February 22nd, 2012

Fear, Itself, Ourselves: The Fear Complex

I am afraid of too much safety, and of too much fear.
I am afraid that the financial supports of high-tech Western civilization are crumbling.
I am afraid that we lack vision.
I am not afraid of Muslim terrorism, not because it is benign, but because it is ridiculous and hardly credible, a barking mouse in a world of landslides and volcanoes.

Alex Gourevitch writes in the Chronicle of Higher Education ( referred by Bruce Schneier ) about the Fear Complex:

Quoted from An Era in Ideas: Fear

August 7, 2011
Fear

By Alex Gourevitch

In Edward Bellamy’s classic 19th-century novel, Looking Backward, a young man named Julian West falls asleep in 1887 and awakens in 2000.

….

One major element is that we do not even know what to reach for, what it is that our fears prevent us from achieving. In Looking Backward, the utopian vision of America in 2000 had a foothold in the real. There was in Bellamy’s time a universal yearning, buried by the crushing poverty and extremes of industrial capitalism, for something like the shared purpose and human freedom that the book portrayed. A society based on free and equal relationships and cooperative ideals seemed possible.

We, on the other hand, have trouble imagining that kind of society. We’re told that utopia leads to dystopia; that we should fear our hopes. Fear itself has changed, from an obstacle to a diversion. For Bellamy, fear was repressive, because it prevented the expression and realization of higher ideals. In the war on terror, eliminating fear has become an end in itself. Of course, we can all agree we want to be safe. But that is a dodge, a way of avoiding the harder discussion about what it means to live free and equal lives.

The great lie of the war on terror is not that we can sacrifice a little liberty for greater security. It is that fear can be eliminated, and that all we need to do to improve our society is defeat terrorism, rather than look at the other causes of our social, economic, and political anxiety. That is the great seduction of fear: It allows us to do nothing. It is easier to find new threats than new possibilities.

A decade after 9/11, we look backward and find ourselves in all-too-familiar surroundings. We have, in fact, accomplished very little. We have yet to do any of the serious thinking that might carry us beyond the banal, stifling quest for security. That kind of thinking would require us to have a different relationship to fear: a willingness to accept it, even cause it.

Radical demands for justice are dangerous—they inspire fear in those committed to the injustices of the present.

Alex Gourevitch is a postdoctoral research associate at the Political Theory Project at Brown University. He is an editor of Current Moment, a blog.

Gourevitch sounds a bit of a Utopian himself, and probably he and I disagree on what’s possible. I don’t think we have space or time or energy to spend on quixotic crusades for justice – at best these get bogged down in legal minutia and at worst they produce the heavy-handed nanny state the conservatives complain about. In any case, there are much bigger problems on the horizon. Egalitarianism and fair distribution of wealth are products of rich, educated society, and we are falling back in both measures. Instead, we are confronted with the population and energy-use bomb predicted back in the 1970′s. Understanding that we aren’t very good at predicting the timing of resource shortages, it’s perfectly clear that the raw numbers are inescapable. Sometime, at some population, there is an outside limit on energy use, and economic growth. Like dieting, there are only two answers: be fewer and use less.

Lowering the population radically, while it ages demographically, while we run out of cheap energy, and find that we can’t fund economic growth with cheap credit any more, is a huge undertaking and there is no sign at all that will be accomplished in an orderly way. In fact the military seems a more likely tool than planning, science, and policy.

But yeah, fear has been used to distract the US populace, safety has been the dangling carrot, and it’s all a sham.

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The Goose Abides

I love this comic!

 the goose edits Golding

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Why Should We Care About Saving the Biggest Banks?

Giant banks have been at the heart of the ongoing financial crisis. We have discovered that they are:

    Huge – much larger than expected.
    Very aggressive – not your Father’s bankers.
    Strangely incompetent at assessing risk – they can be hugely leveraged themselves.
    Closely tied together and to government debt - a real mare’s nest.
    Mostly involved with packaging financials – that was a lot more profitable than loaning money to businesses who actually make or do something.
    Victims of the same short-term CEO thinking as the brokerages and business in general - “who cares what happens to the bank as long as I get my bonus this year”.

