Sunday, March 15, 2009


The current “meltdown” as it is euphemistically labeled goes deeper than money and is really a question of values. As a recent article in The Economist called “Diagnosing Depression” said, “The word ‘depression’ is popping up more often than at any time in the past 60 years, but what exactly does it mean?”

There are two main criteria it cites from an Internet based search that differentiate a depression from recession—a depression involves a decline in real GDP that exceeds 10% and/or is a recession that lasts longer than three years. The Great Depression qualified on both counts with GDP falling by approximately 30% between 1929 and 1933. While there may not be apple stands out on every street corner yet, soup lines have been expanding at a rate that may parallel the two banks that the FDIC is now seizing weekly.

Karl Marx, not a man known nearly for humor as say the American comedy team sharing his namesake, may be at least sporting a rictus smile as he spins in his grave. If we are at the beginning of a depression, it will certainly merit the name Depression 2.0 because like the financial engineered debacle we are drowning in, it will be distinguished by a feature set uniquely its own. Technicalities and definitions aside, the current global economic crisis is also as much about the nature of meaning or what might be called by “the meaning of meaning” as it is about values.

Nowhere is this better showcased than in Bernard Madoff’s ability to hide an unparalleled scam while avoiding oversight detection—amazingly even without a single trade for a decade and with a professed 10% return annually—behind a supposedly “proprietary system” he called “split-strike conversions”, which he obstinately refused to define when pressed by the curious. According to April’s Wired and Greg Hays, whose firm Hays Financial Consulting specializes in fraud detection, this critical element of how to run a scam can be summed up as, “There’s usually some cryptic angle.”

Mike Olson of Wired likens this approach to the kind of “marketing scams (that) often push products with secret compounds that say, “triple muscle mass, hair thickness, and brain cells.” Like it or not, Wall Street is now firmly situated in the realm of P.T. Barnum. The New York Times has recently gone so far in two articles to call the “performance bonuses” and “management fees” received by senior banking executives as “looting”. With AIG currently defending its post-bailout executive bonuses and with what the LA Times called the “grudging consent” of the Obama Administration, we clearly are looking at a divide in perspectives, if not values. There seems to be a semantic gap here between “bonus” and “theft” the size of a Black Hole.

The form that this maze of mirrors takes is nor more transparent than with the arcana of derivatives, credit default swaps, and other financial instruments that were developed by the financial engineers or as they came to be affectionately known “quants” starting in the 80’s. Like the equations they are founded on, notably David K. Li’s Gaussian copula function first published in 2000, these values are all theoretical “windows” with often what are only secondary or tertiary relationships to “the store” or collateral. When even “the experts” have professed to not understand these concepts, then we are in the realm of talking heads on CNBC, Bloomberg, and the Sunday morning network “political” talk shows nodding like bobble heads in the back of a repossessed American car being towed away into the sunset. Even a worthy on the frontlines like Elizabeth Warner of Harvard Law School and Head of the Congressional Oversight Panel on TARP offered to Terry Gross last week on Fresh Air that nobody knows yet where the bailout money has gone, but that the process of transparency has started. At this point, the vastness of the numbers involved now that they are in the multiple trillions are just plain numbing since there is no way for we non-quants to reference them.

As the crisis continues to reveal layers of the onion and falls like so many cards in the Wall Street Funhouse, it’s these kinds of expressions of “value” that are a long way from a monetary system based on the gold standard backed up by bullion at Fort Knox and Bretton Woods. We’re way beyond something that Auric Goldfinger would lust for here and the depths of how far the cards will fall can only be described as an endless maze where we’ve just wiped our dung-soiled shoes off on the welcome mat to Wall Street’s House of Mirrors attraction.

So, if the financial basis for the system has now proven shoddy, if not shaken to its core by virtue of not being based on any reality except for greed and probability formulas—both shaky as foundations at best—what then, is the reality we find ourselves in? Psychotherapist Robert J. Sardello and Randolph Severson in a masterwork called Money and the Soul of the World (a phrase coined by Norman O. Brown), provide a clear picture of how we got here: “Bottom line thinking makes money appear as the one solid reality left…money is the epistemology of our Age. Money makes things happen. It is the source of action in the world and perhaps the only power we invest in. Life seems to depend on it…Perhaps in every other respect, in every other value, bankruptcy has been declared giving money the power of some sacred deity, demanding to be recognized. Economics no longer persuades money how to behave. Numbers cannot make the beast lie down and be quiet or sit up and do tricks. Thus, as we suspected all along, economics falsely imitates science. At best, economics is a neurosis of money…it enables functioning in the world, and before long all functioning revolves around maintaining the neurosis.”

