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THE OZONE CHRONICLES; HISTORY REPEATING AS TRAGEDY

Joe Farnam, the dogged, data-driven discoverer of the ozone hole, died in 2013, three years before publication of findings showing that the ozone layer, which protects life on earth from UV radiation, has finally started to recover. This nascent recovery comes 42 years after atmospheric chemists fir...

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RIP Credit as Money


Wednesday January 28, 2009

by Eugene Linden

The drumbeat about the Obama administration’s plans to fix the banking crisis has reached fever pitch. Over the past week, what appears to be a carefully choreographed series of leaks has raised expectations that the administration has something very big planned (my guess is that it would have been announced right after the inauguration, but for the delay in Timothy Geithner’s confirmation as Treasury Secretary). Various newspapers and blogs have speculated on the details, some of which would be truly dramatic: e.g. an omnibus take-over of a raft of banks, a process that would include wiping out existing shareholders, converting debt to equity (to avoid the new N-word – nationalization), the FDIC providing a backstop for deposits, and, to restore trust in bank balance sheets, the establishment of a new entity to buy, hold, and trade trillions of dollars in now-suspect bank assets.

Clearly something needs to be done, and just as clearly the banks have gotten wind of the proposals and are trying to head off the scariest parts of the plan (I interpret the trumpeted insider share purchases by Chase’s Jamie Dimon and execs at B of A to be a message: “hey, no need to nationalize us, we believe in our equity value!”). Ignored by much of the commentary, however, has been a small but crucial change in the proposed composition of the much-discussed new entity to buy toxic bank assets. Moreover, if this entity comes to pass, it will serve as the grave for a widely shared, but very dangerous artifact of the bubble years: the confusion of money as credit.

First the new wrinkle in the “bad bank” concept. Last week on CNBC Sheila Bair, the outgoing and incoming head of the FDIC, remarked on the possibility of setting up an entity funded by both public and private money to buy toxic assets. The involvement of private money is new, and the timing of this announcement begs many questions. In the CNBC interview Bair said, “One approach we think might have some merit is what we call an “aggregator bank” where you would set up a facility capitalized through some portion of the T.A.R.P. fund to acquire troubled assets…” So far so good, the basic idea has been floated many times over the past year. But then she remarked that the new structure would… “also require those institutions selling assets into this facility to contribute some capital cushion themselves…”

The suggestion about lenders having a stake in the entity is both crucial and new -- at least new to the Bush administration (a number of observers, including me, suggested such an entity at the beginning of the crisis in Aug. 2007: http://www.huffingtonpost.com/eugene-linden/collapse-of-a-fiat-curren_b_60562.html). Forcing banks to have skin in the game alongside taxpayers makes it less likely that financial institutions will try to screw the taxpayers. Having the government involved also provides adult supervision in the setting of the ground rules.

Why then didn’t the Bush administration put forth this key provision before the very end? Someone must have suggested it -- after all, it’s little more than common sense. If it’s a good idea in the full teeth of the crisis, why wasn’t it a good idea at the outset? That it will be the Obama administration that launches this entity implies that the Bush administration was loathe to push for the self-policing aspects of having the banks provide capital.

And then, there’s the end-of-an-era aspect of plan. Whether it’s called a “bad bank” or “aggregator” or “RTC II,” the new entity represents an explicit admission that no one else is willing to accept trillions of dollars in credit instruments that two years ago were treated as interchangeable with money. Thanks to the ingenuity of Wall Street’s rocket scientists, so-called structured credit products proliferated wildly during this decade, backed by mortgages and other obligations (or by other credit instruments that in turn were backed by assets). With credit rating agencies blessing these products as AAA, these instruments were treated almost as money, and provided much of the liquidity that spurred the illusion of wealth creation during the bubble years.

Now, pension funds, hedge funds, endowments, and financial institutions that confused money and credit have discovered -- in the most brutal fashion -- that the value of anything deemed to be money-good rests entirely on the willingness of someone else to accept it. With no one but the government willing to accept these assets, this former currency will be retired as scrap. RIP money as credit.

Unfortunately, the story does not end there. While officials cross their fingers that these disgraced credit instruments will remain quarantined, this nuclear waste could still leach into the financial system, particularly if the prices paid are above market (whatever that is!). The scale of this pollution is such that the sum total of government guarantees and obligations may impact the value the rest of the world puts on the U.S. dollar, the linchpin of the global financial system. In the end then, money and credit do turn out to have some something in common: the value of either depends entirely on the trust of strangers.

