Financial Melt Up

So much to say about the current financial mess, so little time.

I’ll leave investors to fend for themselves this week. I’ve given enough of that CNBC-style advice lately, contrarian though it may be. I’d rather spend these precious minutes explaining why the financial meltdown is not a bad thing for a lot of us.

In brief: there’s a real economy, and a speculative economy. While they are usually related to each other - even dependent on each other - that relationship changed over the past twenty years. Really since the Reagan era. Trickle-down or “voodoo” economics (as the the first G Bush called it) was based on the faulty notion that if we allow investment banks to extract money from the real, working economy through artificial, hidden, and untaxed interest, that wealth would eventually trickle down to the people who are creating real value for the economy through their labor.

Turns out, it didn’t work. Instead, we ended up with the largest and fastest redistribution of wealth from poor to rich in the known economic history of the planet. Worker productivity rises, investors’ incomes increase, but worker wealth decreases. The investors are (or were) shielded through successive tiers of lending and borrowing between themselves and real people or real businesses. (Business is not bad, remember. It’s a cool thing to make stuff and sell it to other people who also make stuff and sell it to others. The purpose of money is so that you don’t have to trade just for the thing the other person makes.)

There just isn’t enough economic activity left to support the rates of extraction. So the investors who borrowed on the presumption of extracting more value have been left with debts they owe. Since deregulation let banks spend 200 dollars for every dollar they actually had, these debts are very leveraged. Thus, banks are starting to fail.

The problem for us is that if the Fed doesn’t bail out banks and insurance companies, we all lose our money. But if they do bail out the banks and insurance companies, we all have to pay for it. If the Fed runs out of money to do this, they have to print more money. So the money they insure our bank accounts with ends up worth very little. That’s not good.

But the money is itself crap. It’s based on a centralized lending scheme and has no intrinsic value. The Fed no longer even releases the metric telling us how much money is out there.

All this means is that you can’t count on capitalism anymore. Your wealth is not how many paper assets you have. It’s not even how much land you have (or think you have). It’s what you can do. It’s your value to other people.

The real economy need not suffer in the downfall of the speculative economy. If anything, the real economy has been repressed by the speculative economy. Real farmers have been crushed by Big Agra, real druggists have been crushed by Wal-Mart and real transportation alternatives have been crushed by Big Oil and Big Auto.

The opportunity here, while the big boys are down, is to rebuild the genuine, local commercial infrastructure. To make shoes, clothes, food, education, healthcare and everything else we can in a bottom-up fashion. While speculators enjoy the economy of scale, we inhabit an ecology scaled to the human being that was lost in the corporatist equation.

The sooner you “drop out” of the speculative economy and its abstract concerns, the sooner you will be able to create and provide real value for the people all around you, and the better position you will be in to get what you need for yourself and your family.

This is not bad; it is good. The pain that people are about to go through now is not the product of the speculative economy’s failure, but its former and intentional unjust success.

Polish Cyberia

I don’t usually post when a new translation comes out, but the folks at Okultura are special, and have worked long and hard against great odds to get this new edition of Cyberia translated and published. In their words,

Czym jest Cyberia? Cyfrową krainą, w której wszyscy chcąc nie chcąc żyjemy, czy światem wysokich technologii, dostępnym tylko nielicznym informatykom? Rzeczywistością wirtualną czy czymś całkowicie namacalnym, dostępnym naszym zmysłom? Co łączy ze sobą informatyków z Doliny Krzemowej, magów chaosu, konsumentów psychodelików, pisarzy cyberpunkowych, współczesnych psychologów i fizyków oraz twórców i odbiorców muzyki transowej? O tym dowiecie się z książki Douglasa Rushkoffa, pierwszej, błyskotliwej próby opisu cyberkultury, ukazującej jej niezwykły potencjał.

Cyberia to kompendium wiedzy o magicznych, psychodelicznych i anarchicznych korzeniach Internetu, stworzone przez jednego z najwybitniejszych specjalistów od kultury współczesnej, laureata prestiżowej Nagrody im. Neila Postmana. To wędrówka przez różne wymiary cyberkultury - rzeczywistość wirtualną, psychologię transpersonalną, gnozę psychodeliczną, fizykę kwantową, kulturę rave, muzykę ambientową, magię chaosu i hakerstwo - ku krainie, gdzie wszystko jest możliwe. Ku krainie, w której żyjemy.

