Tuesday, November 23, 2010

Partisan fools, come to your senses!

Partisan fools, come to your senses!

If you call yourself 'American', let me ask you: What is remotely American about pointing fingers over our problems? Aren't we great pragmatists? Don't we roll up our sleeves and get the job done? As far as I know, this country was not built on blaming each other, but rather on working together to find real solutions, putting our petty quarrels aside for the greater good, always the GREATER GOOD.

If any of you are able to project into the future (and clearly, based on your childish behavior, you aren't), what do you suppose all this partisan posturing will ultimately lead to?

Do you see matters somehow miraculously resolving? Do you see 'the other side' somehow coming to their senses and agreeing with everything 'your side' believes?

Based on how viscerally you condemn one another, how wholeheartedly you distort each others' beliefs, ideas, and perspectives, you don't. (and HISTORY for the love of God! Where have all these 'historians' come from!?! Never have I witnessed such incredible interest in early American history, and never have I seen said history so painfully manipulated! With apologies to the ancestral residents of BOSTON, that fine Atlantic city!).

You see, when the two sides ignore the Greater Good and begin to behave only to spite, to inhibit, to arrest the other, then things do not miraculously get better, they GET WORSE. The behavior of one provokes a similar response from the other and vice versa - tit for tat so to speak (that should be French) - until the two perspectives are so divided that 'divided' is indeed the only way to describe them!

My sense is that most Americans still don’t understand this reality. They still imagine that when push comes to shove, our politicians will come together to do what’s necessary. But that was another country.
- Paul Krugman, NY Times

In our recent election we had some paid 'progressive' political activist holding up a provocative sign and generally acting foolish until she was tackled by a cohort of 'tea partiers', one of which stepped on her head so violently she received a concussion. The media discussed things ad nauseum, the partisans pointed fingers at one another, the campaign suspended the fellow, the girl gave her interviews, all neither here nor there.

The real point was simple: violence.

Of the mildest variety.

Sooner or later we will see more of said violence, and it will be far bloodier. Someone will be killed. Maybe many. It will be spontaneous, reactionary, chaotic, and sudden, like all violence in history that portends what is to inevitably come - a fracture, a schism, a divide - reconciled only by... God knows.

And all the partisan folk (which apparently is everyone, as no one can think clearly enough to act in genuinely conciliatory and solution-oriented good faith), yes all the partisan folk will condemn this act of violence as the fault of 'the other'. It will only reinforce and reiterate all the things they already believe, and both sides will perceive it only as an attack on them, no matter how nuanced (or not, such things are rarely nuanced, are they?) the truth may really be.

And when people begin to spill blood over the divide, if history is any guide there is no going back (there is probably no going back now, but when blood is spilled, there is no going back from spilling more blood). And so we have....

Civil War.

A real one. Ugly. Horrific. As terrible a thing as we poor living creatures have ever known. Apparently our memories are short and we have forgotten that the last American Civil War, a mere 150 years ago (but a second of history), left more casualties then all other American wars combined, before or after.

At the moment we seem to be senselessly, almost gleefully, wishing this on ourselves, and that, in my humble opine, is foolish.

If you think I exaggerate, or go overboard, then how is it you see the future? Everyone kissing and making up later? All of this hyperbole and rhetoric evaporating into the ether? Perhaps 'YOUR' party taking power, solving everything? Have you really thought about that?

In the present milieu, if the country, a faltering ship in heavy seas, tips liberal, the conservatives scream and shout and do everything they can to prevent whatever they can. When they 'START' to undermine policies that they would clearly otherwise support, it is all a sham. All they want is power. The conch shell. And if the country tips conservative, remember all those masses marching in the streets not so long ago? Do you think they will be marching so peacefully? And what will you be doing to stop them? And how effective will it be?

Fracture. Divide. Tell me it isn't so.

I haven't lived long but I've read enough to see all the identical signs happening now that have, in the past, preceded terrible civil conflict. The parallels are astonishing. And once the dominoes are lined up it is only a matter of time before someone tips one over. Really, we have come that far (I think), and in today's accelerated, senselessly media-magnified world we would be surprised if what once took 50 years to happen now took but five.

What fools we are! I feel like Pierre in Tolstoy's 'War and Peace', looking around wonderingly at everything, marveling at that unseen force that compels us to move and act so wretchedly, so inhumanely!

Partisan fools, come to your senses!

If it is not already too late, reach out to your brother or sister and roll up your sleeves to genuinely work together! The lives of your loved ones may depend upon it!

Paul Krugman of the N.Y. Times is the first credible figure I know of to first state what to me seems very obvious. Read his article here.

Tuesday, September 14, 2010

Anna Karenina, Morality, and the American Economy

In reading Russian Literature and studying Russian History I have often noted the problems, issues, and patterns of late Imperial Russia bear an uncanny resemblance to those of contemporary America. I intend to elaborate generally on this in a future post (surely you wait on bated breath); today I will focus on a few salient passages within Lev Tolstoy's Anna Karenina pertaining to socioeconomic and ethical/moral subject matter.

