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At The Mercy of Our Betters

Frank Rich had a great column yesterday, and now it’s Krugman today, basically cracking the same whip. Here’s Rich:

Even as we wait for Congress and its inquiry to produce results, the cultural toxins revealed by our economic crisis remain unaddressed by the leaders in the private and public sectors who might make a difference now. Blankfein may be giving $200 million to “education,” but Goldman is back to business as usual: making money by high-risk gambling, with all the advantages that the best connections, cheap loans from the Fed andhigh-speed trading algorithms can bring. As the Reuters columnist Rolfe Winkler wrote last week, “Main Street still owns much of the risk while Wall Street gets all of the profit.”

The idea of investing in the real economy — the one that might create jobs for Americans — remains outré in this culture. Credit to small businesses remains tight. The holy capitalist grail is still the speculative buying and selling of companies and the concoction of ever more esoteric financial “instruments.” The tragic tale of Simmons Bedding recently told in The Times is a role model. This successful 133-year-old manufacturing enterprise was flipped seven times in two decades by private equity firms. Investors made more than $750 million in profits even as the pile-up of debt pushed Simmons into bankruptcy, costing a quarter of its loyal workers their jobs so far.

He then goes on to mention the president of Harvard, despairing about the rise of business as the most popular undergraduate major, an issue near and dear to my own empty tangle of ventricles and atria heart. But this fixation with gambling, intertwined with instrumental financial exotica and a powerful ignorance for what any of it is about, is a kind of plague in its own right, moving to tear and sunder the mythical fabric of a nation as much any other virus or epidemic. A polity that does not serve itself will be under-served at critical points. We’re noticing several of these now. The idea that someone is doing this to us elides the actual dimensions of the problem, as if it appears to be the work of an outside force. Green is being redefined by the day – what it is, how it’s made, ways it can be lost – and you are compelled to have opinions on far more than merely what interests you. If you think this is a drag, just wait.

We – Americans – struggle with conflicting ideas about egalitarianism. That all are created equal is a strain that runs deep; that we must begin exploiting any differences from the next moment onward runs even deeper. But a fair shot at the virtues of capitalism is only possible with a revolver at 15 paces. There’s nothing else equal or just about it, because capitalism isn’t about virtue – that’s its primary feature. Many know and internalize this; many more perhaps do not. We may find ourselves at the mercy of the former, but this is because of the position they have been afforded in a society that rewards outlandish greed. Maybe, like its fossil fuel brethren, we have to educate ourselves and admit less of an affinity for greed and monetary alchemy. Maybe we decide there’s a few things about it that are unbecoming, that it may have unwelcome consequences that we should warn against. That money is better to use than to be used by. Green Money pervades, but once upon a time, in certain places it’s unadorned pursuit rang hollow.We may imagine such a place. And be better for it.

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Getting Comfortable w/o Parking

If you needed to be shown how completely entangled this parking lot-led development paradigm/morass is, look no further:

Transit-oriented development isn’t stymied by outdated zoning, unwilling developers or a lack of space. It turns out, banks, wedded to old-fashioned lending standards that stress parking, may pose the biggest blockade by denying financing.

The reason: Lenders operate from a tried-and-true principle that maintains more parking means less risk and a higher return on their investment. But ditching cars is the whole point of urban developers looking to create 24-hour live, work and play environments that hug light-rail hubs.

You’ve been in this lending situation, and so have seen these people. They’re not computer algorithms – they’re people. But because bank executives and underwriters, lawyers and loan officers cannot grasp the concept of a walkable mix of residential, retail and office space, they glom onto surface parking as a deal breaker/maker for real estate development.

Granted this was always going to be difficult; when the new “bus technology” began replacing street cars back in the 1920’s, it was always going to be tough to go back. But the twenties will be here again soon, and we’ll be building a future that has a look and feel of the past – except we’ll call it retrofitting communities to build a living environment, or some such. Hopefully the banks will one day again be right next to the YMCA.

via.

Plus… if that weren’t enough, it’s blog action day! They should know that’s everyday around here.

