Wendell Berry is about as radical as John Beecher, though not nearly as angry. Here is probably his best-known work. As it has been posted in hundreds of places all over then internet, perhaps I can get away with sharing it with you:
Manifesto: The Mad Farmer Liberation Front
by Wendell Berry
Love the quick profit, the annual raise,
vacation with pay. Want more
of everything ready-made. Be afraid
to know your neighbors and to die.
And you will have a window in your head.
Not even your future will be a mystery
any more. Your mind will be punched in a card
and shut away in a little drawer.
When they want you to buy something
they will call you. When they want you
to die for profit they will let you know.
So, friends, every day do something
that won't compute. Love the Lord.
Love the world. Work for nothing.
Take all that you have and be poor.
Love someone who does not deserve it.
Denounce the government and embrace
the flag. Hope to live in that free
republic for which it stands.
Give your approval to all you cannot
understand. Praise ignorance, for what man
has not encountered he has not destroyed.
Ask the questions that have no answers.
Invest in the millenium. Plant sequoias.
Say that your main crop is the forest
that you did not plant,
that you will not live to harvest.
Say that the leaves are harvested
when they have rotted into the mold.
Call that profit. Prophesy such returns.
Put your faith in the two inches of humus
that will build under the trees
every thousand years.
Listen to carrion - put your ear
close, and hear the faint chattering
of the songs that are to come.
Expect the end of the world. Laugh.
Laughter is immeasurable. Be joyful
though you have considered all the facts.
So long as women do not go cheap
for power, please women more than men.
Ask yourself: Will this satisfy
a woman satisfied to bear a child?
Will this disturb the sleep
of a woman near to giving birth?
Go with your love to the fields.
Lie down in the shade. Rest your head
in her lap. Swear allegiance
to what is nighest your thoughts.
As soon as the generals and the politicos
can predict the motions of your mind,
lose it. Leave it as a sign
to mark the false trail, the way
you didn't go. Be like the fox
who makes more tracks than necessary,
some in the wrong direction.
Practice resurrection.
Monday, April 26, 2010
Sunday, April 25, 2010
We Don't Handle Obsolescence Very Well
Dead Carriers
This commentator points out very convincingly why the US Navy can never expose its main carrier groups in a conflict with nations like China or Iran, because it means they'll all lose their jobs.
Which means they can't be used the way they're intended. Which means they are enormous, expensive floating boondoggles that keep no one safe and will win no wars.
It isn't until engagement with the enemy that you find out whether your plans and technology really work. By avoiding that crucial confrontation we don't validate our strategies and tactics, and refine them for future conflicts.
Not that THAT is such a bad thing; it would definitely suit me if we never find out whether the carrier groups still have legitimate military value. But you could get rid of them entirely and still know just as much about their usefulness...
This commentator points out very convincingly why the US Navy can never expose its main carrier groups in a conflict with nations like China or Iran, because it means they'll all lose their jobs.
Which means they can't be used the way they're intended. Which means they are enormous, expensive floating boondoggles that keep no one safe and will win no wars.
It isn't until engagement with the enemy that you find out whether your plans and technology really work. By avoiding that crucial confrontation we don't validate our strategies and tactics, and refine them for future conflicts.
Not that THAT is such a bad thing; it would definitely suit me if we never find out whether the carrier groups still have legitimate military value. But you could get rid of them entirely and still know just as much about their usefulness...
Saturday, April 17, 2010
Careful Choice of Words
Okay, think of a bad word. One that you definitely wouldn't say to your grandmother. Pretty bad, isn't it? Perhaps unambiguously so. It may have something to do with bodily functions, excretions, or reproductive activities - or perhaps it is an ethnic slur.
Now, say what that word is in a way that's not offensive, to your grandma or most anybody else. It's not very difficult - there are plenty of substitutes at hand for even some very vile words and concepts. Sometimes those substitutes were developed specifically for use in polite company in the place of their vulgar counterparts.
What is this? Every offensive idea has a non-offensive way of expressing it? Believe it or not, in our society we don't take hardly anything itself as offensive. Rather we have duplicate terminologies - one for polite use, and one for when we intend to be offensive.
