Saturday, December 12, 2009

"Fear" as an Institution

Now I am the kind of guy who, when he sees a fence,
understands that it was put there precisely
for him to find a way over, under, around or through.

I think that the "black swan" event in the USA was the assasination of JFK ...
followed by his brother, and MLK,
and then finally, just in case anyone did not get the message,
John Lennon.

All hope was killed in this society.
The only thing left for anyone to do was to take care of himself as best he could
and screw everybody else.
Well, we did.

Many people have said that the current "crisis" is a credit crisis,
caused by too much borrowing and too loose money.
I disagree.
Although those conditions certainly contributed, loans, sometimes very large,
have been a social tradition since ancient times.
However, what I have seen rise from nothing to the point of dominance
is a practice that had no historical precedent
but has now permeated everybody's thinking.

"Managing risk".

Just think about how much time and money everybody, and I mean everybody,
spends playing with futures contracts.
The first ones were automobile insurance, health insurance, and life insurance,
and the hoi polloi are still struggling with those.
But over top of them grew commodities futures and options contracts.
what we call derivatives. And the structures just continue to get more and more complex and large.

Now just look at one life insurance contract.
Basically it is a bet between you and your insurance company.
You are putting your money down to say that you are going to die before they expect you to -- if you are right, you win the bet and your family gets paid off. The insurance company is betting that you will live longer than you expect to, and keep on paying them premiums. They plan on raising and raising the premiums while lowering and lowering the final payoff. There's different rules and versions of the bet, but for the most part, the insurance company has stacked the odds considerably in their favor.
Out of this concept grew a whole new class of mathematicians,
actuarial calculators, statistics.
Soon afterward, we got a whole class of managers learning how to fudge the numbers by lying about the basic assumptions. (from which cometh the global warming debate, among other ills). The critics all go back over the mathematical equations and
they find that the arithmetic has been done correctly, so they conclude that the results are correct but they are not because the basic problem was stated wrong.

Back in the day, we used to say that the market boils down to two emotions, fear and greed. We understood that greed makes the market to go up while fear makes it go down.
But it seems to me that in the last fifty years or so,
bit by bit,
people have forgotten that simple fact.
Fear makes the market to go down.
Our society has become more and more obsessed with fears of all kinds, we keep collecting new ones.
Meanwhile, every old one becomes institutionalized,
made permanent in our minds and actions,
through the use of insurance contracts, derivatives, or what have you. As a culture we have collected more and more fears
without ever "solving" any of the old ones. They get built into our social customs
and our laws.
So the burden, and the expense,
just keeps on getting heavier and heavier.

One little example.
As I have said before,
I got rid of my computer virus protection two years ago,
because it was costing me considerable amount of money
and moreover the software was using up to 60% of my machine resources,
which I considered to be obscene and outright theft.
Since everyone else was protected, viruses can no longer work.
In two years my machine has not caught one virus
(but it has picked up an awful lot of new junk,
as the large corporations and advertising mavens relentlessly keep finding new routes
to invade and infect me and steal my time and resources ...
its an ongoing battle as, sooner or later, I find ways to get rid of the new junk
and then they invent still more nefarious methods of stealing from me.)

Anyway, what I am getting at is,
I have known that our culture, our society, is doomed
by this institutionalizing of our fears,
and by the smaller and smaller spaces that we have left
within which to create and grow.
I've known it for decades.
This place is decaying, its headed relentlessly downhill.
There is no escape.
Its not Bernanke's fault, or Greenspans, or Bush's or anybody's,
anymore than Nero was to blame for the fall of Rome.
Its just the way things happen in this world.
up and down, up and down,
too hot, then too cold, too bright, then too dark.

just like sex.
(now excuse me. I think I remembered something I have to do this morning ...)