Scary times again

Everybody's familiar with the ghosts, goblins and scary creatures of all kinds at Halloween. That's why we get all dressed up, put on costumes to confuse the evil spirits and go about playing tricks and getting treats. But did you know, that precisely six months prior, things can get scary as well?

Halloween may be the time of bidding the sun good-bye for the dark half of the year, but the other half is light. It only makes sense. The time to celebrate the banishing of the dark, then, is now; that is, on 30 April, for this marks the other halfway point in the year. Why don't we celebrate it?

It's not like we don't have a name for it. It is Walpurgis Night. Unfortunately, it's fallen into some disrepute over the years. Too bad, really. I think it's a great time to celebrate. Walpurgis Night is often associated with witches and their sabbath, with strange goings-on out in the woods and on the mountain tops. Goethe is his epic Faust included a Walpurgis-Night scene in both parts. The last chapter in book five of Thomas Mann's Magic Mountain is named thereafter, as is Act Two of Albee's play Who's Afraid of Virginia Woolf?. Not a one of these literary associations has done anything to rehabilitate the day ... or night, if you will. Too bad.

The next day, of course, is May Day. No, not as in our ship is sinking and we're in desperate need of help, but as in dancing-around-the-maypole-day. Now, there's a light-hearted, carefree, slightly bawdy, luscious, if not voluptuous image to pursue. If there ever was a day for romping and frolicking, I suppose that's it, especially since we decided we'd have no more of Midsummer, which is really oddly named since it is the beginning of the season, not the middle of it. But, that doesn't matter.

I suppose this all got suppressed in Puritanical America (I mean, what doesn't get suppressed there?), though I can't help but think we have to lay the blame squarely at the feet of those evil communists. For whatever reason, they decided to make the 1st of May their day honoring Labor (not work, mind you), and the moment the communists are in play, well, it's clear that Americans, at any rate can have nothing to do with that so they let their paranoia force them to create their own Labor Day, which they stuck out in September. The only value it serves anymore is to let school kids know that they're either back or about to be back in school. Yeah, great reason to celebrate.

Here in tradition-rich Europe, however, May Day is still May Day, and Walpurgis Night, instead of being one of dark, foreboding, witches' rituals will see a lot of partying and dancing going on. On the evening of the 30th there will Dances into May country-wide, and the party won't stop, of course, till the wee hours of the morning. But there's a workfree day there to greet them.

We can honor labor ... in the sense that we can be thankful we don't have to work the day after the night before.

Societal remnants

There are some of you who are bothered by absolute statements; that is, statements that appear to mean "this and nothing other". For example, when I say, "We have no society anymore." It's not that I actually mean that there is nothing even resembling a society, rather, whatever we have is of such little importance and draws so little attention, that we might as well not have one, for what we do try to hold onto doesn't seem to count.

I suppose there are any number of reasons for this ... not my statements, but how we deal with those few social aspects that we seem to have left. I'm fortunate in that most of the people I know have some kind of family (siblings or cousins, the odd aunt or uncle somewhere not too far away, perhaps even one or both of our parents still alive), but many people I know live far enough away from their "home" that family get-togethers are often reserved for one of the big holidays, generally Thanksgiving or Christmas. For the rest of the year, we're pretty much just on own own. Of course, I also know a few people who don't get along with even what little family they have. I find that sad, though, but I will admit that blood ties are no antidote to sphincteriety (that is, simply being an asshole, an all-too-common malaise).

When we look at the year, we find that it is fairly artificially constructed anymore. In the USA, for example, there is a Monday holiday in January (MLK Day), February (President's Day), May (Memorial Day), September (Labor Day) and October (Columbus Day). None of these, it should be noted has anything to do with anything natural, no seasonal or time-of-year events. Easter has lost its meaning most places (Good Friday is often a half-workday), the same applies to Christmas (Eve). Thanksgiving is something of a harvest festival, so it's placement in November is reasonable, even if it conflicts with Veteran's Day, but it was just set there, and so that leaves only New Year's Day as a real seasonal holiday, for it marks the beginning of the year.

Though the holidays in Germany vary a little (May is always a big month because that's generally when Pentecost (whose Monday is work-free), Ascension Day and Corpus Christi (both of which are always on Thursdays) occur. We also get Good Friday and Easter Monday off, but unlike some places, if variable-day holidays (e.g. New Year's Eve and Day, May Day, German Unification (Oct. 3), All Saint's, and Christmas) fall on a weekend, for example, there's no compensation at work; you simply have the holiday on the weekend. Here, however, the Church Year plays a dominant role, but the selection of this or that day to be celebrated or designated as a holiday is fairly arbitrary, as it is elsewhere.