Thus to us it is the word and not the thing that is bad, and we inoculate ourselves against the sin of profanity or vulgarity by a careful choice of words. Is this proper? If we angrily and vehemently hector another driver who makes an incautious error on the road, does it matter whether we use good words or bad ones? Arthur Henry King once pointed out that it makes little difference whether he gives voice to his frustrations with "fiddlesticks" or something worse. What matters is the thought and sentiment that gives wings to the word. What matters is what's in his soul. If THAT is vulgar, then so is anything he says, no matter how polite.
Now, say what that word is in a way that's not offensive, to your grandma or most anybody else. It's not very difficult - there are plenty of substitutes at hand for even some very vile words and concepts. Sometimes those substitutes were developed specifically for use in polite company in the place of their vulgar counterparts.
What is this? Every offensive idea has a non-offensive way of expressing it? Believe it or not, in our society we don't take hardly anything itself as offensive. Rather we have duplicate terminologies - one for polite use, and one for when we intend to be offensive.
Thus to us it is the word and not the thing that is bad, and we inoculate ourselves against the sin of profanity or vulgarity by a careful choice of words. Is this proper? If we angrily and vehemently hector another driver who makes an incautious error on the road, does it matter whether we use good words or bad ones? Arthur Henry King once pointed out that it makes little difference whether he gives voice to his frustrations with "fiddlesticks" or something worse. What matters is the thought and sentiment that gives wings to the word. What matters is what's in his soul. If THAT is vulgar, then so is anything he says, no matter how polite.
Monday, April 12, 2010
Fearful Bargain
"The bond salesmen from the forty-first floor who spoke to us were by definition leaders in the firm, and they might have provided me with a role model, but their smooth metal surfaces offered nothing to cling to. They expressed no interests outside selling bonds, and they rarely referred to life outside Salomon Brothers. Their lives seemed to begin and end on the forty-first floor; and I began to wonder if I wasn't about to enter the Twilight Zone.
More different types of people succeeded on the trading floor than I initially supposed. Some of the men who spoke to us were truly awful human beings. They sacked others to promote themselves. They harrassed women. They humiliated trainees. They didn't have customers. They had victims. Others were naturally extremely admirable characters. They inspired those around them. They treated their customers almost fairly. They were kind to trainees. The point is not that a [aggressive, ambitious trader] was intrinsically evil. The point is that it didn't matter one bit whether he was good or evil as long as he continued to swing that big bat of his. Bad guys did not suffer their comeuppance in Act V on the forty-first floor. They flourished (though whether they succeeded because they were bad people, whether there was something about the business that naturally favored them over the virtuous are separate questions). Goodness was not taken into account on the trading floor. It was neither rewarded nor punished. It just was. Or it wasn't."
-Michael Lewis in "Liar's Poker", describing the sorts of people he encountered on the trading floor at Salomon Brothers in 1985.
It's no surprise to us that sometimes the bad guys win in life. What's startling is to realize that the so many of these systems we humans organize our efforts around are structured in such a way as to make virtue and kindness superfluous, because other qualities matter more to the goals of the individual and the goals of the group. We promote values that don't make people better people.
Rather reminiscent of a military band whose members honor and respect the most fearsome warrior of their number even though he is a bad man. His skill and energy strengthen them as a group, and hopefully make it more likely that they all get home.
Get home you may - perhaps even weighted down with riches and glory. But what sort of person will you be when you get there? That matters far more than most people seem to realize.
More different types of people succeeded on the trading floor than I initially supposed. Some of the men who spoke to us were truly awful human beings. They sacked others to promote themselves. They harrassed women. They humiliated trainees. They didn't have customers. They had victims. Others were naturally extremely admirable characters. They inspired those around them. They treated their customers almost fairly. They were kind to trainees. The point is not that a [aggressive, ambitious trader] was intrinsically evil. The point is that it didn't matter one bit whether he was good or evil as long as he continued to swing that big bat of his. Bad guys did not suffer their comeuppance in Act V on the forty-first floor. They flourished (though whether they succeeded because they were bad people, whether there was something about the business that naturally favored them over the virtuous are separate questions). Goodness was not taken into account on the trading floor. It was neither rewarded nor punished. It just was. Or it wasn't."
-Michael Lewis in "Liar's Poker", describing the sorts of people he encountered on the trading floor at Salomon Brothers in 1985.