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Concealment of Losses

Because it requires such hearty fortitude, reading Kunstler doesn’t seem to be for everybody. Which, of course, says more about everybody than it does about him. His noteworthy digressions on suburbia and the long, slow car wreck (sorry) that is the American economy are entertaining in that gallows humor sort of way, but enlightening for purposes of seeing into the green, as well. We are all pu**ies in the way in which we need the worst of our worst to be elided from us with dense statistics, acronyms and otherwise artificial routes to happiness, whether they come in the form of adjustable rate mortgages or doctor-prescribed pills. Even honest grappling with this situation would at least put us on the sidewalk to lifestyle changes that would begin to improve some of the worsts (planetary, transportation, communications). But, no; we must continually place ourselves at the mercy of the corporate fantasists who promise us Sweet Baby All in exchange for keeping things humming along, even if, as JHK fears, we’re humming right along into a buzz saw.

For example, take Kunstler’s Happy Motoring non-metaphor. This new battery technology – why is it problematic?

As a part of IBM’s 2-year-old Big Green Innovations program, the Battery 500 Project aims to boost the range of rechargeable batteries for all-electric cars from less than 100 miles today to as far as 500 miles. The consortium’s efforts are being led by the Almaden Lab in collaboration with several U.S. universities and the Department of Energy’s national labs.

“Batteries technology has improved, but is still far inferior to gasoline in terms of how much energy they hold,” said Spike Narayan, a key IBM researcher. “The energy density—which is the amount of energy a lithium-ion battery stores per unit weight—is really not enough to produce a family-sized sedan with a 300- to 500-mile range.”

Being able to continue rely on automobiles similarly to the way we do now… is that really a green innovation? There are four big reasons why plug-ins won’t be better than petrol-fueled cars, but lowly number five is the inference that plug-ins will largely allow most of what we now see/do to stay the same. This is the major plug-in FAIL.

Exhibit Dos: Download the new Visa Black Card commercial to your hairbrush, here.

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Open Up the Till

And give me the change you said would do me good.

Picking up on a trend that came up last week, another energy company decides the Chamber is just not the disco floor it once was:

Exelon, one of the country’s largest utilities, said Monday that it would quit the United States Chamber of Commerce because of that group’s stance on climate change. It was the latest in a string of companies to do so, perhaps a harbinger of how intense the fight over global warming legislation could become.

“The carbon-based free lunch is over,” said John W. Rowe, Exelon’s chief executive. “Breakthroughs on climate change and improving our society’s energy efficiency are within reach.”

En garde, Monsieur Rowe; them’s librul fightin’ words if ever there was any. What might have starched these corporate britches?

What appears to have touched off the utilities’ withdrawals from the chamber was a recent article in The Los Angeles Times that cited chamber officials who called for a “Scopes monkey trial of the 21st century” about the science of climate change. The Scopes trial was a clash of creationists and evolutionists in the 1920s.

Well, that would do it. One thing Leading Companies of Today™ cannot countenance is looking like yahoos – and I don’t mean a second rate search engine. Roy wrote recently about a new book on the Republican Party’s embrace/implosion at the hands of fundamentalist Christians, and this can be thought of along similar lines. What’s a healthy dose of the crazy, and how long can you ride it? The advantage gained to a political party, or a group of companies, by riding herd on the rabid willingness of zealots to say and do anything in pursuit of shared ideological goals can be measured in months. [This especially true when the shared goals are orthogonal – that is, mine aren’t yours and yours aren’t mine but they intersect in a way that we look like friends… even though I know you are crazy.] Corporations, far more nervous than politicians, know this, enter into such pacts far more cautiously and are quick to flee as the dial gets turned up. While it may have appeared that the GOP had secured the future of the country just a few short years ago, what they had actually secured was the limits of very finite, though quite enthusiastic, support. Politically, it was crazy from the go.

It’s not as though coporations are or should be considered paragons of ecological virtue. They just don’t want to look like idiots in a way that costs them money. And that, my friends, is what we call a teachable moment.

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Spending Earning Giving Fighting

What does it look like? At Information is Beautiful, this picture generated from the idea of a Billion Dollar Gram. Click the link to get the breakdown.