And as Timothy Leary explained, “Cyberia to fascynująca podróż po obecnych granicach ludzkiego doświadczenia… opowiedziana w sposób, który umożliwia czytelnikowi przeżywanie zmieniającej się co chwila rzeczywistości cyberdelicznego XXI wieku.”

Review Copies of My Next Book

This is unorthodox, but what the heck? I’d rather do some “pull” media than all that “push” stuff.

My next book,
Life Incorporated:
How we traded meaning for markets, society for self-interest, and citizenship for customer service,
will be published by Randomhouse in June 2009. We are assembling a reviewers’ copies list now. (Reviewers are journalists who write book reviews for publications.)

While I can’t promise anything, if you email me your name, address, and print/radio/web/tv/blog affiliation, I will put you on the list to get a galley. Press galleys cost a whole lot more than actual books, so if you are simply a reader who wants a copy but can’t afford it, email me and I’ll get something else to you - worst case, a PDF or something.

email your
NAME
AFFILIATION
SNAIL ADDRESS
to rushkoff at rushkoff.com

Fannie and Freddie

All sorts of people have been calling my cellphone this weekend, asking for an explanation of what’s “really happening” with the Freddie Mac, Fannie Mae bailout.

Really briefly, here’s what’s going on and what I think it means.

Freddie Mae and Fannie Mac are essentially mortgage financers. Banks sell mortgages, package them all together, and then sell them as debt to other investors - usually other banks, investment firms, mutual funds or pension funds. These are the famous “mortgage backed securities” everyone is talking about.

Freddie and Fannie buy lots of these mortgages and then resell them at a profit. The rate they receive from the debtors (the mortgage money they collect) is at a better rate of interest than what they pay out to the institutions buying their packages of mortgages. The weird part is that Freddie and Fannie aren’t just regular companies. The mortgages they resell are ultimately backed by government guarantee. That’s right: they are private companies, owned by shareholders, but the mortgage securities they sell are backed by the US Treasury.

This means that the value Freddie and Fannie really provide is to guarantee loans. Because of their government backing, they have the ability to clean up or add cred to everything they touch. Think of it like money laundering: all you have to do is pass some low quality mortgages through one of these companies - even for just a couple of hours - and they’re as good as new. It’s like touching the recharger in a video game - you get all your strength back.

Problem is, too many of Freddie and Fannie’s loans were no good. And the cash cushion they told everyone they had turned out to be a lot smaller than they were leading the world to believe. (Whether they intentionally overstated their cash cushion or just added the columns wrong has left to be seen.) But the long and short of it is that the company is in such bad shape that the government is stepping in and taking over the whole company.

Why? A few reasons. First off, Freddie and Fannie had to get their money from somewhere, right? How else could they buy all those mortgages? Well, they got a lot of that money by selling bonds - a lot of them to foreign investors. Now, they don’t really have the money to pay those bonds back. And that means they have even less money to buy all those mortgages from banks. Without a place to sell their mortgages - and “clean” them - banks can’t lend money to prospective home buyers. And without a good supply of mortgages, the housing crisis gets even worse.

So the Feds are coming in and taking over the two companies, kicking out management, and buying the mortgages themselves. They’re also going to back all the mortgage-backed investments that Freddie and Fannie have been selling. They’re even going to pay back all those bondholders, foreign and otherwise, who put up the money for the mortgage purchasing.

The only ones they’re not going to pay back are the shareholders. All the people who own Freddie and Fannie stock, like people with these once-safe stocks in their 401k plans and mutual funds, will be left with investments worth nothing.

The other people left holding the bag, as usual, will be the taxpayers. The billions of dollars these companies were about to lose on their bad mortgages will now be paid with our tax money. While it might be a necessary bail out of the housing market, this doesn’t stop anyone from foreclosing on their homes. All it means is that when we do foreclose, the investment firm that bought our Freddie-cleansed loan will still get paid.

