The people are usually lit as well, with glowing phosphorescent rings or their own personal El-wire sets. Wearing every odd costume or no costume. The lights from the cars and people and the art installations provide the only illumination, except for the moon and the stars.
The night air is warm, the ground is now soft and flat. You can wander off or bike in any direction you feel - towards some giant Rubic's Cube or a perhaps a huge music camp which is alive with a throbbing beat and lights and lasers. The music is is never-ending, without cues to signal the start or stop of songs, just an ever changing pattern of rythmic tonalities.
There is really nothing like night in the center at Burning Man, it is a unique experience, scary, strange, an endless visual and aural feast.
]]>The following is my experience at Burning Man.
Imagine if you would, the biggest campground on the surface of the Earth. The average campground in the U.S. has space for 50 to 250 camp sites. Burning Man has some 50,000 people attending, resulting in about 10,000 camps. So its big. So big you can't see it all without spending days traveling about the site on bike. The camps as modest as one man in the back of his pick-up truck to camps of 30 Indian wigwams holding more than 100 people along with associated geodesic domes, trucks, power-generators, and very odd vehicles.
Unlike the normal campground, located in a scenic spot, near running water or a lake, Burning Man is located in one of the harshest places you can visit in the United States. The terrain is dead flat and utterly dry. The ground is completely covered in a fine dry white clay which instantly turns to sticky gray mud with a small application of water.
Let me repeat again: there is no water. None. There is no vegetation. There is essentially nothing living in the Burning Man camp zone. This is so strange that it is very hard to wrap your head around it. Every place that humans have ever settled has water, without exception. A place without water is only a place humans traveled across, never a place that they stopped at, unless bitter necessity forced such a stop. To voluntarily live in a place without water is profoundly unsettling. It feels unnatural, as indeed it is. At times, in the middle of the day, as the sun beat down on the cloth tarp spread over my mattress I felt desperate to escape - to leave Burning Man as fast as I could and find a lake to throw myself in. But I stayed. Just like nearly everyone stays.
At the outer edges of the Burning Man camp, the tents are usually quite normal and - except for the crowding - you would not think twice about what you saw. People sitting on camp chairs, in the shade they created with their own plastic cloths stretched over tent poles. Eating, talking, snoozing in the heat of the day. Occasionally you would see a bigger tent, or one built on the location in the shape of a geodesic half-dome made out of metal tubes and covered with a parachute, flapping in the wind.
Go further in, towards the center, and you see more unusual structures. Some tents in the middle zone are huge, the size of circus tents, sheltering 10 or 20 smaller tents underneath. Some camps are very odd indeed, decorated with a design motif, accessorized by the addition of statues, flags, or random bits of junk. Some camps offer things to passers-by such as: a chance to jump on their trampoline, a phone call to the outside world, a quick shower of water from their huge drum, a pancake, a melted cheese sandwich, a hug, a complement, a home-made drink, and so forth.
All of this is free as one of the few rules of Burning Man is that nothing can be sold or bought (there are two exceptions, you can buy ice and coffee at the center of the campground). If you offer something, you can not ask for money in return.
The inner ring of the camp is where the most unusual things are to be found. This is where you find groups (collectives? tribes? guilds? associations?) of people who have joined together to create places/things/art just because they feel like it. There is really nothing like these organizations outside Burning Man. The short description might be "a group of people that want to impress the other people at Burning Man with their created space".
One group collects costumes (discarded cloths as well as items they buy) and then encourages people to come and pick a costume and wear it. Another group built a giant video screen and invited people to come to a central booth to play Tetris against other random people. Another group gave away free watermelon pieces, still another group gave out free ice-cream. (I suppose if you really wanted to spend all your time mooching you could bring no food at all to Burning Man and still survive, though your diet would hardly be balanced).
By far the most common inner core structures are bars such as The Golden Cafe) or the Ashram Galactica. The groups that run these bars spend thousands of dollars to set up and run super-tents where people can come in, sit down and be served alcoholic drinks and food. They build structures that are decorated around a theme and they are typically open 24 hours a day for the duration of the event. Some 125 people set up and run the Ashram Galactica, an operation that requires major logistical and planning effort. Why anyone would do this is - at this time - unfathomable to me. I must suppose that it starts small, and just snowballs year after year.
The other major type of camp are the music camps, such as Opulent Temple, Root Society, and The Hookahdome. These camps a the biggest structures/places in the whole of Burning Man and they are filled with huge speakers, powered by fleets of generators, and blasting out very odd music from nightfall till dawn. Opulent Temple had lasers, two huge projection screens, and even a flame thrower all to add to the musical effect. Going to the Opulent Temple at night was better than going to the best dance clubs in San Francisco and, again, there was no charge. As for me, musically I don't particularly enjoy the music they played but I was truly impressed by the shows. How these huge music camps collect enough money to operate at Burning Man is beyond my understanding.
Driving around streets of the Burning Man camp are tanker trucks filled with water that spray the streets, temporarily turning the dusty roads to mud paths that are best not stepped on. Also there are sewage tankers that pump out the human waste from the many Port-A-Potties that are located around the grounds.
By far the most interesting vehicles are the Art Cars, the bizarrely decorated cars (and more rarely, bikes) that show off the creativity of the builders. Some of the art cars I saw were giant snails, an "eel" at least 75 feet long, a huge double-decker bus covered on one side with loudspeakers with a DJ on the top, and a huge glowing heart shape above him. There were so many art cars that I could not count them all, I lost track at 150. Cat cars, fish cars, sailboat cars, a car shaped like a sandworm from Dune, a dragon that could breath fire and more, and more again.