When the weather's nice, we have barbecues and picnics and family outings on such days, and if we're lucky, and the extended family is in the vicinity, we may even manage a short visit to one of the relatives. On the whole, though, holidays have become more or less a mere counterpart to work.

We have holidays of our own making, and too many people don't even know why anymore. There's nothing natural about that. Our years, our lives are just sort of made up.

Banking on an apology

In all fairness, I think I owe any of you who actually read (and even tried to understand) the last 10 posts an apology. No really.

How utterly boring was that? Honestly. What amazes me more than anything else - well, other than I wrote it, and more so that some of you read it - is that it was that we exchanged our society for this: an illusory lunacy, full of lies, deceit and dishonesty, leading only to so-called material wealth (in this case, money), and for this some folks are willing to not only lie, cheat, and steal, they are ready to kill and maim as well.

You think I'm joking?

You may not know anyone personally -- or maybe you do -- who lost so much in the crash that they threw themselves out a window or chomped down on a gun barrel "inadvertently" pulling the trigger, but there are people who did just that. There were people who simply lost their homes, were thrown to the wolves on the street, who are now living in a tent city or under a bridge, who may have caught an incurable illness as a result. Hell, there are people with major health issues now who can't afford insurance or care, who worked hard all their lives and have a mere pittance to exist on now that they are old and unproductive and have been more or less thrown on the scrap heap. Societies, at least in principle, represented morals and values and discussions were conducted against a backdrop of what was reasonable and desirable for everyone, for the community-at-large. Economies have no room for values, morals, or - heaven forbid! - concern for the well-being of others. Economies are simply about money, no more and no less.

Societies were composed of members; economies are composed of competitors. And even though we don't like to, and try hard as hell to, avoid thinking of it that way, that is also part of what it means to live in a world in which money is simply more important than people and a few choice legal rights are far more important than any human rights will ever be.

I say the world we live in, because it's just the space in which we find ourselves, it's not a society. At least not anymore. I suppose it could be, if we wanted it to be, but I really don't see a lot of indication that that's what's on the horizon.

Through a gla$$ darkly X

In capitalism, risk is supposed to be borne by the actor. In this recent case, the risk was private, but the loss was made public. This is an aberration unheard of in the annals of finance. What is more, it was institutionalized, made policy, expressed as the truth of the realm, but in fact, all of the rules were changed to suit the Wizard and the rest of us were literally left holding the bag.

In my day, people taking risks were considered gamblers, and gamblers did not have much of a reputation, well, at least not a good one. They were most often considered greedy, dishonest, deceitful, and unreliable. How is it that we turned the gambler into the pillar of society. I'm sorry, but I just don't get it.

I have nothing against capitalists in principle, as long as they play by their own rules, take their risk and losses like mature individuals and demonstrate by their own actions and behavior that they understand which world it is in which they operate. But, they have made their problems into my (and your) problems, and they have convinced the powers-that-be that it is only good and right and proper that the rest of us should not only pay for their mistakes, but that we should reward and continue to honor them because they are the rich, the powerful, the masters of the universe, the best and brightest ... which they aren't, never had been, and never will be. And that's, quite frankly, what turns my stomach every time I hear or see others fawning over them, kow-towing to them, catering to them and their wishes, believing their lies, their deceit, and never, ever questioning what they are doing. Why? Because for the most part, we have been repeatedly told that we can't understand this highly complex, if not complicated, world of modern finance.

Really?

Don't get me wrong, I don't claim to know all the ins and outs of the details of all the nonsense that they perpetuate, nor do I think it is necessary to do so. What we need is a basic understanding of how "the system" works so that we can recognize them for what they are: gamblers, and gamblers who play with other people's money. Your money, my money, pensioner's money, anybody's money but their own. And that simply has to stop.

The system they created isn't really much of a system, it is a shell game, a sleight-of-hand act, an illusion. We need to put some reality back into the system and they need to be put back in their place. As long as we can't, or won't, acknowledge the reality behind the illusion, they can continue to act as badly as they have so far and we will continue to be victimized by them and their elected henchmen.

At that moment that we traded in our society for a mere economy, we placed money (and property) rights above human rights, we made money the measure of all things, including ourselves. I'm not convinced that was a good idea. When the good St. Paul was writing his letter, he was, of course, talking about a different kind of salvation, but if we want to save ourselves from this nonsense, we need to understand what is going on, or as Paul put it "see [things] face-to-face"; that is, see things for what they are. It's not rocket science, it is business, it is a little economics, and it should be a whole lot of common sense.