In the bigger picture, I have to wonder what this will do to the stock market. This bailout pays back bondholders and “preferred” shareholders, but leaves regular old “retail” public shareholders losing all their money. If people begin to put two and two together, they will come to realize that owning publicly sold shares puts them at the very bottom of the totem pole as far as getting anything out of a dying company. Being “bailed out” may save those who hold bonds, but does nothing for those holding shares, who will likely be left with little or nothing.

Given that many corporate bonds are now selling “below par,” or below their original price, this presents an interesting set of scenarios. Will people start dumping overpriced stocks in favor of now discounted bonds, especially since discounted bonds pay very high interest rates and - and least in this case - don’t present the same risks as stocks? Will this week see investors encouraged by a government bail out and rushing into stocks or will stock investors instead see it as a sign that they will be last in line when the going gets rough?

Hate Party

I felt a bit nauseous watching the Republican convention last night. I’m very much a give-the-benefit-of-the-doubt kind of guy, so I try to listen to the arguments people make even when they’re made in over-the-top or patronizing ways. Sometimes it’s good to distinguish between the rhetorical devices and the underlying substance. Even people who use manipulative language sometimes have an important point beneath their persuasion techniques (ads against smoking, for example).

I usually don’t feel uneasy when I put those filters on, but last night - during the Guiliani speech - I realized I was no longer filtering a speechwriter’s intentional manipulation; I was trying to look beyond real hate. These folks were gritting their teeth, shaking their fists, and smiling the way gladiators do when going into combat against barbarians. And this is the incumbent party. The ones currently in power.

What is it they hate? Guiliani and Palin both made it pretty clear: community organizing. Community organizing is energized from below. From the periphery. It is the direction and facilitation of mass energy towards productive and cooperative ends. It is about replacing conflict with collaboration. It is the opposite of war; it is peace.

Last night, the Republican Convention made it clear they prefer war. They see the world as a dangerous and terrible place. Like the fascist leaders satirized in Starship Troopers, they say they believe it is better to be on the offensive, taking the war to the people who might wish us harm than playing defense. It is better to be an international aggressor - a bulldog with lipstick - than led by the misguided notion that attacking people itself makes the world a more dangerous place.

In their attack on community organizing - a word combination they pretended they didn’t know what it meant - Giuliani and Palin revealed their refusal to acknowledge the kinds of bottom-up processes through which our society was built, and through which local communities can begin to assert some authority over their schools, environments, and economies. Without organized communities, you don’t get the reduction in centralized government the Republicans pretend to be arguing for. In their view, community organizing as, at best, equivalent to disruptive and unpredictable Al Qaeda activity.

But it actually goes deeper than this. Consider how Republicans have so far justified their choice of candidate: he is a “great man.” That America needs a “hero” in the White House to lead us in continued preemptive strikes against Bin Laden in Iraq (I know Bin Laden is not in Iraq, but Giuliani clearly implied he was). Only a leader with McCain’s war record and paternal qualifications can help Americans muster and maintain the tenacity necessary to “drill baby drill,” (even though this will have no influence on oil price or supply) and generate the requisite hate to “kill baby, kill.” As I explained in Coercion, having a parent figure on whom to transfer authority allows people to regress to a more childlike state. This not only allows them to feel safe; if gives them the freedom to express their rage. Make no mistake - that’s what we’re witnessing. And this rage - not America - is the greatest threat to humanity’s long-term chances for survival.

Republican party representatives are proud today that their convention has finally produced the “same level of energy and enthusiasm” as the DNC’s last week. And while it may have produced the same level of excitement, the excitement was of a very different character. It’s much easier to get people riled up but inviting them to hate a man - particularly one who they haven’t been allowed to hate for traditional reasons. Giuliani’s job - much like his job as mayor of NYC - was to give the Republicans in attendance permission to hate Obama and the potentially intelligent society he represents. It’s not about city vs. country or educated vs. military. It’s about thought vs. violence.

In the black and white world of those committed to war as an international relations strategy, voting “present” makes no sense - especially when the Illinois legislative process is willfully misrepresented. (Voting present is a way to preserve the bill without passing it in its current state. Far from an easy out, it is the hard path - requiring further negotiation to remove earmarks and other problems.) They would prefer the simple relief of a “yes or no” world, where the evil are punished and the good rewarded. For in such a world, we get to know who the enemy is and just hate them.

