whale.  Leftists of all stripes are to blame, but they have no more willing footsoldiers than the media and academia.

Colleges, as I’m sure you know, preach almost exclusively the idea that reality itself is “socially constructed.”  It goes by various names — “postmodernism” and “deconstruction” in Literature, “postcolonialism” and “new historicism” in History — but it’s basically the same idea: That reality, like history, is written by the victors, and thus there are no facts, only perspectives.  This notion, while claiming to be neutral, in fact lionizes any group or idea that attacks Western civilization; Western civilization being, of course, the one “perspective” that is decidedly not neutral or shaped by outside forces.  Those who hold this position are impervious to scientific fact, and incidents like the Sokal Hoax, which would be devastating to any intellectually honest scholar, are shrugged off.  Not coincidentally, this perspective is entirely caught up in radical “progressive” politics; even less coincidentally, such “radicalism” provides many lucrative faculty posts for otherwise unemployable “intellectuals.”

The key concept of postmodernism / new historicism / whateverism is “agency.”  Here’s Wiki:

In the social sciences, agency refers to the capacity of individuals to act independently and to make their own free choices. By contrast, structure are those factors of influence (such as social class, religion, gender, ethnicity, customs, etc.) that determine or limit an agent and his or her decisions. The relative difference in influences from structure and agency is debated – it’s unclear to what extent a person’s actions are constrained by social systems.

Given the political cast of the types of people who “edit” Wiki, it’s unsurprising to encounter an old, familiar weasel-word formation:

it’s unclear to what extent a person’s actions are constrained by social systems.

It’s not at all unclear, of course, to the people who throw around words like “agency” in casual conversation — heterosexual white male Westerners have agency unreservedly; all others have it only insofar as they exercise their will against heterosexual white male Westerners and all their works.

By embracing this worldview, academics have — in addition to providing themselves with endless, highly compensated opportunities to preen in public– dedicated themselves to the suppression of their own culture and society.  It could hardly be otherwise; it’s immoral to continue to benefit from systematized oppression without at least making your freshman seminar students write a few self-criticisms.  More importantly, it’s morally wrong not to strive for the equalization of power, for “social justice.”

Just so we’re clear:  Yes, I am asserting that the entire academic leftist worldview is based on a naive moralism more appropriate to Sunday school than graduate school.

But credit where credit’s due; it’s a consistent moralism.  If we embrace the notion that only heterosexual white male Westerners (hereafter, “The Patriarchy”) have unconstrained agency, then the key to achieving “social justice” must be to get The Patriarchy to constrain itself.  Hence the weird, mangled, euphemistic English of the academic/journalistic left.

Examples are legion.  As I’ve noted elsewhere, “gay marriage” has nothing to do with the solemnization of homosexual unions.  We could grant gays the same “civil rights” as straights in five minutes, by getting the state out of the marriage business altogether.  But the left would never take that deal, because “civil rights” were never the goal; the goal is to empty the word “marriage” of its sacramental context.  People get together; people drift apart; we’re all just plankton in the vast ocean of Society, knocking together aimlessly as we float along through life.

So, too, with “science,” which in left-speak means something like “the exact opposite of science as traditionally understood.”  Here’s the data; here’s the model.  The data don’t fit the model?  Change the data.  This is standard procedure for everything from IQ scores to Global Warming.  Trust the “experts,” because science.

The list goes on:  “Free markets” (systematic exploitation).  “Rights” (the aesthetic preferences of the loudest and most intransigent).  “Religion” (fundamentalist Christianity as it existed in the worst excesses of the Inquisition).  As Morgan points out, the net effect of this is to produce a class of people who are proud of their imperviousness to facts and reason.

Their operating credo seems to be one of, “You might as well come around to my way of thinking, for I shall never, ever, ever come around to yours.”

They’re inside the whale, and they’ve designed an entire alternative communication system to guarantee they stay there.  For the first time in modern history, it’s now possible for non-aristocrats to move from adolescence to adulthood to senescence with one’s opinions entirely unchanged.  The difference between the dreadlocked, tattooed, nose-ringed fortysomething in line at the farmer’s market and her dreadlocked, nose-ringed, tattooed daughter is literally the date on their birth certificates.

Living Inside the Whale

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George Orwell wrote an essay called “Inside the Whale.”  It’s mostly a discussion of the works of Henry Miller, then very trendy and banned for sale in the United States because of obscenity.  Towards the end he comments on Miller’s use of whales as metaphors, and pens this startling passage:

For the fact is that being inside a whale is a very comfortable, cosy, homelike thought. The historical Jonah, if he can be so called, was glad enough to escape, but in imagination, in day-dream, countless people have envied him. It is, of course, quite obvious why. The whale’s belly is simply a womb big enough for an adult. There you are, in the dark, cushioned space that exactly fits you, with yards of blubber between yourself and reality, able to keep up an attitude of the completest indifference, no matter what happens. A storm that would sink all the battleships in the world would hardly reach you as an echo. Even the whale’s own movements would probably be imperceptible to you. He might be wallowing among the surface waves or shooting down into the blackness of the middle seas (a mile deep, according to Herman Melville), but you would never notice the difference. Short of being dead, it is the final, unsurpassable stage of irresponsibility.