It's time to expose the man behind the curtain.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly IX

What happened in the run-up to 2008 was seen by everyone involved. Anyone who tells you differently either doesn't know or is being disingenuous. Anyone who has the slightest understanding of how banks work, both commercial and speculative could see that what was being done was neither wise nor prudent nor even truly worthwhile. It wasn't going to benefit anyone but the slickest and quickest. And when the house of cards fell, the Grand Capitalists stepped forward with the cry, "But, we're too big to fail!". And most everyone believed them (Iceland is a notable exception). What to do, what to do?

If anyone has been following even casually, it does not take much to understand that the "size" of these institutions; that is, the size of the numbers on their balance sheets, was in most cases hopelessly and shamelessly inflated. In terms of actual value, most of it was made up. We like to think that financial instruments are backed by something real (a car loan with a car, a mortgage with a house, money by gold or the like), but the truth is they aren’t. The so-called "value" of all the bundled paper at the time of the "crash" was six times the world gross product.

A national or regional or even world gross product, it will be remembered, is the estimated value of all the resources, products and services in possession of or produced by a given entity. In this case it was the world and the paper was "worth" six times everything the world can do. I'd say that is just slightly absurd, and to act as if it that "value" (of the paper) is "real" is patently absurd. These institutions weren't any bigger than the legendary Wizard of Oz. It is known: Beware of the man behind the curtain.

To add insult to injury, this fiction of "value" was treated seriously and the most basic rules of capitalist economics were ignored. You will recall that riskier investments (e.g. a loan to a first-time home-buyer) often carry higher interest rates than well-secured or trusted loans. That's why local banks were once more successful, for they could better estimate their degree of risk. That risk, of course, was expressed in terms of interest rates. The higher the rate, the riskier the investment; that is, the less likely it will turn out.

So, if I can buy a savings bond that will yield around 1.75% interest, I can buy a similar Greek bond that will (possibly) yield (on average over the past 15 years) 7.7%, well, yes, I perhaps stand to make more money by "investing" in Greece, but there is equally a greater chance that I won't earn anything at all. Some people like the increased risk (you have to bet a lot to win a lot), and I suppose they should be allowed to play that game. But, I also believe that they should play the game, and I should have nothing to do with it at all. The speculator's losses shouldn't be my losses. But that's what was done to the rest of us. Exactly that.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly VIII

Picking up where I left off, in my bank, some of the loans that I have made are good, sound, loans. Some are, for whatever reasons, a bit of a stretch. Perhaps the people will lose their jobs when the factory shuts down or someone with a loan gets ill and loses their job for that reason, or perhaps someone simply misjudged the reliability of the loan recipient and it doesn't look like the bank is going to get their money back. In the traditional system, the good loans offset the bad ones and the trick was to make as few bad ones as possible. Now, however, we have other possibilities.

Let's assume that Mary, one of the bank's new employees, has a brilliant idea. Why not take some of the good loans and some of the bad loans and wrap them all up in one single bundle. You then get a rating agency to give it a AAA stamp-of-approval and then you simply sell the whole bundle to someone else for some set price, a price that is perhaps lower than the whole bundle if counted individually, but more than if the bad loans in there didn't get paid back.

You have two advantages: first, you are rid of part of your risk, and two, you have immediate cash in hand to turn around and loan out or invest and not have to wait until all the individual payments from all those individual loans come trickling in. And that's what they started to do, in various ways, with various colors and variations and who knows what all, but pushing these bundles of paper around – which are, it should be noted, a "derivative"; that is, an "investment" that derives from other forms of investment – becomes so popular and so many folks are getting used to speculation of all kinds that before long side markets show up where these things are bid upon, traded, exchanged, and who knows what else and everybody is just have a grand old time making up such derivatives and finding others who are willing to buy them or bid on them.

Again, it doesn't take a genius and just a moment's reflection reveals that the value of these bundles is pretty fictitious too. All of sudden there are bundles upon bundles that are bigger and bigger and all of them are "safe" because they've been rated safe, which increases my safe capital in my own institution, which means I can loan out more money and make more investments to grow and grow and grow and get richer, richer and richer. The only problem is that deep down beneath all those levels of paper and in spite of all the creative ways of accounting for these "instruments", as they were called, there's really nothing real at all. The "value" and the "worth" of any individual bundle was not the same. The bundles were once backed by whatever those bundles represented but once bundles were bundled and further bundled – the process can theoretically go on indefinitely – well, if you ask me, it all just starts getting absurd. One day someone is going to wake up, realize they are being sold a bill of goods and the house of cards could come tumbling down.

