The Great Recession of 2008

Derivatives, Freddie Mac, Toxic Mortgages...

Terms you've heard bantered about I'm sure. Yet no one I've heard has ever explained in clear language what happened. I mean apart from political ad hominem attacks. Here's the short version...

1. Banks made home loans to people they knew could not pay them back.
2. The banks that made these loans knew they had to get rid of them or they would lose money when they defaulted.
3. The banks bundled these bad loans together with other loans to conceal the bad loans when they tried to sell them.
4. After selling the loans, the banks then essentially placed bets that these loans would default.
5. The loans defaulted sparking a chain reaction that resulted in near destruction of the financial system, a prolonged recession that c and making a small amount of people a tremendous amount of money.

Driven by competition and low interest rates banks began making home loans to people they knew probably couldn't pay the loans back. In a well functioning financial system this would just mean that the banks that make these kinds of loans would go out of business once the loans default. However due to the complexities of our financial system that did not happen. In fact many of the banks that made these bad loans ended up profiting from them. Here's how:

The banks knew if they held onto these loans eventually they would default and they would lose money, so they had to sell the loans. There are two large government backed companies called Fannie Mae and Freddie Mac that buy these kinds of loans but the banks knew that Fannie and Freddie would not want to buy them if they knew they were  filled with these bad loans, a.k.a. "toxic mortgages". In order to be able to sell these loans they sold them in bulk by combining them with lots of other loans that were generally safe (think of a rubber band manufacturer mixing in broken rubber bands into bags filled with thousands of rubber bands, you'd never notice the broken ones).

Fannie Mae and Freddie Mac (along with every other financial agency) relies on ratings to determine it's financial value. "Rating Agencies" like Moody's or S&P are companies that give a rating to mortgages (among other things) and they continuously gave these toxic mortgagees the highest possible rating of AAA. They did this partially because the bundled mortgages were simply too big to fully understand, partly because they assumed the well established banks that were selling them would not sell bad mortgages and partly because they benefited directly from rating them highly. The rating agencies are financed by these very banks they rate and so it was in their interest to rate them highly.

If this had been all that happened it would have been outrageous and criminal. However it did not stop here. The banks that gave these toxic mortages and then sold them to Fannie and Freddie then proceeded to go a step further and bet that they would default. In the same way that you can buy car insurance in case something bad happens to your car these people bought a form of insurance in case something bad happened to these mortgages. The difference of course is they knowingly built the car with broken parts and sold it to someone knowing it would break down. In 2008 the cars began to break down. To make matters worse most of the banks all bought their insurance policies or "derivatives" from the same company, AIG.

Once it became clear these mortages were toxic it started a chain reaction. Fannie Mae and Freddie Mac were hemmoraging money, AIG owed hundreds of billions in "derivatives", banks could no longer sell their mortages or get insurance making them unwilling to lend money. This in turn threatened to completely shut down the banking system. Several large banks collapsed as a result and the remaining banks bought them making themselves even larger.

Time and Place

It’s a sunny afternoon in a busy outdoor plaza. Young professionals buzz around on their smart phones cramming every second of productivity possible into the formerly independent acts of commuting, eating and anything else possible. Standing off to the side leaning against a building is a teenaged boy scanning the crowd as if he is looking for someone. He is out of place by manner of appearance and focus. He spot who he is looking for…

Teenaged Boy:“Wait! Stop!”

Man:(under his breath) “Shit. This asshole again…(out loud) yea listen I’m really late and I’d love to talk to you but I gotta run”

TB:“fuck that you’ve been dodging me for weeks. I’ll follow your ass if I have to”

M: “I know, I’m sorry but I have to go. Let’s get together early next week. I promise I’ll make some time for you.”

TB: “Listen mother fucker. You’ve said that for a month now and I’m not buying your shit. This is how it’s gonna happen right now. Either you’re gonna talk to me or I’m gonna follow your sorry ass wherever you’re going and embarrass the shit out of you.”

The  man was defeated. He knew what a stubborn and relentless adversary his younger friend could be and in this case it was clear he had made up his mind.

M: “alright. I really am going to be late though so I have to go soon.”