Nearly all the art cars are designed to be viewed at night and so they are decorated with lights. Formerly this was done with neon lights but now EL-wire is the new thing and few cars did not make use of the amazing properties of this new light source.
...(more later)...
This is from part of an essay by Ms. Gallagher which hits on some key points
But being American liberals, they increasingly look across the pond for moral leadership. And what we are finding in our sister democracies (which admittedly do not have First Amendments) is not very reassuring.
Consider what is happening right now in Great Britain, our closest sister democracy and the one with the strongest free-speech tradition. How does the British government treat religious liberty when it clashes with “gay equality”?
Can the British government force a Catholic school to retain a principal who enters a civil union? Yes, it already has. How can that be, given British religious liberty? Well, the government says that if a religion teacher at a Catholic school enters a gay union publicly, he or she could be fired. But nobody else.
Can the government fine an Anglican bishop who refuses to hire an actively and proudly gay youth minister? Yes, it already has. (How is this justified by the above principle? I don’t know. I just know the government can do it, because it has.)
In Great Britain, the use of “gay equality” to oppress Christianity is not down the road; it’s already here.
Check out this story from the Telegraph. Note how the “equalities minister” reacts to the suggestion that there should be exemptions from anti-discrimination hiring provisions for religious groups, so that they do not have to hire people who dispute their core moral teachings on marriage and sex:
Religious groups are to be forced to accept homosexual youth workers, secretaries and other staff, even if their faith holds same-sex relationships to be sinful. . . . Religious leaders had hoped to lobby for exemptions to the Equality Bill but Maria Eagle, the deputy equalities minister, has now indicated that it will cover almost all church employees.
Gay-marriage advocates complain that marriage itself is not the core of these emerging church-state conflicts. They are correct; gay marriage is not the core, but it is the ultimate manifestation of the core. The core is this strange use of an equality argument to transform an action — in this case, marrying persons of the same sex — into an equality right.
This is totally new in American legal and cultural discourse. Actions are typically protected by liberty interests, not equality interests. Sexual liberty means I have the right to do what I want, not the right to be free from the knowledge that others disagree, or from their choosing to build institutions that teach that my sexual actions are wrong and exclude those who engage in them.
Equality is typically predicated on characteristics that do not imply actions, because actions are always choices. Skin color is irrelevant. And unchosen. Sexual orientation is almost certainly unchosen, but the decision to incorporate a sexual desire into one’s identity, and then to act on it, is a decision. Maybe most people think it’s the right decision, the healthiest decision, but the point is that it’s a choice, and subject to moral reflection. A sexual desire is not its own justification.
And a further step in moral reasoning is needed to elevate the right to do what one wishes in private into a right to enter a gay marriage. Gay marriage as an equality right thus represents a strange new hybrid — it’s the right to act in a certain way, to have the state and other institutions bless one’s actions, and to punish people (the way we punish bigots) for expressing disagreement with those actions. It is a totally novel equality right, an equality right on steroids.
What is driving this is the race analogy for understanding gay rights. Unless gay-rights advocates find another metaphor (say religious liberty?), the rights taking hold in Great Britain will soon be incorporated (via Supreme Court Justice Sotomayor?) into the Bill of Rights.
Too many libertarians do not understand the essentially Marxist project they are now promoting. Watch out. Individuals may be left free, but institutions that stand against the state’s values will be repressed in the name of equality. Individuals who are not free to form institutions (associate) are impotent against the state’s power to impose its values.
Full essay here.
]]>1) Learn your time limit and calculate your word count. The average person speaks at somewhere between 125 and 150 words per minute. It's always better to speak more slowly than quickly. Thus, if you're speaking for 20 minutes, you want a total word count of about 2,500 words. Be careful! I once got the math wrong and saddled a good friend with a 48-minute speech when he was trying for 30!
2) If you have to speak for more than 30 minutes, be certain to work in some sort of interactive component. Invite questions or give the audience tasks to do. The TV and the Internet have ruined our ability to sit quietly and listen to a talking head for very long.
3) Divide the speech into five parts: an introduction, point 1, point 2, point 3 and a conclusion. Or, in other words, tell people what you're going to tell them, tell them your points and then wrap up by telling them what you just said. This format is adaptable to a speech of just about any length but I'd divide a 20-minute speech as follows:
Introduction: 2 minutes (250 words)
Point 1: 5 minutes (625 words)
Point 2: 5 minutes (625 words)
Point 3: 5 minutes (625 words)
Conclusion: 3 minutes (375 words)
If you're thin on ideas for the three points, consider using a mindmap to help you. (Anyone who subscribes to my free newsletter receives an ebook on mindmapping at no charge.)
4) Tell stories or give examples. If you have a story to illustrate each of your three points, so much the better. Stories are "sticky" — that is, people remember them. Unless you're a scientist, always prefer sticky stories to statistics.
5) Employ humor — but use it carefully and build it into the subject of your speech. I hate opening jokes that are unrelated to the actual speech topic — they feel so fake and tacked on. You want humor to be organic — that is, related to the topic you're covering. Also be sure to avoid any comments that could be considered even remotely vulgar, or sexist, racist, ageist, etc. But if you're one of those people who can't quite pull off a joke, don't try. No humor is better than lame humor or bad delivery.