Edit:
from http://www.ritholtz.com/blog/2011/09/big-bank-chart/


Bank mergers

Bank mergers

In the years since 2008 we have heard over and over in financial blogs, politicians statements, op-ed pages statements like ” …if the banks go down, so will the economy.” The TARP bailout and even larger, but less observed bailouts from the Federal Reserve, were aimed at these banks and their associated insurance ( AIG). Now we hear how Bank of America is teetering on the edge of collapse again, and the other giants are not healthy. In fact quite a few smart guys say if banks had accounted for their toxic debt properly, they would already be insolvent.

Banks as seen in everywheremag.com

In frustration the other day I asked my friend Steve semi-seriously “well just what would happen if BofA and Citi etc. collapsed?” I got a thoughtful reply which I am posting here:


Steve:

Banks and money markets are primary conduits from deposits into corporate operational liquidity. Payroll, trade finance, invoice factoring…all the lubrication of worldwide trade run on short term credit. While some businesses do operate on their positive bank account balances, most do not. Their assets are mostly deployed and non-liquid. Moreover, those enterprises which are cash positive can’t run for long if half their customers suddenly can’t pay invoices. So there goes the rest within, at most, weeks.

The larger issue is contagion. One huge bank going down as the consequence of past events that all the big banks were also tainted by means that trust in the system is compromised enough so that some meaningful fraction of the money housed elsewhere is also likely to be moved to perceived safe havens. The very definition of a bank run.

Recent articles I’ve posted on negative interest rates for T-Bill trades illustrates that point well enough. As does the piece about BONY announcing fees to hold cash accounts for large customers – effectively a negative interest rate. I guess if that trend kept up for a while there might be movement by some to exit the electronic money system for actual currency, to avoid “storage” costs.

But it’s not just a perception problem. With the biggest banks having countless counter-party liabilities with each other, and with the respective home governments of many having already tapped themselves out backstopping them in 2009 (on in the US case, reaching the political limits of bailouts), those fears are not actually unfounded.

The banking system is a balloon which is volumetrically mostly air and substantively mostly skin. There’s no specie at the core anymore, and even when there was, it’s been vulnerable to these sorts of confidence problems for centuries, since the introduction of leverage (fractional reserve-based accounting). If allowed to deflate, both its structure and function collapse catastrophically.

If we were really an advanced species, we’d have some sort of “in emergency, break glass” setup in which we could temporarily roll over into a gift economy if the accounting based one becomes dysfunctional, until a restart could be scheduled.

On a smaller scale, bankruptcy is our attempt to deal with the reset problem. But the present circumstances, which is not really just BofA, but rather the entire edifice of accumulated savings and the future asset cashflows they presume to lay claim to which is in crisis. Our existing remedies don’t really operate at that scale. So the authorities are inventing new rules on the fly — the disconcerting arbitrariness of which is in itself not great for confidence.


Some recent references from Steve’s feed and elsewhere:

http://blogs.reuters.com/felix-salmon/2011/05/27/the-feds-secret-giveaway-to-european-banks/

http://falkvinge.net/2011/06/17/the-imminent-dollar-collaps-explained-to-an-8-year-old/

http://pragcap.com/where-does-the-money-come-from

http://www.ritholtz.com/blog/2011/08/credit-anstalt-2-0/

http://ftalphaville.ft.com/blog/2011/08/18/657091/should-the-new-york-fed-be-worried-about-european-banks/

http://www.zerohedge.com/news/cue-panic-fed-resumes-liquidity-swap-lines-lends-200-million-swiss-national-bank-most-october-2

http://www.zerohedge.com/news/2-million-bet-bank-america-will-be-4-november

http://www.businessinsider.com/banker-mad-about-being-blamed-for-economic-crisis-2011-8

http://www.businessinsider.com/banks-declining-by-22-2011-8

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