Published in segments from 1873-77, Anna Karenina occupies a most ideal temporal location for sociopolitical discussion: mere years removed from the emancipation of the serfs (and American Civil War), mere years from the publication of Darwin's On the Origin of Species, but a few years from the publication of Marx's Capital, and amidst a growing/continuing storm of discontent among the Russian people.

We, the reader, are recipients of the most wonderful gift literature can bestow upon us: we are allowed to eavesdrop on lives literally frozen in time upon the page. The issues of the age, the personalities, the characters, the society, and so forth are preserved (perfectly, thanks to Tolstoy) for us to observe and admire. We are so fortunate for it.

What I find interesting is how the topics of debate back then are not terribly dissimilar to now. What is different, however, is the cognitive framework in which these discussions take place.

Social issues, for instance, are rooted in individual morality, an inversion of how today's social sciences tend to construct what is essentially the same thing. (Chernyshevsky's "What is To Be Done?" follows this same pattern of inverted self/society).

Thus when the characters of Anna Karenina examine socioeconomic issues, we see a greater connection between the larger, general problem and the moral/ethical basis of the individual actions comprising that general problem.

Take, for instance, this fascinating discussion between Stepan Arkadyevitch Oblonsky (a very likable, but sort of morally lax fellow), Konstantin Dmitrievitch Levin (more rigid), and Vassenka Veslovsky (more or less a fool). In this scene Oblonsky is describing his visit to the very lavish estate of a nobleman who had "made his money by speculation in railway shares." The debate that follows is this:

"I don't understand you," said Levin, sitting up in the hay; "how is it such people don't disgust you? I can understand a lunch with Lafitte is all very pleasant but don't you dislike just that very sumptuousness? All these people, just like our spirit monopolists* in old days, get their money in a way that gains them the contempt of every one. They don't care for their contempt, and then they use their dishonest gains to buy off the contempt they have deserved."

Oblonsky smiled. "I simply don't consider him more dishonest than any other wealthy merchant or nobleman. They've all made their money alike: by their work and their intelligence."

"Oh, by what work? Do you call it work to get hold of concessions and speculate with them?"

"Of course its work. Work in this sense, that if it were not for him and others like him, there would have been no railways."

"But that's not work, like the work of a peasant or a learned profession."

"Granted, but its work in the sense that his activity produces a result - the railways. But of course you think the railways useless."

"No, that's another question; I am prepared to admit that they're useful. But all profit that is out of proportion to the labor expended is dishonest."

"But who is to define what is proportionate?"

"Making profit by dishonest means, by trickery," said Levin, conscious that he could not draw a distinct line between honesty and dishonesty. "Such as banking, for instance," he went on. "It is an evil - the amassing of huge fortunes without labor, just the same thing as with the spirit monopolies, it's only the form that's changed. Le roi est mort, vive le roi. No sooner were the spirit monopolies abolished then the railways came up, and banking companies; that, too, is profit without work."

What is most striking about this is the degree of moralizing taking place: Levin (and apparently others) find profit gained via "speculation on the railways" to be dishonest! Today such gains would be considered either shrewd or lucky; inherently dishonest does not enter the equation.

That is because we find the idea of "profit out of portion to the labor expended" an entirely foreign one. Consider Levin's next culprit: banking. He does not condemn a corrupt bank or an irresponsible lender - no - he condemns banking in general as an evil: an example of the 'amassing of huge fortunes without labor'.

This, it seems to me, does indeed resonate with some of the earlier arguments I have made pertaining to contemporary America. Doesn't that sound like 'fictional wealth'? My own position does not go remotely so far; I am concerned with artificial and/or predatory means of pumping up a market, their necessity to economic obesity, and the inevitable consequences that follow: inequity, social stratification, widening disparity between rich and poor, etc.

I suggest we quickly begin to reconsider this question in a contemporary light, only perhaps we frame it so:

"profit out of proportion to real/true value"

And where do find profit out of proportion to real value?


But let us first return to Anna Karenina and another conversation, this time between our good friend Stepan Arkadyevitch Oblonsky and Alexey Alexandrovitch Karenina:

"I consider, and I have embodied my views in a note on the subject, that in our day these immense salaries are evidence of the unsound economic
assiette [basis] of our finances."

"But what's to be done?" said Stepan Arkadyevitch. "Suppose a bank director gets ten thousand - well he's worth it; or an engineer gets twenty thousand - after all, it's a growing thing, you know!"