I don’t believe hate is the best way to motivate people to develop long-term solutions to problems. It is a tried and tested way to motivate them to short-term support of dangerous leaders. That much is certain. But if McCain and Palin are able to rouse the national hatred they will need to actually win this election, I fear they will have unleashed a force that they will be unable to control.

Police Brutality as Media Reframe

My friend Legba Carrefour has been working with DC Students for a Democratic Society and Students for a Democratic Society for some time, now (he’s 27), and has served as a great window for me into the world of public demonstrations and their regular suppression. A conversation got started on my email list, Media-Squatters, about the protests at the DNC last week, and a number of us were surprised by reports of police brutality - as well as how little any of this was broadcast on the major networks. (Here’s a link to the most famous of the brutality episodes in the Rocky Mountain News.

Here’s some of Legba’s report to us:

I have to first mention that I’m wasn’t at the DNC protests nor am I going to the RNC protests. I’m staying in DC doing media support and jail support from afar. I went to NYC for the 2004 RNC protests and I was, in the following order, beaten with a nightclub, wrapped in a giant orange net by the cops, set on fire (swear I’m not making that up), beaten again, arrested, put in a cage, hit by a cop car. So I’m taking it easy this time around.

The protests at the DNC are being organized under a couple of different umbrella groups. Broadly, it includes everything from progressives to anti-authoritarian radicals, with a lot of students
and youth under 30 and vets.

The conditions were pretty poor. The police had also erected a mini-Gitmo of free-speech zones–protest pens–into which to corral the bulk of demonstrators and any kind of activity was almost
immediately curbed. The other major problem was that there was effectively zero press coverage, even among liberal bloggers. I spent my week seeing liberal blogs excitedly gush about what was going on inside the convention and rail about Republican radicalism of the last eight years while I was cradling a phone in my hand listening to friends tell me stories of being beaten up a couple of blocks away.

That lack of coverage in a lot of respects really emboldens the police and allows them to get away with just about anything, aside from it absolutely impoverishing our ability to engage in a reasoned analysis of how power works and whether the Democrat vs. Republican frame actually depicts anything even close to reality.

And, speaking of police brutality, it’s pretty notable that they’ve been consistently targeting press. There was a documented incident where an ABC news producer was knocked down and arrested trying to get footage of delegates and donors. The police also detained and seized the equipment of the Glass Bead Collective (a well-known indymedia group). There was also the knocking down and detainment of a Code Pink member–probably the worst bit was seeing her get shoved down, the footage then cutting to her being interviewed by journalists, and then the cop walking up and grabbing her in the middle of the interview and dragging her off.

But that kind of one-time sensational pushing doesn’t really capture the full scale of what was going on. Marches were immediately surrounded by walls of police, people were told to leave, and then
they weren’t given any exit to leave and those who tried were arrested. There was a 100+ person mass arrest after the police simply decided that a large group of people milling about looked “suspicious” and were carrying rocks (which were never found, naturally), a convergence space was raided, and vehicles were simply stopped and searched and equipment was seized.

My connection to this is that I’m part of DC Students for a Democratic Society, which is part of the national Students for a Democratic Society organization. We’ve become known for an event called Funk theWar, which is a Reclaim the Streets style event–we like to call it a Militant Mobile Disco, and we’ve been called “suburban terrorists” by a couple of right-wing writers, which is offensive as we all live in DC. A good chunk of people in my chapter and a lot of people in SDS went to the DNC and are also going to the RNC protests.

I have to note though that this hasn’t stopped with the end of the DNC. In the Twin Cities, where the RNC is taking place, there was a massive raid on a convergence space with all inside (several hundred) detained in handcuffs (including a four-year-old) for hours simultaneous to a raid of three private homes around the area and then a raid on the base of I-Witness Video, a documentary outfit that specializes in recording incidents of police brutality and proved instrumental in getting people’s charges dropped after the 2004 RNC. The police called the whole thing a “criminal enterprise” and a
handful of individuals have been charged with “conspiracy to riot”, but no evidence has actually been found as far as anyone can tell.