It's no surprise to us that sometimes the bad guys win in life. What's startling is to realize that the so many of these systems we humans organize our efforts around are structured in such a way as to make virtue and kindness superfluous, because other qualities matter more to the goals of the individual and the goals of the group. We promote values that don't make people better people.
Rather reminiscent of a military band whose members honor and respect the most fearsome warrior of their number even though he is a bad man. His skill and energy strengthen them as a group, and hopefully make it more likely that they all get home.
Get home you may - perhaps even weighted down with riches and glory. But what sort of person will you be when you get there? That matters far more than most people seem to realize.
Friday, April 09, 2010
Silent Angry Poets
I read an interesting work in an anthology of poems by ever-angry poet John Beecher:
"No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from the publisher."
Well, that's from the copyright page. I don't think Beecher wrote it. Unfortunately, that sentence is probably the only thing in the book I am allowed to quote fully.
However, according to my understanding of fair use I can noncommercially quote a small fraction of the work I really am interested in without exposing myself to prosecution for copyright infringement. Since poems are pretty short to begin with, here is a single word from Beecher's poem, "Homage to a Subversive":
peoples'
It's not much, but hopefully enough to help you grasp the essence of the work. As you can maybe tell from the excerpt, Beecher has a rich and pungent descriptive language, and bundles out the word-bombs as fast as a B-52 on a mission of metaphor. But don't be fooled - this poem is the best of the best. He worked really hard on this one I think. Most everything else is overdone and trite, 2-D cliches about the suffering of the working man or the myopia of the self-righteous hypocrite. (The latter is particularly cloying and annoying, stuff along the lines of "I hit a black dude for looking me in the eye and now I'm going to church because I'm SO RIGHTEOUS!")
But good or bad, no one reads them. That's because about the only John Beecher book in the valley is the one sitting next to me right now. I got it from the library. The book is 35 years old, and does not look heavily used. And I can't quote anything from it for you because of the beautiful poem on the copyright page.
You'd think an angry idealist like John Beecher would have wanted as many people as possible to see his work - read it, memorize it, ponder it. Instead his commercial interests pretty much guarantee that as few as possible read it. Funny how that works.
Every author balances the desire of having people read what he has to say with his desire to get paid for it and not have to do a real job.
"No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from the publisher."
Well, that's from the copyright page. I don't think Beecher wrote it. Unfortunately, that sentence is probably the only thing in the book I am allowed to quote fully.
However, according to my understanding of fair use I can noncommercially quote a small fraction of the work I really am interested in without exposing myself to prosecution for copyright infringement. Since poems are pretty short to begin with, here is a single word from Beecher's poem, "Homage to a Subversive":
peoples'
It's not much, but hopefully enough to help you grasp the essence of the work. As you can maybe tell from the excerpt, Beecher has a rich and pungent descriptive language, and bundles out the word-bombs as fast as a B-52 on a mission of metaphor. But don't be fooled - this poem is the best of the best. He worked really hard on this one I think. Most everything else is overdone and trite, 2-D cliches about the suffering of the working man or the myopia of the self-righteous hypocrite. (The latter is particularly cloying and annoying, stuff along the lines of "I hit a black dude for looking me in the eye and now I'm going to church because I'm SO RIGHTEOUS!")
But good or bad, no one reads them. That's because about the only John Beecher book in the valley is the one sitting next to me right now. I got it from the library. The book is 35 years old, and does not look heavily used. And I can't quote anything from it for you because of the beautiful poem on the copyright page.
You'd think an angry idealist like John Beecher would have wanted as many people as possible to see his work - read it, memorize it, ponder it. Instead his commercial interests pretty much guarantee that as few as possible read it. Funny how that works.
Every author balances the desire of having people read what he has to say with his desire to get paid for it and not have to do a real job.
Wednesday, April 07, 2010
Not White
"...reliefs and statues were always painted; the ideal of ancient sculpture was the painted plaster statue of France's village churches. Ancient cities were never white. In Pompeii the columns of one temple were painted yellow and white, the capitals red, white, and blue. The Parthenon was painted to cover the marble sheen, and what we now call the Pont du Gard was painted red."