And follows it shortly with this:

Almost certainly we are moving into an age of totalitarian dictatorships—an age in which freedom of thought will be at first a deadly sin and later on a meaningless abstraction. The autonomous individual is going to be stamped out of existence. But this means that literature, in the form in which we know it, must suffer at least a temporary death. The literature of liberalism is coming to an end and the literature of totalitarianism has not yet appeared and is barely imaginable…. But from now onwards the all-important fact for the creative writers going to be that this is not a writer’s world. That does not mean that he cannot help to bring the new society into being, but he can take no part in the process as a writer. For as a writer he is a liberal, and what is happening is the destruction of liberalism. It seems likely, therefore, that in the remaining years of free speech any novel worth reading will follow more or less along the lines that Miller has followed—I do not mean in technique or subject matter, but in implied outlook. The passive attitude will come back, and it will be more consciously passive than before. Progress and reaction have both turned out to be swindles. Seemingly there is nothing left but quietism—robbing reality of its terrors by simply submitting to it. Get inside the whale—or rather, admit you are inside the whale (for you are, of course). Give yourself over to the world-process, stop fighting against it or pretending that you control it; simply accept it, endure it, record it.

That was written in 1940, but a more apt description of the state of affairs in 2013 is hard to imagine.

I’ve been thinking a lot about Orwell’s essay lately.  My significant other, for instance, takes Time magazine.  Our edition had this cover:

g9510.90.50_malalaB.inddThat’s Malala Yousafzai, a Pakistani girl Time proclaims “one of the 100 most influential people in the world.”  And her story is inspiring, except….  well, here’s Wiki:

On 15 October 2012, former British Prime Minister Gordon Brown, now the United Nations Special Envoy for Global Education, launched a petition in Yousafzai’s name and “in support of what Malala fought for”…

The petition contains three demands:

  • We call on Pakistan to agree to a plan to deliver education for every child.
  • We call on all countries to outlaw discrimination against girls.
  • We call on international organizations to ensure the world’s 61 million out-of-school children are in education by the end of 2015.

Anybody notice anything missing there?  How about here:

As of 7 November 2012, Mullah Fazlullah, the cleric who ordered the attack on Yousafzai, is based in eastern Afghanistan where he was confirmed to be in hiding according to ISAF sources in Afghanistan. An ISAF spokesman stated Fazlullah was not being tracked by US forces since he was viewed as an “other-side-of-the-border problem” and was not involved in operations against American or Afghan interests

Or here:

The Taliban have been clear in their response to the assassination attempt in that they will continue to target her, despite her survival, with a spokesman saying, “The attack was a warning to all youngsters in the area that they would be targeted if they followed her example.”

In other words:  Absolutely nothing has changed.  The UN’s “I am Malala” petition has had, as of this writing, exactly the same impact as every other UN petition regarding that part of the world, i.e. none.  The Mullah who ordered up her assassination is still at large and making statements.  The Taliban are still determined to kill her.  Pakistani girls are still stoned for trying to go to school.  If you take away all the troposphere warming from Gordon Brown’s hot air and the millions of kilojoules expended by liberals worldwide patting themselves on the back for signing (or, at least, thinking about signing) the petition, the net effect of all this on the world has been… zero.

And she’s one of the most influential people in the world.

Or consider this story, again from Time, profiled at Ace of Spades (Ace link).  As Ace explains it, Time strongly implies that because Boston Bomber Tamerlan Tsarnaev was a boxer, and could therefore have been suffering from chronic traumatic encephalopathy, his similarly radical brother could’ve been also.  The magazine’s “Healthland” article concludes

While none of this likely would have deterred Tsarnaev, it might be used to diagnose other people at risk of explosive CTE-related violence and stop them before they act out. By treating a single person’s wounded brain, doctors could one day save uncounted other lives.

leaving it to our imaginations to supply the mechanisms by which Tamerlan’s CTE-inspired violence rubbed off on his brother Dzhohkar.

Meanwhile, the New York Times (h/t Ace) muses on “the complexities of online identity — of the ways in which people strike poses and don masks on the Web (which can sometimes turn into self-fulfilling prophecies), and the ways in which the Web can magnify or accelerate users’ interests and preoccupations.”

Given the layers of irony, sarcasm and joking often employed on Twitter, it can be difficult to parse the messages of a stranger. Yet some of them can seem menacing or portentous, given what we now suspect: “a decade in america already, I want out,” “Never underestimate the rebel with a cause” or “No one is really violent until they’re with the homies.” But others suggest a more Holden Caulfield-like adolescent alienation: “some people are just misunderstood by the world thus the increase of suicide rates.”

Ah yes.  Just your normal alienated adolescent, with a prod from “the complexities of online identity” — except, of course, that this version of Holden Caulfield went on to murder people.

Time Magazine and The New York Times are hugely influential publications, with readership in the millions worldwide.  They are using this influence to push us all further inside the whale.  By pretending that Malala Yousafzai is influential, that Dzhohkar Tsarnaev was a typical alienated adolescent, that Tamerlan Tsarnaev turned violent from a knock on the head, they urge us to lay back and accept the inevitability of Islamic radicalism, of international terrorism, of random violence perpetrated by people we invited into our country and nurtured with our welfare dollars.  

The stark fact remains:  This particular act of violence — the Boston Bombing — could have been prevented.  Not by better cops, or more security cameras, or, God help us, with stricter gun control laws, but by a better immigration policy, e.g. literally any other policy than the one we have now.  The Russians repeatedly warned us about these guys.  The FBI investigated them back in 2011.  And yet, not only did we give them money in the form of welfare, we granted one of them American citizenship.  While he was on welfare.  After being investigated by the FBI.  And after repeated warnings from the Russians.

In any rational society, any one of those facts would have protestors out in the streets.  In America, though, we have our leading organs of influence urging us to calm down, lay back, and enjoy the blubber.