6) Read the speech aloud. Make sure the language is easy to say — even if you're writing the speech for someone else. Say it out loud many times, so you can check to ensure there are no stumbling blocks. For example, the line "a lower-cost alternative to traditional plans" is harder to say than it looks (try it!). Change that kind of language, fast.
7) Be yourself. While you can gain pointers from observing great speakers, you need to be true to yourself. Don't try to be someone you're not!
See complete text here.
Link here from the web site U.S. Food Policy
A new standard in data storage. A team at Stanford says they encoded essentially 35 bits of data into the interference patterns of electrons from essentially a single atom. The idea that you could store more than one bit of data per atom had been floating around. 1 bit per electron seemed really - really - hard. But this has been done in a lab.
Retired senior NASA atmospheric scientist, Dr. John S. Theon has publicly joined the large (and growing) group of experts who are not convinced that humans are largely responsible for the warming trends seen in global climate.
My own belief concerning anthropogenic climate change is that the models do not realistically simulate the climate system because there are many very important sub-grid scale processes that the models either replicate poorly or completely omit. Furthermore, some scientists have manipulated the observed data to justify their model results. In doing so, they neither explain what they have modified in the observations, nor explain how they did it. They have resisted making their work transparent so that it can be replicated independently by other scientists. This is clearly contrary to how science should be done. Thus there is no rational justification for using climate model forecasts to determine public policy...]]>
When it was clear in May of 2004 that Bush was going to push this social security reform in the face of massive opposition I told my spouse "I think it likely that Bush will accomplish nothing in domestic policy during his second term". I was nearly correct. Sad.
The biggest problem with the Bush presidency was his lack of engagement with the people who were attacking his administration and policies. Powerline has a very good assessment of the Bush presidency and its failures here. This is a quote from them:
Bush's great failing was that his focus was almost exclusively on policy, and he was unwilling to pay adequate attention to politics. This failing manifested itself repeatedly throughout his term in office. With hindsight, the beginning of the end for Bush was his unwillingness to defend himself when he was attacked for the "sixteen words" in his State of the Union address--words that were indisputably true. The same thing happened after Hurricane Katrina, the event that got his second term off on the wrong foot. In truth, the federal response to Katrina was both the largest and the fastest response to any natural disaster in world history. Yet Bush was never willing to stand up to his critics and make the case in his own defense.That tendency to turn the other cheek was, in the end, fatal. Bush never cared much about politics. He was almost contemptuous of political leadership, willing to engage in politics on a sustained basis only in his two successful election campaigns. But he was a politician, and the job of a politician, as President, is to use political skills to lead the American people. Bush's unwillingness or inability to do what it would take to be an effective political leader, in the end undid his administration.
It always amazed me how bloggers were capable of punching 10 foot holes in the arguments of the Bush haters - yet President Bush refused to actually use his Bully Pulpit to do the same. This really was a huge failure of political will on the President's part. The Vice President was out trying to convince people but Dick Cheney never had much traction with the public.
There are lots of problems with the Bush administration, he is hardly our worst president but there were many things he could have done better.
]]>Bush was right.
Bush will be vindicated in history.
We had to respond to the 9/11 terror attacks. We had to strike at the very core of the Islamic world and convince them that attacks against the U.S. were the worst mistake they could ever make. For a myriad of reasons, Iraq was the best available target for a U.S. attack.
We won that war with just 2 and 1/2 divisions against an army that was five time larger. We destroyed Saddam's government and captured him and then set about the arduous task of rebuilding Iraq on totally new ground. We set about proving to the Islamic world that democracy was not incompatible for people just because they were Arabs, or because they were Moslem. We challenged Al Qaeda, not in some minor country like Afghanistan, but in the very heart of the Islamic world. They had to come and fight us there, Afghanistan they could flee from, Somalia they could leave any time but Iraq, no Iraq was a country that had to be fought for.
And they lost.
The effort of rebuilding Iraq is far from over but I believe we have won. Iraq may very well become what the Bush administration dreamed of: a stable, peaceful, prosperous and democratic country sitting right in the middle of the Islamic world. A constant, daily affront to the dictators in the Islamic world who always tell their people "you aren't ready to choose your government" or "Democracy is Unislamic". Bush tried to change the world and I think he has wrenched machinery of history from a terrible direction to a new and better pathway, better for them, better for all of us.
Things can still go badly. The future is unwritten and not always for the best. But as former President Bush flies home to Texas, I salute him for daring to do the hard, difficult, dangerous thing. And for standing up to the whole weight of opinion from the rest of the country and the rest of world who just wanted to let things stew in the Islamic world.
He was right. The Bush administration did the right thing. Iraq is a better country, and the world is better place thanks to the U.S. invasion and occupation in 2003.
To all the brave men and women who served in the U.S. Army and Marines and Air Force, I salute you. You fought under nearly impossible conditions and you won. Counter-insurgency is hard but our enemies were fools and our goals - peace and freedom for the Iraqi people - were noble.
Let me close with the immortal words of President Kennedy, spoken 48 years ago, and still true
Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.
To President George W. Bush, champion of liberty!
]]>America is said to always be reinventing itself. We Americans believe in the real possibility of change, of improvement. Obama, growing up in Indonesia, then Hawaii, and later California, was clearly not willing to see himself defined by his racial background.