Welcome to the financial crisis of 2008.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly VII

The fact that Tom now owns the shares, not the company, is the point, unfortunately, that most people miss. The issue company only has so much to do with its stock as it is concerned to keep its value reasonably high, but this is more for image than financial reasons. People who buy and sell stock do so to make money. Anyone who "plays the market", as it is most accurately described, buys stock in the hopes that the price will rise so that they can sell it later for a profit.

In other words, the company should do well enough that the share price rises so they can make money. Since the issuing company's only obligation is to increase it's share price so that others can generate income, it is not truly accurate to call the stock buyers "investors". They aren't investing in the company, they are investing in themselves. Technically, the shareholders are "owners" but for the most part they are only concerned about the share price, not the working conditions, the employees, the customers, or the products or services themselves ... or only insofar as these things have a positive influence on the share price.

The stock market, then, is really more like a casino than an investment, as one chief financial officer told me. What amazes me the most, though, is the amount of media coverage this particular casino gets. Fluctuations in the stock market are more often than not market players' emotional reactions to all kinds of events, but not really a sound indication of the health of the economy. I don't think it's ever a good idea to take your temperature in a casino.

It doesn't take a genius to realize that the kind of person who does well in prudent investment and helping local enterprise get along is really not the kind of person who does well in the rough-and-tumble world of speculation. There was a time when the government saw to it that these two realms remained separate. This was way back in 1933 when the so-called Glass-Steagall Act was passed and signed into law. Its real name was the Banking Act of 1933, and it covered a lot of territory, but for our discussion here, it separated commercial banking from speculative banking. Over time, of course, lots of folks started thinking this was old-fashioned and during Clinton's second term that was stated so definitively, in terms of the Gramm–Leach–Bliley Act of 1999, which repealed the affiliation restrictions that Glass-Steagall had imposed.

It will be recalled that back in Through a gla$$ darkly IV it was shown that a bank can only lend out (or invest; that is, put at risk) about 10 times what is has "safe in the bank". Another way of saying this is that it essentially lends out (or invests) the same capital multiple times. The trick comes when we ask ourselves what is "safe in the bank".
If a bank has ∆1,000 "safe in the bank", it can loan out or invest up to, say, ∆100,000. Some of these loans – like we described in our examples then – are relatively safe. And, if the bank lends out, say, ∆1,000 at 5% for a year, it will get back – if all goes as planned – about ∆1,020 at the end of the year (it's actually slightly more but for the purposes of illustration here, inconsequential). In other words, it lent ∆1,000 but the "value" of that loan is ∆1,020. This is to say that the value of the bank is equal to what it safely has and what it expects to have at some point in the future.

The important point here is that the bank's value is actually a fictitious number. It's not real like the ∆1,000 upon which it bases its business is real. The art which allows us to keep track of such things is, of course, accounting. Or, as I like to say, it is not "counting" but "a [that is, one particular way of] counting, but that, too, is another story. But now that the door is open for all kinds of real, kind-of-real, and even imaginary things to happen, since commercial banks may now also speculate, let's take it all a step further, next time.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly VI

Let's start with borrowing since it is the most familiar to most of us. You go to a bank (usually) or other financial institution (could be a credit union, or Aunt Marge) and you negotiate a sum to be paid back over a specified period of time, and at a certain rate of interest. The riskier the bank feels this lending is, the higher the interest rate you end up paying. (It was once rating agencies which made such decisions, but they managed to tarnish their own reputations lately.)

The second way is to beg. Actually, the organization itself offers promissory notes (in everyday speak: IOUs) called bonds. The organization is, within certain limits of course, free to say when and how the bonds will be paid out, but there are several agreed on standards. Perhaps the most commonly known type of bond is the savings bond. When you buy a bond today for $37.00, in seven years the government promises to pay you back $50. The organization is basically saying, "trust me", and if you do, you can lend it money.

Whimsical as I am, I listed "stealing" as the third way, but that's obviously not 100% accurate. The third way of generating cash is to issue shares of stock. These shares represent ownership, so the percentage of shares you hold determines your "share" of the business. Such an issuing can be private, that is, you offer a part of your business to someone else and you negotiate between yourselves how many shares and what they are worth. We don't often hear about these kinds of transactions in the news. But, such offerings can also be public. These are the infamous (if at times not notorious) IPOs or "initial public offerings" that get lots of media coverage if they are big enough. In this case, the company decides to sell shares of ownership to the public, in the hopes that the demand for the new stock will raise the share price and thereby generate more cash.