"I assume that a salary is the price paid for a commodity, and it ought to conform with the law of supply and demand. If the salary is fixed without any regard for that law, as, for instance, when I see two engineers leaving college together, both equally well trained and efficient, and one getting forty thousand while the other is satisfied with two; or when I see lawyers and hussars, having no special qualifications, appointed directors of banking companies with immense salaries, I conclude that the salary is not fixed in accordance with the law of supply and demand, but simply through personal interest. And this is an abuse of great gravity in itself, and one that reacts injuriously on the government service."
The notion that a salary ought to conform to supply and demand, is, from a contemporary point of view, nearly incomprehensible. 'Immense salaries' in disproportion to the actual value of a position are so commonplace today that we really don't even consider the moral/ethical abuse inherent in them, as does Alexey Alexandrovitch in the example above. The best some of us can do is feebly protest the very highest, most ludicrously astronomical salaries (ever-decreasingly assigned via merit). Indeed, this sort of consideration falls entirely outside our lexicon.

The point is that in matters of economics today when it comes to ethics and morality we are able to offer only the most rudimentary considerations. Our country is young; thus we are suffering from a sort of Old World (and its global influences) amnesia. We have chosen to ignore the moral/ethical consequence of the 'immense salary' (i.e.; corporate management, wall street bonuses, etc.) and the 'huge amassed profit out of proportion to real value' (i.e.; 'housing debacle', predatory lending, etc.).

Due to this amnesia we are rediscovering and reinventing the very same world we once streamed out of in droves, and unless we are able to first acknowledge and then expel (forcefully) these immoral and repugnant practices, the promise and possibility that America represents will wane.

Thus senior corporate management earning obscene amounts so wildly out of line with what they actually do has a literal socioeconomic consequence and, in light of this, a moral one as well. In today's world we see virtually none of our actors taking moral responsibility - or even consideration - for their actions; instead they seem too busy defending and rationalizing indefensible positions. They want to have their cake and eat it too.

Anywhere we can identify a set value wildly disproportionate to a product or service's real value, we know that trouble will eventually and necessarily ensue. We are slicing from a finite pie of social value: where one place receives some absurd amount disproportionate to its value, the other loses it. And where and who is this 'other' place? The poor, of course, hence the growing discrepancy.

The medical and insurance industries are perfect examples. Insurance companies, when they are in fact accountable for a bill, only agree to pay a portion of it (meaning the bill in full is a fiction). In response to this the hospital hikes its fees, and a game of cat and mouse ensues in which the consumer (or rather, the patient) becomes the ultimate victim, because in the event they must pay their own outrageous bill, they (for some reason) lack the leverage/rights afforded to the insurance companies to pay a reduced amount. They are stuck with the fictional value, so absurd most just throw up their hands and declare bankruptcy.

The fee hike is fictional because it is arbitrary. It does not reflect the real value of the product or service. Evidence of this is simply the obscene profits of insurance, medical, drug companies, etc... Something is out of whack, and it will necessarily catch up to us in terms of our overall economy, just as did the fictional wealth created by the banks and the housing market.

It is money unjustly made.

When we think of our economic health in an ethical sense - is profit derived from hard work? Ingenuity? Creativity? Persistence? Innovation? That is health. Is profit derived from trickery? Deception? Irresponsibility? Neglect? Predation? These are signs of sickness.

In short, call a doctor.

We need to return to a true sense of individual, moral/ethical accountability if our system is to have any future.

I heard on the radio today a woman talking about how their bank was 'unhappy' when she and her husband decided to purchase a house below their approved amount. As she put it, "We wanted to decide what we could afford, not the bank." The truth is they were very wise. The bank has some (MBA derived) equation that maximizes the very limits of affordability. They care absolutely nothing for their customer; it is all a means to derive the largest profit possible on the very margins of risk. That is wrong (as is the artificial cost of a home relative to earnings, but that is for another post).

Our economy and nation would be a far better place if we could only realize that genuine (not fabricated) consumer/citizen care and consideration results in a healthier life for all.

The current consumer/citizen is woefully exploited, especially the lesser among us. It is high time we realized the moral depravity of our current system.

Instead we seem hellbent on irrationally defending it. On the subject of 'immense salary', for instance, why is it a whole slew of Americans are engaged in a bizarre hero-worship of these very same characters who control a grossly disproportionate percentage of our nation's wealth (23.5%)? We seem no better than adoring sycophants. The best we can muster is jealousy, the worst a sort of delusional imitation. Sorry, but a fake Louis Vuitton purse, or for that matter a real one, does not make you a wealthy aristocrat!

To conclude, not too long ago these sorts of issues were discussed and considered quite freely among Americans. But since then, somehow, this notion of unrestrained capital - devoid of ethics, of morals, indeed of honor (to coin an oft-used word of late) - has sought and found refuge behind a protective shield of jingoism/patriotism. That, it strikes me, is a shame.

And not a terribly wise place to hide.