On a related point, Grist features a new book, Cheap: The High Cost of Discount Culture, with an interview with the author. Says she:

IKEA names all its products to make stuff seem cute, but then they’re telling you, “You’re not really attached to this, are you crazy?” They’re getting you to laugh at and make a mockery out of the idea of durability. They make durability seem like an old-fashioned, passé idea. And it works. I think it’s really juvenilizing: “Oh, come on, you want a new toy. You always want a new toy.”

Particularly in the marketing of cell phones. You have a cell phone that works really well for you, and then you have a friend who has a cooler one, and you want it. That’s kind of 4-year-old behavior. When you have 3- or 4-year-olds, they want the new shiny thing. But as you get older and a little more mature—and I don’t mean 50, I mean 16 or 17—you learn that that’s not what it’s about. It’s about what works for me. Marketers obviously don’t want you to think that. In the case of the cell phone, they assume you’re going to use it for a year or less, and it’s not durable. Even if it is, they assume you’re going to junk it. I say, “Screw them!” If it works for you, hang on to it. Don’t buy into that, because basically, it’s all about them making a profit. It’s not about you and what you really want.

Progressive, Scandinavian company drugging us with disposable goods. Who can you trust?

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Selling the Hot Idea

Speaking of debris fields, Stephen Benen at WM flags an article that is brimming with all kinds of cosmic debris. The piece is ostensibly about how the current political climate is muting what enthusiasm there is for legislation to combat climate change. But it’s actually a description of the false choice between the environment and economic development which many people sincerely believe they are grappling with. For those about to choose, we… tell you to hold on a minute.

I’ll just pick out a couple of things form the article, by Jennifer Robison of the Las Vegas Review-Journal who uses data from a recent Gallup poll to get right to the point.

Recent surveys show Americans cooling to global warming, and they’re even less keen on environmental policies they believe might raise power bills or imperil jobs.

…

What’s more, fewer Americans believe the effects of global warming have started to occur: 53 percent see signs of a hotter planet, down from 61 percent in 2008. Global warming placed last among eight environmental concerns Gallup asked respondents to rank, with water pollution landing the top spot.

Another recent Gallup study found that, for the first time in 25 years of polling, more Americans care about economic growth than the environment.

…

And Myron Ebell, director of energy and global warming policy at the Competitive Enterprise Institute, a libertarian think-tank, pointed to a study from the National Rural Electric Cooperative Association that showed 58 percent of respondents were unwilling to pay more than they currently pay for electricity to combat climate change.

Emphasis mine. Is that a choice? “Hmm… this is what I’ll pay for my light bill and not a penny more!” Is that how it works? Really? The ellipses are used not to cherry pick – feel free to read the whole thing. It’s a decent picture of what people have been led to believe are the underlying conditions of both climate catastrophe and economic development. She’s right in that the way global warming has been portrayed is partly to blame. Just not in the way she says.

With so many surveys revealing that Americans have little appetite for environmental policies that they think could stall economic growth or pinch consumers’ budgets, policymakers still have some selling to do, observers say.

What are they supposed to sell? That, short of new, highly exotic schemes that, not unlike the rear-view mirror, may appear more insane than they actually are, economic growth as we’ve known it is over? That should go over well. But the point is that these two have not been sufficiently connected. It’s another contradiction: despite the kinds of big expensive movies we make and support – we’re actually afraid of scaring people. Who woulda thunk it? This is not even touching on the degree to which people who sow skepticism of a warming planet turn around tout that very skepticism as one reason to do nothing. Though that phenomenon is responsible for this:

“I think there’s a huge amount of skepticism among the public. They’ve heard all these claims, and now they’ve been informed that there isn’t any recent warming,” Ebell said. “The public, without having a lot of information about it, is pretty astute. I think the alarmists are having a hard time making the case for global warming simply because reality is against them and the public has figured it out.”

Again, emphasis mine. That’s a non-sequitur, first of all. But I would choose the terms ‘reality’ and ‘hard time’ as ripe for a kind of redefinition along the lines of what our economic development has been all about and what it would take for it continue in any meaningful way. Even outside of concern for rising oceans, the connection between our rate of resource burn to our ability to grow and grow is non-sensical and we should be striving to transition away from it for that reason alone. Books will be written about this phenomenon and the brick wall awaiting us. It’s not wishful thinking or ‘fatalism as marketing’ that will determine whether we pass or fail on this front, but the thing people fear most – smarts.

