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A Nobel Prize in Economics a Climate Change Denier Might Love

It has been a scary month in climate science. Hurricane Michael and a frightening report from the U.N. Intergovernmental Panel on Climate Change underlined the potential costs of human-caused global warming. Then to add insult to injury, William Nordhaus won the economics Nobel Prize. Nordhaus wa...

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The Ragged Edge of the World
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Winds of Change
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Afterword to the softbound edition.


The Octopus and the Orangutan
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The Future In Plain Sight
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The Parrot's Lament
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Silent Partners
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Affluence and Discontent
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The Alms Race
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Apes, Men, & Language
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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

In Memorium: Koko the Gorilla

Koko the gorilla died on June 19. She and a female chimpanzee named Washoe (who died in 2007) played an outsized role in changing how we view animal intelligence. Their accomplishments inaugurated deep soul-searching among us humans about the moral basis of our relationship with nature. Koko and Washoe have made it much more difficult for us to treat animals as commodities, in any way we wish.

I knew the two great apes when I was young and they were young, and I”ve closely followed the scientific, philosophical and moral upheavals they precipitated over the last five decades. In the 1960s and ’70s, they learned to use American sign language, and they came to understand that words could be combined to convey new meanings. It threw the scientific world into a tizzy, implying that sentience and languagewere not ours alone, that there was a continuum in higher mental abilities that linked animals and humans.

The problem for science remains unresolved: 3,000 years into the investigation of signal human attributes and we still don’t have rigorous ways to define language and intelligence that are agreed on and can be empirically tested. There remain a number of scientists who don’t think Koko and Washoe accomplished anything at all. Even if a scientist accepts one of the definitions of language that do exist, it’s nearly impossible to test it in animals because what is being examined is inherently subjective, and science demands objective, verifiable results.

Consider how hard it is to prove a lie beyond a reasonable doubt in court. Then consider trying to prove lying in an animal in accord with the much stricter standards of science.

As difficult as proving it may be, examples of apes lying abound. When Koko was 5, I was playing a chase game with her. When I caught her, she gave me a small bite. Penny Patterson, Koko’s lifelong foster parent and teacher, was there, and, in sign language, demanded, “What did you do?”

Koko signed, “Not teeth.”

Penny wasn’t buying it: “Koko, you lied.”

“Bad again Koko bad again,” Koko admitted.

“Koko, you lied.” But what was Koko’s intent — a central issue when it comes to proving a lie. What was actually going on in her head when she made the gestures for “not teeth?” As if that weren’t inscrutable enough, one of the guiding principles of scientific investigations of animal intelligence is what’s known as Morgan’s Canon: Scientists must not impute a higher mental ability if a behavior can be explained by something more primitive, for example, simple error.

Analogously, about 50 years ago, on a pond in Oklahoma, Washoe saw a swan and made the signs for “water” and “bird.” Was she simply noting a bird and water, or was she combining two of the signs she knew to describe an animal for which she had no specific word? The debate continued for decades and was unresolved when she died.

Since Washoe made those signs, there have been many more instances of apes combining words to describe something, but these examples still don’t prove they can combine words to arrive at a novel term, even if it seems obvious that they can. Faced with these ambiguities, many scientists have moved to studying whether animals can accomplish specific cognitive tasks, and a welter of credible findings show sophisticated abilities in animals ranging from crows to elephants.

Although science struggles with questions of general intelligence, language and intent, the public is in the “it’s obvious” camp, readily accepting evidence of animal sentience. The latest objects of fascination are the octopus — a relative of the clam! — and fish. Stories of cephalopod escape and problem-solving regularly go viral, and to the consternation of sushi lovers , John Balcomb’s book, “What a Fish Knows,” provides copious evidence that fish know a lot.

We tend to see animals as either personalities or commodities, or sometimes, both. When I wrote about octopus intelligence, I was amused by one octopus-oriented website that divided its space between stories of smart octopuses and recipes for cooking them. Perhaps the most extraordinary example of our schizophrenic view of animals occurred some years back when a chimp colony that included sign-language-using apes was disbanded and many of these onetime celebrities were shipped to a medical research lab to be used in Hepatitis B and AIDS drug testing.

I knew these chimps too, and visited them in their new environment. They were desperate to communicate with their human captors, but the staff didn’t know sign language. So insistent were Booee and Bruno with their signing that one handler put up a poster outside the cages showing some basic signs to help the humans respond. When I was there, three days after Booee had arrived, he was signing agitatedly for food and drink. But what I think he really wanted was reassurance: If the humans would respond to “gimme drink,” things were going to be OK.

Teaching Koko, Washoe and other animals some level of human and invented languages promised experimenters insight into the animal mind. But the animals seemed to seize on these languages as a way to make their wishes — and thoughts — known to their strange, bipedal wardens, who had no ability or interest in learning the animals’ communication system. For Koko, I believe, sign language was a way to make the best of a truly unnatural situation, and so she signed.

Science doesn’t know if great apes can invent terms or if they tell lies. And the tension between whether we view and treat animals as personalities or as commodities lives on. The truth is, Koko, Washoe and many other animals who have had two-way conversations with the people around them shatter the moral justification for the latter.



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