A few years ago, a German low-cost airline went "public" and sold €1,000,000,000 worth of stock on the first day! Not bad, eh? But this is where the "stealing" comes in. They didn't take all that cash home with them. After paying fees and premiums and costs for staging the sale, they had a mere €400,000,000 to take home. I don't think it is out of line to wonder why the people who put on a sale earn more than the folks for whom the sale takes place, but that's another story.
What's worth noting, though, is that this is a one-time deal. Once those shares are in the public domain (on the stock market), they can be bought and sold and speculated with and the issuing company receives no money whatsoever when these shares change hands. If I buy some stock at the beginning, then the company takes home some of that money. If I sell them to my friend Tom a week later, I get money from Tom, but I don't have to give anything to the issuing company. They don't own those shares anymore: I did, and now Tom does.

And why is this so important? I'll tell you next time.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly V

So what did our example tell us?

A moment's reflection brings us to the realization that as long as everyone plays by the rules, there's really no problem. The bank "makes its money" by investing someone else's money (in this case its depositors') and earning a return (in the form of interest or value-appreciation of some sort), and the bank, at least ideally, then shares some of those earnings with the people who provide it with its resources.

You see, it's all actually very simple. But everything was simple in Leave-It-To-Beaver Land, and we don't live there anymore, in fact, we're not in Kansas anymore either.

There was a time – and there are some places – in which banking was a conservative, prudent, and cautious business. Banking was local for the most part. The bankers knew their clients, knew about their work and family relationships and assessed the risk of any of their loans, for example, based on this knowledge. A person with a steady job and without a lot of other debt was a pretty safe risk for a mortgage on a house suitable for his or her family. Yes, the house itself was used as collateral for the loan (that is, if you couldn't pay off the loan, the bank would end up with your house), but the bank really didn't want the house, it wanted the money you made in payments. Why? Because it could take that money that you paid in an loan it out to other loan seekers, or invest it somewhere they could expect a reasonable return. The key to the whole system was reason: the bank knew its customers, knew its strengths and weaknesses, knew its capabilities and acted accordingly.

All the while, outside the banking system as just described (in the last couple of posts) – the commercial banking system, there was another system for another set of clients and customers. This was called investment banking. Here, the stakes were higher and the returns were higher. It's called investment banking, but it really isn't investing in the same sense that we might have put our money in a savings bond or such. No, here more volatile things were involved: stocks and futures (the infamous "pork bellies" one often heard about), and more. Here, however, I need to make a small detour before moving on.

In the world of business, there are three ways for an organization to generate extra cash. Extra? Yes, that is, money that is not generated through regular operations. Money the organization wants to invest. We all know that it is wiser to save up for a large purchase before buying it, but in the go-go-go, consumer-driven world today, we too often resort to credit to satisfy our impulses. Some things, like a home, of course, are really too significant a purchase to save up for, but cars and stereos and smart phones and refrigerators are in fact manageable.
The savings of business are called retained earnings, and sometimes these reserves are not enough to finance the next step forward for a business, so they have to get the money elsewhere. The three avenues open to them are, as in everyday life, to beg, borrow or steal. Really? Let me explain what I mean (next time).

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly IV

In this happy little scenario, you will notice there is no speculation. People who knew other people lent them money because they were pretty sure they were going to get it back – yes, with interest, but that interest was modest and everyone ... the bank, the depositors, the borrowers ... all benefitted from the "system". And two immediate questions raise their eerie heads: why is the banking scenario no longer so happy; and just how is it with the bank and its ability to "invest" at all. Let's take a look at how this works, starting with the bank's ability to invest at all.

The astute reader, or anyone who has been following along, will recognize that the bank can only lend money if it has money to lend. In other words, as long as I, and my neighbors and other people in the community, bring our money to the bank, then the bank has money that it can lend to others. That makes perfect sense. We got interest on our savings accounts because we put this money at the bank's disposal, and we expected them to be prudent and reasonable in investing this in such a way that they would get a return and that they would share that return with us. The real question is, just how much money does a bank actually have to have and how much are they able to loan out to others? And this is where things start getting interesting.