From "A History of Private Life: From Pagan Rome to Byzantium"
What a startling thing to read. How can we imagine Roman cities in anything but white? I have walked the streets of Pompeii, and it will be difficult to think of it as anything other that what it appeared. Over centuries we have slavishly imitated the Romans and Greeks by planting forests of unadorned columns throughout our finest mansions, churches, and capitals. Trying to match our architecture to ruins rather than any genuine article has certainly led us astray. Turns out a bucket of paint was also needed.
What would an ancient Greek have thought of the US Capitol building or the White House? "Look at this terrific building we built! It's just like the Parthenon!"
From "A History of Private Life: From Pagan Rome to Byzantium"
What a startling thing to read. How can we imagine Roman cities in anything but white? I have walked the streets of Pompeii, and it will be difficult to think of it as anything other that what it appeared. Over centuries we have slavishly imitated the Romans and Greeks by planting forests of unadorned columns throughout our finest mansions, churches, and capitals. Trying to match our architecture to ruins rather than any genuine article has certainly led us astray. Turns out a bucket of paint was also needed.
What would an ancient Greek have thought of the US Capitol building or the White House? "Look at this terrific building we built! It's just like the Parthenon!"
Monday, April 05, 2010
Real American Heroes
A video of several Iraqi citizens and two Reuters correspondents being murdered by American soldiers was released to the public today:
http://www.collateralmurder.com/
There's no gore but it's difficult to watch.
We haven't heard as much about American war crimes and atrocities lately. Such things have seemed less relevant because a Democrat's in the White House (And he even has a Nobel Peace Prize - hope he doesn't just settle for one!). In our peculiar sliding scale of modern values, the military isn't evil so long as it's led by compassionate progressives.
Still, this video is pretty bad and will probably get a lot of attention. It's from an engagement in Baghdad back in 2007, evidence of which had been surpressed by the military. The video was leaked out despite the military's efforts to prevent it, and you can see why it was surpressed. The video paints a much different picture of the event than does the official version.
What's fascinating about the lead up to the attack is how the soldiers in the two attack helicopters feed off each other's nerves and perceptions, turning an innocent gaggle of chatting guys into a band of heavily armed insurgents. Remember that two of the victims worked for the Reuters news service. One was carrying a camera and was actually doing his job at the time of the attack. But the US soldiers could only see enemies. One soldier thinks he sees a gun, then another sees one, then all of a sudden there's five or six gunmen, next a soldier thinks someone's got a rocket-propelled-grenade, next another soldier is sure of it, and now they're pointing their launcher at the helicopter and now the soldiers are asking base for permission to blow them up. Permission is granted, and as soon as there's a clear shot, the helicopter opens up with a powerful 30-mm cannon that tears the bodies of these men apart.
One of the victims survived the initial attack, but was badly wounded and couldn't get up. A passing motorist saw him at the side of the road and, being a good samaritan, stopped to help. He and another man got out and lifted the wounded man up to take him to the hospital. At that point the helicopter gunship opened up again, and blew up the vehicle, killing the good samaritan, the wounded man, and injuring two children in the van.
Our military papered this event over with lies, one representative saying "There is no question that Coalition Forces were clearly engaged in combat operations against a hostile force." This sort of thing makes it difficult to accept "official" versions of stories without corroborating evidence.
I have a lot of strong thoughts and emotions about this. Like who are the good guys here? I have a much higher regard for the fellow who sealed his doom by stopping to help than I do for the GIs who begged their base for permission to shoot and laughed and celebrated their kills. Which of these people was making the world a better place? More to the point, what kind of soldiers would you prefer to see in the military - the kind that are regretful and reluctant to use their deadly force, or the kind that treat combat like a video game?
Speaking of how soldiers are, the military wants a soldier who obeys orders unquestioningly - kills whom he is told to kill, and spares whom he is told to spare. Such a man has given over his humanity to his leaders - his moral sense is subsumed into theirs.
So that's what the military wants. Is that what God wants? What can we say about a machine that functions best when its participants play the parts of unthinking cogs? It is hard to respect any soldier who could not disobey an order he knew was morally wrong.
I feel bad for the kids in those helicopters. The Iraqis may have left their body parts strewn around that scene, but the soldiers left parts of their own souls.
