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Banbury Cross

a pillow for lost thoughts...

Archives for: August 2011

The Big Bank Theory

The prices of commodities have been through the roof and in the popular hunt for culpable culprits the speculators got into public crosshairs. You know those clean cut quantitative wizards who keep churning unimaginable quantities of imaginary contracts at their computer screens until the resulting bubbles burst in the face of the huffing and puffing economy. But the thing to know about financial bubbles is that you can't really blow them up with a stack of old baseball cards. You need cash. Lots of it. And that is where central banks of the world step in - in an attempt to whitewash the skid marks of runaway greed they have been hosing the whole financial world with oceans of liquidity for three years now.

However, serious actions have serious consequences. While our authorized money magicians can pull as much liquidity from their hats as they wish, they cannot enforce where it goes. That is for markets to sort out. Can you blame the traders that they direct the money that is being showered on them to where it promises the highest returns? I don't think you can. They are traders - that's what they do for a living. That's like giving kids a set of matches and then chastising them for setting the barn on fire. The central banks should be the adult in this game. Easy money is a drug. But instead of being a responsible pharmacist, our beloved central bankers turned into unscrupulous pushers.

Commodity speculation isn't the only problem of our financial system. There is much that is wasteful or outright fraudulent - excess of unproductive money in politics, rampant misuse of public funds, poorly understood risks, non existent ethics - you name it - but if you follow the money trail it always leads to that one big bank in the center of it all. In our case the Federal Reserve and its ability to create money at will. When water is in infinite supply why would we conserve it, right? Being able to create money out of thin air is like saying "hey guys go ahead and take your insane risks, we will print more if need be".

Gold used to impose certain discipline, but it's rigidity lead to stress that was tearing the financial system apart. That is where the notion of elastic currency came from. Not a bad idea per se, except we gave control over it to the wrong group - we have entrusted our hen house to the foxes. Look at the irony of it: we will meticulously vote for the least important dude on a school board in some godforsaken district in rural Alabama - yet we let a bunch of unelected and unsupervised financiers unilaterally determine the strength of our national currency. And remember that any tinkering with the money supply dilutes the purchasing power of the money already existing. Yep, that would be those green pieces of paper residing in your wallet. We all literally walk around with bankers' bony hands in our pockets. They control the actual value of our wealth, but they do not answer to us in any meaningful way.

This lack of oversight also prevents establishing efficient mechanisms that would deal with their incompetence or abuse. Reading past statements of Maestros Bernanke and Greenspan makes your hair stand on end sometimes. But there is nothing you can do about it. Granted - economy is a very complex system and everyone makes a bad call once in a while. But then why not link the crucial decisions to some market mechanisms, rather than subject them to whims of a small group of self-proclaimed experts. Especially when that group earned a pretty shady reputation over the centuries. Bankers have been abusing their powers since the Middle Ages. And central bankers are no exception - they will always take care of their own first, even if it's exactly the same geniuses who created the mess. After the recent infusions of public (taxpayers) money into the clogged veins of the global financial systems even the most naive must see that banks are not here to serve people, people are here to backstop the foolishness of their management. We gave them keys to the world and they drowned it in debt. Maybe we should finally reevaluate this awkward arrangement and give custody over this lovely little planet to a group that will treat it with more respect - like architects, entrepreneurs, engineers or tigers.

In 1913, the Big Bank of modern financial times happened. The Federal Reserve was created and the idea of elastic currency was implemented to the benefit of bankers all over the world. A century later, a thorough review of this institution is in order. Why do we fret over every penny in our personal, family, community, company, city or state budgets and then let central bankers throw billions of dollars around as if they were paper confetti? Why would we want to be forever chained to irresponsible and arrogant macho sociopaths at the helm of the too-big-to-fail monsters? Even in biblical times it was understood that throwing money changers out of the temple was a pretty healthy activity that should have been practiced every now and then. Preferably now. Our schools have raised scores of smart economists in these past few decades - just the list of Nobel prize winners would fill a whole page of a decent newspaper - and I am sure if they put their enlightened heads together, they could devise a new and fair financial system. One where we won't be helpless cogwheels in the thingamajig of global machinations. One where banks will concern themselves not only with checks, but also with balances.

Journey to the Center of the Earth

What we see of Mother Earth is but a peel of an apple. When we roam its surface, when we potter around in the garden, even when we dig foundations for our buildings we barely scratch its skin. But despite our limited range, we can't help pondering what lies beneath. Do the vast reaches of that tremendous unexplored volume harbor anything magnificent? Or perhaps sinister?