Although it goes under different names and at different times was determined by any number of different formulas, for simplicity's sake we'll just call it the bank's capital requirement. Not all capital is cash, and some non-cash capital can be relative risk-free and other may entail a lot of risk. While the requirements have changed, for example from the so-called Basel agreements (we're at Basel III now), at present you only have to have about 8% to 10% capital "in the bank" at any one time. So what does this mean? Well, in simplest terms, you and me and Joe and Joan down the street may have our savings in the bank, and the bank itself may be well-capitalized and be holding at around the 10% level, but all that means is that they have about 10 times more "out and about" (invested, loaned, whatever). A simple example can help make this clear:

Let's say a bank has 1000 units of whatever as their way of meeting the 10% requirement. (You can think of these units, which we'll call ∆ for lack of anything better at the moment, in terms of singles, tens, thousands, millions of whatever; it doesn't really matter.) Mrs Jones needs a small-business loan and the bank lends her ∆500. Mr Smith wants to improve his house and gets a ∆250 loan approved. Acme Products needs to make payroll and wants a short-term cash injection of ∆1000. The bank has invested as well, say, ∆10,000 in various securities (bonds, treasury bills, etc.), and the list goes on and on. Simple arithmetic reveals that the bank has already used more "money" than it actually has (i.e. ∆11,750) but it can continue doing this until it reaches its ceiling of ∆100,000 in total. Of course, everyone (or almost everyone) to whom the bank makes a loan makes periodic payments and the total of those payments will be greater than the sum loaned out because the bank in charging interest on those loans. Not everybody who has money in the bank will want their money all at the same time – generally speaking – and so the bank is safe, so to speak, in lending out more than it actually "has".

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly III

What is a bank? Silly question, is it not? Maybe, but I don't think so. There was a time when many of us knew (or thought we knew) what was meant when we used the term, but times (and conditions) have changed. Let's take a walk down memory lane.

Believe it not, there was a time when I took my "extra money", that is, the money I wanted to save (to buy a house, car, go to college, etc.), to a bank and deposited it because they paid me to have my money there. I had a savings account and they paid me (at the time) about 4% compounded semi-annually, and I thought this was a great deal. "How and why could they do that?" was the question that I had then and the answer was actually very simple: they used my money to invest in "whatever" and they shared their success with me. What a lovely idea. Almost idyllic, isn't it? My question, of course, was "What do they invest in?".

It turns out that they "invested" in the local businessman: the accountant who wanted to stabilize his cash flow, the metal-shop owner who wanted to buy new machines and equipment, and more. They also invested in the local community: the homeowner who wanted a second mortgage to make improvements to his property, the first-time buyer who needed a loan to buy a new house, a family who needed a new car and didn't have the cash to put down for a new one. In other words, people just like you and me doing things just like you and I do. They charged interest on these loans they made, because there was a certain risk involved. What if the accountant lost his clients, or the metal-shop owner didn't get the new production contracts or the home or car buyer became unemployed and couldn't make the payments? The level of "risk" (real or perceived) determined the amount of interest that the borrower had to pay for the loan. Young people buying their first car paid higher interest rates than long-term employees of a local company. The home owner paid a lower interest rate on his second mortgage than the first-time buyer. There was something to back up the loan: the house, the car, the reputation of the borrower, his or her standing in the community. Most bankers knew who they were dealing with and how reliable they were. Still, the risk was covered, and if everyone made their payments, then the bank could pay me my bonus for letting them use my money in the first place: the interest that accrued on my modest savings account.

OK, OK, I know, the past was in Technicolor. Reality tends toward black-and-white. But, in reality, that's not true. It's more shades of grey.

And that's where we'll pick up next time.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly II

I can't put my finger on the exact moment it happened, but at some point – in the not-too-distant past – we exchanged our society for a mere economy. If we look far enough into the past, we find that there was a time when there were human beings roaming the earth who were social creatures, not only economic ones. I still had the feeling growing up, in what was anything but a perfect society (hell, we hadn't even achieved civil rights and equality yet ... ooops, we still haven't ... but we pretend that we have) but it was still a society. There was something social about everyone I knew, even if the realm of their acceptance only extended to the neighborhood. In most cases, though, it went further: to the church congregation, the community, and even, in some cases the nation. Little of that exists anymore, because in the meantime, money talks, and there is nothing else to say.

Despite this, I have not yet given up all hope. OK, I've given up most of it, but there is still a kernel left, and it is on this basis that I am going to try to put together a most basic primer on banking, finance, and economics. I know many of you are now rolling your eyes – and I don't blame you. How often do we have to go through this. Well, the teacher in me says, "until we understand what we're talking about". There is nothing I am going to say that none of you has not heard before. My hope is that I will say it in such a way that if you haven't grasped the basic principles by now, you will by the end of this series. Bear with me, at least my intentions are honorable.