The Internet, Solipsism, and Socialism

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So the Left are being their usual classy selves at the death of Margaret Thatcher.

Whenever a liberal passes on, of course, we’re instructed by the media and leftwing blogs (BIRM) that treating the deceased with anything less than unqualified deference is beyond the pale of humanity.  When I pointed out this brain-bursting hypocrisy to a Facebook acquantance, I got back a reply that said, in effect*

But Margaret Thatcher was a hateful old bitch.  I’d tell her that to her face.  Plenty of people on both sides say they’re glad when somebody or other dies.  Get over it.

Ahh, the ever-tolerant tolerance of Our Betters.  I was inclined to dismiss the whole thing as typical lefty class, especially the trollish flexing of the beer muscles (sure you’d tell Lady Thatcher to her face that you considered her a hateful old bitch.  Sure you would).  But then it got me thinking: no wonder these people are socialists.  Vile, hateful biliousness is a feature, not a bug, of the community-based reality.

I started trying to enter the headspace of my FB interlocutor.  Since my momma raised me right, my first reaction at the thought “I’m glad Hillary Clinton (say) is dead!” is guilt.  I bet I would disagree with every opinion Hillary Clinton has ever held.  I certainly think the American political landscape would be better off without her, and it would’ve been even better had she taken up needlepoint or something as a hobby instead of communism.  I might even — I confess it, I’m no saint — consider Hillary Clinton to be, in my FB interlocutor’s words, a hateful old bitch.

But… glad she’s dead? No.  I’d feel horribly guilty for even thinking that, even for a second.**

But let’s say I had that thought.  Worse, that thought somehow got out — somebody heard me express it.  My reaction here is shame.  It’s a shameful thought, and I’ve done damage to my soul for even thinking it.  And now everybody can see that damage.

But let’s say I double down and broadcast the thought far and wide, because hey, it’s my FB acquaintance who heard me say it.  Tit for tat, dickhead.  But…. here again I feel shame, because now I’ve not only doubled down on an unworthy emotion, I’ve told the whole world that this is where I’m staking my ground.  This is the rhetorical hill I’m going to die on, and if you disagree with me, fuck you too.

I can’t see that situation ending in anything other than me feeling horrible about myself, and in need of a long stretch of soul-searching.  And those are the emotions I’m supposed to have.  Morality aside, the kind of society which reacts to an enemy’s death with open, unrestrained glee is one that very quickly makes its peace with – if it doesn’t actively encourage– vendettas and clan feuds and secret police and reeducation camps.

Consider my FB buddy’s motives.  He wanted, expected, and received affirmation for expressing the thought “Margaret Thatcher was a hateful old bitch and I’m glad she’s dead.”  This is the face he wanted to present to the world, and he expended effort cultivating a network of people with the same values.

Consider who Margaret Thatcher was.  Whatever your opinion of her administration — and, unless you’re a scholar of very recent British history, it’ll be misinformed — the chances that she, personally, did anything that materially affected my Facebook buddy’s life are nil.  Sending troops to the Falklands and calling Nelson Mandela a terrorist might be things to disagree with — or maybe not*** — but to assume they make any meaningful difference to one’s daily middle-class life in 21st century America is a Kim Jong Il-esque level of delusional narcissism.

Finally, consider the –to me– frankly bizarre and awful justification my interlocutor offered:  “Everyone on Facebook does it; get used to it.”  That’s where vitriol is a feature, not a bug, of socialism.  If man’s being is purely social — a leftist canon — then the only possible arbiters of proper behavior are The People and The Government.  Which incentivises frankly antisocial attitudes — “good” behavior is whatever gets you what you want, and you can take as much as “soceity” lets you until Congress finally passes a law preventing it.  In fact, you’re a fool not to, since all the other hogs will be scrambling for their places at the trough.  That’s why I, personally, was so upset at that Sandra Fluke slut — if I’m paying for her birth control, then you’re fuckin’ A right her vagina is my business.  She made it that way.  It’s a race to the bottom; last one down pays the tab.

This is what the left’s particular solipsism leads to.  And the internet enables it.

 

 

*summary.  As this was a friend of a friend, I can’t see the original

**and for the benefit of our Orwellian state security apparatus:  I have never met Ms. Clinton, have no plans to meet her, and bear her no personal animus.  I sincerely hope she lives a long, happy life…. in total obscurity.

*** Mandela was the leader of a terrorist organization which committed a lot of terrorist acts during his tenure.  This, by liberal logic, constitutes “not a terrorist.”

Political Theoriezzzzzzzz…….

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Confession time:  I don’t have much of a political philosophy.  I spend orders of magnitude more time thinking about what to have for lunch than where I stand on the nature of the state.  I don’t think I’m alone in this.

Put simply, that kind of thing bores me to tears.  Confronted with a paragraph that opens like this

We suspect that an intramural disagreement among conservatives has confused Tanenhaus about Calhoun’s influence. For many years a group of conservative scholars led by the brilliant Harry Jaffa have contended that the Constitution must be read in light of the moral principles of the Declaration of Independence

I reach for the rum.  When the authors follow it with this

While Tanenhaus does not mention Jaffa, he seems to have exaggerated Jaffa’s insults. If that is what happened, one irony is that Jaffa’s views have largely prevailed among mainstream conservative intellectuals, who are far more Lincolnian in their thinking about the Declaration than they were before he began writing

I start casting around for something much, much stronger.