TB: “What the fuck happened to you man? You used to think of things on such universal global terms. You couldn’t conceive of a life in which you had so dramatically scaled back your expectations. I don’t mean to be a dick but you are an unequivocal failure. You have not accomplished a fraction of anything worthy and you’re not on track to do so. Quite the contrary actually as it appears you are moving the wrong direction. It’s hard to even look at you. I can’t reconcile the pathetic blob of flesh in front of me with that powerful determined young man you once were. While I’m generally agreeable to Locke’s view of identity in this case I am sympathetic to Hume because there doesn’t seem to be anything the same about the person in front of me and the person I once knew.”

M: “Well listen I appreciate the pep talk. Let’s get together next week man and I’ll let you berate me all that you want. I’m late”

TB: “FUUUCK THAT!! Dude I’m not letting ou blow me off. Answer me god damnit. Whatthe fuck happened to you? Why are you such a massive failure? Or have you receded so far from what you once were that you’re no longer even able to articulate your thoughts, mediocore and uninspired such as they are? I suppose there’s some of that mixed in with some arrogance. You know something I don’t. You’vel ived longer, experienced more, survived, learned to pick your battles, all that shit you used to hate hearing from your elders. You used to say all of that was different names for the same thing: fear. So now I borrow your own diagnosis and tell you that you are just a pathetic, afraid, beaten down, useless bastard. If you’re decided on continuing on this way you might as well off yourself right now I mean seriously we could use the reduced carbon footprint. I don’t know what the fuck happ…”

M: “OK shut the fuck up, shut the fuck up. Yea there’s fear. I concede that. And I am ashamed of that. I do miss the person you speak of who was so fearless and determined. I miss him desparately. This vessel of life though, it is leaky old wooden boat. We wish it to be made of impenetrable steel but life beats down on you like a storm on a boat deep at sea. The storm of my early adulthood smashed the ship. I was left clinging on to this scrap of wood waiting for the storm to pass. You have to understand how hard it is to rebuild from that. It is true that from the wreckage you are liberated from all the nagging problems of the old vessel but now you have to rebuild a new one. And unlike most people I know I didn’t have the privilege of a dry dock. I’ve had to rebuild at sea on the fly with only my hands and whatever floating debris I can find. Then these assholes show up with their speedboats to race and even when I beat them 8 out of 10 times they can…”

TB: “woah there captain enough with the shitty boat metaphor. I get it. It’s not that I’m unsympathetic to that and it’s not that you didn’t use to be either it’s just that you understood the cause and effect nature of the mind. Sure terrible things happen. We endure suffering that is horrific and unimaginable. That is what we are cursed with in this wretched human condition of ours. The question is what the hell do we do about it? Do we shy away from fighting like a beaten dog? Do we surrender our hopes and dreams to the tyrant of human experience or do we defiantly resist to the bitter fucking end? I see these assholes running around with the dreadlocks in the drum circles mooching off productive society while preaching peace and love. Then I see the so-called champions of our society, the successful businessmen, politicians, sports stars whatever and they largely are mental slaves who will spend their whole lives moving 100miles an hour not knowing where the fuck they’re going. Then there are the huddled masses simply soliciting the fear of the day, stumbling about their lives trying to make the least waves.”

M: “Listen I hear you. I actually hear you and I appreciate being reminded of what you’re talking about. I wish I was further along. I promise you I do. Every night I lay down my head and I feel the failure through to the bone. I hate myself. I can’t control myself. I can’t focus myself. I can’t accomplish even a fraction of what I once dreamed of. In all of these matters you are right. I don’t know exactly how I got here. All I know is that a powerful idea has entered into my awareness that I believe is a potential way forward. In fact it is awareness itself. I can spend the rest of my life admonishing myself for past failures or indulging in the anxious projection of possible negative futures and in both cases I will find an infinite amount of material to draw from. Everything you said is true and more. However when I do so I fail to recognize the infinite power and importance of right now, this very moment. I’ve learned also that to the extent I am able to be present in the here and now the pain, the fear, the anxiety, the self-hatred it all melts away and not ignorantly or selfishly so. The phenomenon of human suffering will not go away and for me I know it will never stop pulling on me like gravity. What living in the moment offers though is a new force to push against it. I was watching a large ship leave the harbor today and as it began moving it caused huge waves that violently rocked many smaller boats. I’m not sure which boat I am but if it’s possible to be the big boat that thrashes around human suffering a bit than I would consider my life well lived. And if I’m the small boat then I just have to stay afloat I suppose.”

