Corporations and Government

Corporations are not people

Unfortunately, We're Not all Christians

Just read this, from the Salt Lake Tribune: 

We’re all Christians
First published Oct 22 2011 01:01AM
Updated Oct 22, 2011 01:01AM

Some Evangelical Christians are noising it about that Mitt Romney’s Mormonism is a new and frightening cult, far removed from traditional Christianity.

In fact, Mormons represent a tradition that was present in the beginning of the Christian faith. Mormons believe in a separation of the personalities of God the Father and the Son, while most Catholics and Protestants believe they are one and the same.

This idea of physical distinction between the two deities goes back to the early Christian church’s Arian wing, which was a quite large minority segment of Christianity. At times, Arians were the established or preferred denomination of Roman and Byzantine emperors and their realms.

When politically motivated church people wag tongues and shake fingers today at Mormons, making them seem like second-class citizens, they display a degree of ignorance of this history. They also act like religious bullies, lording it over a minority just because they can. This invites the question, are they truly Christian?

Kim Shinkoskey
Woods Cross

This is my response:

Wow. Arius was twice deemed a heretic, first by the First Council of Nicea in 325, and then again by the First Council of Constantinople in 381. How very postmodern of this writer to think that just because Arianism was a "marginalized" view that it should be approved. By this reasoning, the LDS should abandon their views and embrace the RLDS/CofC understanding of the Trinity as three persons in one substance, their refusal to baptize the dead, and their conviction that men do not become gods. The CofC is, after all, a minority compared to the LDS! 

That said, I think it is quite possible that we will see our Mormon friends at the great feast...it's just that I don't think they are justified in saying that they represent traditional, orthodox Christianity.

For more information about the differences between the LDS and RLDS/Cof C, look here

Snap Judgment: The story of Xiao Xiao

Listen to this incredible story of love...a four-year old girl gives us a glimpse of what Jesus' love must be like for us.

http://snapjudgment.org/audio/by/title/xiao_xiao



"The way I think about it is this: if you think about love being a state where you can't be happy if the person you love isn't happy, this is the way she loved that little boy. She never could rest knowing that he was still there." --Jacqueline's mother





the power of prayer;

http://snapjudgment.org/lost-in-translation

Creativity's letter to Christianity, and a response from a forgotten lover

The following is A letter to Christianity from Creativity" found at Matthew Paul Turner's blog, "Jesus needs new PR."

Hi Christianity,

It’s me, Creativity. Listen, I got your text message last week. I also heard from Social Media that you really wanted to talk to me. And according to Statistics, you need me. I’d like to see you again, but honestly, I’m torn about whether or not I want to work with you again.

Now, I’d be lying if I said that I didn’t miss you sometimes. You’re sort of like Tom Cruise–completely nuts, yet intriguing enough to still want to watch you on Oprah.

Now, regarding your text message, of course I remember the good times working together.

We had lots of fun back then. I remember fondly the day I hooked you up with Michelangelo. Gosh, you absolutely loved what Mitch dabbed on the ceiling of The Sistine Chapel. And you just about walked on water when you saw his painting of The Last Judgment. Sure, we had a mishap or two. Yes, David’s penis should have been circumcised; still, that sculpture is one of the most magnificent erections the world has ever seen.

Oh, and your God loved what I was able to whip up through Bach, Mozart, and Handel. But honestly, back then, finding good musical talent among God’s people was easy, like looking for homely Jehovah’s Witnesses. Still, I helped you discover the cream of God’s musical crop.

And then there was Rembrandt who often made you look brilliant. And of course, Da Vinci! He was a pain in the ass to work with, but when we were able to get him to stop wasting his time on science, the art was usually well worth the wait.

Heck, Christianity, in our heyday, you and I were unstoppable. People called us the Abraham and Sarah of the Modern Times! Yes, you were angrier back then. And I didn’t like the fact that you killed people. But ironically, you were much easier to work with. Fighting wars, governing nations, and roasting heathens over an open fire kept you preoccupied and out of my hair. And back then, I knew what you wanted from me. Even though I didn’t always agree with your politics and theologies, and yes, you were sexist and racist and utterly hypocritical, but I did what you asked me to do: I looked for new ways to tell the stories of God. And I did it well.