I didn't vote for Mr. Obama though I fully expected him to win my state and (by mid-September) the election. That said, I wish him the best of luck in his coming term of office. I hope that he can accomplish at least some of his goals and I hope that he can make some progress on fixing the very real problems this country faces.
I'm proud to be an American, and I'm happy and guardedly confident in the future under the Obama administration.
]]>President-elect Obama was not a strong candidate and McCain was a strong candidate on the Republican side so the race actually looked close for a while. But the hammer blows of the credit market freeze in September and the massive stock drops were nails in the coffin of the McCain effort. McCain's real weak spot in his resume was economics. He neither showed much interest in it over the last 20 years, nor did he have an "A Team" of advisers who could command confidence on the topic.
There was no chance for McCain to win following the collapse of Meryll Lynch and Lehman Brothers in mid-September of 2008. When icons of American investment go under, the American people will say "its time for a change of government".
To me the surprise was that Virgina and New Mexico were solid wins for Obama and Colorado wasn't that close. Most of the other results were extremely likely from a year ago. California was so out-of-reach for McCain that no effort was made here by the Republican party nor was any money spent on presidential advertising.
So far (mid-December 2008) I've been impressed with Obama's choices for his cabinet and White House staff. However, he has a world of troubles to deal with and I very much doubt he will manage to make much progress on any (?) of them during the next four years.
]]>Some exerpts:
I have mentioned before that one of the possible great strengths of games is that they can present complex problems as being amenable to analysis.
…games are by definition tractable. They teach you to chunk up, to chop apart, to disentangle. Perhaps this is where games can most change society: a way to look at the problems so that we no longer throw up our hands…
— Games for Change, closing address
But when we look at that list from the top, about Millenial workplace attitudes, it’s hard not to draw the analogy to a generation raised in a system where there are always rules, always correct answers, where you geta pat on the head every time you do something right, and curves are always easily projected.
It was pointed out that all this sounds like I am slamming Millenials; in fact, I did write a whole book about how good games are as teaching tools, so let me point out the clear benefits of gamist thinking as reflected in Millenials: team-oriented practices, clear goal orientations, high self-confidence, a firm belief that things are solvable, a lack of the cynicism and skepticism common to GenX... it's not all bad!
And this:
In Taleb’s books, the bogeyman is the extremely rare event with a high impact, which he calls a black swan. These are historically visible, but exist on timeframes long enough that we consider them arbitrarily rare: essentially, a non-event in our planning. Yet they also have a highly disproportionate effect on the environment in which they occur.
Interesting ideas.
]]>Full text from Slate in extended entry...
]]> Yes, We Have No Monedas!Inside the world's most annoying economic crisis. By Joe KeohanePosted Wednesday, Dec. 3, 2008,It was no surprise that the cab driver tried to rip us off. We're in Buenos Aires, Argentina, after all, and we'd made the rookie error of requesting a vague destination instead of giving a precise address—naturally he interpreted this as a license to take us from La Boca to the Plaza de Mayo by way of southern Nicaragua. What we hadn't expected was the predicament the driver found himself in when it came time to pay. The fare had come to 14 pesos and 6 centavos. I proffered a 20-peso note (worth about $6.70), and he handed back 50 centavos, suggesting that I was going to be shorted 44 centavos. Then he realized that continuing on this course would require him to give me two 2-peso notes and a 1-peso coin. He sighed dramatically and gave me three 2-peso notes instead. Factoring in the 50 centavos he had already handed over, this effectively reduced the fare to 13.50 pesos, which, for reasons I'll get to in a moment, is actually more than 14.50 pesos.
Welcome to the world's strangest economic crisis. Argentina in general—and Buenos Aires in particular—is presently in the grip of a moneda, or coin, shortage. Everywhere you look, there are signs reading, "NO HAY MONEDAS." As a result, vendors here are more likely to decline to sell you something than to cough up any of their increasingly precious coins in change. I've tried to buy a 2-peso candy bar with a 5-peso note only to be refused, suggesting that the 2-peso sale is worth less to the vendor than the 1-peso coin he would be forced to give me in change. When my wife went to buy a 10-trip subway pass, which retails for 9 pesos, she offered a 20-peso note and received 12 pesos in bills as change. This is commonplace—a daily, if not hourly, occurrence. It's taken for granted that the peso coin is more valuable than the 2-peso note.
No one can say what's causing this absurd situation. The government accuses Argentines of hoarding coins, which is true, at least to some extent. When even the most insignificant purchase requires the same order of planning and precision as a long-range missile strike, you can hardly blame people for keeping a jar of monedas safe at home. The people, in turn, fault the government for not minting enough coins. In fact, the nation's central bank has produced a record number of monedas this year, and the problem has gotten even worse. Everyone blames the bus companies, whose buses accept only monedas. (Buenos Aires' 140-plus bus routes are run by a number of separate, private companies.) These companies, exploiting a loophole in the law, run side businesses that will exchange clients' bills for monedas for a 3 percent service fee. This is legal, but the business community also routinely complains of being forced into the clutches of a thriving moneda black market—run by the local mob, or the bus companies, or both—in which coins sell for a premium of between 5 percent and 10 percent. The bus companies steadfastly deny any involvement in this racket, but their claims were undercut by the discovery of a hoard of 13 million coins, amounting to 5 million pesos, in one company's warehouse this October.