TB: “Well I know you’re late. I guess I was a little rude. You know I don’t meant anything, I’m just worried about the future of you. I don’t want you to look back on your life with regret and I’m worried that’s what you’re headed towards.”

M: “I know you didn’t mean anything by it and I know where you’re coming from. Honestly I’m glad you forced me to talk, I needed to hear what you had to say. I guess all I can tell you is that when you are worried about the future or when you are looking back at the past you are not in the present. I think you can be a good influence on me and help guide me if you start living in the present right now.

Speaking of right now I’m an hour late. I have to go. Talk to you later.”

TB: “Bye”

So She says

I think a lot about the things she might say. That is to say what she ought to say if she wasn't who she was, which is an impressive degree of selfish. The woman is literally unable to see past herself, or at least she was when I so needed her not to be. "Come here" I imagine her saying, "tell me what's wrong". She would sit next to me on my bed, towering above me looking downward with a facial expression that was part playful and part inviting and radiated warmth. If I close my eyes I think I can feel the warmth coat me like liquid chocolate. I imagine it feels warm to know you are loved.

In the absence of such relief though what is left is an arctic chill which over time freezes your own warmth shut. The absence of that love is not the real damage, the real damage is found in that you never learned how to value yourself. You never learn how to look inward and like what you see. Dr. Freud tells me that that which is external becomes internalized when you are young. That your parents voice becomes your own inside your head. I wish I heard so many different things in my head than the relentless beating of the drum of self hatred.

"Son, pain is a part of life. If I could stop you from feeling any pain I swear to you I would but the truth is I can't and I guess maybe it's better that I can't. What's important for you to undersstand is that no matter how badly something feels or how much it hurts the nature of pain is that it is temporary. It will pass and you will survive. You are so smart and so strong and life may try to knock you down but it won't ever win because you are a survivor. It is who we are son. We get bruised and beat down and sweaty and wounded and tired and sometimes when things get their worst we even feel like giving up but you know what baby? We never do. We keep fighting, we keep trying, we keep on keeping on. We never lose sight of who we are even when it might be easy to do so. We treat people with kindness even when they make us mad or treat us badly. And what gives us strength to all of these things is love. Love is what keeps us going and I want you to know right now and forever that no matter what happens to you, no matter what mistakes you might make or pain you may endure, no matter what other people think of you or say about you, no matter if things are good or bad or somewhere in between, I will always be your mother, you will always be my son and I will always love you with all of my heart. Even if you tried to change that you couldn't. So take your time, be mad at me, talk to me or don't talk to me, it's up to you. When you are ready I will be here for you, I will always be here for you. I love you."

I think then I might be able to sleep.

Good Times

What do you do when you find yourself more and more becoming ordinary? As each day pushes me further and further from youth I find myself a vessel for cliche emotional cargo. The change is not really welcomed but yet I'm strangely rather tolerant of the whole thing. Strange because I've so often prided myself on being odd. I despise predictability. I guess fundamentally the idea that our behavior is so cause/effect seems to equate to meaninglessness. I can't construct that link right now but it exists on an emotional level for me. 

What is scary about moving further and further away from youth is the ever increasing limitations of realism. That by growing older you become more and more cognizant of the possible and the "real" and less and less focused on that which should be, that which you desperately want to be and that which you know down in the most vulnerable part of your soul must be. Whereas a child thinks in dreams and potential, the adult sees only the difficulties and struggle in the way of progress. I feel fundamentally like a failure. I have accomplished almost nothing worth accomplishing. This fills me with disgust and leaves me unable to even contemplate the worth of my own existence. This is tempered only by the inextinguishable impulse to search for answers to the question "why" which in this case tells me a psychological pattern is at work. Namely that my mother made her love so conditional as to condition me to believe the only way to be worthy of love was to accomplish amazing things. I think the child in me sees a need to hold myself to this insane standard of accomplishment in the hopes that...