Which is not to say I’m incapable of handling an intellectual argument, or even that I don’t enjoy them from time to time.  But my brain just doesn’t run in these channels, and I’m curious as to just how many people’s brains do.  If politics is show business for ugly people, then arguing about political theory is…. what?  Chess for guys who aced their SAT verbals but didn’t pass pre-calc?

Part of me doesn’t want to be as snarky as that last comment.  But part of me wants to be much, much harsher.  The more I observe political behavior in this country, the more convinced I am that intellect has about as much to do with it as it does with being a sports fan.  Nobody has a theory about baseball*; you just watch the games and wear the hats and hate the Yankees like all good red-blooded Americans.  Politics is similarly limbic — I doubt if either of the candidates for president last year could pick John Locke out of a police lineup in under three tries, to say nothing of the legions of ward heelers and phone-bankers and envelope-stuffers and sign-wavers that actually make elections go.  This is angels-on-pinheads stuff.

Ironically, it was Jonah Goldberg himself who pointed me to the fundamental distinction between anti-state and anti-left conservatives.  I’m one of the latter.  States change either glacially or violently; my opinion on the Constitution, even assuming I had a fully-formed and airtight one, extends exactly as far as my own personal sphere of influence.  I can’t even get my dog to stop barking at the mailman.

The main — the only — problems in American politics these days are psychological.  The state is in the fix it’s in because there’s a certain virulent form of douchebaggery, called liberalism, that parasitizes the personalities of impressionable citizens.  It causes them to vote as if they can sidestep reality with the sheer flower power of make-believe.

That’s where all the right’s intellectual energy should be focused.  Let’s get a majority of the country to recognize that “a slight decrease in the rate of increase of government spending” is not the same thing as “a spending cut” — and to act that way.  Then we can start worrying about whether the Republican Party is too Calhounian, or not Calhounian enough, or whatever.

 

*except, undoubtedly, for George Will.  Which probably accounts for half the conservative movement’s intellectual problems right there.

 

 

Unmoored Part IV

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[continuation of the Unmoored series]

I made an allusion to “baiting hooks” to get people who couldn’t afford them to take out loans.  Some of it was with teaser rates.  Some of it was with balloon interest payments. No down payment.  Somewhere along the line they came up with the idea of an “interest only” loan, where you make interest payments only, never paying down any of the principal. I’d heard of these well before the crash and wondered who in God’s name would sign up for such a “deal”?  But we’re not done yet.  There were also negative amortizing loans.  Yeah. Look that one up.  Most of these look like they were designed to fail.  And maybe they were.  (Still doesn’t excuse the idiocy of taking someone up on a deal you can’t afford).

I suppose there’s one born every minute. And on Wall Street, I think many actually take pride in screwing each other over. I imagine that’s what Michael Lewis’ book “Liar’s Poker” is about.  Don’t have that one yet.  But when he brought it up in one of these other books (written from his own experiences inside of one of these firms) he meant it as a warning.

He was shocked and dismayed to find that people were using it as an instructional resource.

In “The Big Short”, he runs down character profiles for two people involved. The first guy started out as a real self-interested go-getter who came to despise the system but kept working under it just to screw over people he thought were screwing other people over.  The second was a bright introverted medical student who was bored with medicine and had a knack for researching and subsequently picking stocks in a manner that made a lot more money than anyone else was able to.  These two people end up being ground zero of an epidemic that exploded sometime in 2006.

Both were certain, after looking at the numbers of BBB loans packaged in AAA-rated packages along with a stagnant housing market and the nature of especially the ballooning and teaser rate loans, that enough of these loans would soon go bad to sour the packages. I’m not sure who came up with the mechanism … I think it was that medical student … but someone came up with the idea of Credit Default Swaps.

This one finally gave me no choice but to ask… what. the. hell?????

Suppose I was worried about my house being destroyed by fire or flood or a tornado.  Most people are concerned about these things enough to buy insurance (their lender makes them buy house insurance while they have a loan, as the lender has a vested interest in keeping your house viable for collateral).

Now insurance is about risk-spreading, and it makes sense to do it.  If, say, 1 in 500 houses will experience a disaster like this, it’s nice to be able to pay a relatively small amount a month into a pool so that if any one of your houses gets hit, the huge sums of money it takes to fix a house will be there to fix yours.  Risk spreading adds efficiency to ensuring that your investment in your home is protected.  Insurance company makes money on the surplus.  Win-win.

Credit Default Insurance, one would think upon first hearing the term, would be similar to the mandatory insurance your lender makes you have on your home to protect their interest in it. I’m not sure if anything like it existed in the market before this, but the next twist is truly bizarre.

The new mechanism allowed people to buy insurance on stocks in which they had no vested interest in the first place.

It would be as if I took out fire insurance on YOUR house.  And I don’t mean buying the insurance on your behalf.  I’m the beneficiary if your house burns down.  Talk about a conflict of interest.

This completely decouples the risk from the reward as far as the original loan transaction is concerned, and even as far as the sale of packaged mortgages were concerned.   I didn’t make the loan, I didn’t buy the package, but I get money if the package goes belly up (if I rember right, they even came up with a way to get the money as the individual loans went belly up rather than wait for the whole package to go bad).

It isn’t risk free, but the potential payoff to investment ratio made it quite akin to gambling.  It *was* gambling.  And with a housing bubble that had clearly peaked, the odds were pretty much in your favor.  But man, how does this even enter someone’s head as an idea?

So who did they talk into insuring other people’s bonds on their own behalf?

