This I Believe

by Richard Crews

I don't exactly believe in God; I think I "believe" more in human dumbness.

I should hasten to add that I don't exactly disbelieve in God either. For two reasons. One is that in philosophy as in financial investing it seems like a good idea to hedge your bets. As a childhood friend used to say when he went to the trouble of going to mass every Sunday, "Sure, I might be wrong; but then I might be right."

The second reason is that I find a belief in God very comforting. Inhabiting a world where there is a Big Guy looking after me feels a lot safer than any alternative I can think of.

Perhaps I should explain more what I mean by believing in "human dumbness." For one thing, we know we're not aware of one-one-millionth of what goes on around us. Consider not only all the tiny sounds and vibrations that little creatures like cockroaches count on every minute of every day. And the bird songs and other natural noises that are too high-pitched or change too quickly for us to hear. And that doesn't begin to cover the infinitude of vibrations and variations in the electromagnetic spectrum that are all around us and course through us all the time--not just things like ultra-violet light and cosmic rays, but the precise electromagnetic waves that convey a thousand-thousand radio and TV stations, gps data, and cell telephone calls, not to mention a million garage-door openers, traffic light signals, and credit card readers.

So start with the realization that you are sort of going through life with your eyes tight shut and your hands holding hard over your ears plus your nose stuffed up with a cold and your entire skin-suit numbed from, say, freezing cold weather. In other words, at the very best you are aware of only the tiniest fraction of what is going on around you. Then add to that how clear it is when we bring old memories to mind or suddenly think of new ideas or combinations, that we really aren't thinking about most of what we could be thinking about at any given moment.

The idea that I am pretty much aware of the world around me and keeping an eye on it--that I am thinking about it--is totally an ego-maniacal delusion. A better analogy of my waking, alert mental state is that I am pretty much asleep in a warm, very dark cave all the time.

In other words, if there is any evidence or information for or against the existence of a God, I am surely not capable of becoming aware of it or understanding it. Put another way--almost all the evidence (and thinking) that bears on this question is beyond me. What little I can come up with must be, at best, the tiny layer of frost on the visible part of the ice berg. And what I surely am missing out on might easily counteract my thinking and reverse my opinion seventeen times over.

One more thing--the last straw, as it were. Sometimes I notice that even when I have looked into something carefully and thought about it intensely, I get it wrong. Later on, I find I have to change my mind.

It seems clear that the only thing that keeps me believing (if I do) one way or another about the existence of a God is that "ego-maniacal delusion" I mentioned. That delusion is very dear to me, it is true; but unfortunately it is not worth the few neurons it is written on.

Mining Garbage

by Richard Crews

There are thousands of cubic miles of garbage in the world, much of it piled into unsightly and unhealthy mountains near urban centers. Some of the best of these are land fills, bulldozed over and buried under a layer of dirt, perhaps overgrown with wild places or parks, built over with parking lots and malls, even supporting the foundations of buildings and urban or suburban sprawl.

These mountains of mixed, unattractive and toxic scats of civilization accumulate and grow year by year. They are always a municipal problem, often a blight on the landscape, sometimes a political catastrophe. A few years ago, for example, a series of huge barges piled high with garbage were stranded in the harbor outside New York City. They were not permitted to dump their loads out at sea any more, but also were not allowed to return to land. One charming headline reporting the dilemma read, "Waste Is a Terrible Thing to Mind."

These mountains of garbage contain a lot of foodstuffs, volatile chemicals, wood and paper products, etc. that decay and decompose in a matter of days to weeks. They also contain hardier metal and composite materials, plastics and manufactured substances that endure for months, even years, before gradually returning to smaller chemical components that can recycle to and through nature's processes. Some, however, are even more durable--aluminum cans, radioactive hospital wastes, heavy metals, and exotic components of electronic discards--that truly "laugh at the centuries."

But these mountains of garbage can be curiously valuable, too--under the right circumstances. They represent, for example, a far more concentrated and refined repository of copper, iron, and some rare metals such as gold, silver, and platinum, than the best ores found in nature. Some municipalities and private enterprises have undertaken to mine garbage dumps--to extract the valuable resources they may yield. But this can be a difficult matter, presenting both political and technological problems, hounded by both ecological and economic concerns.

We the public, both as civilized political animals and as hopeful custodians of wild places, need to take on--carefully, thoughtfully, and fully--the complex considerations attendant on mining garbage . Otherwise we, the civilized species that has gradually taken over the planet, will ultimately shit ourselves to death.

Afghanistan--Three Solutions

by Richard Crews

Much of Iraq (were it not for the language barrier) could be seamlessly transplanted into the U.S.--the urban centers and suburban sprawl, the paved highways and byways, the malls, the cell phones, the filling stations, the power lines, etc. would fit right in. By contrast, much of Afghanistan would only blend into a Stone Age setting: there are thousands of square miles of rugged mountains with isolated villages that do not have much in the way of sanitation, community water supplies, paved roads, etc.