The feeling has gotten worse. It's grown steadily since last week. I'm exhausted. I don't have energy for anything. I want only to sleep all day. 

writing this blog: an action motivated by one of four possible things

"In summary, all of the far-flung activities of the adult person are motivated by the energy of the life and death instincts. Anything that a person does is either (1) a direct expression of an instinct, in which case it would be a simple id object-choice like eating, sleeping, eliminating, and copulating, or (2) it is motivated by a combination of instincts, or (3) it represents a compromise between driving and resisting forces, or (4) it grows out of an ego defense."
- Calvin Hall, A Primer on Freudian Psychology

Quite a succinct summary of human behavior. What's funny to me is just a few pages prior to where I took that quote there is a passage in which the author is beginning his ascent to the previously quoted summary and he dismisses another possible explanation by saying it would't be economical and science likes economy. Whatever is true or not about the above statement, it is undoubtedly economical.

Unlike myself actually. My use of words has precedent only in the confederate states of america's printing of currency and there is I fear a similar phenomenon of inflation. In any case here I am again and tonight I am moved to speak about what is happening in Cairo.

I wish to preface my commentary with a brief but gratuitous explanation of how I heard the news of what's happened in Egypt myself. I've settled comfortably into my nocturnal summer routine and as I was laying down to sleep yesterday I found myself, as I often do, watching Morning Express with Robin Meade. It is something of a guilty pleasure because oh my god is she gorgeous but I rationalize it by telling myself it's news. Which it is...mostly.

Anyways so as I'm going to sleep I hear the military in Egypt told the President to step down or they would remove him. I wake up and they removed him. It's a fascinating occurrence because it is such a clear example of the conflict between idealism and pragmatism in democracy. Here you have a country which two years ago demanded democracy and thanks to the alliance of the military with the people were given a shot at it. A constitution is written, elections take place, a president is elected and a year passes. What appears to be a majority of Egyptians feel too little has been done in the way of creating democratic institutions and allowing for a broad spectrum of viewpoints. So they take to the streets again and again the military sides with them.

Certainly it's not a precedent you want if you are a fan of democracy. The military intervening on a bi-annual basis to assert its authority over the civilian government. However it appears that absent this action democracy would have also been endangered, perhaps more so. Our own history is filled with examples of authoritarian and anti-democratic actions on the part of our chief executive. Washington put down a rebellion between winning the revolutionary war and assuming the presidency. Lincoln suspended Habeas Corpus, pushed through a conscription act, an income tax not to mention the 13th-15th amendments under dubious legislative circumstances. And yet these actions undoubtedly saved democracy in our country.

So I apologize that the analysis just given is really no better than some shitty cable news show but it is interesting to contemplate and there is not much to know about it yet. What's left is to wait and see what happens.

Good Times

Now Transmitting Directions for a Leap of Faith

"...one reason why the ego fails to develop is that too much of its energy is tied up in its defenses. This is a vicious circle. The defenses can not be given up because the ego is inadequate, and the ego remains inadequate as long as it relies upon the defenses. How can the ego break out of this cycle?"
- Calvin Hall from A Primer on Freudian Psychology

Knowledge is power they say, and it is. But it is a broad power that releases slowly over time. The conscious mind is like a large ship which turns slowly. Real change brought about by conscious will takes a massive and continuous expenditure of energy over a long period of time. When I think about this I feel simultaneously hopeful and overwhelmed.

Other powers exist though. Let me tell you for a moment about Shostakovich 7. There are an always growing number of masterpieces on my bucket list of pieces to listen to. It is comforting to me to consider the number of great works which exist on this planet which I have not yet experienced. I have purposely delayed listening to Beethoven 8 and Mahler 3 and the list goes on and on. I save them like wine in a cellar and when the occasion arrives I pop open a bottle and really listen to it. That's the thing I want to sit down and listen to something. Not listen while doing another thing but just listen. I popped open Shostakovich 7 the other night and had my first drink.

I have been particularly excited about this piece because I have heard stories about the Bernstein version with Chicago from various sources that have described it as an unbelievable performance. I remember reading a book in high school which listed it as the only true perfect performance and Bernstein himself regarded it as one of his three best recordings. So I was excited to get to know it.