Well, it was mainly AIG.  At first.  I guess the folks at AIG were talked into creating a product that they could sell to insure person A against person B’s risk, and they were further convinced that person B’s risk was low because the bonds were rated AAA.  And nobody at AIG stopped to think, “Hey … what’s THEIR angle?!  What are we missing?  And why are we selling so many of these things?”

If they did, all they ended up with was “selling GOOD!!!!”

So now we had people making money selling bad loans in with good loans, and packaging ever increasingly large numbers of bad loans in with those loans — and selling those packages and making a fortune.  And we had people buying lottery tickets with good odds betting that the loans in the packages would go bad, and they’d get big payoffs.  And we had people thinking they were making (well they were in the short run) lots of money selling “insurance” to that second group of people for loans they didn’t even own.

The insurance is an abstraction of an abstraction of an abstraction of an abstraction. There is no value being produced at this level. The people involved in the original loan transactions are lucky to be colored dots on a screen. It was all a game of hide the turd between financiers now.

To make matters worse, when the few people who did understand that the more bad loans, the higher the payoff from the insurance …

.. they actively scared up more bad loans to buy “insurance” on.

Now we’ve gone from sinkhole to blackhole.

If all of this had had remained private obligations between private parties with no government bailouts, it would have been bad for those people and those companies.

But millions of regular people had those companies and those bonds in their investment portfolios.

The Libertarian in me says, “well they should have looked into their investment companies’ strategies”.   Never a bad idea.  But my heart wouldn’t really be behind that statement.  The reason I go with a broker in the first place is — it’s all too complicated for me.  I don’t have the time or the inclination for it.  It shouldn’t be. But it is.  That leads to problems like this.

I myself am pretty unmoored from the underpinnings of my own investments.  I can look, and sometimes do, at the ones my broker is in charge of.  But I never look at what the company pension looks like.  I don’t have any control over that.

Still, I disagree with the government bailouts.  As Rick Santelli put it, it’s rewarding bad behavior.  Sometimes the best way to learn the permanent lesson … don’t touch a hot stove … is to get burned by one once.

[one more part coming, I think]

Unmoored Part III

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[continuation of the Unmoored series]

What value did the CDO bond add to the economy?  The argument was it allowed lower interest rates to more people so they could afford to by homes and iPods (turns out CDO’s also often had credit card debt bundled in them). And that may have some truth to it.  But I believe the cost, the tradeoff — in breaking the risk-reward relationship outweighs it. And that breakage was the incentive for their creation – the credit extension to more people was just the justification.  I don’t think Wall Street sits around thinking “how can we help out the less well off by offering them more credit?”.  Partially because human (and animal) nature has a force that draws us for the most reward for the least effort or risk. There’s nothing inherently wrong with that.  It’s the way all life works.

But the CDO did not really create a new value sink.  As I alluded, it isn’t that they are valueless to the economy, it’s that they come with social and economic consequences that outweigh the value they may add.

What they effectively create is a value sinkhole.

And some investment firms and bankers stood at the edge of this sinkhole and like filter-feeders and tried to skim as much of the accompanying abstract cash flow as they could as it spilled into the growing pit.

They had these subprime loans that loan clearinghouses created by this bond market wouldn’t buy.  How to sell them off, too?

I remember when a standard bag of sugar was 5 lbs.  Now it’s 4.  It was done to sell us less for more without raising the price of “standard” unit (by changing the standard size).  You’re hard pressed to find a 16 oz can of anything in the grocery store. 15 and a half. Packs of gum have 5 sticks in them instead of 7.  I even notice that the 12-pack bubble-packs of gum we usually buy now have 11 pieces.

So how do you get people to buy subprime loans on the bond market?

Well, someone came up with the grand idea of packaging them with prime loans and get the package rated higher than the original loans.  Watered down CDO’s. Since subprime loans historically get paid off, just not at as high a rate as prime ones … the argument was made that it the risk was still good (even though, by definition, that couldn’t be the case) and the rating companies agreed that they were still good enough to rate AAA, rated them so, and so they sold.

So now we’re not only further unmoored from economic reality (value transactions where the value remains close to the individual) … we’re being slightly dishonest.  It always starts with the white lies.

With this milestone behind them, packagers argued that the biggest risk in the subprime market was that housing prices would fall.  While that sometimes happened in this region or that, the argument was that the chances of housing prices falling all over the country at the same time was small, so they packaged disparate subprime loans from different regions and again got the packages rated higher than the individual loans were rated, and sold those.

There was an absurd assumption that housing prices would always go up.  Historically, though, that’s not true. In a little longer view of history, they tanked about 50% in the Great Depression.  That ain’t hay.

Depressions and recessions happen, and they do affect entire nations, and often other parts of the world.

The market for these bonds was good, and people were making money selling the bonds.  So they wanted more bonds to sell. So they needed more people to take out loans.  They baited hooks to entice people with less and less money into taking loans that the banks at some level probably knew they couldn’t pay back.  But they didn’t care.  They were selling the loans and making money off the bundles.  It would be someone else’s problem.

Now in a sane society, this would not work very often.  People should be brought up knowing how loans and interest work, and they should learn how to budget and learn how much they can afford to spend on a house and still do the things they want to do.  I always figure out, for every car loan I’ve taken out, my student loans, my house loan… how much the payments would be per month, added them up, and structured the term of my loan so that it fit my budget with plenty of wiggle room.

But in our affluence we’ve spoiled a few generations by not teaching them basic economics growing up, and shielding them from the consequences (risks) of their ill-advised behavior.  They don’t know the meaning of the word “responsible” (No, contrary to that stupid insurance ad campaign it doesn’t mean helping a lady across the street. That’s courtesy, not responsibility.  See, they don’t even know what it means.)  We bail them out, they get something for nothing, and they think this is the way the world at large should work.