In Iraq, overrunning a sophisticated, modern civilization (albeit run by a bloody dictator) did not pose much of a problem even for the Bush team (although controlling the ensuing the wave of inner-city vandalism and race riots was pretty much beyond them). But the situation in Afghanistan is altogether different; Afghanistan simply does not have the proper infrastructure to be invaded in a civilized way. Gangs of armed toughs run rampant through the countryside--stealing, raping, torturing, burning, reminding us that without adult supervision "boys will be boys"--even having the temerity to shoot at U.S. troops (who are only there to help them)--and then retreating to mountain caves or stashing their weapons and tilling their fields when the "cops" (that is, armed U.S. troops) come to town.

The U.S. would like to go home and leave Afghanistan to their own devices, but we can't. They provide a haven for Taliban jihadists to plan escapades like the 9-11 attacks against the U.S. and to motivate young men to martyr their way into a warped version of heaven with lots of available virgins.

There are three possible solutions to the Afghanistan problem.

First Solution: Allegiance to the Taliban is fragile and fickle; they buy the allegiance of the locals for about $8 a day. For $9 a day they would switch sides. This would cost the U.S. about $300 million a year--about 1/80th what our Afghanistan effort is now costing us. This is analogous to the U.S. program of buying the support of insurgents that turned the tide in Iraq (commonly politically attributed to "the Surge").

Second Solution: the main cash crop in Afghanistan is opium poppies (and the morphine and heroin derived from them). If we took seriously the lessons we could learn from the history of prohibition of alcohol in the U.S. and did away with legal restrictions on opium, that would effectively castrate the entire narco-trafficking system on which rural Afghanistan depends. Granted, opium derivatives are severely addicting--in fact, they are one of the Big Four addicting scourges of Western Civilization (alcohol, nicotine, opium derivatives, and cocaine). However, even though opium derivatives and cocaine do not have the serious health dangers that go along with alcohol and nicotine addiction (like cirrhosis of the liver and lung cancer), there are strong cultural prejudices against legalizing them.

An Alternative Second Solution: If we could come up with a cash crop for rural Afghanistan that would be competitive with opium poppies . . . but there simply isn't one.

Third Solution (and this seems to be the path we are undertaking): A long (decades long), expensive (hundreds of billions of dollars), carefully thought-out (which seems historically un-American) diplomatic and cultural effort to bring Afghanistan, kicking and screaming like a spoiled child, into the 21st century.

My recommendation: a combination of all three of these solutions.

Bush, Cheney, and Rumsfeld--War Crimes

by Richard Crews

George Bush was President, Dick Cheney was Vice President, and Donald Rumsfeld was Secretary of Defense for several years while the U.S. was at war in Iraq and Afghanistan.

Did they condone torture of prisoners? It seems clear from reports of the International Red Cross and sworn testimony of guards at Guantanamo Bay that they did. And they did not just condone it--they did not just set policies and procedures establishing the use of torture; they sent specific, direct orders again and again--hour after hour; day, week, month, and year after year--next use such-and-such technique on such-and-such specific prisoner. The interrogators were unsure of their legal and moral footing; they asked their higher-ups again and again; and they got back specific, direct orders--again and again.

Were the techniques they ordered truly torture? It seems clear that they were. The prisoners were told that their families were dead and their homelands had been destroyed by nuclear bombs; they were kept for months in solitary confinement in tiny cells (sometimes even for days in coffin-like boxes deprived of air and light), naked in freezing temperatures, beaten, dragged around by a rope around the neck, shackled and kept standing for days on end, deprived of sleep and food, subjected to water-boarding, and interrogated for as much as 18 to 20 hours a day. "Torture," according to the United Nations Convention Against Torture, is “any act by which severe pain or suffering, whether physical or mental, is intentionally inflicted...."

Were Bush, Cheney, and Rumsfeld guilty of war crimes? It seems clear that they were. "War crimes" are defined in the statute that established the International Criminal Court in The Hague to include "causing great suffering or serious injury to body or health" including "torture or inhumane treatment."

Should they be indicted by that International Criminal Court? Many people believe that they should. Other political leaders of other countries have been.

Will they be indicted by that court? Probably not. That would involve delicate, tangled threads of international diplomacy.

Guantanamo--The Solution

by Richard Crews

Guantanamo presents a problem--a pickle--a quagmire--a can of worms--a dilemma wrapped up in an enigma. But there is a solution.