* Spirit Monopoly: The taxes on vodka became a key element of government finances in Tsarist Russia, providing at times up to 40% of state revenue. In 1863, the government monopoly on vodka production was repealed, causing prices to plummet and making vodka available even to low-income citizens

Monday, September 6, 2010

How to End the Great Recession - No, Seriously, This is How

This recent op-ed piece in The New York Times, How to End the Great Recession by Robert B. Reich, reinforced many of the points I was making in my previous GM/AmeriCredit post.

(By the way, the language used and accepted by the media, particularly "double dip recession", is comical. If the only market to 'recover' was the stock market, and the stock market is by nature speculative, then - because nothing has really changed, if only worsened - the market's speculation of 'recovery' was in absolute error! Thus there was no recovery other than a fictional/errantly speculative one and any notion of a "double dip recession" is misleading. But how we try to pigeon-hole reality into our robust explanatory economic models!)

In any case, I found the below segment of particular relevance:
"But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing

In other words we are economically obese and lack the means to keep up with our own insatiable consumption except by a nonexistent (fictional) or unhealthy trans-fat (predation) avenue.

is far and away the number one fictional AND predatory market in America, both among our citizenry and government.

We are woefully addicted to debt.

In order to become a functioning member of society (i.e.; obtain a strong credit score), you must in fact go into debt! (Not to digress once again, but this is an absurdity. We must include non-debt behaviors that demonstrate a potentially reliable debtor - things like paying bills and rent on time, etc. To penalize a citizen for "insufficient credit history" is to penalize the wisdom of avoiding debt altogether - hard to comprehend.)

The ludicrous interest rates, inability to pay off the principle, etc. is (much like the subprime loan) a classic example of the institutionalized swindle. And yet, our citizenry seems to accept this as an example of their own failings, rather than a corrupt and exploitative manipulation of the most vulnerable among them.

By no means do I make light of personal responsibility; that is not the point. Again the credit card debacle gets back to an inherently predatory business model: profit is derived primarily from consumer failure. Because it is in the best interests of the credit companies to nefariously (sorry, I have beaten all the life out of this wonderful word) sucker their prey into agreeing upon the most obscene terms and conditions, you cannot blame the credit card companies for it (slew of eager and inscrupulous MBAs notwithstanding). It is the structure itself that is to blame.

Surely there are some who might disagree and say "free market - fair game!" To those I simply point to the fundamental issue: the growing discrepancy between rich and poor.

As Mr. Reich points out:

In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It is this figure that should, more than any other, sound the alarm. It is truly more epic than "one if by land, two if by sea" (to borrow the revolutionary symbolic abuse of the historically ignorant "Tea Party" - vitriol for another post!).

Our citizenry remains benightedly clouded in issues of Tyranny/Divine Right of Kings vs. Representative Democracy - which we somehow equate to "freedom" - when in truth degree of social stratification is a far more accurate measure of a relatively equitable society.

Right??? We're (ostensibly) not big on rhetoric - the proof is in the pudding!!!

When the billionaire Meg Whitman spends more money running for Governor of California than any candidate in history, we might want to stop kidding ourselves about the principals of equality inherently embedded in Representative Democracy! We might as well return the country to a monarchy, at least then we might have someone better looking!

Again I digress. Clearly I'm jealous of Sweden... Dearest Princess Madeleine... Decree whatever you like! (It has long been proven Swedes live the most fulfilled/happy lives; here we have some hint as to why!)

Adolescent joking aside, the very grave point is that at the moment we have a massive problem in America, greater than any we have faced in our nascent history:

We are coming to resemble the very societies we once despised.

The true test of our fortitude - literally of the revolutionary principles upon which the country was founded - is to bring this alarming, immoral, and growing social discrepancy into more equitable and humane proportions, particularly before our fictional, unsustainable, and unfathomable wealth catches up to us and exacerbates (to put it mildly) tensions that are at the moment so tepid they might be easily ignored altogether.

If we do not address this issue of growing stratification at once and with all our heart and souls, we are absolutely doomed.

What we have yet to ask ourselves (but will inevitably arise, you watch) is this simple question:

Does the top 1% have the right to 23.5% of the nation's wealth?

The answer, obviously, is no; the means by which this is ultimately resolved, however, is a matter we should all consider most carefully. As I stated before, it is a question of life and death; if history is any guide, the sooner we realize this, the better for all of us! Do not be lulled by sirens into a false sense of security when it comes to issues of a civil nature, particularly when we live in a world accelerated by technology and information, turning changes once attributed to centuries into mere decades, mere decades into years.

Wednesday, August 25, 2010

Mikhail Lermontov - A Hero of Our Time

A Hero of Our Time (Penguin Classics)A Hero of Our Time by Mikhail Lermontov

My rating: 4 of 5 stars

This novel is so good we really need to start with the translator's note.