So when somebody presents them an offer that would sound too good to be true to a responsible person — they just see it as more candy from a new daddy.  And they bite.  And then go screaming that the evil bankers took their homes away when they couldn’t afford the payments.  I’m not letting these consumers off the hook.  It’s a big problem with our culture, and it needs to be fixed.

All of this was bad enough.  But what happened next truly boggles the mind, and turned what would have been some bad private investment losses into a catastrophe that reached into the wallets of unsuspecting Main Street America.

[to be continued]

Unmoored Part II

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[continuation of the Unmoored series.]

I had a discussion a few years back with a friend where he incredulously explained that bankers created money “out of thin air”.  I had never really thought about it.  And while I utlimately realized that this was technically true, I also knew there had to be some relationship to reality.   Money is, at the bottom of it all, an exchangeable value store.  It makes it so that I don’t have to trade a plumber two chickens to fix my kitchen drain. In a very crude but useful illustration, say I fix a computer problem for a farmer, and he gives me the money he made from selling two chickens to a distributor, I take that money and give it to a plumber to fix my kitchen sink, and he uses it to buy two chickens from the grocery store.  I never touched a chicken and the grocery store doesn’t really care if my kitchen sink is working or not.

Now … if there were a static amount of money in the world, an increasing population alone would cause a problem.  The price of everything would be astronomical by now.  So clearly money needs to be created in order for all of this to work without me getting chicken feathers all over my hands.  (Chickens don’t fit in your wallet very well, either, and the feathers jam up the cash registers.)

The objection was that a banker, say with $100, makes loans for $1000 and he gets to say he has $1000 in assets. He “created” $900 “out of thin air”.

I had to think about that for a while before I found the connection to reality.  No, he didn’t create $900 of value.  He created a value sink to collect value from the people who took out the loans in the first place.  People create value, almost out of thin air, by doing things for others.  We typically call it “work”.  It turns out that most of the value in most products is not wrapped up in the raw materials so much as in the work that was done with those raw materials to make, say, a tire or an iPhone.  So people who take out loans make tires and iPhones and give some of the money they get from making tires and iPhones back to the bank to pay off their loans.

Of course, some of them might not manage their cash flow well, or get fired or whatnot, and they may not actually end up paying back that loan. Which introduces risk on the part of the lender.  So the lender charges a fee to help offset that risk, which we call “interest”.  All of this is old stuff, but we don’t usually stop to think about how it all really works.  It’s kind of strange, because money is an abstraction of value and so requires abstract thought to understand … but … at least you can see how money generally ties back to reality without too much headache.

So the pool of money expands so that a million of us aren’t fighting over the same fixed amount of money 100 of our ancestors had.  This works. There’s no perfect way to abstract value, as people value things differently. Yes, the moneychangers have an advantage and yes, they often abuse it. Life is not fair. But it’s pretty much how it’s worked for quite some time now. Banking itself is very regulated for these reasons.

Oh, but people are clever. When one lacks moral fortitude, any regulation can be thwarted by a technicality.  I’m not suggesting specific regulation upon specific regulation to try to patch up the problems with it, either. That road, after a point, tends spawn more unintended problems that the original problem caused. It is the way it is.  There are no solutions. Only trade offs.

The banking market got tightly regulated over the years, but the bond market, not so much.  So brokerages started creating packages of loans to sell as bonds, and structured them in such a way that the person buying the bond was insulated, in large part, from the risks of default.

Money is an abstraction of reality.  A loan is an abstraction of an abstraction  with a risk-reward balance. We’ve seen how they relate back to reality.  It functions as a value sink.  But now we have an abstraction of an abstraction of an abstraction in these bonds.

This is where academia goes wrong, and it is also, IMHO, where the financial industry went off the tracks.

At this level of abstraction, the risk-reward balance is eroded if not completely broken … and that is its intent.  To me, this is the departing point, the unmooring — which while I don’t like I can understand the justification.  I just don’t agree with it. But that’s not the end of it. It gets worse.

[to be continued]

Unmoored Part I

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We took a road trip recently with some friends I’d met on the bus on the way to DC in 2010. Good people. Aunt and uncle of Chris Loesch, it turns out. It was a pleasure trip to go see a concert 450 miles away, so there was plenty of time for talking about other things, and we did talk books.

The big “Bush’s Fault” 2008 crash came up, and he asked if I’d read “The Big Short” or “Boomerang”. They were about what was going on inside Wall Street and the second — around a few other countries in the Western World … in the early 2000′s up to 2008.

Now people ask me to read and watch all sorts of crazy things that I won’t. Anything that starts out telling me about how Jews are controlling the world from a bunker in London, 9/11 truther crap … not buying it.

My interest piqued when he told me it was the same author that wrote “Moneyball” … which I had recently watched (good movie) and “The Blind Side” … another good movie that I think did rather well in the theaters. I think Sandra Bullock was in it. So I thought hey, even if he turn’s out to be a crackpot he’s not your average anonymous crackpot, and I liked the material and treatment in those two movies so the odds were against.

Thanks to the evil corporations of Barnes and Noble and Amazon, and Intel and AMD and all the corps involved in running the internet … I had a copy on my nook tablet within 10 minutes of checking into the motel.

I read “Boomerang” and am most of the way through “The Big Short”.

I’m titling this series “Unmoored”. Hopefully you’ll see why.