War is hell for making enemies out of decent men.
http://www.collateralmurder.com/
There's no gore but it's difficult to watch.
We haven't heard as much about American war crimes and atrocities lately. Such things have seemed less relevant because a Democrat's in the White House (And he even has a Nobel Peace Prize - hope he doesn't just settle for one!). In our peculiar sliding scale of modern values, the military isn't evil so long as it's led by compassionate progressives.
Still, this video is pretty bad and will probably get a lot of attention. It's from an engagement in Baghdad back in 2007, evidence of which had been surpressed by the military. The video was leaked out despite the military's efforts to prevent it, and you can see why it was surpressed. The video paints a much different picture of the event than does the official version.
What's fascinating about the lead up to the attack is how the soldiers in the two attack helicopters feed off each other's nerves and perceptions, turning an innocent gaggle of chatting guys into a band of heavily armed insurgents. Remember that two of the victims worked for the Reuters news service. One was carrying a camera and was actually doing his job at the time of the attack. But the US soldiers could only see enemies. One soldier thinks he sees a gun, then another sees one, then all of a sudden there's five or six gunmen, next a soldier thinks someone's got a rocket-propelled-grenade, next another soldier is sure of it, and now they're pointing their launcher at the helicopter and now the soldiers are asking base for permission to blow them up. Permission is granted, and as soon as there's a clear shot, the helicopter opens up with a powerful 30-mm cannon that tears the bodies of these men apart.
One of the victims survived the initial attack, but was badly wounded and couldn't get up. A passing motorist saw him at the side of the road and, being a good samaritan, stopped to help. He and another man got out and lifted the wounded man up to take him to the hospital. At that point the helicopter gunship opened up again, and blew up the vehicle, killing the good samaritan, the wounded man, and injuring two children in the van.
Our military papered this event over with lies, one representative saying "There is no question that Coalition Forces were clearly engaged in combat operations against a hostile force." This sort of thing makes it difficult to accept "official" versions of stories without corroborating evidence.
I have a lot of strong thoughts and emotions about this. Like who are the good guys here? I have a much higher regard for the fellow who sealed his doom by stopping to help than I do for the GIs who begged their base for permission to shoot and laughed and celebrated their kills. Which of these people was making the world a better place? More to the point, what kind of soldiers would you prefer to see in the military - the kind that are regretful and reluctant to use their deadly force, or the kind that treat combat like a video game?
Speaking of how soldiers are, the military wants a soldier who obeys orders unquestioningly - kills whom he is told to kill, and spares whom he is told to spare. Such a man has given over his humanity to his leaders - his moral sense is subsumed into theirs.
So that's what the military wants. Is that what God wants? What can we say about a machine that functions best when its participants play the parts of unthinking cogs? It is hard to respect any soldier who could not disobey an order he knew was morally wrong.
I feel bad for the kids in those helicopters. The Iraqis may have left their body parts strewn around that scene, but the soldiers left parts of their own souls.
War is hell for making enemies out of decent men.
Sunday, April 04, 2010
What Should Have Happened With the Bailouts and All That
What should have happened?
I have written before about our government’s foolish, wrongheaded and sometimes corrupt responses to our ongoing economic crisis. I have described how I think their measures have actually made things worse, not better.
So far it’s been a difficult year for us Cassandras. Nowadays people seem somewhat pleased, if not downright optimistic, about business and economic news. Hiring is up (even if unemployment is unchanged). The Dow Jones is creeping towards 11,000. Large and influential companies declared substantial profits for all of 2009. Housing prices are holding steady and inflation doesn’t seem to be eating anyone alive. Could we have turned the corner?
I do not disown my previous pessimism. I’d rather double down at this point. I think it beneficial to also take a little time to describe what our government was actually trying to do to revive the economy, and whether those efforts have paid off. This will help me illustrate for you all my belief that we are actually in worse shape now than we were during the dark times of 2008 and 2009.
If you recall those dangerous days in the summer of 2008, there was a great deal of fear and insecurity surrounding the collapse of one of the world’s most powerful investment banks. Lehman Brothers (which had existed since 1850 and had almost $20 billion in net revenue in 2007) went from hale & hearty to bankrupt & broke in just a few months. Lehman’s problem wasn’t that they were evil or that they were greedy, but rather that they were stupid. The bank’s assets were not worth anywhere near what they (and everyone else) had thought they were worth when they bought them. With worthless and nonproductive assets Lehman would not be able to meet their obligations to creditors and shareholders, and the company had to declare bankruptcy.