It is an enormous work, roughly an hour and a half. The first movement alone is nearly a half hour. It begins with this exclamatory but sort of ordinary sounding introduction. It's almost as if it represents life before some traumatic event which when reflected back on is remembered as naive and innocent and vulnerable. This makes it hard to fully enjoy the big moments in the beginning. You feel like you're watching someone in a moment of ecstasy with the knowledge that their life is about to come crashing down on itself.

From there the first movement peels itself apart, becoming thinner and thinner until really just a single folk sounding melody remains. This melody is passed about and repeated and eventually begins to transform itself as the first dark presence of the piece is felt. There is a rhythmic stability imposed which permeates throughout the climax of the first movement and becomes at times relentless in its aiding of the agony expressed. Like an aid to the evil committed it pushes it along and props it up, gives it structure and clarity.

The totality of the agony conveyed is unapproachable by words. It is disjunct and relentless and projects a level of destruction which is difficult to absorb. While this section is not easy to talk about, it is I think the emotional heart of the piece. Everything that comes before it is leading to it and everything after an attempt to understand, heal and rebuild from it.

The remainder of the first movement again winds itself down layer by layer until only a thin texture remains. The remaining movements move through alternating stages of healing and further grief and in the triumphant moments of the final movement there even seems to be some kind of answer. With Shostakovich there is always so much beneath the surface to be considered. He was a man writing as both an artist and a survivor. He had things to say and yet was terrified to say them. He learned to conceal his true message beneath that which was necessary to keep himself and his family safe.

The power of this music is different than knowledge because it is penetrates deeply into experience. I have the sensation of being filled with it as I listen, propping me up higher and taller. It has the effect of turning the mind, conscious and unconscious, towards a new sight. It points us in a new direction or it shocks us out of an old way of thinking or it reminds us of something important, perhaps even revealing what is truly important. This is, in a limited and incomplete account, why I love music. It is a complete human experience. Two pieces have sustained me during these past few weeks of self imposed psychological demolition, Mahler 6 and Shostakovich 7. I feel immensely grateful for these courageous and talented men who were able to bottle a bit of their lives and their understanding and transmit it for the benefit of humanity. I feel a connection to these men which is strong and large and sustains me, it is a pure love. Not something which comes easy.

Good Times

to change or not to change

Here is the fundamental question I think for which we turn to psychology for an answer: Are humans capable of change? At some point in our lives we find ourselves baffled by the seeming incongruity of our actions with what we believe to be our desires. We choose partners that are no good for us, we engage in destructive behavior, we fail to accomplish the things we believe we want most in this world. Upon realizing these behaviors we then find ourselves engaged in the daunting task of #1 understanding them and then #2 setting out to change them.

The Dr. Phil/Asshole-Ignorant Reneck approach is to advise people to "just do it". Now I do believe there is tremendous power to the idea that our minds create reality. That we are the authors of our own reality and that the thoughts we think play a paramount role in shaping our lives. So consequently it follows that if we exercise strong determination in our thoughts we can have an important effect on our lives. The problem though is when this "just do it" approach fails to account for the various complexities and nuances of the mind and how it can come to be corrupted. When a person finds themself in real trouble in their lives, whether its addiction or self destructive behavior or mental illness or whatever, I believe what is largely happening is that their mind is in conflict with itself. One part of the mind wants one thing and another a different thing and these forces become engaged in mental violence against oneself. So to simply advise someone to lift themselves up by their own boot straps is to fail to account for the complex nature of the human mind. 

For Freud he believes these conflicts are the result of clashes between either the id and the ego or the ego and the superego. For Freud the id represents sort of our animal instincts towards pleasure. Things like the desire to eat food when hungry or to feel relief from pain or to have sex when aroused. The id wants these things and when we fail to choose to act on them, the id and the ego find themselves in conflict. The ego is the driver of human decision making and thus responsible for action. The ego is sort of deputized by the id according to Freud to carry out the wishes of the id through the process of identification. The ego learns through time and experience how best to achieve the goals of seeking pleasure and avoiding pain and thus allows a person to become increasingly good at them. However the ego is also influenced by the superego which represents sort of a persons moral code, which Freud believed to be inherited form one's parents and environmental authority figures. So while the id may seek sexual gratification and the ego may recognize rape as a means of achieving that gratification, the ego is restrained by that impulse by the superego which instructs the ego of the punishment that will occur if that action is taken. 