I frankly knew few of the actual inside details of the crash. I knew AIG was involved big, as well as Goldman Sach’s. I knew it had to do with banks making loans to people who couldn’t afford to pay them back (I would like to point out the flip side of this — people who couldn’t afford to pay them back were TAKING loans from banks). And it was mostly these big banks. The quasi-government alinstitutions Freddie Mac and Fannie Mae were connected to it. Government anti-red-lining policies contributed. I knew it was triggered by overextensions (I thought of banks) and defaults by real estate loan holders. All true, but far from the whole story.

I’d heard the terms “CDO” and “Default Credit Swap” tossed around, but really didn’t know what they were exactly. I basically knew what it was to “short” a sale, but I couldn’t wrap my head around how it pertained to home loans.

So here’s my general understanding of it now:

In the real-estate loan market, there are good risks and bad risks. People with higher credit ratings are good risks and get the best interest rates, and people with poor credit ratings are bad risks and get higher interest rates to cover the risk. Yes, it seems “unfair” to charge people with less money more money — but it’s a loan, not charity, and the lender needs to cover the cost of the people who won’t pay theirs back to make it worthwhile. All basic stuff we already knew. Those last loans are called “subprime”. The borrowers don’t meet normal credit rating standards for a prime rate.

The Community Reinvestment Act of 1977 opened this market up quite a bit and probably contributed to the problem … but I’m finding out it really was a (relatively small core group of) bankers and people some big investment houses that spun this whole thing out of control. It’s very hard to wrap your head around the mechanisms, not so much because they were THAT complicated — it’s just — you can’t make any sense of what relation to actual economic reality they bore. In other words, “who even dreamed this stuff up????” Most of the management at the banks didn’t even understand them – and they didn’t care – as long as their portfolios looked better every year. This was as much of the problem as the core group’s wild schemes.

This core group, actually, weren’t a “group” in the sense that they got together and colluded. They would just as soon have stabbed each other in the back, I think. But there were a few people doing the same kinds of things, studying and copying each other and extending the ideas to more and more absurd mechanisms further and further unmoored from economic reality.

[to be continued.  I'm making this a series both to make it easier to read and easier to write.  I am going somewhere with this.  I think.  It's a little fuzzy right now, but I'm going somewhere as long as I keep the word "unmoored" in mind.]

Authoritah!!!

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CartmanAuthoritahOver at Morgan’s we’re having another endless thread about “science.”  This time it’s about the proper use of “authority,” and the fallacy of Appeal to same.

An Appeal to Authority is a logical fallacy of the form “X is true because person Y says so.”  It’s a fallacy both formally and informally.  It’s formally wrong because the truth of a proposition doesn’t depend on the speaker — two plus two is four even if Hitler says so; it’s not five even if Gandhi insists it is.

It’s infomally wrong because it’s nebulous, and here’s where it gets interesting.  Most people trust authorities up to a point.  It’s part of the social contract.  If I’ve got a cold, I go to the doctor instead of cracking a textbook on cell biology and firing up the bunsen burner.  The doctor in turn trusts his mechanic when it comes to engine repair, the mechanic trusts his accountant on taxes, etc.  Society as a whole benefits from such specialization, and so we’ve agreed to outsource a part of our thinking to field specialists.

Part, but not all.  If you go to the doctor with a headache and the first thing he wants to do is order up a colonoscopy, a reasonable person asks for an explanation.  This is true no matter how many degrees the doctor has or from where, his publication record, or anything else.  It’s just common sense.

Liberals, as a general rule, don’t seem to believe this.  Which is funny, because they write endless polemics showing that liberals are more comfortable with nuance, or that conservatives are more authoritarian.  Yet when it comes to a lists of Things Which Shall Not Be Questioned, the liberal list dwarfs the conservative.  Things like:

  • the proper capacity of a rifle’s magazine
  • the point at which life begins
  • the future temperature of the atmosphere
  • how much money is “too much”
  • that IQ exists
  • that men and women have inherent differences
  • that powers not delegated to the federal government, or to the states, are reserved for the people
  • that our common citizenship is trumped by ethnic ancestry
  • that the life of a fetus is only the mother’s concern, but the life of a tree affects us all

&c.

It’s one of the main reasons I’m not a liberal — it’s too confusing.  Anne Hathaway makes a million dollars for two months’ work, which means she’s Made Enough Money (TM), but she’s also a feminist, so she gets a pass.

The only way out of this dilemma is to outsource all your thinking.  Anne Hathaway is a kulak, but Lena Dunham says she’s ok, so we’ll go after that Ann Coulter bitch instead.

This is the mentality that makes the liberal world go.  It’s frankly Stalinist, but since Alinsky-lite liberals and neo-Gramscians have taken over the organs of our culture, it’s the attitude that makes modern society go.  It’s ok to hate, provided an authority figure tells you how… and whom.

It’s the only way to overcome the Molotov-Ribbentrop dissonance that would cause more honest heads to explode.  Eventually the Party leadership will decree something that is so perpendicular to common sense that your whole worldview will be thrown into disarray.  At that point, the intellectually honest will leave the Party… while all the various toadies, lickspittles, and other asskissers who cherish their group identity above their balls will elevate Appeal to Authority from a logical fallacy to the infallible lodestone of life.

This is one of the nastiest implications of 1984.  Winston Smith spends his days doctoring history in the Ministry of Information, but it’s unnecessary.  The Party members– the only ones who have the power to challenge Big Brother — are so invested in their Party membership they’d believe no matter what their lying eyes said.  We’ve always been at war with Eastasia.

Welcome to 2013.