After 9/11, President Bush declared that we were in a "war" on terrorism. It wasn't a war in any traditional sense--there were no uniformed troops arrayed against us; no battle lines; no national (or even ethnic) confrontations. But calling a severe national problem a "war" had gotten into our blood--there was the "war on drugs" and on AIDS and even on racism, ageism, sexism, etc. Moreover a U.S. president at "war" has special, additional powers; historically during times of war Lincoln, Wilson, and FDR all suspended habeas corpus and other civil rights that are sacrosanct--that are morally utterly inviolate according to our United States founding documents and civilized principles--except in the extreme circumstances of war.

So President Bush declared "war on terrorism." One is tempted to think that this was in order to expand his Draconian powers; at any rate, it contributed to that result.

In Afghanistan (also in Iraq and elsewhere, but mainly in Afghanistan), the military forces took prisoners--as military forces do. But they were not "prisoners of war" protected by the Geneva Conventions--they didn't wear uniforms, carry weapons openly, or swear allegiance to a nation (which are the criteria carefully defined in the Geneva Conventions). They certainly were not (for the most part) U.S. citizens with the civil rights guaranteed with that status. Moreover, they were not on U.S. ground; a special facility was set up at Guantanamo Bay in Cuba on ground which was leased by the U.S. government but was definitely (legally) not U.S. soil.

In legal limbo they were--not subject to U.S. civilian or military law, nor international law. And there they could be kept--as far as the president was concerned--without being charged or tried for a crime--indefinitely. So there they stayed--year after year after year.

Moreover, they were thought to have information about the next 9/11 attack being planned on the United States. Information that, if wrung out of them, might save American lives. So they were tortured--they were told that their families were dead and their homelands had been destroyed by atom bombs; they were kept for months in solitary confinement in tiny cells (sometimes even for days in coffin-like boxes deprived of air and light), naked in freezing temperatures, beaten, dragged around by a rope around the neck, shackled and kept standing for days on end, deprived of sleep and food, subjected to water-boarding, and interrogated for as much as 18 and 20 hours a day. This was despite the expert psychological knowledge that useful information cannot be gained from torture (the victim will say anything)--and the legal fact that any confession or evidence obtained by torture cannot be used in court.

And what, ultimately, could be done with them? Their legal limbo became increasingly complex. They couldn't be tried for a crime because in many cases there was no good evidence against them--and what evidence there might be was too secret--too classified--to be revealed, or else it was tainted by torture. And they couldn't be released--if they did not hate the U.S when they arrived at Guantanamo, they surely did after they had been kept there for a while.

I watched several scholarly legal debates on TV about Guantanamo. It came through clearly to me that there is no reasonable resolution--except one. And it is a curious one. Apparently if the death-penalty option is "taken off the table," the legal and hence administrative resolution becomes simple.

I heard clearly that this is so. I do not understand why--I am not enough of a legal scholar. Perhaps you can explain this to me.

Energy Use--Some Specifics

by Richard Crews

The latest data for energy use per person (2005) in kgoe/p/y (kilograms of oil equivalent per person per year):
Worldwide = 1,778
U.S. = 7,886 (about 4.4 times the world average)

There are 9 countries that use more kgoe/p/y than the U.S.: Bahrain, Canada, Iceland, Kuwait, Luxembourg, Netherlands Antilles, Qatar, Trinidad and Tobago, and United Arab Emirates.

There are 4 countries that are close behind the U.S.: Brunei, Norway, Saudi Arabia, Singapore

The 4 countries that use the lowest kgoe/p/y are Bangladesh (171), Cambodia (354), Congo (including the Democratic Republic) (300), and Eritrea (175).

In addition to these 19, there are 118 other countries listed in this statistical summary.
http://earthtrends.wri.org/text/energy-resources/variable-351.html


Household Energy Uses

Energy use per household in the U.S. varies widely, depending on the climate, weather, size and insulation of the home (windows, doors, etc.), and the various kinds (and particularly, the efficiency) of appliances in use. That is why some of the following categories have such wide ranges.

10-60% space heating
0-40% space cooling
5-25% cooking (microwave, stove top, oven)
5-10% refrigerator (freezer)
5-10% water heater
0-10% washing, drying (dishes, clothes)
2-5% lights
2-5% TV and other communication/entertainment appliances
0-5% special uses (shop tools, copier, etc.)


Travel Energy Uses

15-50% local/commute
0-10% mass transit
0-40% long distance, air
0-25% long distance, car
0-15% long distance, rail


Characteristics of Ideal "Smart Meters" for Electricity and Gas

(1) they are in-line at the household meters
(2) they read real-time consumptions
(3) then transmit these data to central household, readily available (e.g., kitchen) read outs
(4) the read outs are in dollars per hour ($/h) with conversions to dollars per month ($/mo) for electricity and for gas

Frills*: The following provide useful and interesting additional information for householders:
(5) Instant comparison with monthly average for that time of day and season of the year
(6) Data on specific major uses and appliances for (a) space heating, (b) air conditioning, (c) refrigerator (freezer), (d) washing/drying, (e) water heater, (f) other

* Note that adding these "frills" raises the cost of a "smart meter" from around $35-$100 per household to $1,200-$1,500 per household. The main reason for the increased cost is the purchase and installation of various sensors and transmitters located at the key energy-use appliances; the cost of the additional computing and computer memory is trivial.