Those coins were confiscated, but the 5 million pesos were returned to the company—in bills—which could be seen as a fine of sorts. The government has also passed laws requiring banks to provide customers with 100 pesos' worth of change on demand. (The banks ignored this because, they said, their precious monedas would then wind up on the black market.) The government recently lowered that figure to 20 pesos (which the banks still ignore) and demanded that the bus lines adopt a pass system, like the subway's, to keep more change in circulation. (All this did was create a stalemate over who would pay for the new equipment.)
The history of Argentina in the last 100 years is a story of great potential overwhelmed by a genius for acts of pointless economic self-destruction, but even for the Argentines, this is an exasperating state of affairs. The economy is still growing at a robust clip of around 8 percent year over year, but out-of-control inflation, estimated by independent analysts to be around 25 percent, has effectively devalued the currency, making it ironic that coins have become such an obsession. But an obsession they are, worthy of Argentine writer Jorge Luis Borges' story "The Zahir," about a man driven mad by contemplating a single coin.
Nowadays, without exact change, porteños also spend their days haunted by the specter of metal money. They are casually shortchanged by waiters or pushed to buy more produce in order to bring the total closer to a figure that won't require the vendor to provide change. People with a keen strategic sense maintain a well-diversified hoard of coins and painstakingly build alliances with local shopkeepers or bank tellers, conspicuously proffering coins for one purchase or deposit in the hopes of being indulged when they're short of change at some point in the future. Street musicians, like one we talked to in the San Telmo neighborhood, have to preface their performances by announcing that they have change, or they risk starving to death. Subway employees are occasionally forced to wave commuters through because they are out of coins.
Stranger still, change mania doesn't end at coins. The moneda shortage has produced a rising disinclination to provide change at all, even in bill form, at least not without histrionic sighs and eye-rolling. Last night, for instance, in a very crowded bar, I handed the waitress a 100-peso note to pay a 20-peso bill, and I was made to wait 30 minutes for change. The 2-peso note is thrown around with a contemptuous disregard usually reserved for metal money, at least in countries where less money isn't occasionally worth more than more money. But 5s and 10s are harder to come by, because they're actually worth something. In many cases, they're more worth more than 20s, because you can buy things with them, which isn't always true with a 20. In some cases, 5s and 10s are effectively worth more than 100s—which, unless you want to take out the equivalent of $20 at a time, are pretty much the only bills ATMs here dispense. Save for large purchases, 100-peso notes are functionally useless—imagine trying to trade a bar of platinum bullion for a sandwich and a coffee. In several instances, I've found myself buying an expensive lunch, costing, say, 60 pesos, just to break a 100 into more useful constituent parts so I can buy something I need, like beer.
Until someone figures out how to solve the crisis, money, at least money of a certain form, will remain like the painted lanes on the grand chaotic avenues of Buenos Aires: merely a set of loose guidelines to be interpreted by the individual, depending on the circumstances. It's exasperating, but there are signs of hope. Every once in a while, something happens that suggests the cosmos has decided to intervene and even things out. Last week, at the ferry terminal, I handed a cashier a 10-peso note for a 10.50 tab. He just shrugged and took it without a word of complaint. Not without a twinge of guilt, I wordlessly returned a precious 50-centavo coin to my hoard. A hoard I plan to release, in one spectacular all-moneda purchase, the day I leave the country. Perhaps from a balcony, like Eva Perón.
]]>Full text of article in the extended entry.
]]> The Financial Crisis: What Went Wrong? by Ted Seto (Loyola Law School Los Angeles)The ongoing turmoil in the financial markets has diverted me from my usual tax academic pursuits, including this blog, for which I apologize. This post explores the causes of that turmoil. My next post will explore solutions currently under consideration, including aspects of the so-called “$700 billion bailout.”
The current financial crisis has many causes, some long-term and structural. I focus here, however, on three immediate aspects of the crisis: the trigger, how problems generated by that trigger spread through the markets, and how this produced the liquidity freeze that persuaded Mr. Paulson and Mr. Bush to act (unsuccessfully thus far).
The Trigger: Teaser-Rate Mortgages
The media talks about “sub prime mortgages” – by which it means mortgage loans to borrowers with less than stellar credit. The real problem, however, was the advent and widespread use of teaser-rate mortgages in both the prime and sub prime markets. A teaser-rate mortgage allows a borrower to make relatively small payments for several years. At some point, the rate jumps dramatically, and the borrower faces much higher monthly payment obligations.
Not surprisingly, borrowers loved this innovation. Teaser-rate loans allowed folks who otherwise could never have afforded to own a home to buy one, at least until the rate reset. But it wasn’t just sub prime borrowers who liked teasers. Teasers sold like hotcakes; loan originators made correspondingly fabulous profits.
(Some have tried to blame teaser-rates on the Community Reinvestment Act of 1977, which encouraged lending to minorities and lower income Americans. But that act only applied to commercial banks. A majority of this crisis’s teaser-rate loans were made by unregulated originators not subject to the act. More fundamentally, there is no evidence the present crisis started in 1977. Teaser-rate mortgages first became widespread after Mr. Bush took office in 2001.)
In any event, it’s not hard to predict what happens when rates reset. All of a sudden, buyers who have been paying $1,000 per month face monthly payments of $4,000. Many, perhaps most, go into default.