Thinking like a Liberal: The Ishmael Effect

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One of the handiest notions I’ve ever come across is the Ishmael Effect.  The Oxford Index defines it like this:

The claimed ability of some philosophical theory to escape from the fate to which it condemns all other discourse. The effect was named by the 20th-century Australian philosopher D. C. Stove after Ishmael’s epilogue to Moby Dick: ‘and I only am escaped alone to tell thee’. This is something it must have been impossible for him to do, given the tale he tells. ‘It is (absolutely) true that truth is relative’; ‘we ought to think that there is no such thing as thought’; and ‘the one immorality is to believe in morality’, would be examples of doctrines that require the effect.

Which sounds an awful lot like 90% of liberal discourse, doesn’t it?

mobydick2I think a large part of the GOP’s much-discussed “enthusiasm gap” versus Democrats stems from the simple inability to take liberalism seriously.  If you clicked that link, for instance, you know it’s National Review’s Richard Brookhiser gloating about the prevalence of Romney signs in his formerly Obama-loving neighborhood.  I thought the same thing.  So did lots of conservatives I know.  If you went just by yard signs and bumper stickers, Romney was going to cruise to victory.  Umm.  Paging Pauline Kael.

The real problem, I submit, wasn’t the sign-wavers and the bumper sticker-affixers.  They got to the polls.  It’s those other folks.  The ones who looked at 48 straight months of economic decline, international humiliation, and political class hubris and thought, “of course Romney’s rolling.  Who could possibly vote for another four years of these clowns?  It’s gonna be a blowout.  No need for me to take time off work to go stand in line for an hour in some drafty junior high gym.”

If you’re reading this, you’re politically involved.  You think politics is about the big questions.  You think it’s all about big ideas.

Lots of people don’t.  As hard as it is for the primarily white-collar audience of a political blog to believe, only a third of young Americans have bachelor’s degrees.  These folks skew leftward, of course, and liberals have long claimed this as a virtue of a college education, but I suspect the reverse is true:

College is little more than a lukewarm bath of leftist cant.  For every lifelong liberal who graduates with a bachelor’s degree, there are three or four others who are permanently turned off the entire idea of ideas.  “If feminism, postmodernism, and critical race theory are what intellectuals think about, sign me up for truck driver school.”

Which brings me back to David Stove.  We’re so used to arguing with liberals around here that we forget just how absurd their ideas are.  Consider this, from a Daily Kos piece on Human Biodiversity:

Moreover, cultural factors remain a crucial confound in any discussion of IQ scores. On this matter, the IQ aficionados demonstrate their sophomorism.  [HBD proponents] know everything about the statistical analyses, but the differences between Asian styles of thinking and Western styles of thinking are beyond their ken; their cultural backgrounds are so narrow that they simply cannot conceive the notion that other people can think in ways unlike their own and still be intelligent.

That grinding sound you hear is poor Herman Melville spinning in his grave.  The premise here is that “Asian styles of thinking” are so inaccessible to the Western mind that they can’t be captured by Eurocentric measures like IQ tests.  And yet, this Kos poster — and everyone like him! — is so steeped in “Asian styles of thinking” that he can tell us, his fellow Westerners, in great detail how inaccessible they are to us Westerners.

And it wouldn’t be Kos without the kicker:  “But of course, racism is always born of stupidity.”  But let’s try the reverse:  Western ways of thinking are inaccessible to Asian minds.  If the one is true, then so must the other be… but the one gets you tenure and the other gets you fired.  Paging Captain Ahab.

Get a liberal anywhere off the most rigid micro-details of a policy, indeed, and you’re almost sure to find Ishmael lurking behind the arras.  On the relationship between poverty and crime, for instance.  Theodore Dalrymple is fond of pointing out that if poverty caused crime, we’d all still be living in caves.  Or the idea that “diversity” is ipso facto good (if that were true, the Balkans would be the world leaders in everything).  Or…

We who read political blogs see these as gross hypocrisies at best, cynical opportunism at worst.  But — and this is key — by pointing out all the ways leftists’ actions don’t measure up to their premises, we’re inherently accepting the premises.  We laugh at the diversity racket, for instance, with their insistence that entirely separate dorms, fraternities, and programs of study somehow make the entire campus a glorious rainbow.

It’s a mistake.  These are Ishmael assumptions — falsity is built right into the premise.  The entire race racket, for instance, is based on the idea that nobody can truly escape the cognitive and emotional biases of his phenotype.  But then how do the race hustlers themselves know?

We “intellectuals,” for lack of a better term, are always ready to make exceptions and qualifications, to discuss first principles.  It’s no accident that Stove made his remarks about the Ishmael Effect in the course of a professional attack on that most recondite of academic philosophical topics, metaphysical solipsism.  As Stove pointed out in great detail elsewhere, it’s the brainwork types who are most likely to fall for these kinds of arguments, the most likely to say “well, there’s a real point under there, you know…”

Problem is, we lose everybody else.  We never do the one thing we should do, which is to point out the self-contradiction and walk away.  That’s why I like the tag “the Ishmael Effect” so much — it’s pithy, it’s nerdy-but-not-too-nerdy, and, most importantly, it puts the burden back on them.  Let them chase their own tails for a while, trying to figure out ways to claim that such blatantly self-serving contradictions are neither self-serving nor contradictory.

And then we hit ‘em where it hurts.  Pump up the low-info voters who think all this stuff is just egghead silliness — “do you really want four more years of these jokers in charge?  They think they’re smarter than you, but their entire worldview is a mess of contradictions.”