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Short Take

[Mild spoiler alert: the book is a fictionalized exploration of a girl who falls under the spell of a Manson-like cult. We all know how that story unfolded. In this Short Take I’ll be offering my reactions to the protagonist, Evie Boyd.]

 

The Girls offers as bleak a view of the amorality of American youth as I have ever encountered. In a review of my first book, I was called “Intolerably apocalyptic,” but I can’t hold a candle to Ms. Cline. The book is a novelistic attempt to try and understand how some of the privileged young women of the late 1960s could commit unspeakable acts while under the sway of a Manson-like psychopath. 

 Thus we meet Evie Boyd, a fourteen year-old growing up amid relative affluence in Petaluma California. She’s directionless, with no apparent passions, self-conscious about her looks, emotionally needy, alienated from her parents (who get divorced), but possessed of a tough inner core and a rebellious streak. She’s enthralled when she encounters Suzanne, a wild, charismatic 19 year-old who seems to be a composite of Patricia Krenwinkel and Leslie Van Houton, and Evie is honored when Suzanne pays her some attention. Events bring her to the cult’s squalid ranch, and for some weeks, Evie maintains a dual life, throwing herself into the life of the cult, while returning home enough not to galvanize her mother, who is pre-occupied with a rebound relationship with Frank, an entrepreneur who comes across as a hustler with a heart of gold.

Evie is so smitten by Suzanne that she doesn’t notice as the cult spirals down from talk of love and freedom to episodes of paranoia, back-biting and revenge. Along the way, Evie has her first sexual adventures, and enters sufficiently into the spirit of the cult that she brings them to the house of the family next door (which they descrate), even though she has known the family all her life and has no score to settle. Later, Evie talks her way into joining Suzanne as she and others set off to inflict mayhem on a Dennis Wilson-like figure, but Suzanne kicks her out of the car before they begin a horrific rampage.

Did Suzanne do this to protect Evie from what she knew was about to happen, or because she felt that Evie wasn’t a murderer and would become a liability? That’s left unanswered, but the bloodbath that Evie missed is so depraved – including the slashing apart of a toddler – that no human with a soul could find that earlier gesture redemptive … except for our Evie, who still feels the tug of Suzanne’s power, even after she learns every gory detail of Suzanne’s actions.

It’s several months between the time of the murders and when the cult is finally caught. During this time, Evie keeps her mouth shut about what happens and meekly allows herself to be shipped off to boarding school to resume her comfortable existence, though as a wreck, not a spirited teenager.

That’s when I decided Evie was a worthless human being. Sure, she was terrified that the cult would come after her, and there’s some honor on not squealing, but Evie had to know that the cult would likely kill again, and that made her an enabler of whatever they did subsequently.

The book interweaves the present and the past and so we learn how these events haunted Evie’s life. But there’s no redemptive moment, no act where she summons the courage to do the right thing, or rises above her own self-absorption. Even in the present, when the psychopath-in-the-making son of a friend and his underage, impressionable girlfriend crash at her digs, she can only summon a half-hearted (and failed) attempt to save the girl from following the path that so grievously sidetracked her own life.

All the men in the book are either pathetic or pigs of various shapes and forms – except for a premed student named Tom, who sees the cult for what it is, but who Evie rejects as a dork. Towards the end of the book, Evie ticks off a long list of subsequent experiences with awful men that could summon in her the hatred to commit horrendous crimes, seeming to imply that with the right mix of events, she too might have become a Suzanne, and, by implication, so could enormous numbers of other young women.

My first reaction was to call “Bullshit!” Were all young women potential Suzannes, we would have seen endless repeats of the Manson horrors in the nearly 50 years since the events. Instead, those murders still stand as a touchstone of horror because nothing since has eclipsed their mindless violence.

The Manson cult was at the far far end of the normal curve during truly abnormal times. In just the two years leading up to the murders, we had the huge escalation of a senseless war, the explosion of the anti-war movement and counter-culture, a breakdown of generational trust, my generation’s first experiences with powerful, mind-altering drugs, and a sexual revolution. In a country of more than 200 million people, that roiling stew of disruptive forces bubbled to the surface about 20 broken souls, deranged by drugs and in the thrall of a false prophet.

On reflection, however, maybe Ms. Clein was making a different point. All we have to think of are the teenage executioners of Pol Pot’s Cambodia or the child soldiers of Africa to recognize that the capacity for evil lies latent in the young. And, while in fiction we want our protagonists to find redemption or transcend their flaws perhaps Evie’s failure to rise to the occasion was making the point that a civilization that keeps our murderous impulses in check is not innate, but something external that has to be actively inculcated and supported. That’s something to keep in mind amid the current insanity of gun violence, and as more dark clouds gather on the horizon.



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