This collapse was a frightening event, and affected a lot more than just Lehman’s shareholders, because people knew that the sorts of things that Lehman owned a lot of (complex instruments known as Credit Default Swaps, or CDS’s) were also owned by the other big investment banks on Wall Street. Investors realized that Lehman’s demise prefigured the rapid demise of EVERY SINGLE OTHER BANK on Wall Street, organizations such as JP Morgan, Goldman Sachs, Citigroup, and pretty much any other big bank you have heard of. In September 2008 all of these banks were technically insolvent, their assets absurdly worthless.
This was the situation facing our leaders in Washington. They decided that these banks were too important to the economy to be allowed to fail (thus they received the moniker “Too Big to Fail”), and that those banks should receive all the support that our government had the ability to give them. This support came in two crucial ways:
1. First, our government gave trillions of dollars to these various banks to plug the gaping holes in their balance sheets. They did this through methods that you have probably heard of such as the enormous TARP bailout, and also through methods that are more obscure, like comparatively enormous interest-free loans from the Fed, government guarantees of bank liabilities, and even some peculiar backdoor bailouts that were disguised as other things so as to not upset the public.
2. By the spring of 2009 it was clear that our trillions of $$$ were not enough to fill the hole created by the banks’ foolish incompetence. Therefore the US Financial Accounting Board (called FASB) was pressured into changing one of the accounting rules that corporations are bound by. Banks would now be allowed to pretend that their assets were actually worth what they paid for them, rather than recognize that they were now almost worthless. This was intended so that the banks would have time to sell off these bad assets, or recognize the loss in value, over a longer period of time rather than all at once.
So that’s what our government did. Here is what was SUPPOSED to happen as a result:
Since they were allowed to make-believe that their assets had value, the banks didn’t have to be in a huge hurry to solve the problem. They could take all the free money from the government and strengthen their operations, and use the cash to cover the losses from their bad assets, and progressively return their companies to good health. Their stock value would go up, they’d be able to issue more stock, and get even more money to smooth their path.
(Incidentally, one of the most crucial things these banks were also supposed to do was lend their money. This is the main reason they were allowed the tag of “Too Big to Fail” – because people believed that, once rescued from the brink of disaster, these companies would lend or invest their money to homeowners, small businesses, other banks, and anyone else that was a good risk. This free flow of credit is viewed by many influential economists as being very, very important for a healthy economy; and the banks were viewed as being crucial for that flow of credit.)
That’s what was supposed to happen, but that isn’t what actually happened.
What actually happened is that the investment banks took all the free money from the government and became giant casinos. They never lent the money (except back to the government, which is worth a blog post in itself). They made risky investments, played the stock market, and declared enormous profits. They took these profits and, rather than sell or write down the bad assets on their balance sheets, they pretended that those things weren’t even there and instead gave themselves really big bonuses. Goldman Sachs, for instance, gave its employees over $15 billion in bonuses.
So here we are, coming up on two years later. These Too Big To Fails are in exactly the same boat they were in September 2008. Nothing has changed, except now we’ve churned through trillions in public $$$ with nothing to show for it – money we may wish we had when the next inevitable crisis hits. The banks’ ability to pretend that they are viable institutions is not infinite. The only thing keeping them in business from day to day is our government’s implicit promise to protect them no matter how stupid or wasteful they are. As soon as that guarantee is ever in doubt, there will be a painful day of reckoning.
I have written before about our government’s foolish, wrongheaded and sometimes corrupt responses to our ongoing economic crisis. I have described how I think their measures have actually made things worse, not better.
So far it’s been a difficult year for us Cassandras. Nowadays people seem somewhat pleased, if not downright optimistic, about business and economic news. Hiring is up (even if unemployment is unchanged). The Dow Jones is creeping towards 11,000. Large and influential companies declared substantial profits for all of 2009. Housing prices are holding steady and inflation doesn’t seem to be eating anyone alive. Could we have turned the corner?