Household Electricity Generation

Every house should have an array of solar panels on the roof. The house should have a bi-directional meter that's allows the owner to sell electricity back into the main utility grid when the Sun is shining and the household is not using as much electrical energy as it is harvesting. Although 36 U.S. states have some provision for allowing private individuals to do this, in all cases the excess electricity is purchased by the local utility company at a significantly reduced rate (often half or less of the selling rate). Some households have battery banks for storing the excess electricity they harvest; in some systems the excess is used to charge up a hybrid car's batteries. But a fair in-and-out arrangement with the local electrical utility company could be most efficient and should be legally mandated.

A national "smart" electricity grid should be built to enable wind corridors along the east and west seaboards and in the north-central states, and the solar energy available in the south-west "Sun" states to feed in electricity for use in populous areas. Although the estimated price tag for this nationwide grid is around $135 billion, utility experts emphasize that the utility companies would be willing to foot this infrastructure bill if the U.S. government would assure right-of-way and permitting feasibility.

Pay

by Richard Crews

Nobody needs to make a million dollars a year.

Why do I say this furtively and apologetically? I don't.

In a world where a billion people (most of them children) are starving, where a billion people (most of them children) don't have safe drinking water, where tens of millions (most of them children) die each year of curable diseases, no one--NO ONE--should rake the cream off the top.

This includes professional athletes, Hollywood stars, entrepreneurs, business executives, or anyone else.

The arguments against this--that you won't get top talent ("the best and the brightest"), that you won't motivate financial risk-takers, that freely competitive markets maximize overall growth and wealth, even that you would stifle philanthropy--are spurious.

The arguments that you will drive big business and big investment overseas--that manufacturing will fly off to China and banking to the Cayman Islands--are not spurious. And they cannot be overcome by regulation and protectionism. But perhaps they can be overcome by creating a civilization (a "cultural expectation," if you will) that correctly reflects our mutual interdependence--that we are all humans--one single, fortunate species--embarked on a remarkable journey across time on single, fragile planet hurtling through the wide emptiness of space.

It serves our spiritual growth and emotional health to recognize this. It also happens to be true, and also pragmatically necessary in even the "short" run of a few centuries.

Will Rogers, the down-home, humorist philosopher, was asked once by a reporter during the Second World War what should be done about the German submarines that were savaging Allied ships and coastlines. He replied, "We should boil the oceans--I'll leave the details to you fellows."

And that's where I shall leave my perspectives on pay, along with all my other "good ideas."

Solving the U.S. Energy Problems

by Richard Crews

There is one step--simple, inexpensive--that could go a long way toward solving the U.S.'s complex of energy problems (that is, pollution, profligate use, and dependence on foreign sources).

It is occasionally cleverly observed that far-and-away the best source of green energy is conservation. Further, that U.S. households use a tremendous proportion of the energy consumed in the U.S., and that the majority of this energy is misused or, frankly, wasted. Moreover, it is commonly observed (though not often loudly touted about) that, after hunger and sex, the main motivating forces for human beings--God love 'em!--are greed and self-interest.

If only there were some way to put these observations together to create a winning approach to the U.S.'s energy woes. But wait! There is.

It's called a "smart meter." For $35 to $100 a householder can install a display that shows how much energy the household is using at any particular moment. To be most useful, this should include both electricity and natural gas; to be most dramatically effective, the read-outs should be in dollars per month.

If a "smart meter" read-out is prominently available so that the householder is drawn to consult it every time he or she turns up the heat or down the air conditioning, puts something in the oven to roast for a couple of hours, or leaves on a thousand watts of lights plus the TV while going to take a nap, it subtly but powerfully and inexorably leads to significant energy savings.

Getting Old

by Richard Crews

One interesting change I've noticed in recent years is that it takes a long, LONG time to heal things. A couple of months ago, for example, I slipped against a low curb riding my bike in the rain and took a tumble. And after all these many weeks I still have painful bone bruises on my left knee and left elbow. That was A COUPLE OF MONTHS AGO! Here's another example: a couple of weeks ago one of the dogs scratched my arm when we were playing. It was quite a superficial wound--it bled, it scabbed, it granulated quite normally, but now it seems to go on and on being a small sore scab on my arm; a few years ago it would have been long gone by now.