First published in 1840, 'A Hero of Our Time' was translated to English by Nabokov in 1958, framing the experience wonderfully for the modern reader. We have been directed here by the highest of references and are being led through by his very capable hand, as if a master chef not only recommended a fine restaurant, but went with you and helped order and explain all the courses. One is thus pleasantly reassured before even beginning (good also, because the book starts slowly and gets better as it goes, to its spectacular finish).

From Nabokov one can learn a great deal about an artist's point of view, simply because he is so fearless in his evaluation of writing and literature. His opinion is simply his own, unswayed by convention or fad. "Though of tremendous and at times somewhat morbid interest to the sociologist" he begins before discussing the social significance of the protagonist, or "this is a ridiculous opinion, voiced by... Chekhov, and can only be held if and when a moral quality or social virtue is confused with literary art" when discussing the book's literary merit.

Nabokov's critical barometer is also appropriately sensitive - sometimes scathing (perhaps tinged with the occasional professional jealousy) - which makes for a good read: for instance when he describes a reference in the footnotes as "a vulgar novelette, ending in ridiculous melodrama, by the overrated French writer, Balzac".

Vanity plays a humorous role, as Nabokov spends an inordinate amount of time essentially apologizing for Lermontov's prose, much of which he attributes to the literary conventions of the age (11 cases of eavesdropping) and the rest to the author's personal inadequacies. "His similes and metaphors are utterly commonplace; his hackneyed epithets are only redeemed by occasionally being incorrectly used" or "thus in the course of [the book:] the faces of various people turn purple, red, rosy, orange, yellow, green and blue." Its really quite funny how Nabokov so carefully dissociates himself from the writing, all whilst underscoring the vital, painstaking importance of creating a translation faithful to the original text.

On to the novel itself. Morbid sociological interest aside, this novel fills in a critical gap in my understanding of Russian literature. The main character, Pechorin - well educated, handsome, strong in spirit, etc. - suffers a sort of existential ennui: he is bored with life and thus plays rather recklessly with his own fate, often at the expense of those (usually women) around him. He is the "Byronic hero", inspired by both Lord Byron's "Childe Harold's Pilgrimage" and Pushkin's "Eugene Onegin". (The tradition continues: Coetzee's "Disgrace", which I read recently, places this same Bryonic hero in contemporary South Africa, with morally complex, sometimes shocking, results...).

There exists strong resemblance in character and personality of Pechorin to Turgenev's Bazarov in "Fathers and Sons", the 'nihilist' considered to be the first Bolshevik. In 1850 Turgenev wrote "Diary of a Superfluous Man" (next on my list) with a character similar to Lermontov's Pechorin; the connection is very direct and clear.

As I (and many others, I assume) have discussed elsewhere, we can then draw a line from Turgenev's Bazarov to Chernyshevsky's Rakhmetov in "What is to be Done?" (Chernyshevsky's narrative style, in which he toys with the reader regarding his own moral purpose and perspective, is very similar to Lermontov's) and then of course from Rakhmetov as the fictional character idealized by Vladimir Lenin. This complete path from the Byron-inspired Russian "Superfluous man" to the Russian nihilist to the idealized Bolshevik character (I suppose we shouldn't restrict to Bolshevism, but you get the idea) is one of great interest to me, essentially tying culturally-embedded heroes or idealized personality-types to eventual idealized sociopolitical personality-types. The extent to which these were or were not misunderstood is very significant to the course of human history.

Alright, surely that qualifies for morbid sociological interest. Sorry Nabokov.

Back to the story itself. In the beginning, one wonders just what is so special about it, and can't help agreeing with many of Nabokov's not so subtle points regarding the quality of Lermontov's prose. But it just gets better and better as one goes. The two final stories, "Princess Mary" and "The Fatalist" are both extraordinary - dramatically gripping and filled with interesting musings and insights. I'll conclude with one of them, to give you a sense of Pechorin's character and hopefully inspire you to read "A Hero of Our Time".

"The moon, full and red, like the glow of a conflagration, began to appear from behind the uneven line of roofs; the stars shone calmly upon the dark-blue vault, and it amused me to recall that, once upon a time, there were sages who thought that the heavenly bodies took part in our trivial conflicts for some piece of land or some imaginary rights. And what happened? These lampads, lit, in the opinion of these sages, merely to illumine their battles and festivals, were burning as brightly as ever, while their passions and hopes had long been extinguished with them, like a small fire lit on the edge of the forest by a carefree wayfarer! But on the other hand, what strength of will they derived from the certitude that the entire sky with its countless inhabitants was looking upon them with mute but permanent sympathy! Whereas we, their miserable descendants, who roam the earth without convictions or pride, without rapture or fear (except for that instinctive dread that compresses our hearts at the thought of the inevitable end), we are no longer capable of great sacrifice, neither for the good of mankind, nor even for our own happiness, because we know its impossibility, and pass with indifference from doubt to doubt, just as our ancestors rushed from one delusion to another. But we, however, do not have either their hopes or even that indefinite, albeit real, rapture that the soul encounters in any struggle with men or with fate."