That's what Jules Verne must have been thinking when he sent a group of travelers into our planet's innards through the crater of an inactive volcano in Iceland. The protagonists of his famous novel enter a geological wonderland and waged many an adventure in the labyrinth of its arched caves filled with mystifying features and antediluvian monstrosities. No wonder that his book has resonated with every child's fantasy for more than a century. Once we figure out the concept of the inside - we just can't help wondering what lies just underneath our feet. We have always been drawn to the unknown and the sizable radius of Earth provides plenty of space to unknow.

This notorious piece of literature had such profound influence on former Yes keyboardist Rick Wakeman that he put it to music not once but twice, in both cases accompanied by the London Symphony Orchestra. First in 1974 under the original Verne's title, and second time in 1999 as the Return to the Center of the Earth. Both compositions are remarkable jewels that are a peculiar in at least two regards. First, they mix classical music with rock (no pun intended), both in terms of style and instrumentation. And second, unlike other musical action forms (opera, cantata, musical or operetta) his "concept albums" further the plot by a mixture of music and narration. While an actor reads passages of Verne's book, Wakeman's music conjures up vivid images that expand the plot into new dimensions, forming a symphony of subterranean acoustics filled with echos and reverberations.

Earlier this year I visited Luray caverns and my first impression was draped in the opening theme from Wakeman's first Journey. The unique charm of the stalactites and stalagmites reopened that page in my memory and rerendered it with fresh authenticity. What a spectacle! The absence of natural light wraps your mind in a cocoon of mystery. The dark cavernous ocean visually implemented by shadows and reflections capsizes your senses and literally invites strange sea creatures from its depths into your imagination.

It was also an extravagant hyperbole for many of our problems. No matter what your difficulty is, it usually pays to look underneath the cover and beyond the obvious, beyond what is visible on the surface. In a sense a successful solution always ends up being the Journey to the Center of the Earth. It's a strange world down there, but that's where the solutions lurk.

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My First Earthquake

One of the signs of a mature age is that the "firsts" start disappearing from your life. When you are young, you get a first almost on a weekly basis. Your first tooth, your first Oreo cookie, your first falling star, your first lizard, your first soccer game, your first scraped knee, your first skates, your first day at school, your first hangover. The fun seems endless. But as we chug along through the stream of life and our firsts get rarer and rarer, we better savor each and every one we get.

Today, around 1.51pm local time, the Washington, DC area was hit by an unlikely 5.8M earthquake with epicenter near Mineral, VA, about 100 miles south of where I live. Of course, Californians would scoff at such pathetic shiver, but for many of us here on the East Coast this was a big deal. Our first earthquake. Whether it was a direct message from God to the Capitol as some far right and far out media quipped, or just a geological outlier, it was an experience we will all remember.

I was sitting in my office, not suspecting anything out of the ordinary, when I felt a large disgruntled dinosaur rushing by on the street. Slightly puzzled by the attendant shudder, I stepped out into a hallway and saw a pale faced colleague who just hissed "get out" and without missing a beat continued on his way to the door. The scenery did not seem very catastrophic or anything, but a sense of urgency in his voice made me follow. In the stairwell, we found that others had the same idea. We poured out into the beautiful sunny day and started loitering in the parking lot, cursorily scanning the building walls for cracks. I walked around the corner to see if I could spot the dinosaur who caused this hullabaloo, but it must have gone to the post office or something. I returned to the group and awaited further signs of the pending apocalypse. None showed up. The sky wasn't particularly livid this afternoon, and the four horsemen probably took a day off, so we figured that the show was over and returned to work.

But we sure live in exciting times.

Last year we had a record breaking blizzard, this year a rare earthquake and next year, Mayan Gods permitting, we should have the end of the world on our plate.

Survival of the Oiliest

The game of politics is changing. As its objective shifts from implementing efficient governance to coddling unrealistic expectations, its playbook has been filling with cues from the field of snake oil marketry. After all, how else do you fulfill the competing and often contradictory promises made to different segments of the society? If everyone demands happily ever after for themselves and their family dog, you better start pulling some serious rabbits out of your political hat.

As I watched the great finale of the debt ceiling debate, a weird and disconcerting image emerged in my mind. It featured a huge and completely packed football stadium, two teams of players running chaotically around the field in red and blue jerseys, donkey and elephant mascots shimmying on the sidelines and, above all, literally, a huge scoreboard hanging over the bleachers and shining far into the night with the final score of the epic battle between Democrats and Republicans:

Mediocrity 1, Charisma 0

As I scan the news program and political talk shows, all I see is pandemic demagoguery. Regardless of the party affiliation, our politicians' main distinguishing feature appears to be drizzling apathy, often accompanied by foggy reasoning and torrential incompetence. Sure, their words may cruise glibly past their lips and around their cheesecakey smiles, but the glitzy rhetorical make up only paints a Potemkin wisdom on their faces. What rankles inside their minds is best left unexplored. Let's just say that these days the public appearances of our elected representatives make me wanna order an extra strength yoghurt blower. But let's look at the bright side - the entertainment industry got a brand new genre out of this debate: a stand up tragedy.

