Today is a B-day at the Congressional Financial Crisis Inquiry Commission (FCIC) Hearing. The main-stream media (MSM)has awakened, and the blogs are positively bubbly.
Under those circumstances, I thought a little lite question to enliven the hearing might be in order, like adding a little fizz to the gin and the tonic.
Distinguished Gentleman Bankers: Look to the colleague banker next to you, to your left or to your right, look carefully and estimate the sum-total cost of your colleague’s haircut, his tie, his shirt, his suit, his shoes, and his watch, and multiply that number by 40 in your heads, and tell me what it is.
I have a number in mind. If your number exceeds my number, you win the prize behind the door named “Bernie”; if your number does not exceed my number, you get the prize behind the door named “Pitch Fork.” Numbers and risk management experts that you all are, you shouldn’t need more than 10 seconds to get at your number.
I know movies are made purely as entertainments, but once in a while we are lucky to find movies that do a double duty: as entertainments and as commentaries on what’s happening in our world.
For the Financial Crisis of 2008, Up In the Air has a great deal to say, butI nominate 1977 John Badham’s Saturday Night Fever and 2007 Coen brother’s No Country For Old Men as perfect metaphors for debt and gambling in America.
A scene in Saturday Night Fever opens with John Travolta as Tony Manero walking down a busy Brooklyn Street. The walk has the rhythm and the swagger down to his shoes. Life full with confidence. A picture of a young man on the go. He stops to order the pizza, his usual the double. Further on down the street he spots a shirt he likes. He goes into the shop, and said to the salesman: “Hey, you guys do layaway?” The salesman’s quick response: “As long as it didn’t turn into a 30-year mortgage.” Tony to salesman: “Here is five dollars for a blue shirt in the window, hold it.” The next scene opens with Tony asking an advance on his salary from his boss at the hardware store he work, as the latter was closing the shop for the day. The boss said to Tony: “You can save a little and build the future.” Tony to boss: “F… the future!”. Boss : “No Tony, you can’t f … the future; the future f…. you; it catches up with you, and f… you if you ain’t plan for it.”
The next movie is No Country For Old Men. A scene from it is a perfect coda to the scene from the Saturday Night Fever.
A man come into a lone gas station in a desert at dusk. The man look menacing, apparently looking for troubles. In the middle of a desultory conversation between the lone attendant and the man, the man take out a coin, ask the attendant “What is the most you ever lost in a coin toss?” and toss it. And while still covering the coin with his hand, he instruct the attendant to call it. The attendant demur by saying “We need to know what we are calling it for here,” But the man continue to press on calling it. He said “I can’t call it for you, or it wouldn’t be fair.” Finally, the man said “You know what date is on this coin?” “1958” he answer himself, and without pausing he said that the coin has been “travelling 22 years to get here; and now it’s here; and it’s here, head or tail.” “You need to call it.” “I didn’t put nothing up,” the attendant reply. The man still would not let go. The attendant finally give up by asking what he stand to win by calling it. “Everything” reply the man. The attendant made the right call, and his life was spared.
In our case back in the real world, the Fed Chairman Ben Bernanke has been telling us what the American economy is suffering from. He said it is a Great Repression, instead of a Great Depression which would have been unimaginably worst.
Thanks. Well done.
But still what I really like to know is when or where was the Great Repression hatched. Is DEBT the reason for the CRASH? I can’t believe that an ordinary kind of debt – the grease of modern economies – can cause such extensive damages. After all, we have been demanding from each other our pound of flesh ever since Adam and Eve walks the earth. Venice was not built in a day.
If debt really is the culprit, then it must be debts from the double and the triple deckers.
So what is the great lesson we all must learn? You can’t fool Mother Nature all the times or some of the times? Or that you cannot fool the people with the money because they can fool you first.
Bookended by the twin calamities of9/11 and the 2008 Financial Meltdown, this 2009 year-end punditry had an easier time of it. If you are a pundit, you can hardly go wrong by choosing one or the other as the reason for the American predicaments. No one will make a big fuss about it, because we have all shared the sufferings stemming from both.
However, for a nuanced explanation of a slow but sure decline of American preeminence in the world, what we need is a small-sieve -- but an extended -- examination of the causes of the failures.
In wars, Vietnam would be a good place to start, because many of us have lived through it and certainly can related to it viscerally and intellectually. It is the same for Iraq and Afghanistan. We can ask: Why Iraq? Why Afghanistan? Why one after the other?
In economic and finance, we have had any numbers of small but significant failures that can be considered as the precursors of the current Big One. That is if we had the intelligence to learn from such failures. Most of us lived through these failures, and there isn’t much excuse for not learning.