This is the latest confrontation with old age--an injury added to insult, so to speak. I have gradually adjusted to being physically weaker than I was: ten years ago I recall hoisting many a 90-pound sack of dry concrete mix onto my shoulder and porting it 100 yards down a woods path; these days a 60-pound sack is an effort. My eyesight and hearing are less able (presbyopia and cataracts, and presbycusis plus accumulated acoustic trauma). I have more and more trouble, year by year, keeping my weight down. I find it is harder and harder to add new memories. And, for these and other (socially determined) reasons, I find I walk the earth pervasively feeling inadequate and ashamed of who I am--of who I seem to be turning into.

Happily my writing skills seem intact. And my thinking skills, though they are different--more ponderous, more reflective, less flashy and quick--seem satisfyingly functional.

The recurrent, and growing, question is--how long shall I tolerate these accumulating and mounting declines before I cash in my chips? I have often seen old folks who clearly did not get the memo--they clearly had overstayed any reasonable welcome on this Earth. How--I have so often wondered--can they possibly not see that their time is past . . . long past? In addition to the stealthiness of the insidious declines, there must be some inner blindness to the net effects. True, perhaps there is some unforeseen justification that emerges as the years progress. But just as "perhaps-able" is that the subtle, deep-seated fear of death--or at least fear of the unknown--plays havoc with one's perceptions of one's own decline.

Ah, well. Time will tell.

Stains on Obama's Halo

by Richard Crews

When I was asked recently to state my "Political Affiliation (optional)," I wrote, "Obamania." By the way, on the next question which was, "Religion (optional)," I wrote, "None yet (I'm only 71)."

Those of us who have become enthusiastically devoted to the Obama cult are hopeful that he will set right the ship of state, so badly damaged and turned off course by the Bush administration. In addition to being a brilliant public speaker and administrator and politician, Obama appears to have a moral compass which, unlike Bush's, is firmly rooted in history, respect for science, and pragmatism. (Some would argue that a "moral compass" cannot be "rooted in pragmatism"; that's ok--some people thought the Cubs would never get to a World Series.)

We saw Obama march through the presidential primary and campaign, getting it right--again and again--step after step after step. After he was elected, we were delighted to see how quickly and surely he moved during the transition, choosing experts to advise him rather than political and business cronies. And when he swept into office January 20th and immediately began to undo Bush's terrible economic, environmental, and foreign policy legacies, we raised our arms toward the heavens and echoed Oprah's cry of joy, "He is the One!"

Then last week two stains appeared on Obama's halo: he signed into law the Supplemental Omnibus Spending Bill to keep the government running until a new budget can take effect in September, but he (1) accepted, with the bill, over 8,000 "earmarks" and (2) wrote a "signing statement" negating certain parts of the bill.

Earmarks are a way of life in Washington. They are little bits of pork dropped into a bill in the middle of the night saying things like, "and by the way, this bill will build a new dog park in Ogallala, and it will use Johny's Tractor Supply to do the work." And, "where it says in this bill that 'somebody' will get hired, it means my cousin Benny."

Earmarks serve to pay back political debts and get campaign contributions so incumbents will get reelected. It is argued that "nobody knows better than the senator or representative for an area what really needs to be done there." During the Bush years, the average bill had tens of thousands of earmarks.

Obama promised during his campaign to end the earmarks game (McCain did too, by the way). Yet along came the Omnibus Spending Bill and he signed it with over 8,000 earmarks. In his defense, the bill was negotiated and finalized many months earlier and all together the earmarks amount to only about one percent of the $410 billion bill. But this is a worrisome sign.

As to signing statements, those are instructions a president writes when he signs a bill saying how he will (or that he won't) enforce certain parts of the bill. They are supposed to be rare; they are supposed to reflect the president's concern that some provision of a bill may be unconstitutional as written. Bush, of course, raised presidential signing statements to a way of life--he set aside some 1,200 parts of bills he signed (more than all prior presidents put together). This was part of his anti-historical, megalomaniacal quest for power. Many knowledgeable people--including legislative and judicial forces and the American Bar Association--went on record opposing Bush's use of signing statements as abuse of power.

Obama said he would use signing statements judiciously, if at all; and since he, unlike Bush, is a constitutional scholar (he taught constitutional law) and also a grown-up, we believed him--we trusted him. And yet with the Omnibus Spending Bill he wrote a signing statement. This statement rejects Congressional constraints on the president's conducting foreign policy and commanding the U.S. military, and also rejects certain new Congressional powers (see http://www.fas.org/sgp/news/2009/03/wh031109.html for the full text of the signing statement).

Again, like the earmarks, this seems like a small thing, perhaps a justifiable thing, but it is worrisome.