The possibility that this would become a major problem became apparent as early as 2005. (I actually wrote that fall predicting the current crash.) Mortgage economists began publishing reset schedules – schedules of how many billions or trillions of dollars of mortgages would reset and when. In effect, those tables offered a rough schedule of how many mortgages would go into default and when.
As defaults increased in number, lenders ended up holding large amounts of foreclosed property. When they tried to convert the property into cash, they put downward pressure on housing prices. And this, in turn, made financing and refinancing more difficult and further defaults more likely – even of non-teaser loans. (A perfect vicious cycle, and we’re not remotely near the end of it. In parts of the country, more half the homes offered for sale are now foreclosures. Banks are desperate to get those homes off their balance sheets and are dumping them much faster than the market can absorb them.)
The Spread: Securitization and Debt Chains
But why did Lehman Brothers and AIG go under? After all, they don’t make mortgage loans. I turn next to how the problem spread.
Assume that A borrows from B to buy a home, giving a mortgage on the home to secure her debt. B then borrows from C, using A’s mortgage as security. C in turn borrows from D, using B’s obligation as security. And so on.
Now assume that A’s mortgage goes bad. What happens to B, C, and D? Answer: all the loans up the chain go bad as well.
And this isn’t all. If the loan is secured (as mortgages and many other links in debt chains are), the lender is typically less interested in the creditworthiness of the borrower. The lender relies primarily on the collateral, not the borrower, for assurance of repayment.
As a result, each financial intermediary can be thinly capitalized. So a company with $10.1 billion in assets and $10 billion in debt may have a small amount of net equity. Indeed, the more thinly capitalized a company, the higher the return it can make on its capital.
Unfortunately, what this means is that when A’s mortgage goes bad, it’s not just the loans up the chain that go bad – financial intermediaries in the chain often go bust as well. A thinly capitalized intermediary cannot absorb many losses. And that is why teaser-rate mortgage defaults triggered and are still triggering defaults and failures across the entire financial sector. Almost everyone was in the debt-chain business and extended themselves to the max to take advantage of the extraordinary profit opportunities of that business.
I’ve explained the transmission mechanism in terms of debt because readers have an intuitive understanding of how debt works. In fact, however, many of the most important links in the chain were not technically “debt.” Some were shares in “mortgage pools”; some, “derivatives”; some, “credit default swaps.” What they all had in common was that each transferred some risk of default up the chain to someone else. Wall Street sometimes calls links in such debt chains “toxic waste,” because today no one wants them.
AIG, for example, held about $500 billion in “notional exposure” on credit default swaps. In English, it was at risk to the tune of about $500 billion if mortgages down the chain went bad. When mortgages began to go bad in large numbers, the market realized that AIG might not be able to cover its obligations and began to sell AIG stock seriously short. Lenders stopped lending. End of story.
What made this more than just a corporate problem was that AIG was a domino at the head of many long chains of dominoes. If AIG had gone, some believed the world would have faced immediate economic collapse. So the US government bought an 80% stake in AIG in exchange for enough money to allow AIG to dissolve gracefully – over a couple of years – instead of imploding overnight.
The Crisis: Liquidity Freeze
None of this, however, would by itself have led a free-market US administration to propose a $700 billion general “bail-out.” Real estate is important, yes, but there are many parts of the economy not dependent on the market for home mortgages. What happened?
In ordinary times, most businesses borrow on a short term basis to fund payroll, inventory, and other operating needs. There are two principal sources of short-term money: banks and money-market funds. In the past several weeks, each of these has substantially reduced the amounts they are willing to lend. This is what’s called a liquidity or credit freeze.
Why did banks and money-market funds stop lending?
Let’s start with money-market funds. Investors put money into money-market funds when they want absolute safety and the ability to pull their money out at will. Put in a dollar, get out a dollar, whenever you want. In return, they accept a very low return. What happened was that The Reserve, the oldest and most highly regarded money-market fund sponsor, “broke a buck” – which means it paid back only 97 cents for every dollar investors put in.
The reason was simple: The Reserve had loaned short-term money to Lehman Brothers, a major participant in the debt chain business. Lehman Brothers went belly up, and The Reserve’s short-term loans to Lehman became uncollectible. (Remember that the Treasury and the Federal Reserve Bank, having bailed out Bear Stearns, decided to let Lehman Brothers go bankrupt to teach the market a lesson. In retrospect, this was probably a mistake.)
As a result, investor confidence in money-market funds plummeted. Fortunately or unfortunately, investors always have a secure place to park money, Treasury bills – short term obligations issued by the U.S. government. When The Reserve broke a buck, everyone moved their money into Treasuries. Money-market funds dried up. And that was the end of one major source of business working capital.
Another major source is the banking system. Unfortunately, banks and other financial intermediaries became reluctant to loan to each other. As a result, money in one part of the banking system stopped flowing to where it was most needed.
Why did banks stop loaning money to each other? When lenders lend, they generally look at borrowers’ financial sheets to determine how creditworthy they are before giving out money. Unfortunately, most banks and other financial intermediaries have large amounts of toxic waste on their books.
In situations like this, accounting rules require companies to “mark assets to market.” If an asset with a face value of $100 appears to have a market value of $40, the company is supposed to record a loss of $60 immediately, even before the asset is sold, and to carry that asset on its books at a value of $40. So banks and other financial intermediaries began reporting enormous losses on the toxic waste they held, and their balance sheets crumbled. (The head of the Securities and Exchange Commission was pressured to waive this rule, but refused. It was for this reason that Sen. John McCain demanded that he be fired.)