What did or should we have learned? We could have learned that
Savings and loan crisis of the late 80s and early 90s was an old-fashioned chicanery involving bankers and certain senators, whereas the failures of Long Term Capital in late 90s, Dot-com bubble in 2000, and Enron a year later in 2001 were a modern-day versions of an old-fashioned snake oils, cloaked within the claims of triumphalist technological sophistication of computers and computations. A new form of scientism gone wild.
The next question that we need to ask is “Is there a common thread to all these failures, large and small?”
“A systemic failure has occurred, and I consider that totally unacceptable,” said President Obama.
On hearing the President, the first thought that came into my head was not “What? Not Again!” After Vietnam, Iraq, and the Financial Crisis of 2008, I am sorry to say that I am half-expecting that kinds of outcomes and statements.
But really why are we continuing to make the same kind of mistakes?That I don’t know, and I dearly wish to know.
The name of my blog itself was dedicated to highlighting that particular obsession of mine, viz. “Why aren’t we (or why can’t we) “connect the dots?””
That has also been the point of my question #12 from my previous post: Something to Think About.
However, I am glad to note that after the Financial Crisis of 2008, persons of statures and broadcast powers are also concerning themselves with these types of questions.
I have tried to honor the Queen Elizabeth of England and the Representative Sarbanes from the 3rd district of Baltimore, Maryland by listing their respective statements as questions #1 and #2 in my essentially private posts.
But I hope that I have not spoiled Her Majesty’s incisive statement by paraphrasing it into a prose that only academically inclined can love.
As for Congressman Sarbanes, I was thrilled to hear him say that he will not accept answers that essentially said: “It’s not my job!” (RIP Freddie Prinze!) or “It’s not my specialty!” (See the post The Queen and Mr. Sarbanes.) The congressman was right to reject bureaucratic sparrings from infecting the hearings from the outset.
For as long as I can remember, I was fascinated by the ideas about thinking. As in any beginning, you start with the self, progresses to the thinking of others around you – friends, families, school mates and teachers – and finally to the wide world of ideas bubbling around you. You became familiar with the questions and the answers from the greats and not so greats, and as times go by, you even begin to think that you can join in that parade of ideas with your own banners of questions and answers.
As always, Paul Krugman of the New York Times has something direct and point-blank to say. His 2009 year end op-ed piece “The Big Zero” pretty well sums up the lost decade we had passed through. He ends his essay with these words: “So let’s bid a not at all fond farewell to the Big Zero — the decade in which we achieved nothing and learned nothing.”
I agree, but the agreement is predicated on a set of old, persistent, and difficult questions that have the same philosophical and scientific resonances as that of the contemporaneous ones raised by the likes of Paul Krugman.
I have no idea whether any of these questions are answerable under the aegis of science, philosophy, or politics, but they are certainly interesting and important enough to be addressed seriously.
Every listed question has an author. Questions without attributions
are mine, and I welcome any new questions from the readers. I owe the name of my blog “If It Were So Big …” to Her Majesty the Queen of England’s trenchant question about the financial crisis of 2008.
1. “If these things were so large, how come everyone missed them?” [Queen Elizabeth on Financial Crisis of 2008]
2. “We have been talking a lot about this metaphor, the blind man and the elephant. I don’t really buy that, because I think what – I certainly don’t buy it as an explanation for what happened. I think it’s been used as a kind of excuse to pass the buck and sort of say, well, nobody could see the whole picture, so we were each compromised in our ability to take action that would have mattered and made a difference, but the hearing testimony today just confirms to me that in each part of the world that you each had a clear perspective on, you had tools that you could have used, which if you had used them, might have averted the situation, or certainly lessened its impact.” [Representative Sarbaneson Financial Crisis of 2008]
3. How the mind works fundamentally in two entirely different and distinct ways – consciously with efforts, unconsciously without efforts: “a capacity for description or calculation or inference” when it works consciously, and “a species of direct acquaintance” when it works unconsciously, to use the nomenclatures employed by Isaiah Berlin in his influential essay “Political Judgment.” The question: Why not just one way or the other?
4. “[T]here is a real problem about how much such a thing as reason is possible. How is it possible that creatures like ourselves, supplied with the contingent capacities of a biological species whose very existence appears to be radically accidental, should have access to a universally valid method of objective thoughts.” [Thomas Nagel]
5. “Is the Universe Designed?” [Steven Weinberg]
6. Why is the velocity of light the same when measured against a stationary or a moving frame? Einstein presented the constant velocity of light as a postulate: it was not explained.