As promised the last time, here's what I am going to try to do: first, we're going to look at what a bank is and how it functions – once again, in simplest terms. I then want to examine how a bank, as a privately owned organization fits into the grander scheme of what we might call a national economy. Yes, I'm approaching this very step-by-step, level-by-level – even hierarchically (against my better nature) – just so we all have a common understanding of how it all fits together. I'm not offering solutions, I think they become fairly obvious once an insight into the "system" has been gained.

And now, for my major disclaimer: I'm sure there are any number of you finance, banking and economics wizards out there who will testify that I'm oversimplifying and reductionally distorting the "truth" of the matter. If I am wrong in principle, let me know. I don't claim to be perfect or to know it all, but I do believe that I generally understand what is principally at stake.

Note: This series was originally published in slightly modified form on the Daily Kos.

Through a gla$$ darkly I

"Through a glass darkly" is how St. Paul described our normal perception of reality. Now, there is hardly any issue the good saint and I agree on, but I have to say that when it comes to banking and finance, this is one point upon which I believe the good saint knew what he was talking about.

It's too bad, actually. We like to consider ourselves educated people, but are we? Do we in fact know how things truly function in our world? Are we really informed? Do we have any real idea how institutions and organizations and people interact to produce this reality in which we find ourselves. I would like to think "yes", but the more I interact with and engage my fellow man, the more I think "no".

In one way or another and in various places both written and otherwise, I have tried to point out that that there is a need these days to reflect upon, and in the end question, things that we simply take for granted. In that case, it was our relationship to technology. Here, it is about our relationship to money, banking, finance and economics. In what follows, I will be referring to this subject by any of these terms. They are not interchangeable, but they are intimately related and it is really not all that necessary to painfully and excruciatingly keep them separate. They are different aspects of the same phenomenon, this is true, but my intent is to help understand the principles involved, because, if we don't understand the principles, we really don't understand the phenomenon at all.

I'm a big fan of principles. As a wise man once noted, "I stand on principle, because it's the only place where I don't get shit on my boots." He knew what he was talking about. Another wise man once told me that if you can't explain yourself to an eight-year-old, you don't know what you're talking about. I think both of them are spot on. Now, I don't think any of you are merely mentally equivalent to eight-year-olds, but it is nevertheless essential that we get down to essentials. And it is this level of simple, essential principles that I am aiming toward.

Let's face it, we go to school and the first things we learn – and rightfully so – are reading, writing and reckoning (arithmetic); that is, the good old 3 R's. Not everyone who learns them become critics, authors or engineers. We don't need to. It's not about being an expert in any given individual field of study; we go to school to help us understand the world in which we find ourselves, to make sense of what is happening around us, but above all else, we go to school – or should be going to school – to learn how to distinguish the real from the crap. Too few can do this anymore, but that's another matter (and perhaps diary) for another time.

Note: This series was originally published in slightly modified form on the Daily Kos.

Looks are deceiving

The mirror is a very powerful image. I didn't want to just let it drop with the glancing remark made last time. Two of the reasons it is so powerful is that (a) it is simply accurate, and (b) it has been around for a rather long time. A one time popular image to depict this is one know as "The Ancient of Days" (but not to be confused with Blake's watercolor) and as "The Great Symbol of Solomon". It really doesn't matter what you call it, as pictures are worth a thousand words, as you can see. And I wouldn't let all the Latin bother me either. One phrase says that the Macrocosm is like the Microcosm, the other says "As above, so below."

For me, the important features of this meaningful image (German: Sinnbild) is the clarity of the image above the waterline and the murky, unclear, unfocused form of the image below it. We don't have to be Platonic idealists, nor do we have to believe in a particular metaphysics to recognize that things around us are not a clear-cut, as clearly defined nor as sharply in focus as we often like to think. All that the image tells us is that there could be more, there could be more clarity, more sharpness, and that we can imagine, if we chose, to picture what this might be if we simply acknowledged that the murky image exists. Recognition is the first step to resolution, and the metaphor of backwardness, of the unclear mirror image is a helpful one.

There are too few rich and too many poor people. Some folks simply have way too much, most of which they don't need at all, and too few people have the bare necessities. We have crazy notions like more force will make people more obedient, that draconian penalties are a sign of compassion, that taking things away from people who don't have enough will make them try harder, that bailing out crooks (see the banking crisis) will make them more generous. None of that is true, none of that works, and none of it can work, because it's simply doing backwards things.