But recognizing market losses isn’t the most serious problem. If a lender can be confident that the asset in question really has a value of $40, it may still conclude that the prospective borrower is likely to repay the loan – notwithstanding the reported loss. If no one knows how much the toxic waste is actually worth, however, lenders can’t assess the creditworthiness of any prospective borrower with significant amounts of toxic waste on its books. Almost all banks hold toxic waste. So banks stopped lending to other banks. (Waiving the mark-to-market rule would not have solved this problem; it would simply have hidden the accrued losses. Banks are sophisticated enough to worry when accounting rules do not correctly reflect what's going on in the market.)
But why is the unavailability of short-term money so bad?
Remember what businesses use short-term money for – to meet payroll and put inventory on their shelves. When businesses lose access to working capital, they stop operating, not because there is anything fundamentally wrong with their products or markets or business plans, but simply because they can’t get the cash they need on a daily basis.
You might think of short-term money as the lubricant that keeps the world’s economic engine turning over smoothly. If there’s no lubricant, the engine freezes. No paydays, no goods on the shelves. Seriously.
This was the possibility that persuaded Mr. Bush and Mr. Paulson to change course and support a general “bail-out.” And it remains a very real possibility.
The $700 Billion Bailout
I will discuss the details of possible solutions in my next post.
What is important to emphasize here is that current proposals are primarily intended to solve the liquidity freeze part of the problem – to prevent the world’s economic engine from seizing up.
Mr. Paulson’s original proposal hoped to accomplish this in two ways. First, by buying up toxic waste at fair market value, Mr. Paulson could take toxic waste off financial intermediaries’ balance sheets. This would allow lenders to assess borrowers’ creditworthiness with greater confidence and, hopefully, get banks to start lending to each other again.
Equally importantly, however, Mr. Paulson requested authority to buy up that waste at whatever price he thought best. By buying toxic waste at higher prices than private buyers were willing to pay, he hoped to bolster the financial intermediaries’ balance sheets – to make them more creditworthy.
This aspect of the proposal was what made it a “bail-out.” And this was part of what led to its defeat in the House.
Note that Mr. Paulson’s proposal was not intended to solve the teaser-rate mortgage problem, either now or in the future. In the transactions that created the teaser-rate mortgages in the first place, both parties made bad decisions – the lender and the borrower. Mr. Paulson’s proposal was not intended to help either. One of its unavoidable side effects, however, was to relieve lenders of the consequences of their bad decisions, while leaving borrowers to suffer the consequences of theirs. This made it politically less palatable.
In addition, at least $500 billion more of teaser-rate mortgages are scheduled to reset over the next several years. In all likelihood, they too will go into default and become toxic waste. Nothing in Mr. Paulson’s original proposal was intended to do anything about this next $500 billion installment – or, indeed, to prevent lenders from making more teaser-rate mortgages in the future.
Similarly, Mr. Paulson’s proposal was not intended as a general Wall Street bail-out, although to some extent it would have had that effect. Note that the outstanding overhang of credit default swaps alone is estimated to be between $45 and $60 trillion – three to four times the size of our annual gross domestic product. The requested $700 billion, although the single biggest appropriation request in U.S. history, was miniscule when compared with the toxic waste problem as a whole. Mr. Paulson’s proposed solution was to cost just 1% of the size of the problem and was aimed only at a small part of that problem. (It is unnerving to realize that the U.S. government – the “beast” we have been starving for so long – may now lack the borrowing capacity to solve the problem as a whole. We need to get our financial house in order.)
All Mr. Paulson’s proposal aimed to do was to put lubricant back into the engine, to get short-term money flowing again to prevent our economic engine from freezing up. Now that the proposal has gone down to defeat, we can only hope that Mr. Paulson was wrong.
(Hat tip to Marginal Revolution)
More details here
]]>A new scientific understanding of perception has emerged in the past few decades, and it has overturned classical, centuries-long beliefs about how our brains work—though it has apparently not penetrated the medical world yet. The old understanding of perception is what neuroscientists call “the naïve view,” and it is the view that most people, in or out of medicine, still have. We’re inclined to think that people normally perceive things in the world directly. We believe that the hardness of a rock, the coldness of an ice cube, the itchiness of a sweater are picked up by our nerve endings, transmitted through the spinal cord like a message through a wire, and decoded by the brain.
In a 1710 “Treatise Concerning the Principles of Human Knowledge,” the Irish philosopher George Berkeley objected to this view. We do not know the world of objects, he argued; we know only our mental ideas of objects. “Light and colours, heat and cold, extension and figures—in a word, the things we see and feel—what are they but so many sensations, notions, ideas?” Indeed, he concluded, the objects of the world are likely just inventions of the mind, put in there by God. To which Samuel Johnson famously responded by kicking a large stone and declaring, “I refute it thus!”
Still, Berkeley had recognized some serious flaws in the direct-perception theory—in the notion that when we see, hear, or feel we are just taking in the sights, sounds, and textures of the world. For one thing, it cannot explain how we experience things that seem physically real but aren’t: sensations of itching that arise from nothing more than itchy thoughts; dreams that can seem indistinguishable from reality; phantom sensations that amputees have in their missing limbs. And, the more we examine the actual nerve transmissions we receive from the world outside, the more inadequate they seem.
