Why not send them to gaol?

Not too long back I posted my finding that most people I knew wanted Paris Hilton in gaol, but they didn’t think it mattered whether she had broken any laws. It was a matter of principle.

Likewise the leaders of the financial community who have led us into our current dire straits.

Today the Financial Times published an article by Martin Wolf bemoaning the irresponsibility of Congress for not coughing up $700,000,000,000 to save the financial system. The grounds were very reasonable –

We are watching the disintegration of the financial system. Finance is the web
of intermediation binding economic agents to one another, across both space and
time. Without it, no modern economy can survive. Yet that is now threatened,
with the ongoing collapse in trust and flight to safety. We can indeed run this
experiment. But why should we?

As far as the role of the financial system is concerned, I agree absolutely, and it would be insane not to fix the problems. And that’s coming from a devout socialist. (Strangely, in my experience socialists understand capitalism far better than capitalists.)

But this is one case where we could and should throw out the babies with the bathwater, or at least the throw out the bath attendants. They got us into this, and it is shocking that, if this measure goes through, they will still have their jobs – the very jobs they have proved they cannot do at the very pinnacle of the systems they have just proved are crucial to society as a whole. To tell you the truth, I’m quite shocked that, come the end of this process, they will still have their liberty. As I keep telling everyone I know (very nearly jokingly), the message should be that, once the negotiations about saving the system are over, they will all be off to gaol. We don’t really care what for – they just belong somewhere as dark and dingy as the misery to which they have sent so many other people.

A bit draconian? How about this then? The banks (etc.) get this financing on the absolute condition that they have completely replaced their leaderships within a year. After that, if we catch any of them running so much as a sweet shop, they go to gaol.

Still a bit draconian? I don't think so. What have these people done that deserves such bitter treatment? Just pushed the financial system Wolf rightly declares to be the hub of our economies over a cliff. They were give absolutely all the leeway to run their businesses they asked for. Nothing was too good for them as far as our brainless governments (who seem not to understand capitalism at all) were concerned. And what did they give us in return? The threat of the worst economic depression we have seen since the Thirties. The destruction of thousands – and if the more grim predictions are right, maybe millions – of jobs. Vast harm to millions of people. A crushing blow to the very economic foundations of society.

I’m sorry, but if I had deprived so many people of so much – money, safety, happiness, future - by such evident greed, indifference and stupidity, but done it in some other walk of life (bank robbery, perhaps), would I still to be loose on the streets, let alone being paid to carry on?

Large Hadron Collider rap

Forget matter and anti-matter, do you want to see what happens when the two most mutually alien forms of matter in the known universe - rap and science - meet? Then try this little ditty - with real scientists 'dancing' - authentic geekipods.

Enjoy.

Take your partners for the Lehman's Excuse-Me

(Yes, I know - what, you are thinking, could the collapse of Lehman's possibly have to do with the environment? The answer is that it displays one of the most important aspects of capitalism in its current guise, namely its ability to deal with a serious crisis. Read on...)

The current Lehman collapse gives us a flavour of what is likely to befall us all when markets are squeezed by rocketing energy, food, water and resource prices. Merrill Lynch (the home of prancing bull) are in trouble too, agreeing to be bought by Bank of America for $50,000,000,000. Stock markets and the dollar have fallen and AIG, the world's largest insurance company (who provide over a hundred billion dollars of capital to banks), are also on the skids.

It's not as though they did not see it coming. Already the 2007 World Economic Forum in Davos - long before the bubble burst, Lehman's boss, Richard Fuld talked openly about being "really worried" about the risks posed by property valuations, excess leverage and the rise in oil and commodity prices. "We're taking some money off the table," he said (Financial Times, 15/9/08). But nothing like enough it turned out, because they couldn't resist a few more juicy acquisitions and their foresight was a good deal less advanced than their ambition. As so often in business, they (and everyone around them, investors, governments and regulators included) thought they could walk on water, only to discover too late that they were just about to walk out of the shallows and into really deep water. And of course, they became more and more detached from reality:

Mr Fuld’s role in these decisions was hard to pin down because colleagues say he
was growing more remote. Mr Fuld spent an increasing amount of time in his
mansion in Sun Valley, a ski resort in Idaho that he has used for years to
entertain clients, or travelling around the world. “When Dick came over it was
like a state visit,” says one London-based banker. Some bankers believed, too,
that Mr Gregory shielded Mr Fuld from what was going on and discouraged
executives from raising criticism or reporting bad news. “Joe was like Dick’s
bodyguard,” says one senior banker. (Financial Times, 15/9/08)

So, with 'hundreds of billions of dollars' now expected to be lost (say the BBC), who do you think will actually lose their money? The Lehman partners? Merrill's directors? On the contrary, three of the latter are to join Bank of America's board. How about their clients, who also helped dragged us all into this catastrophic mire with their insane gambles? Nope. Profit, economists tell us, is a reward for risk - we take the risk, and they get the reward.

And no, that is not just a lazy, knee-jerk anti-capitalist jibe. As Peter Morici, professor of University of Maryland's business school and 'a recognized expert on international economic policy, the World Trade Organization, and international commercial agreements', has put it:

Performance-based compensation practices at Lehman and throughout Wall Street,
which pay big bonuses when bankers bet right but only imposes losses on
shareholders when they bet wrong, has propagated the kind of toxic financial
engineering that caused mortgage-backed securities meltdown, general credit
crisis, and the near-death experience of many Wall Street banks and securities
dealers.

So when Alan Greenspan opines that 'We will see other major financial firms fail but this does not need to be a problem. It depends on how it is handled and how the liquidations take place. And indeed we shouldn't try to protect every single institution. The ordinary course of financial change has winners and losers', I start to feel a little queasy. Just 'winners and losers', Alan? Such as pensioners whose pension won't get paid now? Such as workers who lose their jobs? Ah well, win a few, lose a few, eh?

So what lesson is being learnt? To quote the man from PWC (who will earn millions from burying Lehman's rotting corpse), 'What it underlines to me is the importance of market confidence'. No fooling. But can we draw a slightly deeper lesson? How about 'the ludicrous vulnerability that comes from fantasising that people whose sole motive is short-term profit are fit guardians of the world's economic health', even if they do wear nice suits?

Meanwhile, not too long from now, when oil and gas start going through the roof, who will be holding all our money then? Hard to name names, but it's a cast-iron certainty that quite a few of them will be ex-Lehman and Merrill who have managed to find another comfortable birth in some other bunch of Masters of the Universe.

So what specifically do we learn about how capitalism might handle a severe environmental crisis?

1. Despite being given long notice, most organisations simply won’t respond in time. We have known about the currently housing finance crisis for a decade - that there was a massive and fundamental financial weakness. That is not to say that the individuals who have been at the forefront of the current crisis have been stupid or short-sighted or greedy or wicked. The returns, while the bubble lasted, were good, and the overriding pressure business people face is to generate a return. It does not matter that the whole edifice is based on junk resources, just so long as the direction is upwards. Like all the other classic financial pyramids and bubbles, just as long as everyone else is buying, things will be OK – even though they are only buying because you are buying too.
   
2. When the crisis comes, it comes extremely quickly and for most people cannot be escaped. It is a classic case of exponential spread leading to systematic collapse. It means that years and decades of solid growth and self-congratulation may still be terminated in months or even weeks. Ironically, thinking about the environmental equivalent to this sort of crisis, one of the seminal books on the environment, the Club of Rome’s Limits of Growth (1972) is all about the logic, consequences and limits of exponential growth.
   
3. The economic crisis become systematic, affecting not only the sector in which the crisis was triggered but all areas of the economy. If AIG are indeed providing over a hundred billion dollars of capital, yet are undermined by their exposure to junk resources, then thousands of firms are going to find their loans called in or their interest rates pushed up when they are least able to repay them.
   
4. The victims will be spread throughout society, to the point where the social system as a whole is threatened. Millions of individuals work for those thousands of firms, have loans from banks, rely on income (e.g., pensions) from those investments, and so on. This in turn can only feed back into the economy in the form of people tightening their belts or claiming massively more in the form of social security and unemployment benefits.
   