With apologies to Mrs. Simmel and the Piranha Brothers – more heads stuffed with Cartesian dualism, please.

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The Rapacious Blur

Green means money, dough, skin, ball, quid, of course. The financial meltdown that hit the news last fall and slowly bled over most of the entire planet is recounted in two new books, which are in turn reviewed by MK in the NYT. Fool’s Gold by Gillian Tett and Dumb Money by Daniel Gross both look like decent post-mortems that gnaw on some of my favorite bones like the corruption of business schools and suburban real estate speculation. Looking at them, both also paint gobs of parallel context onto what has become the Eco Hustle that we know so well.

It was also a disaster, he [Gross] notes, with “plenty of blame to go around,” including “poor regulation, eight years of a failed Republican economic philosophy, Wall Street-friendly Democrats who helped stymie reform, misguided bipartisan efforts to promote home ownership, Wall Street greed, corrupt C.E.O.’s, a botched rescue effort” and poor judgment calls on the part of the Fed, and top bankers who in many cases did not even understand the derivatives their firms were trading in.

In short the current global financial crisis is a story about people who thought they were the smartest guys in the room and who turned out to be remarkably naïve, reckless or, in some cases, downright stupid. It’s a story — novelistic in its narrative and moral arc — about hubris and greed and heedlessness, about people, as Fitzgerald wrote in “The Great Gatsby,” who “smashed up things and creatures and then retreated back into their money or their vast carelessness” and “let other people clean up the mess they had made.”

Sometimes you don’t even have to substitute any words to have the stories turn out so strikingly similar. So maybe we can chalk it up to getting knowing-er about the what when the next when comes. It’s good that competent experts like these can find publishers, and I usually enjoy Kakutani’s slightly-more-than-just-the-facts style.

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It’s Like Blue, Pink and Yellow, Only Different

Inside this Newsweek story about AIG, via Atrios, is a nugget that gets at our own larger house of cards, into which they are few ways in – but once you’re in, they are literally no ways out. To wit:

Most of this as-yet-undiscovered problem, Gober says, lies in the area of reinsurance, whereby one insurance company insures the liabilities of another so that the latter doesn’t have to carry all the risk on its books. Most major insurance companies use outside firms to reinsure, but the vast majority of AIG’s reinsurance contracts are negotiated internally among its affiliates, Gober says, and these internal balance sheets don’t add up. The annual report of one major AIG subsidiary, American Home Assurance, shows that it owes $25 billion to another AIG affiliate, National Union Fire, Gober maintains. But American has only $22 billion of total invested assets on its balance sheet, he says, and it has issued another $22 billion in guarantees to the other companies. “The American Home assets and liquidity raise serious questions about their ability to make good on their promise to National Union Fire,” says Gober, who has a consulting business devoted to protecting policyholders. Gober says there are numerous other examples of “cooked books” between AIG subsidiaries. Based on the state insurance regulators’ own reports detailing unanswered questions, the tally in losses could be hundreds of billions of dollars more than AIG is now acknowledging.

Think concentric economies of scale without the redundancies. When one ring goes beyond what it’s able to support on it’s own, it leverages an outer ring to “insure” itself against loses. I don’t know any other way but to use the scare quotes around insure, and neither do they.

This insurance examiner happened to be from Mississippi, so take that area as a case in point. When you hear about all the beach front property that gets threatened or actually destroyed from storms, huge dollar amounts invariably get tossed around. Small enclaves of precarious oceanfront property could theoretically be insured against loss, say by a local firm or even Lloyds of London (if they still exist), if the property owners had sufficient capital to pay incredibly hefty premiums to insure property that is, for all intents and purposes but especially in plain old chances-of-anything-happening kinds of risk, built in the wrong place. Lovely perhaps, but fleeting. (For more on this, see love, definition of)

Now, for one thing, this would likely limit the number of houses and towns built in precarious geographical areas, and we wouldn’t want to do that –  celui sera UnAmurican. But anyway… stop anywhere here along the way, economically speaking, and the vista is much the same. Once you go beyond those who can afford to build, live and rebuild in danger-prone areas and extend the opportunity to the rest of anyone who wants the lovely, the insurance companies can’t guarantee these investments, even though they will write policies saying that someone* will. We send the risk spiraling outward, trying to leverage the power of the outer rings. But even there, the big firms can’t even write down their actual liabilities – because they wouldn’t be able to cover them in the eventuality of anything catastrophic across scales happening, otherwise known as the events they’re writing insurance to cover.