I’m gonna cut this short because I’m going on a bit, but I think one really important thing comes out of this and this is really what I feel like you’d be interested in: What the police are doing here isn’t
stopping the demonstrations. They’re getting us to change the frame of discussion. Since these raids started, we’ve all switched from talking about the war, about capitalism, about the system, and about what we want in place of all this. We’re now talking about police brutality and we’re all getting a certain amount of titillation out of that. But it effectively completely sidelines why my friends are out there on the streets and why they’re willing to risk being beaten and arrested. Police action against doesn’t just shut down our march or cast a chill over organization activity–it helps us forget why we’re fighting and that scares me more than anything else. I saw the same thing happen to the anti-globalization movement after 9/11 hit and I hope we’re strong enough this time around to inoculate ourselves against this sort of attack.

Were you aware that all this had been going on during the DNC?

Contrarian Idiocy

A friend passed on this link to me of a post by a Cato commentator. He’s arguing that buying local food is, counterintuitively, not such a great thing for the environment.

Here’s his main logical technique:

A tomato raised in a heated greenhouse next door can be more carbon-intensive than one shipped halfway across the globe.

Right. By the same logic, trees grown locally that are used to make clubs to kill children are worse for child welfare than ones grown by child slaves. Indeed, people can do terrible, environmentally irresponsible things locally that outweigh the benefits of having done them locally.

But: doing agriculture locally brings all those effects close to home. When agriculture is being done in your backyard, all of a sudden you notice the methane gas produced by feed lots, the erosion caused by poor soil use, and the run-off from poisonous fertilizers. It’s a lot harder to do bad agriculture locally than it is to do it somewhere far away, where it’s actually performed by little brown people whose cancers matter to us less than our own. In fact, the grow-local farmers I know are moving closer to biodynamic practices that only grow foods in the correct seasons, anyway. No heated tomatoes.

These seemingly sensical counter-intuitive arguments are a technique; they are not information. They are devised to reframe and trivialize the debate. You’ll find them created to argue against progressive taxation, against addressing climate change, and against almost anything that challenge the illogical logic of the market.

My point: When reading a counterintuitive argument, check the logic first.

Writers and Alcohol

Last winter I gave an interview to the NY Post about writers’ favorite cocktails. Looks like they finally ran the piece.

“Real writers don’t drink cocktails. Real writers drink straight liquor. You’ve got to be able to dose it properly. When I was a drinking writer, I would write with a bottle of sipping whisky with me. But very few of us are still drinking writers. Writing has been divorced from some of its essential chemicals…”

Testament is Complete

The complete Testament series, with annotation, is now available in four trade volumes from Vertigo/DC Comics. They’re in stock at most comics shops, and shipping from Amazon or other regular bookstores before the end of the week.

Testament 1: Akedah
Testament 2: West of Eden
Testament 3: Babel
Testament 4: Exodus

I’m delighted to see them all available at the same time, so that the whole story can be read and comprehended as a single experience. Yes, even the real Torah gets read mostly in weekly portions, but this story - which depicts a near-future plagued by a war over oil and a technologically enabled, viral global currency - definitely works better in book form than it did in individual pamphlets. Plus, DC let me add commentary, explanations, and references to these editions, which really do help readers use the story as a starting place and link to some important but relatively unknown material.

4 Degrees

“We begin to have to talk about ordered retreat from some areas of Britain because it becomes impossible to defend,” he said. “There’s no choice here between adaptation and mitigation, we have to do both.” That’s what Professor Bob Watson, UK chief adviser to the Department for the Environment, Food and Rural Affairs told the Guardian today.

He was hoping to look at scenarios closer to a rise of 2 degrees celsius, but realize that this was an unrealistically optimistic projection. In fact, the rise of 4 degrees would likely lead to a cascade of other factors and subsequent further increases. But even a modest rise of 4 degrees in the near future yields hundreds of millions of deaths and requires major movements of people, the abandonment of coastal cities, and more.

Once you start looking at the adaptation scenarios, adjusting the impact of a 4-degree increase starts to appear inhumane. Can we just write off such large segments of humanity and play ‘triage’ with the food supply? It may seem heartless, but without such planning, the casualties will be far worse. Does planning in this way amount to admission of defeat? Perhaps. So while a small number of government officials and private sector workers attend to the task of setting up our administrative capabilities for climate change disasters, the rest of us can work on containing it as best as possible.