Rapture. Let this novel stir it within you.

Thursday, August 12, 2010

GM and AmeriCredit: How Our Economic Obesity is Dependent Upon Fiction and Predation

GM's recent $3.5 billion dollar purchase of subprime loan company AmeriCredit barely caused a ripple in the news. I blame no one for this; personally I was far more concerned with how many days Lindsay Lohan would spend in jail! Still, this was big, wasn't it? It was not long ago that GM was teetering on the verge of collapse, rescued only by a massive government bailout.

It is now owned, nominally, by the People. So let's have a look at our investment.

Why would GM buy a subprime loan company?

A few pundits did offer their thoughts, most poignantly the New York Times' Andrew Ross Sorkin, who explained, "G.M. plans to prod sales of its vehicles by using AmeriCredit to extend loans and leases to automobile customers with questionable credit. (That’s why they are called subprime loans.) These are the same customers who could very well be denied a loan by other lenders." He then asks the question of the hour: "Did we really spend $50 billion of our money just to revive the kinds of practices that led to the credit crisis?"

Yes, we did.

But why?

I believe the answer belies a deeper, more fundamental and possibly fatal flaw in our economy.

"If you liked our first-quarter financial results, stay tuned for our second-quarter financial results!"
- GM Chief Edward E. Whitacre

Before I digress into this cheerless topic let us first examine why it is in General Motor's interests to buy subprime lender AmeriCredit. The answer should be very simple: subprime loans expand the consumer market base by loosening restrictions to lending. New markets are good; they provide the growth necessary for the company's vital return to profitability.

That's it! Right?

Were it only so.

AmeriCredit's Business Model is Inherently Predatory
It is terribly ironic that despite so much retroactive moralism (we seem to excel in this), we apparently have no issue with a government-owned (or private!) company adopting a method of profitability that embraces the very practices that - not long ago - we ostensibly found abhorrent.

The fact is, consumer failure is at the heart of the AmeriCredit business model. In order to offset the risk/loss of defaults, the model is dependent upon the very significant percentage of consumers who fail to keep up with payments or are only able to make a minimal payment, thereby either incurring serious financial penalties or effectively making no impact on the principle. Profit is thus derived from the exorbitant fees, penalties, and high interest added to the purchase price, resulting in revenue far above and beyond the actual market value of the car.

Fortunately (and for reasons I cannot reveal here), I happened to be hiding under the table in the GM board room when the AmeriCredit epiphany transpired, eavesdropping while G and M discussed their evil plan. Transcript as follows:

M: (looking glum)

G: What's the matter, M?

: (sighs) We've run out of people to sell cars to.

: Bummer.

(a brief, melancholic silence
, pregnant pause, etc., follows)

: Wait, I have an idea.

: Do tell.

: Let's loan money to people that really shouldn't have money loaned to them.

: Sounds intriguing, I like it already.

: Here's how it will work: We'll advertise like hell, bring poor credit types on the lot, blow a lot of smoke up their ass, then dangle our carrot in front of them - a new car!

: A new car!

: Once we've hooked them in, we'll seduce them into agreeing on an absurdly overvalued purchase price by breaking down the elusive total cost (which we will only reveal at the point of death) into 'affordable monthly payments'.

: Affordable monthly payments. Nice ring.

: There's more! We'll assure them they won't have to pay a penny today. Zero down! 'Worry about it tomorrow!' we'll tell them.

: Never do today what you can do tomorrow!

: Next we'll employ psychology. Right when they think the car is theirs, we deliver the dreadful news: their loan might not be approved! Their credit is dubious, after all. We leave them in a small room, let them sweat a bit, peer in anxiously from time to time, and then: bingo! Approved!

: But who in their right mind would approve the loan?

G: We would! We own the loan company! AmeriCredit!

: You're good. But I'm afraid you have a little problem.

: Impossible.

: When you loan money to people you really shouldn't be loaning money to, very often they don't pay you the money back.

: But that's the whole idea, M!!!

: What?

: If they don't pay, we threaten to repossess that brand new car they've been driving around.

: I see. So then they pay?

: No, of course not! They couldn't afford the car in the first place! Remember? They have bad credit!!! And now they're behind with late fees, penalties, compounded interest, all of it!

: We've backed them into the proverbial corner. I love it.

: Yes, all they can do is make a minimum payment. If that!!! Ha, ha!!! They can't even put a dent in the principle! A vicious cycle! We'll make a fortune! Money from nothing! And in the end, we might even get the car back after all! Or sucker them into another one!

: Come to my arms! Genius!

Forgive me, a brief, ill-advised attempt at levity; sadly we now return to the grim topic at hand.