Heartening Financial News

by Richard Crews

There seems to be, day by day, a swelling cascade of gloomy predictions about the economy by economists, politicians, and business pundits. I find this very heartening since, historically, this has usually been a sign that the bottom has been reached and things are starting to look up.

This sounds like a joke, but I mean it seriously. I suspect we will find when we look back historically that, although the road out is long and rocky, the bottom was reached in March 2009.

As to what the highlands will look like, that--THAT--is the key question. One financial pundit who was asked, "Will we ever get back to where we were a few years ago?" replied, "My God, I hope not!" Let us hope that the brave new financial world will be characterized by more sane leveraging, more transparency and accountability, sturdier regulation (in expertise, funding, and laws), and--hope against hope--less personally greedy, more socially conscientious operatives. We (they) need to keep in mind that we got here by building on what our parents provided us, and that what we do, we do not just for ourselves but for our children.

And also that, as Obama says, every child in the world is my child. True, this has been said many times before by many people, great and small--but NEVER by anyone so powerful and so well placed to make a difference. (The historical fact is that there has never been anyone in so powerful a position.)

Richard Crews

Financial Regulations

by Richard Crews

It is puzzling that the Obama administration has not come forward with a comprehensive new set of rules and regulations for the financial industries. Clearly the current worldwide economic meltdown is due, at least in major part, to distortions and excesses in banking and other financial practices. These are the result of greedy and amoral, moneyed people with exciting new toys and tools provided by computer and communications technologies, leading to these people "gaming," for personal excitement and gain, an outdated and under-supervised set of laws.

Over the past few decades is has been impossible for government regulation and supervisory sanity to keep up with the rapidly evolving, innovative complexities of transnational finance. A political philosophy of deregulation and small-government has been coupled with fiscal constraints to produce a dysfunctional system.

But these developments are not new or surprising. Thousands of brilliant minds in government, academia, and business have been watching and wondering about their evolution for many years. Now that the worldwide financial pot has come to a boil--has, in fact, boiled over--where are all the "good ideas" that have emerged over those years?

There are several impediments to implementing new rules and regulations for the financial industries. For one thing, there are many disparate, vested--and heavily invested--interests; from politicians and bankers to business people of many ilks, there are powerful people with adversarial points of view. For another thing, the game keeps changing; the nigh-miraculous developments in information technology and the "creative" experiments, realignments, and liquidity they foster mean that would-be regulators are always shooting at a moving, changing, rapidly receding target.

These factors suggest both a format for new regulations and a process for implementation. The format should be top-down or extensional, proceeding from general principles to evolving specifics. One cannot define (particularly in advance of clever minds and dramatic new technologies) all the specific regulations the future will require; but one can set general principles. For example:

(1) all assets and liabilities should be "on the books"--none may be carried in secret corners of arcane ledgers

(2) and they should all be "marked to market"--if they cannot be competitively priced in open markets, they cannot be carried on the books or by an institution

(3) an institution's assets and liabilities must be balanced or diversified--no single vehicle or transaction device can amount to more than a certain percentage of the net worth of the institution

(4) no single institution may be so big that's its demise would destroy the system--the "too big to fail" or anti-monopoly principle

(5) etc.

Of course there are problems--terribly difficult problems--specifying and implementing such principles. And the processes and results for specifying and implementing them must be amenable to change. But, just as the U.S. Constitution led to a specifying and implementing (and eternally evolving) body of laws, so it is necessary to start with general principles for responsible financial regulation.

As to the process for implementation, the early experiences of the Obama administration (and related history) have clearly shown that ALL stakeholders must be involved from the earliest throes of development. Legislators, business people, and academics must all have their say from the start, both because they may contribute good ideas, but also because that is the way to get them connected and committed to the necessary changes. What Obama has called "summititis"--starting off with broad summits on health care, the environment, energy generation and transmission, etc.--is key to having the process lead to effective results and implementation later on.

Thumbnail Psychiatry

by Richard Crews

A baby who does not form deep emotional connections during the first year of life grows up to be psychotic. Usually this is first dramatically manifest by a schizophrenic episode during the terrors and tribulations--essentially the forced independence--of adolescence or early adulthood.

On the other hand, if the failed connections are due to sensory input overload, the psychosis is evident earlier than adolescent schizophrenia; it is evident as autism during the first couple of years of life. Autism, that is, sensory input overload, can be caused either of two ways: genetically--that is, by genetically faulty brain wiring; or toxically by disruption of normal brain wiring by exposure to some of the myriad of modern toxic chemicals (cleaners, pesticides, industrial solvents--we don't know which) during the brain's complicated and delicately staged development.

There is no "cure" for autism, although carefully restricting and restructuring the overloading sensory input can help the afflicted individual feel and function better. Similarly, there is no "cure" for schizophrenia, although careful emotional protection and saving the individual from the stresses and confusions of forced independence can help.