5. The government will not be able to manage the problem. One company – a Bear Sterns, perhaps – is one thing, but a whole raft of major financial institutions going down is quite another. Just Merrill’s price tag - $50 billion even when it is in trouble – is equivalent of $160 each for every man, woman and child in the USA. And in any case, governments have so completely abandoned themselves to the idea that capitalist markets are the solution and so completely sold all their assets to the very people who are now in crisis that is will require a major ideological effort even to imagine that the answer is to protect society, not to salvage this fatally flawed economic system – or even recognise that these are two radically different problems.
   
6. The whole process will disable society even at the level of basic physical resources – in this case housing, in the future energy and industry as a whole – not because they somehow don’t work any more or people suddenly don’t need homes, but because the system of property evicts the only people who can use them in the name of organisations who ‘own’ them yet are completely unable to make any use of them.

Of course, an environmental crisis would not look quite like this. Nor are all the player's in the present investment bank crisis behaving quite as stupidly as Lehman's. John Thain, Merrill's CEO, was congratulated for being astute enough to call a halt before they too went over the cliff. But he was an outsider who came in in late 2007 with a cold eye towards Merrill's pretensions and culture. Who is going to perform that role for industrial capitalism as a whole when the real crises start to hit?

Yet the lessons are striking. Cheap energy is the resource-equivalent of cheap credit with no ability to repay the debts - precisely what caused the current credit crunch. As oil, like credit, becomes much more expensive, the effect on any number of major industries will be as inexorable as a huge rise in interest rates and collapsing currencies combined. And the shock effect will be similar – rigidities in the economic system, the vulnerability of society as a whole to crises that are (literally) none of their business, and the inability of government to deal with such a vast crisis.

As for what governments are really willing to do, even about the present crisis, it's worth noting that just a few days later, on 23 September, Philip Augar (author of The Greed Merchants: How the Investment Banks Played the Free Market Game - Penguin 2005), was writing the FT that:

The last time Wall Street was in the mire was between 2001 and 2003 when the
dotcom bubble burst. President George W. Bush pledged “to end the days of
cooking the books, shading the truth and breaking our laws”, but instead a patsy
settlement with the investment banks was reached in 2003 that imposed trivial
fines and minor rule changes but left their business model intact.

It's hard to see that, under the far greater pressure of a global energy or other environment crisis, they would do any better.

Mind you, the current crisis could have much greater political repercussions than initially meet the eye. To quote the FT again:

Meanwhile, the Federal Reserve threw open the doors to investment in the US banking industry by private equity firms, sovereign wealth funds and corporate investors – in the hope that this would direct much-needed capital to US banks... Morgan Stanley said earlier it would sell a stake of 10-20 per cent to the Mitsubishi UFJ Financial Group (MUFG) in a deal worth up to $9bn. The news came just hours after Nomura, Japan’s largest broker, confirmed it was buying Lehman Brothers’ operations in Asia and was in exclusive talks to secure parts of its business in Europe.

Does this signal the end of one of the USA's most cherished ideals - the option of isolation? Does it signal that the commanding heights of American capitalism are starting to go offshore? If so, we might start seeing a more global perspective starting to take shape in American politics too - which can only be (relatively) good, given the obstinacy of current American politics in the face of global environmental problems, to which the USA contributes so much and about which it has, so far, done so little.

Negative reality

A small contribution to science fiction rather than science, I suspect.

There is no such thing as a vacuum. Quantum theory tells us that, even if a vacuum existed, it would soon find itself being populated with particles caused by inherent quantum fluctuations. Once they come into existence these particles are normal enough, but a moment ago they simply weren’t here. So where were they? Nowhere. They just emerged out of a quantum flux.

And then there are negative numbers. I can have one apple, two bananas, three protons, four quantum physicists – but not -1 of anything. Why not? Isn’t that a bit of a paradox? No – as Piaget tells me, negative numbers represent not things but actions – taking away. So positing one apple is literally positing – putting into position. And by the same token, negating is simply taking away. Of course, when you get to zero, you can still hypothesise a lot of taking away – hence the negative numbers. Well...