7. “What is the relation between thinking and the world?” [Albert Einstein]
8. “One may say ‘the eternal mystery of the world is its comprehensibility.’ It is one of the great realization of Immanuel Kant that the postulation of a real external world would be senseless without the comprehensibility.” [Albert Einstein]
9. Is there a foundation of knowledge? [Descartes, Hume, Kant]
10. There is no foundation of knowledge. [Richard Rorty]
11. Why – in some fundamental sense – does it mean for someone “to understand a particular situation in its full uniqueness?” [The phrase in quotes are from Isaiah Berlin’s essay “Political Judgment.”]
12. Why – in some fundamental sense – a sophisticated and scientific modes of reasoning, buttressed with the unlimited resources of modern networks of large institutions, is fallible, woefully at times, and also why on the whole, the results of these scientific decision-makings are not always measurably better – and in some situations even inferior – to the decisions made with traditional, prosaic, and imprecise forms of knowledge such as judgment, recognition, intuition, and experience?
13. Why are human beings a very profligate and proficient users of “images, metaphors, and analogies”?
14. How does scientific change occurs: gradually or in sudden quick jumps? [Thomas Kuhn]
15. Why is that “massive historical trends have been largely unanticipated? [Robert Heilbroner]
16. “What design nature may have had in creating consciousness? What functions was it to serve? To what biological imperative did evolution respond in creating this extraordinary way of highlighting the immediate? For what niche in the world did it fit man?” [Jerome Bruner]
17. Why is it that the “basic logic of a machine designed for numerical solution of differential equations coincide with the logic of a machine intended to make bills for department stores”? [Howard Aiken]
18. “Can computers be as intelligent as people? How can we make sense of the reality behind quantum mechanics? And what is the physical basis of consciousness?” [David Chalmers’s “Three Unsolved Problems in Late Twentieth-Century Science.”]
19. “How come it that human beings, whose contact with the world are brief and personal and limited, are nevertheless able to know as much as they do know?” [Bertrand Russell]
20. Why are we – humans as well as animals, including babies – able to recognize a face or a pattern, so easily, and so effortlessly?
21. What would it take for a single ruler for it to measure all manners and sizes of rooms?
22. “Why can we remember the past, yet not the future?” [Stephen Hawking]
23. “Even if there is only one possible unified theory, it is just a set of rules and equations. What is it that breathes fire into the equations and makes a universe for them to describe?... Why does the universe go to all the bother of existing? Is the unified theory so compelling that it brings about its own existence? Or does it need a creator, and, if so does he have any other effect on the universe? And who created him?” [Stephen Hawking]
24. What is the origin of wave-particle duality? Note it is a different sort of question from that of a wave turning into a particle under quantum measurement, known also as the “the collapse of the wavefunction.”
25. Coming right down to the brass tacks, there are only two things in the world, but why?
26. “A central problem of interpreting the world is determining how, in fact, human beings proceed to do so. It is the study of interaction between a particular, biologically given complex system – the human mind – and the physical and the social world.” [Noam Chomsky]
27. “It always seems odd to me that the fundamental laws of physics, when discovered, can appear in so many different forms that are not apparently identical at first, but with a little mathematical fiddling you can show the relationship. An example of this is the Schrodinger equation and the Heisenberg formulation of quantum mechanics. I don’t know why this is – it remains a mystery, but it was something I learned from experience. There is always another way to say the same thing that doesn’t look at all like the way you said it before. I don’t know what the reason for this is. I think it is somehow a representation of the simplicity of nature.” [Richard Feynman]
28. “One of the remarkable things about the behavior of the world is how it seems to be grounded in mathematics to a quite extraordinary degree of accuracy. The more we understand about the physical world, and the deeper we probe into the laws of nature, the more it seems as though the physical world almost evaporates and we are left with mathematics. The deeper we understand the laws of physics, the more we are driven into this world of mathematics and of mathematical concepts.” [Roger Penrose]
29. “My philosophical project, over the last twenty years or so, has been to understand the relation between a venerable old idea borrowed from what philosophers call ‘folks psychology’, and a trendy new idea borrowed mainly from Alan Turing. The old idea isthat mental states are characteristically intentional; or at least that those mental states involved in cognition characteristically are. The new idea is that mental processes are characteristically computational. My problem lies in the apparently difficulty of getting ideas to fit together.” [Jerry Fodor]
30. To be continued.
I hope that the readers will recognize among the questions many that are familiar, one or two that is interesting, and perhaps one so compelling that an answer had to be sought.