Maybe it can be argued that this is a Western neurosis and that a billion Muslims would not subscribe to this apostasy. But we’re not alone—in February, the nation once held as the standard for emerging economies of this century—Dubai—received an initial bail-out of $10 billion from the U.A.E. The crisis of values is clearly a global affair. Or maybe, as Tom Tomorrow mordantly observes in his most recent column in This Modern World, the “current turmoil” is based on the fact that “Tax cuts for the wealthy have never been properly implemented!” His current post features a cover for a periodical called "The Magazine of Wall Street" from July 27, 1929 with the headline "Ten Best Stocks To Buy Now" and Tom's caption, "Little did they know..."

This past week, I was talking with Kevin Henry of Bazzeo, who has been an active voice in the environmental movement since 1974. As an early mover, he has now become a recognized arbiter of style, taste and innovation in the Green Home and especially the kitchen. We were discussing the history of how environmentalism has changed and in particular, how it’s experienced a sea-change in the last five years, in large part due to An Inconvenient Truth taking global warming into the mainstream.

We were discussing corporate “greenwashing” and the bandwagon effect, but Kevin elevated the conversation from my cynicism to his always infectious optimism. He said: “We’ve gone from consumers saying, ‘I’ve got to have that!’ to saying, “Why do I need that?’” Simply put, he spoke to a movement that is the subject of forthcoming lectures called "Consumerism To Consciousness".

This theme is at the root of our current economic crisis and holds the key to recovery. Weather expert and anthroposophical scholar, Dennis Klocek, has taken James Lovelock’s Gaia theory, which posited the planet as a living entity one step further. Klocek offers a formula which advances that the Earth’s consciousness is directly equivalent during any given historical epoch to the level of human species consciousness. Or to put it another way, E∞=H∞/C (E=Earth, H=Homo sapiens, ∞=Consciousness, C=Time). It follows that the sooner we continue of our own volition—rather than as forced by economic disaster—on the path of course correction toward deeper values connected to the whole—the better our future will be.

To survive this crisis of what stands behind value, it is common sense to base our currency on the living system we all share and should sustain together. It’s not a gesture like cap and trade toward substantiating the market value of the natural world that we need now, though to value nature as the market is the right direction. But we need to be careful for as Chief Seattle once asked rhetorically and with some irony of the Great White Father in Washington: “Who owns the air?” A Green WPA, however, would be a great leap forward to start rebuilding our infrastructure and manufacturing around sustainability and renewable energy.

To inspire hope and start on the road to a new earth economy, we will need many more living, breathing formulas like Klocek’s to replace the vampire quant formulas of Wall Street—but Klocek’s equation is a miraculous, bold and auspicious way to formulate an Earth Standard to a eco-system of organic values based on every breath we take…


Silvanus Slaughter said...

Well, a great article, and very educational to one who thought Wall Street was all b.s. in the first place.

Is this why brokers never will look me in the eye?

You wrote: "Wall Street is now firmly situated in the realm of P.T. Barnum."

'Well, yea-s-s-s', as Lady Chablis would laugh.

and "There seems to be a semantic gap here between “bonus” and “theft” the size of a Black Hole."

I suspect you saw that sometime ago, as did I.

I think somehow, as you alluded, it dovetails with vampire consciousness, which is in vogue again - since Anne Rice gravitated to the story of Christ - with "Twilight" and the like. I maintain that Hollywood, and especially modern Westernized medicine/big pharma, are well-populated by vampire consciousness. i.e. Here is the dream where you need to give me your blood: buy it, I'll bite you and drain you, and, oh, you know need it.

Again, informative, educational article.

Kevin Stein said...

Do you mean that Wall Street will now find religion? Silvio, you've always been a Man of Faith...Once again, you've inspired me to think about another post--There Will Be Blood in the future on Tribal Media. Thanks again for commenting since blogging can be a little like being a DJ. You send the signal out, but wonder if it's being received.

Paul said...

You are damn good! From now on... I will read you.
So, in a nutshell, where are we heading exactly?

Kevin Stein said...

Thanks for your comment, Paul. I have no idea where we're going as indicated by how much I have to say about it. But inspired by your question, I have inquired of the Space Brothers who said with their characteristic opacity, "Onward Earthlings!"

Kevin said...

A very powerful piece and one I will quote from most a marketing professional and a true believer in the power of words and images...I felt your blog was dead on the money...regarding early California history...check out Reminiscences of a Ranger: Early Times in Southern California...the adventures of riding with the Sepulvada Brothers and Don Pico the land baron...great Los Angeles names and connections.

Kevin Stein said...

Kevin, thank you for your comment and the book recommendation which I look forward to. I have read an account of an Indian attack in the pass named after Sepulveda that took place in the mid-to-late 1800's. The same book referred to an Indian battle with Spanish landowners that took place in the Beverly Hills area. When I am trapped by traffic in both areas, I resort to thinking about these incidents and that life could be worse!