Actually that sounds like a lot of sense to me. But I can’t help speculating in slightly more empiricist vein anyway (probably because I’m British). Is there a possible connection between these quantum fluctuations and negative numbers? How about this? There is a positive universe to which we have access, and a negative universe to which we don’t. That’s not to say that there is nothing there – it just exists on a plane we cannot touch or interfere with. On such an account, nothing/zero refers not to an absolute limit but to a transition point. Being creatures of the positive universe, we cannot make that transition, but that does not mean that matter as a whole is limited to our half of these cosmic Siamese twins. Indeed, that is exactly what the quantum fluctuations in the vacuum – the closest we have to physical nothing – signify – particles shifting between positive and negative universes.

Now, what would happen if we could fish in the vacuum and pull something a little more substantial through from the negative universe? I feel a sci-fi story coming on...

Better a pig than a pitbull

Beats me. A week ago, Sarah Palin proudly compares herself to a pitbull in lipstick. A couple of days back, Barack Obama completely fails to compare her to a pig in lipstick (he was obviously referring to McCain's policies), and she gets all hoity-toity.

Look, Mrs Palin, a pig is an intelligent and useful animal and a pitbull is an ugly, stupid, vicious, downright dangerous beast with absolutely no redeeming features. Now it is perfectly clear that you resemble the latter a good deal more than the former, so when someone says something a least relatively nice about you, try to be a little grateful.

Future for sale

I bang on a lot about how market economics is completely unsuited to our current environmental predicament. Here are a couple of practical - and potentially catastrophic - examples.

Now that we are growing crops for fuel instead of food, we have accidentally created a new nexus that markets have been quick to exploit – to all our costs. Now that corn is sought as eagerly by petrol companies as by food companies, the price of cereals for biofuels must converge with its equivalent in oil. However, even if, say, the USA converted all its crops to biofuels, it this would still barely touch its total fuel consumption, so the prices of cereals must move towards oil rather than vice versa - and the process of oil is currently a lot higher. So this will cause world food prices to rise – just as we complete the seventh year out of eight when we have consumed more food than we have grown, and prices are going up anyway.

Or how about this. In India, the city of Chennai – 7 million strong - is running out of water. So local water companies are buying the water from the farmers who till the surrounding land, who are happy to sell it because it is worth a lot more than any crops they might be able to grow by irrigating mere food. So sometime not long from now, when the currently falling water table has passed beyond practical or economic reach, there will be no more water – and no food either.

Nor is a Third World peculiarity. Cities in the USA (including San Diego, Las Vegas, Los Angeles, Denver, El Paso and many more) are perpetrating the same lunacy. Their water purchases run into hundreds of millions of tons and will undermine what is now invaluable farm land over decades and decades. And their purpose? To buy an unsustainable present in which vast quantities of water are squandered and paying for it with a truly terminal future.

But what can we expect if it takes 14 tons of water to make a ton of steel but 1000 tons to grow a ton of wheat, and the steel is ‘worth’ (treacherous word!) two or three times more than the wheat anyway?

Both classic examples of market economics, in which the commodity goes to the highest bidder, regardless of the consequences. Such a system cannot even see the consequences or distinguish human misery from a packet of cornflakes. Yet trade agreement after trade agreement places such arrangements ever more firmly in the driving seat.

And of course, if we don’t sort out a non-market mechanism for managing water soon, much worse will follow.

A pitbull in lipstick

Very decent of the Republicans to describe their own would-be Veep as a 'pitbull in lipstick'. Here in England, pitbulls are regarded as so dangerous that the mere possession of one is a criminal offence. If Mrs Pailn comes here, there is a real chance she will be put down - which could really put a dent in Anglo-American relations. And as far as most Britons are concerned, people who keeps pitbulls are inadequate saddos who really should get a life.

But Mrs Palin doesn't need to go quite so far to find out how most of the world sees her:

It is illegal in Miami-Dade County to own any dog which substantially
conforms to a Pit Bull breed dog... Acquisition or keeping of a Pit Bull dog:
$500.00 fine and County Court action to force the removal of the animal from
Miami-Dade County. [Legal code, Section 5 Code 17]

Pitbulls are also under some form of legal control in at least 23 other locations in the USA, not to mention Denmark, Australia, parts of Canada, Singapore, New Zealand the Netherlands and (now this will impress them) France ...

Hope no one shoots her - that would violate the fine American tradition of shooting only their presidents.