So is Freud onto something here? Is internal conflict the result of the collision of these competing forces? It doesn't feel quite sufficient to me but I am not fully able to articulate why. I know from my own experience that there are forces within me that are controlling my actions which are not conscious. I do not recognize them to be mere pain/pleasure instincts but rather they feel to me to be self destructive forces. Freud might call this the death instinct, which he purposes along with the life instinct as the two main forces of human behavior. I found it fascinating that Freud found himself contemplating the same ancient time as Robert Pirsig, another author whose thoughts have impacted me deeply, in considering the earth just before life came into being on the planet. For Pirsig the context for this exercise in imagination was a recognition of the force which propelled matter in a stable inorganic state to reconstitute itself into the chaotic and instable form of life. Specifically Pirsig cited this is an example of nature violation the second law of thermodynamics which says that all energy is winding down like a clock to a stable form, or to paraphrase all life is moving towards death. Why then, Pirsig asked, would nature in such a state of stability prior to life move against itself towards a less stable form of energy? For Pirsig the answer was Dynamic Quality which is our nature. 

What's interesting is Freud sees the same process and is sort of dismissive of the phenomenon of life creation and dwells instead on the difficulty life had in coming into existence in that context of death. He said that at first it took a great amount of energy to create life and that the life which was created was very short and simple organisms. Freud postulated that the energy force creating life had to keep creating it in the beginning because the force of death would act so strongly upon it. Eventually he said, life developed the ability to create itself and evolved over time into more and more complex states allowing for much greater lengths of resistance of death. What he took from this though is that we have within us that force which wants to move towards death, towards stability and inorganic matter. 

Isn't it interesting that these two great thinkers firstly stumbled upon the same thought puzzle so to speak and secondly that they came away with such different conclusions. It is reminiscent of Yin and Yang, two opposing forces, creating and destroying. Maybe that's the real source of internal human conflict. Maybe what is fighting within us is the simultaneous forces of life and death. We are at once filled with the desire to live, which for me includes things like learning, growth, joy, love, transcendence, passion, helping other people, teaching, kindness and the impulse to create, and the desire to die, which for me includes things like anger, hate, numbness, the desire to hurt others, to destroy, to disrupt and confuse. Perhaps what prevents us from resolving these conflicts is a failure to recognize the reality of the death instinct. It is so contrary to life and what we are, that maybe we repress its existence in order to avoid the pain of confronting it. 

That too seems incomplete...

I know that for the past decade I felt like a mind divided and to paraphrase Lincoln in the corniest way possible, a mind divided against itself cannot stand. Perhaps this is what the buddhists talk about when they speak of the great deaths. The mind wages war against itself until one side is vanquished, and then from there rebuilding can occur. I have been afraid for sometime of the destruction that might be caused by my own mental war. I feel something difficult to explain and I'm sure it sounds crazy. I feel a sense of responsibility in ensuring my unconscious self remains under control. To borrow in part from Freud I feel like it is the responsibility of my ego as the arbiter of my decisions to not allow my unconscious to become free. I feel perhaps out of nothing more than infantile narcissism that my unconscious is powerful and dark and that it is capable of massive destruction. I also believe it may be capable one day of greatness but in its present form I am afraid of it. It seems angry to me. Like a volcano bubbling beneath the earth's surface. But I feel this responsibility to guard my own unconscious not out of fear of consequences or punishment but rather out of a love for people around me. A general love of people. One of the interesting dichotomies of my personality is that I have a genuine affection for people and a desire to help people both as individuals and in the collective, but I tend to regard human behavior quite sadly. We are all so propelled by these powerful unconscious forces that it mostly seems like we have no chance to change. Like we are outgunned by a factor of a million. But I have seen great change. I have embodied great change myself. Perhaps what is needed to unify the forces of a personality is not all that different from what is needed to unify the divided people of a country, an outside force to work against. Or maybe it's even possible to unify the mind in pursuit of something wholesome and pure, I believe that has been the case with music in my life at times. 

So while I am currently in the trees and consequently unable to see the forest, the plan is to keep acting as if this change is occurring and see where it takes me. 

Good Times.