Don't get me wrong, I don't think many who need to are going to grasp this all too soon, but one can hope. And that's one of the reasons I really don't get tired of reminding whomever I can: for the most part, we've simply got it backwards.

Till

It just wasn't possible to move on from the topic of "fools" without at least mentioning my favorite non-Shakespearean fool as well: Till Eulenspiegel. He is an institution at Carneval (or Fasching or Fassenacht, or whatever one chooses to call it), and he incorporates into a single figure, much that is simply classic in regard to fools.

There most likely was a person who embodied a lot of Till's characteristics and there is some evidence that there was a trickster who roamed through Northern Germany in the late Middle Ages around whom the stories and legends may have congealed. It doesn't matter really. He's a colorful and interesting character who, I believe, has a lot to say to us even today.

When we see him these days, he is most often dressed in a motley; that is a patchwork suit of diamonds or squares, very often in the colors red, blue and yellow (for example, see the Marseilles Tarot Deck) or red, green and blue. In other words, a jumble of contradictions, complements and oppositions. On his head he wears, of course, a fool's cap; that is to say, a cap or hood, often with drooping corners to which bells are attached. Most often these days, the cap as two curved drooping horns with bells at the end. Perhaps these are reminiscent of the devilish tricks he might play, but more often they refer to cuckoldry: a man who's wife is seduced by another, in local parlance, has been "horned". Most importantly, however, at least in my estimation, he carries with him an owl-shaped mirror (in German: an Eulenspiegel; Eule = owl, Spiegel = mirror). Owls, as we all known, are known for their wisdom; the mirror is what reveals us to ourselves. But we should recall that when we look into a mirror, we see everything reversed. And thus appareled, Till - an old Gothic and German name which means "ruler of the people", how appropriate - steps before us.

He is such an appropriate figure when you stop to think about it. His very presence, his dress, reminds of the vagaries of life. His cap reminds us we can all be so easily fooled. His mirror reflects not only on us, but if all is reversed in the mirror, could it be that the reversal of reality (that is, how we see the world) is how reality should be, that we've simply got it all backward? I sometimes think that it is so. And that's what I believe that the figure of Till is telling us.

The wisdom of fools

Yesterday was April Fool's Day (or All Fools' Day, or even April Fish Day (go figure) in some places). No one is really sure where it originated or why we really celebrate it (well, it's not a real holiday after all) or why it has any significance at all. But, little things like that have never stopped us before, and April Fool's is no exception.

We all think we know a lot of fools, sometimes that we're surrounded by them in fact. I would contend, however, that true fools are few and far between.

Anyone who has read any Shakespeare will immediately know what I'm talking about. My favorite Shakespearean fool is in King Lear, and he is simply known as Fool. How appropriate. The fool is the one who knows truth from lies, right from wrong, the fool is the one with comprehension, insight, and ultimately wisdom. Lear is really a classic example of foolishness gone wrong. Our tragic hero, sovereign lord of the realm, descends into madness after foolishly dividing his kingdom among two of his three legitimate heirs, all of whom are daughters. How could that possibly work out for the best? I know, William nailed it all in this one.

Lear, of course, as so many who are in power, succumbs to flattery. So many of us who pretend or even strive to power fall prey to this as well. Flattery, of course, is a form of dishonesty, and we see again and again that the root of almost all power structures, in particular hierarchical ones (like we find in government, business, the church, etc.), are based on dishonesty. Oh, I know we like to think that these representatives are well-intended, upstanding and forthright, but we all know different. Lord Acton spoke truth when he noted that power corrupts and absolute power corrupts absolutely. The forms the lies take vary naturally: sometimes they are simple omissions, sometimes slight (to major) shifts of emphasis, and sometimes they are simply outlandish fabrications, but we like to think that the perpetrators are being driven by forces greater than themselves, but they are not. And this where the fool comes in.

Not only in Shakespeare, it is the fool who is honest. It is the fool who not only calls things as he sees them, he is the one who sees them for what they are. It is the fool who is aware of the foils, the weaknesses and shortcomings of those supposedly in power. By virtue of his position - the Fool - it is he who may speak the truth, who may say how things are, without fear of reprisal.

Yes, someone must be allowed to speak the truth, and if it be the fool, then so be it. We live in very dishonest times. We are confronted with crisis after crisis all of which were brought about by the same weakness: the dishonest striving for power. But who is there to "tell it like it is"? Who do we have today who can speak unhindered and unabridged? Who can point out to us the error of our ways? We're in need, again, of the Fool. Or are we simply not listening?