I do not disown my previous pessimism. I’d rather double down at this point. I think it beneficial to also take a little time to describe what our government was actually trying to do to revive the economy, and whether those efforts have paid off. This will help me illustrate for you all my belief that we are actually in worse shape now than we were during the dark times of 2008 and 2009.
If you recall those dangerous days in the summer of 2008, there was a great deal of fear and insecurity surrounding the collapse of one of the world’s most powerful investment banks. Lehman Brothers (which had existed since 1850 and had almost $20 billion in net revenue in 2007) went from hale & hearty to bankrupt & broke in just a few months. Lehman’s problem wasn’t that they were evil or that they were greedy, but rather that they were stupid. The bank’s assets were not worth anywhere near what they (and everyone else) had thought they were worth when they bought them. With worthless and nonproductive assets Lehman would not be able to meet their obligations to creditors and shareholders, and the company had to declare bankruptcy.
This collapse was a frightening event, and affected a lot more than just Lehman’s shareholders, because people knew that the sorts of things that Lehman owned a lot of (complex instruments known as Credit Default Swaps, or CDS’s) were also owned by the other big investment banks on Wall Street. Investors realized that Lehman’s demise prefigured the rapid demise of EVERY SINGLE OTHER BANK on Wall Street, organizations such as JP Morgan, Goldman Sachs, Citigroup, and pretty much any other big bank you have heard of. In September 2008 all of these banks were technically insolvent, their assets absurdly worthless.
This was the situation facing our leaders in Washington. They decided that these banks were too important to the economy to be allowed to fail (thus they received the moniker “Too Big to Fail”), and that those banks should receive all the support that our government had the ability to give them. This support came in two crucial ways:
1. First, our government gave trillions of dollars to these various banks to plug the gaping holes in their balance sheets. They did this through methods that you have probably heard of such as the enormous TARP bailout, and also through methods that are more obscure, like comparatively enormous interest-free loans from the Fed, government guarantees of bank liabilities, and even some peculiar backdoor bailouts that were disguised as other things so as to not upset the public.
2. By the spring of 2009 it was clear that our trillions of $$$ were not enough to fill the hole created by the banks’ foolish incompetence. Therefore the US Financial Accounting Board (called FASB) was pressured into changing one of the accounting rules that corporations are bound by. Banks would now be allowed to pretend that their assets were actually worth what they paid for them, rather than recognize that they were now almost worthless. This was intended so that the banks would have time to sell off these bad assets, or recognize the loss in value, over a longer period of time rather than all at once.
So that’s what our government did. Here is what was SUPPOSED to happen as a result:
Since they were allowed to make-believe that their assets had value, the banks didn’t have to be in a huge hurry to solve the problem. They could take all the free money from the government and strengthen their operations, and use the cash to cover the losses from their bad assets, and progressively return their companies to good health. Their stock value would go up, they’d be able to issue more stock, and get even more money to smooth their path.
(Incidentally, one of the most crucial things these banks were also supposed to do was lend their money. This is the main reason they were allowed the tag of “Too Big to Fail” – because people believed that, once rescued from the brink of disaster, these companies would lend or invest their money to homeowners, small businesses, other banks, and anyone else that was a good risk. This free flow of credit is viewed by many influential economists as being very, very important for a healthy economy; and the banks were viewed as being crucial for that flow of credit.)
That’s what was supposed to happen, but that isn’t what actually happened.
What actually happened is that the investment banks took all the free money from the government and became giant casinos. They never lent the money (except back to the government, which is worth a blog post in itself). They made risky investments, played the stock market, and declared enormous profits. They took these profits and, rather than sell or write down the bad assets on their balance sheets, they pretended that those things weren’t even there and instead gave themselves really big bonuses. Goldman Sachs, for instance, gave its employees over $15 billion in bonuses.
So here we are, coming up on two years later. These Too Big To Fails are in exactly the same boat they were in September 2008. Nothing has changed, except now we’ve churned through trillions in public $$$ with nothing to show for it – money we may wish we had when the next inevitable crisis hits. The banks’ ability to pretend that they are viable institutions is not infinite. The only thing keeping them in business from day to day is our government’s implicit promise to protect them no matter how stupid or wasteful they are. As soon as that guarantee is ever in doubt, there will be a painful day of reckoning.
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