*Now, what if we stipulated from the outset that this someone was the government, aka the taxpayers? And what if as a part of such ventures other responsibilities were attached the ‘parties of the first part’ that raised the bar for how we go about insuring things? What if, in other words, everyone had to be honest about all of this, what would be different? Less beachfront property? Would the U.S. be a third-world backwater without the necessity to Pyramid-scheme at every opportunity? This is what we would have ourselves believe, that without such security and assurances, such as it is, we would wouldn’t be so prosperous.

I’ll leave it to you to re-assess the shifting definitions of those last few words in light of recent events.

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World’s Longest Undefended Border

Between Canada and the United States? Between clever and stupid? You’re getting warmer. Try the critical dividing line between credit creation and value creation. Seeing these as one in the same is like, well, looking at the huge land mass between Panama and the North Pole and seeing a single, harmonious country. It’s not all the same, though it would change much if some solidarity formed around being North Americans, not all of it good.

There is some good, bad and wrong in this article. The author points to some interesting distinctions that have been missed, or at least underplayed, concerning credit and value.

There are some simple rules for sound banking and sound economies that need to be followed: Whenever credit is created and used to increase the amount of goods and services provided, it will be noninflationary: more money comes about, but also more goods and services. This is boring banking, without excessive bankers’ bonuses. But it is the kind of stable banking that created the postwar German and Japanese economic miracles, and also explains the rise of China and other East Asian so-called miracle economies.

But whenever credit is created and used for unproductive purposes, inflation comes about: more money chases a limited amount of goods or assets. The unproductive credit creation can take two forms: When credit is extended for consumption, it will result in consumer price inflation. When credit is extended for non-gross domestic product transactions (which means mainly financial and real estate transactions), there will be asset inflation. Both cases are unsustainable and if sufficiently large, result in banking and economic crises.

We can be more or less strict about any of this from a regulatory point of view, but what banks create with credit largely defines how we lope from bubbles to busts to bubbles again. Bankers were once (and will be again soon) the stiff, uptight types whose very boringness epitomized financial prudence featuring risk aversion, right down to their Brooks Brothers’ suits. This is the boring banking of low, constant annual returns – you may have heard of it. Though they may have been disparaged from time to time as prudish stereotypes, there was a certain reliance on them as a personification of the confidence we could place in the system. Credit was slow moving for a reason. But when, as the writer points out, credit is created and used for unproductive purposes, all manner of skulduggery becomes possible.

And here’s the civics class section that coach skipped over – when something involving money becomes possible in our system, it’s as good as mandatory.

We get exotic financial instruments and bankers in Zegna and Armani spinning a whole different kind of confidence game. These episodes, if that’s all they are, point back to an economy abandoned of its fundamentals, where people are making money off of money that, it turns out, isn’t real money. Inflated value is not real money, so you should not be able to get easy cash (more debt) in return for not having it.

Q: How can you afford a $789,000 home financed at 5.8% if you’re not an anesthesiologist?

A: You can’t.

There are all manner of warning signs that no one wants to believe (Dow 36,000?) and it’s easy to look back and say well, we should have known, what with all those e*trade commercials during breaks in ‘Flip that House’, you could see greed getting the best of the least among us first*. Yes, we should have and in fact many, many people did refuse the basic temptation to jump in and not get left out of the gold rush, which was based on nothing more than self-conjured pool of suckers-R-us.

* I’m thinking of the conscience-challenged here, first, but there’s a growing body of evidence which suggests some preternatural disposition toward not asking questions if the answers keep coming at a 30% annual rate of return.