In his autobiography “Saturday Son”, the former Prime Minister of Burma U Nu – who is now deceased --described the early morning scene at his house on the day of the military coup in 1962.
Unbeknownst to him, a coup had been announced on the radio, and a contingent of soldiers had came to his house to arrest him. He heard a soldier talked into his walkie-talkie, “We’ve got the maggot.” The words did not register with the prime minister immediately, “but when the soldier keep repeating “We’ve caught the maggot” , “it dawned upon him that the man was reporting his capture to headquarters, and the word “maggot” was the code name assigned to him. It seemed a big drop from prime minister to maggot. He smiled.”
A cabal of military men had ruled Burma uninterrupted since, and given the utter ruins that had been visited upon that country from that fateful days on, I often wonder why nobody – the best and the brightest in government and those in the political establishments outside it – foresaw what was coming and do something about it.
Sad to state, I never saw these kinds of questions get to a satisfying answer. Always a new rounds of events comes around to muddy the old ones.
In that sense, we are like the proverbial Swiss watchmaker who never get to assemble a single piece of a finished watch as he was frequently called to answer the doorbell of his workplace!
My hard drive is already choking with a whole year worth of commentaries, explanations, and stories of the Financial Meltdown of 2008, but I must admit that I felt a slight gag when I read the latest addition to it.
I had always thought “Saving is Good”, but this new reading material begins with a headline that said “Big Savers Got Us into This Mess, as well as Big Spenders.”
You could be a cave dweller if you don’t know that Big Savers are China and Germany, and we in the U.S. of A and Britain – and with Spain and a few small countries from across the Channel -- are the Big Spenders.
The headline jives with a cartoon from the New Yorker magazine of a Chinese worker making sandals, herself bare-footed.
I got it.
I can now imagine a mountain of Cash sloshing around the world banks’ vaults doing nothing other than sloshing. I don’t mind the sloshing. But the Bankers of the World had a brilliant idea. Why not transform IT and spread it around, while of course helping themselves on a huge Chunk of it in the forms of multi-million-dollars apartments in sky-high buildings with amenities that regular folks have never heard of. People might have heard of the extravagant appointments ofbanker Thain’s New York office -- $35000 commode and $87000 rug, but I doubt that many people knew that there are apartments in New York with bathroom floor heated from below so that one can walk bare-foot in the depth of winter and not feel the stab of a cold stone on ones sole.
Bankers have been fond of saying that they are the ones who make “Your Money Works For You,” i.e. to turn your Savings into Investments. For years, it was their ambits. We knew it as CDs with differing maturity dates and varying sizes of income streams.
But within a decade from the late 90s, a new world of finance had begun to emerge, unbeknownst to the folks with the CDs.
The story was that a repeal of certain laws of financial regulations and the advent of computers and computation help to bring this free-range banking into being. The ambits for the bankers were widened. Bankers can now roam free, and they begin to assume the title of“Financial Engineers,”thus borrowing lock, stock and barrel the accrued reputation of safety, prudence, and design from the engineers who have built roads, bridges and buildings for centuries of public use. Roman aqueducts are still standing.
Instead of the materials of steel and concrete of engineers, the “materials” of the bankers are the “financial structures” of cleverly invented asset classes, which are “innovated” further into assets of assets of assets, which are in turn mixed and mashed and rated and insured and sold to various classes of investors for certain income streams. The investor may be the endowment fund of your alma mater, the police and fireman retirement funds of the county you reside in, or your rich uncle who has investments in a hedge fund.
Securitization is an old word but it now describes this new face of modern financial engineering, but the Nobel laureate economist Joseph Stiglitz has a different name for it, calling it “The Goldberg Machine,” which means a clever rigging of improbable and incongruous elements into a structure that in the end just do one simple thing: for example, produce an income streams for investors. I call it “Promises, Promises,” because honestly nobody can calculate the probabilities of complex-structured elements of differing origins working reliably as designed, whatever the provenance. Gods will not sign on the dotted lines!
In short, modern finance is collapsing under its own weight of artificial complexity and outright chicanery, taking the rest of us down in the process.
[Quote] Yes, we can blame the City and Wall Street for turning the global savings glut into fissile material. But that's like saying, "hyenas do what hyenas do". Given extraordinarily lax regulation and a flood of money to play with, bankers were just acting according to their incentive schemes. They merely took advantage of the opportunities the glut presented. The real culprits are thrifty Germans, and state-owned enterprises in China – along with governments of other countries, of course, turning a blind eye to the escalating problems. [Unquote]