The point: the AmeriCredit model is inherently predatory. Without these penalties, late fees, exaggerated interest rates, etc. embedded in its profit model, it falls apart. It thus cannot be rationalized or regulated or manipulated to look like anything other than what it is. We are, in effect, generously rewarding the swindler.

I find all this highly problematic.

But what is the alternative?

A Healthy Economy Should Derive Profit from its Products and Services
In the case of GM, their product, a motor vehicle, has a value. That value, very simply, should be sufficient to create profitability for the company. If it can't create profitability on its own, then it follows that there is a serious flaw with the company and/or product itself.

We don't sidestep that problem (whatever it may be - a failure to innovate, myopia, hubris, etc.) by resorting to a means of profitability wholly unrelated to the company's primary product, particularly when that means is fundamentally nefarious. That is not to say there is anything wrong with ancillary revenue streams, even clever ones, but when they consist of precisely the same ingredients that have very recently led our economy to near ruin, we should have cause for concern.

In the case of AmeriCredit, profit is derived from failure. If money is a symbol of an exchange in social value, we should be alarmed when our system generates wealth from deception, fear, intimidation, irresponsibility, ignorance, foolishness, and the like. These are desperate means of creating wealth. These are also immoral, unethical, and potentially inhumane means of creating wealth.

We want our wealth to be derived from things like innovation, knowledge, freedom, creativity, hard work, persistence, commitment, individual empowerment, merit, the can-do attitude, etc. In short, the increasingly elusive, so-called American Spirit.

There is a great social cost to the predatory model: we reinforce our social shortcomings and problems by making them an integral component to our own economic health.

Why are we doing this? Why are we, as a people, effectively endorsing a company like AmeriCredit?

My answer should (hopefully!) disturb you.

Our Economy Relies on Predation Because it Must
To sustain our rate of affluence, our economy needs to grow. To grow, we need to find new markets. In the unlikely scenario there are no more new markets to find, then our rate of affluence will have to slow down. Pretty simple. But what if we really, really, really don't want to slow down our rate of affluence and yet still are unable to find any new markets substantial enough to sustain the very growth we require?

Well, we might make them up. We might create revenue out of the ether. We might make a fictional market.

That is precisely what recently happened. The true cause of the recession was to lose our suspension of disbelief, albeit reluctantly. Fueled by the pressing need to create new markets where there were none to be found, we simply drummed them up and pretended they were real. The difference between the true value of a house and the fictional value it was imagined to be worth (all with 'borrowed' money) created a vital revenue stream that in reality did not exist at all. No one could really afford to pay the inflated loans offered by the banks for assets that were not really worth the prices we invented for them.

Now why would we do something that dumb? Because this need to create artificial wealth is due to an unwillingness to accept a very ugly truth about our own society: we are economically obese.

Economic Obesity
We have a sickness. We are full, but we don't want to slow down. Our appetite is insatiable, and yet we are running out of real nourishment (real products, services, and new markets) to feed it. As a result we are opting to eat either a lavishly nonexistent meal or to indulge in the equivalent of economic trans-fat: predation.

Thus the fundamental problem with our economy is that our rate of affluence is so high we cannot sustain its need to grow without relying on artificial or predatory mechanisms of market creation.

In other words, houses became wildly overinflated because they had to. Predatory subprime loans are a part of the automobile industry because they have to be.

GM vehicles (the real product) are not adequate on their own to support the size of waistline our economic obesity demands. Similar to artificially bloated housing prices, the interest, penalties, fees, and so forth added to a subprime loan represents the fictional value of the automobile industry. It is not surviving on fumes, it is surviving on something that is at worst predatory, at best socially valueless. It is creating a 'market' by resorting to unethical means of obtaining wealth.

In order to sustain our own economic obesity, we must feed nefariously on ourselves!

So What?
An artificial market will, sooner or later, reveal its illusory nature, with severe economic consequences. The housing bubble crashes, etc. A predatory market, however, is indeed a viable source of nourishment to a free market, providing it is devoid of ethics.

So what's the problem?

Embedded in the predatory business model is a not-so-subtle component of social exploitation: the sum effect is to enable the rich to get richer and the poor to get poorer.

Let us take the AmeriCredit case. How the demographics of subprime car loans break down precisely is beyond me, but I suspect those with credit issues are very often those with less money to begin with. If you cannot generally afford things, you are more vulnerable to the suggestion that you might be able to have them anyway, particularly when you have been emotionally clubbed over the head that you are utterly inadequate if you don't (we call this advertising - a topic I intend to write about at length elsewhere).

What's so strange about that, you ask?

Absolutely nothing.

If you peer into history, you will find that invariably, every society gradually succumbs to severe social stratification, surviving on these very same corrupt and immoral methods to squeeze every penny of value from the poor, making them only poorer.

When we allow our own economy to become reliant on the same mechanisms from which we once fled in terrified droves (or huddled masses), we know that the destiny of this country is no different from those we have so valiantly attempted to differentiate ourselves from. And indeed, social stratification in the United States has already reached such a point that the wealthy class is entirely out of touch with just how much money they make, and just how little the poor do not.