Moving on in developmental life, a baby who successfully navigates the first year of life but then does not form the further, deep, more complex emotional connections needed between the ages of one and five years grows up to be depressed. Depression is essentially turning one's anger at oneself because one does not have the necessary safe relationships to turn it outward.

Why does this come about? The world is necessarily sometimes confusing and frustrating. The prototype of the ways for reacting to this is fear or anger (fight or flight). In deep, emotional imagination, if one's anger can destroy the care-giving world, then one must spare the world and turn it against oneself.

If the emotional-connection deficit occurs early in the one-to-five year period, an adult will experience psychotic depression during the adult years when life begins to disappoint intractably. Or, if later, manic-depression. If later still, depression of neurotic proportions.

Lastly (and most healthfully) in this chain of depressions is the so-called "normal grief reaction" to a severe life disappointment. This is a depression one has the fundamental emotional strength (built during that one-to-five-year period) to recover from; one can rebuild one's effective functioning and joy in life.

If a child is able--both biologically (that is, neurologically) and also socially (that is, by having strong, early parental or parent-like ties)--to form those crucial emotional connections during the first five years of life, emotional difficulties will be neurotic (rather than psychotic or profoundly--that is, psychotically--depressive). A neurotic syndrome or complex is a learned, maladaptive emotional (and, consequently, behavioral) response.

The ways we respond to emotional challenges are not inborn, they are learned. And the possible range of emotional responses is quite broad. Someone who gets their "toes stepped on" (in any of a hundred senses) can react in many different ways: by feeling (and, therefore, acting) angry, or scared, or withdrawn, or puzzled, or amused, etc. Our parents teach us how to respond. We carry these learned responses forward in life. Sometimes they work well--they are effective; sometimes they are maladaptive.

In addition to teaching us the "correct" way to respond, parental figures also teach us a "cover story"--the same one they learned from their parents: that the reaction you have learned, is not learned, it is inborn--it is a natural, normal, inescapable, biological "given." Neurotic complexes or syndromes (or emotional patterns) are treatable--they can be relearned; but this is difficult because of the "cover story."

Widget, Inc. Comes to Littletown

Littletown is a pleasant rural community in Heartland County, U.S.A.

One day the giant international conglomerate Widgit, Inc. decides to build a widget factory and set up some corporate offices in Littletown. A young but ambitious local developer takes advantage of the promising situation, buys some land, and builds 20 small houses. These are pleasantly spaced along tree-lined streets with land set aside for a park and a mall. These houses sell readily to incoming Widget employees for $150,000 each. The Littletown Savings and Loan is happy to lend each buyer (all of whom have good-paying, stable Widget jobs) 80% ($120,000) at 5% per year interest.

Over the next few years as Widget employees move on and new Widget employees come to town, there is a brisk but reasonable turnover of the houses; there are never more than one or two up for sale at any one time, and the buyers are anxious to settle in. So the prices gradually rise.

After a few years, one of the original buyers, Johny Homeowner, discovers that his house is worth quite a bit more than he paid for it, so he pays off his old loan and takes out a new, higher one. Notice that at 10% per year, the price of the house doubles in just under eight years; at 15%, in about five years. So Johny can take out $50,000 to $75,000 every few years--not bad!

Then one year, corporate exigencies being what they are, Widget, Inc. decides to close up shop in Littletown and move to Mediumtown. Uh oh! There is no one to buy the houses. The price drops. One of the owners who can't find a buyer and needs to go, walks away from the loan and when the bank forecloses and puts the house up for sale, it can get only $25,000 (from a speculator). Johny finds that he owes $250,000 on a house that is now worth only $25,000. And the bank, which now has loans on its books that are far in excess of the value of the collateral it holds for them, is itself threatened with bankruptcy; it tells Johny that he has to come up with $200,000 cash or else get out of his house so the bank can sell it, take the loss, and restabalize its books.

Meanwhile the municipality of Littletown has come to rely more and more on rising property taxes (which are typically the largest single source of municipal revenue, often making up more than 50% of a town's income). When these revenues are drastically reduced, Littletown has to fire teachers, firemen, and policemen; it has to reduce city services (like garbage pickup and road repair); and generally tighten its belt.

Poor Johny! Poor Littletown! Poor teachers (and other Littletown employees)! Poor banks! Even, "poor developer" who has just completed his third project--400 houses on another track of land on the other side of Littletown. And the poor speculator, too, who is stuck with a worthless house for which he paid $25,000.

Evolution of a Financial Crisis

What's the harm in paying a premium price for a house if you really want to make it your home? The house and yard are a comfortable size, the neighborhood is clean and safe, the schools are good, and the commute to your work is acceptable. Besides, housing prices in the area have been going up 15% a year for decades; you can make a deal with the bank to pay little more than interest, and still expect to refinance the property every few years to draw several tens of thousands of dollars of equity out.