Our assumption had been that the sensory data we receive from our eyes, ears, nose, fingers, and so on contain all the information that we need for perception, and that perception must work something like a radio. It’s hard to conceive that a Boston Symphony Orchestra concert is in a radio wave. But it is. So you might think that it’s the same with the signals we receive—that if you hooked up someone’s nerves to a monitor you could watch what the person is experiencing as if it were a television show.
Yet, as scientists set about analyzing the signals, they found them to be radically impoverished. Suppose someone is viewing a tree in a clearing. Given simply the transmissions along the optic nerve from the light entering the eye, one would not be able to reconstruct the three-dimensionality, or the distance, or the detail of the bark—attributes that we perceive instantly.
Or consider what neuroscientists call “the binding problem.” Tracking a dog as it runs behind a picket fence, all that your eyes receive is separated vertical images of the dog, with large slices missing. Yet somehow you perceive the mutt to be whole, an intact entity travelling through space. Put two dogs together behind the fence and you don’t think they’ve morphed into one. Your mind now configures the slices as two independent creatures.
The images in our mind are extraordinarily rich. We can tell if something is liquid or solid, heavy or light, dead or alive. But the information we work from is poor—a distorted, two-dimensional transmission with entire spots missing. So the mind fills in most of the picture. You can get a sense of this from brain-anatomy studies. If visual sensations were primarily received rather than constructed by the brain, you’d expect that most of the fibres going to the brain’s primary visual cortex would come from the retina. Instead, scientists have found that only twenty per cent do; eighty per cent come downward from regions of the brain governing functions like memory. Richard Gregory, a prominent British neuropsychologist, estimates that visual perception is more than ninety per cent memory and less than ten per cent sensory nerve signals. When Oaklander theorized that M.’s itch was endogenous, rather than generated by peripheral nerve signals, she was onto something important.
The fallacy of reducing perception to reception is especially clear when it comes to phantom limbs. Doctors have often explained such sensations as a matter of inflamed or frayed nerve endings in the stump sending aberrant signals to the brain. But this explanation should long ago have been suspect. Efforts by surgeons to cut back on the nerve typically produce the same results that M. had when they cut the sensory nerve to her forehead: a brief period of relief followed by a return of the sensation.
Moreover, the feelings people experience in their phantom limbs are far too varied and rich to be explained by the random firings of a bruised nerve. People report not just pain but also sensations of sweatiness, heat, texture, and movement in a missing limb. There is no experience people have with real limbs that they do not experience with phantom limbs. They feel their phantom leg swinging, water trickling down a phantom arm, a phantom ring becoming too tight for a phantom digit. Children have used phantom fingers to count and solve arithmetic problems. V. S. Ramachandran, an eminent neuroscientist at the University of California, San Diego, has written up the case of a woman who was born with only stumps at her shoulders, and yet, as far back as she could remember, felt herself to have arms and hands; she even feels herself gesticulating when she speaks. And phantoms do not occur just in limbs. Around half of women who have undergone a mastectomy experience a phantom breast, with the nipple being the most vivid part. You’ve likely had an experience of phantom sensation yourself. When the dentist gives you a local anesthetic, and your lip goes numb, the nerves go dead. Yet you don’t feel your lip disappear. Quite the opposite: it feels larger and plumper than normal, even though you can see in a mirror that the size hasn’t changed.
The account of perception that’s starting to emerge is what we might call the “brain’s best guess” theory of perception: perception is the brain’s best guess about what is happening in the outside world. The mind integrates scattered, weak, rudimentary signals from a variety of sensory channels, information from past experiences, and hard-wired processes, and produces a sensory experience full of brain-provided color, sound, texture, and meaning. We see a friendly yellow Labrador bounding behind a picket fence not because that is the transmission we receive but because this is the perception our weaver-brain assembles as its best hypothesis of what is out there from the slivers of information we get. Perception is inference.
The theory—and a theory is all it is right now—has begun to make sense of some bewildering phenomena. Among them is an experiment that Ramachandran performed with volunteers who had phantom pain in an amputated arm. They put their surviving arm through a hole in the side of a box with a mirror inside, so that, peering through the open top, they would see their arm and its mirror image, as if they had two arms. Ramachandran then asked them to move both their intact arm and, in their mind, their phantom arm—to pretend that they were conducting an orchestra, say. The patients had the sense that they had two arms again. Even though they knew it was an illusion, it provided immediate relief. People who for years had been unable to unclench their phantom fist suddenly felt their hand open; phantom arms in painfully contorted positions could relax. With daily use of the mirror box over weeks, patients sensed their phantom limbs actually shrink into their stumps and, in several instances, completely vanish. Researchers at Walter Reed Army Medical Center recently published the results of a randomized trial of mirror therapy for soldiers with phantom-limb pain, showing dramatic success.
A lot about this phenomenon remains murky, but here’s what the new theory suggests is going on: when your arm is amputated, nerve transmissions are shut off, and the brain’s best guess often seems to be that the arm is still there, but paralyzed, or clenched, or beginning to cramp up. Things can stay like this for years. The mirror box, however, provides the brain with new visual input—however illusory—suggesting motion in the absent arm. The brain has to incorporate the new information into its sensory map of what’s happening. Therefore, it guesses again, and the pain goes away.
The rest of the article is about itching...
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