I do understand that politics requires plenty of consensus, so certain level of lubrication is necessary for moving positions around. But when the oiliness becomes the primary mechanism for ascending in the power structure, we are in deep trouble. The pull of this mechanism inevitably brings spineless and unctuous mold to the top, leaving little room for people with ideas, scruples, intellect, conscience and other outdated bric-a-brac. The brave new handshakers spawned by this process slither happily in their natural habitat of stuffy congressional backrooms. Having mastered little more than just the basic calculus of payoffs, the slick eels of the modern political stream found their own path into the corridors of power - rubbing elbows. With the magic of evolution, I expect that after additional 100,000 years of wheeling and dealing there will be a new nominal subspecies of homo sapiens distinguished by a vestigial brain and exceptionally large and swollen elbows.

Engineers know that an electric current always seeks the path of least resistance. When corporate interests want to make sure that the deals essential to their well being get done, they exploit a similar strategy. Rather than battling it out with strong leaders, it is easier for them to influence weak followers. Placing contemporary politics under undue financial pressures indeed promotes those that can act as a natural power conduit, as a passive transmission system merely aggregating and relaying the present forces. Networking skills are obviously paramount. In today's emptified and ideologically high strung politics it is not about how many people you can win over, but how many people you can avoid alienating. No wonder that we end up with gray, meek, nondescript and easily pliable acolytes. The big cats with retractable morals. The pawnish hearts in general's uniform.

One does not have to dig deep to unearth examples of such prototypes. Listening to our congressional honchos reveals plenty of study material. Whether you focus on John Boehner and Mitch McConnell on the Republican side, or Nancy Pelosi and Harry Reid on the Democratic one - you'll hear the same sterile, abstract and structureless arguments and the usual barrage of mealy-mouthed rambling. No trace of a coherent thought, no concern for the consequences, and personal pizzazz of a pizza delivery service. Is this the best each party has to offer? What on Earth do they stand for? Why do they keep spinning contrived ideological dogmas where fifth grade logic would do? But don't expect many answers. When they do respond to specific questions, they just recite canned sound bites sometimes in blatant disregard for the crux of the matter. Yes, our overpaid baby kissers can memorize a lot. But we are not paying them for memorization. That's what pupils do in elementary school. We are paying them for thinking about the country's future and for finding the optimal path to it.

But the correct path likes to straddle. Sometimes it veers right and sometimes it veers left. Unfortunately, our career partisans observing the battlefield from their castles of insecurity with a pair of cheap binoculars won't see the other side of the coin no matter how many times you flip it. Analyzing the statements crawling out of their orifices reveals that this myopia is squarely spread across the political spectrum. The fantasy land soothsaying that characterizes the political analysis these days is rigorously bipartisan. Republicans keep dreaming about cutting taxes without saying how to pay for all the proposed wars and corporate bailouts. Sure, we do need some of those expenses, but the money necessary to fund the government operations does not grow on trees. On the other side, Democrats in their spendthrift zeal try to propose more and more ways to squander public money although the failed experiment of the Soviet Union clearly showed that when it comes to effective allocation of resources, government is not much better than a patch of barnacles. In other words, a small cadre of bureaucrats is not likely to outsmart millions of businessmen engaging in the daily operations of the free market. With such record, none of the two major parties can really claim the moral high ground or monopoly on truth.

Here is the real conundrum. In sports, arts, sciences or engineering we reward top performance, ingenuity, resourcefulness and courage. Why on Earth did we set up a political environment in which slick manners and intellectual crudeness take you to the top? Don't we need some creative minds in politics as well. You know - that special brand that can put two and two together and then drive from town to town explaining what must be done. That will stand up to short sighted special interests, even bang the fist on the table if necessary. We have to find the types that will shape the debate rather than be shaped by it. And pronto. The status quo does not seem to be working. We are trying to breed dynamic leaders, yet what comes out of the electoral hatchery every cycle is specimen after specimen of our very own Snake Oiligarchy.

That leaves us feeling like helpless cogs in the vast lobby machine, like Lenin's useful idiots. We could wear our shoe soles thin going to the voting booth, but as long as we have the same sad choice between prehistoric dinosaurs in red jerseys and two faced troglodytes in blue jerseys nothing will really change. We don't need any more petrified thinking or primitive slogans, all we need is some common sense and honest folks, preferably with real world experience, sequestered from the corrupting allure of big money. Oh, and we also need a couple of visionaries who will be able to peer beyond the four years horizon of their term and clearly point out the direction in which the country should be going. And currently that direction is neither left, not right. It is forward.

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