And what's the risk to the bank of lending you most of the money you need to buy the house? They've got the property for collateral; if you don't keep up with the mortgage payments, they can always foreclose and sell the property.

In fact, why charge you more than very minimal payments--or check your creditworthiness carefully? The ever-rising prices of properties (in the area) make those unnecessary.

Moreover the bank doesn't even have to put several hundred thousand dollars on ice to buy your house for you. They just bundle several home loans and sell the package to Wall Street investors (keeping a small, appropriate profit). If someone defaults on a home loan now and then, that isn't often enough to substantially reduce the safety of the investment bundle. If you also work in a series of insurance-policy-type guarantees to cover the risks that you might die or lose your job (or that there might be a disproportionate number of home-loan defaults in some particular bundle), then the risks to everyone in the chain--to you, to the bank, to the mortgage-bundle handlers, and to the insurance companies--are so small as to be manageable.

It all makes such simple, solid financial sense--everyone is winning: you are living in the home of your dreams; its value is going up year by year; the bank has taken its origination-transaction fees and sold off the bulk of the indebtedness; and Wall Street investors are making a nice return on a safe, insured investment--everyone is happy; everyone is making money.

Then the inexorable rise in housing prices falters. Homeowners discover they can't simply refinance every few years to reduce their payments and take money out. Foreclosures begin to increase. Insurance companies have to raise their premiums. And distant Wall Street investors begin to feel the pinch--other investments are relatively more profitable--they start to take their money out--the prices of the mortgage bundles fall. Pretty soon banks find they can't resell mortgages very much at all, so they have less money to make new or renewed homeowner loans.

This sounds like an orderly retreat--like a contraction of an overextended market, right? The trouble is that the tangle of derivatives (bundles of bundles of bundles, plus the complex and obscure network of insurance) has grown, while no one was watching very closely (due to the lack of government regulation and extreme complexity) to tens of trillions--yes, TENS OF TRILLIONS--of dollars. Plus the system is all very liquid--it rather prides itself on its liquidity: a major investment bank or a major insurance company falters, and investors at their computer terminals worldwide can shift trillions of dollars in seconds. When Lehman Brothers and AIG faltered in mid-September, 2008, worldwide business hit the brakes like never before in history. Within a day or two the Port of Los Angeles was quiet due to canceled shipping contracts (down 80% in 48 hours); hiring lines and halls in New York City had no work to pass out; trucks and trains were sidelined with no loads and nowhere to go; seasonal replenishment of warehouse and retail store stocks stopped--just stopped--with no credit and no funds.

The causes--a series of simple, understandable steps; the result, worldwide financial meltdown.

Peeking into the shadows of the past, there appear to have been several fundamental problems:

(1) Primary lending institutions (banks, savings and loans, etc.) were making unwise loans to non-credit-worthy borrowers based on imaginary collateral.

(2) The financial derivatives from these loans (the bundles of bundles and the various stocks and instruments of indebtedness that were based on them--plus the related insurance network) grew to be impossibly elaborate and complex; no one could analyze them or evaluate realistically the risks they entailed.

(3) The risk-rating agencies (mostly Moody's and Standard and Poor's) rated the mortgage bundles and the securities they backed as AAA ("triple A"). As the derivaties became more complex (and more difficult--ultimately impossible--to rate), they continued this same rating level. This was complicated by the fact that the rating agencies were paid by the issuer of the financial instruments who could, to a certain extent, "shop around" for a better rating. The triple-A rating was important because some funds--some retirement and insurance funds, for example--were required by their charters to limit their investments to debt instruments with the highest ratings. If a rating slipped to double-A, those funds would be forced to divest their portfolios of (sell off) those instruments. Moreover, even if a fund were allowed to hold non-triple-A instruments, a lower rating might obligate higher margin requirements; in other words, if a particular bond's rating were downgraded, the holder might have to raise many millions (even billions) of dollars in capital reserves just to continue to hold those same bonds.

(4) The regulatory agencies (mainly the Security & Exchange Commission [SEC], but the others as well--the Commodities Futures Trading Commission [CFTC], the Federal Deposit Insurance Corporation [FDIC], the Federal Reserve Board, and the Office of the Comptroller of the Currency [OCC]), were not effective. They were either not specifically charged with overseeing these particular kinds of financial instruments and transactions, or they were underfunded, understaffed, and overwhelmed. This was intrinsically related to a small-government, deregulation attitude in Washington.

(5) The extreme liquidity in the financial market systems allowed rumors to ripple catastrophically around the world in seconds. Huge sums could change hands with the flick of a keyboard 24 hours a day.