We are recreating those societies as we speak; the sooner we all realize this, the better.

Our economy, simply because this country is so enormously, unfathomably rich, will of course recover from our 'recession', and recover relatively quickly. But (until we corral our economic obesity) we will learn nothing from it because we can't. We are dependent upon these fictional revenue streams until the system breaks down completely, which it ultimately will (if history is any guide), upon which we will suffer through a terrible recalibration of actual and imagined wealth. I shudder to think how this will play out, but again, if history is any guide, the stakes are truly life and death.

Wednesday, August 11, 2010

Penelope Fitzgerald's The Bookshop: A Brief Review

The Bookshop: A NovelThe Bookshop: A Novel by Penelope Fitzgerald

My rating: 5 of 5 stars

Penelope Fitzgerald is a brilliant writer; in terms of prose this book holds up with all the classics. She is very funny too - if you enjoy that dry, subtle English sense of humor you will love this novel.

I found the theme of the novel to be so much more than the book jacket indicated. This was about the pending shift from the old power structure to the new. The protagonist is perfect because she is a middle-aged woman, seemingly harmless, but she has the courage and gumption to take on the establishment, in her own very adorable way. She is conscious of the danger but unwilling to yield her principals. She is the new England: the 'commoner' that becomes a business owner, dares to tackle culture, undaunted by aristocracy and its mechanisms of suppression (political, legal, nepotism, cronyism, etc.). And she makes headway. From this it is clear the power-structure is teetering on the brink of change, as a result the old machinery is in a state of panic. This is the irony - they are threatened by no more than a little bookshop.

Meanwhile, she has the sympathy of this mysterious old fellow who is also a symbol of perhaps the more benevolent, gallant side of the waning English aristocracy. Anyhow I won't say anymore except that without recognizing these larger themes the book wouldn't have been nearly as interesting as it was, so I wouldn't look at it as little more than a character study of quaint village life. I just finished 'Remains of the Day' before reading this and found many parallels.

View all my reviews >>

Gladkov's Cement: A Brief Review

Cement (European Classics)Cement by Fyodor Vasilievich Gladkov

My rating: 4 of 5 stars

Most Westerners familiar with Russian Lit immediately cast this book into the 'not worthy of real literature/soviet propaganda' dustbin (I suspect because their prof told them to and, I would imagine, without even reading it). Comments I read on Goodreads, for instance, summed up the general sentiment: "This book is only of academic interest... written as stalinist agitprop... bereft of any characterstics that would qualify the tome as literature."

A shame, because 'Cement' is a fascinating insight into the (granted, naive) spirit of post-revolutionary Soviet Russia. Historically it is a little like John Reed's 'Ten Days That Shook the World': it captures very vividly a moment in time that is vital to understand if one wishes any insight on modern Russian History.

In terms of literature, while not on par with Tolstoy, Dostoyevsky, Turgenev, what writer is??? If we were to use the 'great russian writer or bust' criteria for evaluation we'd eliminate the vast majority of novels ever penned. Gorky isn't there either (though better than Gladkov), but he's very good. Gladkov has his moments. His style is sparse, pithy, certainly prescient in terms of what was to come. Aesthetically something is afoot, mirroring the revolutionary changes taking place in the arts during this period - graphic art, Shostokovich, etc...

In short, a must read for anyone interested in the spectrum of Russian Lit. Give it a chance before you chalk it up to Soviet propaganda.

UPDATE:  Having just read Lermontov's 'A Hero of Our Time' (highly recommend), I must say there is a terrible double standard in Russian literature.  We forgive Lermontov's shaky prose just as we forgive Gogol for burning a good portion of 'Dead Souls' in his fireplace - all because of the moral, social, and historical merit that makes both novels extraordinary.  

'Cement' is just as extraordinary in this sense, yet for whatever reason is not forgiven for fairly mild literary shortcomings.  

And yet we do know the reason.  Criticism of 'Cement's mild literary shortcomings is merely a ruse for a general attack on the Soviet propaganda machine.  And for good reason: we justifiably abhor the extent to which the Soviets oppressed people generally and the arts specifically.  

But to make "Cement" a scapegoat for Soviet censorship, oppression, etc., is a serious mistake.  This is a novel that captures very beautifully not only an important moment in history but also the nascent emergence of many modern issues and practices transcending early Soviet life.  The emergence of day care, for instance.  Or the rights of women.  The novel in fact is centered very much on the difficult adjustment Gleb and Dasha must make in reuniting; their newly-defined relationship certainly resonates with contemporary issues.  Franz Boas would have a field day.  

It is time to dissociate the crude connection between Gladkov and what is now a very impotent/obsolete political discourse, and rediscover the worthy place 'Cement' occupies in Russian literature.