Let’s face it; the art I helped you create is pretty much one of the very few redeeming qualities of your reign across Europe. And much of it is still appreciated today.

But then the Puritans happened. And while they loved you, they also wanted Freedom. And as much as you promote Freedom, let’s be honest, you don’t like her all that much. Surprisingly, Freedom has done wonders for me. She’s pretty, talented, mostly fantastic, really. And flexible, which is very hot. I think she might have a drug problem, but she doesn’t interfere with my work, so I love her. But it seems that, ever since Freedom and I became friends, my relationship with you has been a bumpy mess. You basically walked out on me during the late 19th century. Do you remember why?! Because I wouldn’t help you sell your “rapture” idea. I don’t create sensationalized fear, Christianity-well, I don’t unless it’s a horror flick or science fiction or something produced by JJ Abrams. Besides, we’d already spent centuries–long, dark, and ugly ones–promoting your whole “God/fear” thing. I’m over it, and so is everybody else.

At best, our relationship has been bumpy since the late 1950s. And we’ve gone our separate ways a few times. You spent years revitalizing fundamentalism. And I spent time in London discovering the Beatles. Both of us have made our mistakes: You started whoring around with the Republican Party and you told Michael W. Smith he could sing. But to be fair, I made the mistake of loving heroin and thinking that Elizabeth Shue had talent.

Now, that’s not to say we haven’t experienced a couple moments of Pentecostal glory. We wrote a few decent songs together. Switchfoot was fun. But I take no responsibility for Chris Tomlin. And I’ve enjoyed working on a few books with you. In my mind, Joel Osteen is one of the best fiction writers out there. If only he knew it!

But if the rumors are true, that you are indeed interested in working with me again, I’m interested. But I must be blunt, things will need to be different. So before you write back, please consider the following list of ideals.

1) Building a healthy and productive relationship with me begins with this: Give me a good story to tell, preferably a true one, and one that doesn’t conclude with a sales pitch. I’m not Capitalism; I don’t do sales, at least, not the kind that come with eternal damnation. I tell stories. I present truth. I entertain.

2) If you want me to be brilliant and imaginative and to do it on a ministry budget, then trust me. Give me the freedom to tell the stories that you want told. I don’t work well when I’m stressed, paranoid, and fear-filled.

3) When the morality police come to you and complain about my work, I expect you to grow a pair and support me once in a while. I will not create my best work if you continually fall prey to the one person who throws a fit about what I do. No, I don’t want you to cut off their heads. I want you to stop letting them cut off mine.

4) I don’t do Amish fiction, bald eagles, or Michelle Bachmann.

5) The truth is sometimes ugly. When you leave out the ugly parts of a story, it ceases to be the truth. Let me tell the truth.

6) Most importantly, you must learn to say no to Kirk Cameron.

Here’s the thing, Christianity: Putting roadblocks up in front of me doesn’t simply prevent me from being my best at presenting you, it actually leaves me empty. Offering me guidelines and hints and direction is fine, but mandating how I tell a story or paint a picture has never been your gift and it only stifles mine.

Look forward to hearing back,

Creativity

This is the response from Creativity's forgotten lover:

Dear Creativity…

You seem to have amnesia…that was no one night stand we had together! We went together for nearly 1500 YEARS! Have you forgotten us?!!!??? We know that modernism and nominalism split right brain from left, head from heart, faith from reason, earth from heaven, fact from value, and all other sorts of nasty either/ors. But we never were part of that scene. Please, please, don’t ignore us. We loved you, and we continue to love you. Let us together inspire Christianity once again.

–Love,

Hagia Sophia,Sant’Appolinare Nuovo, San Vitale, the Byzantine mosaics and icons, the Romanesque Cathedrals, the Gothic cathedrals, innumerable illuminated manuscripts, Utrecht Psalter, the Dagulf Psalter, Gregorian Chant, Stained Glass artists of Chartres,etc., Dante, Cimabue, Duccio, Giotto, the Wilton Diptych,The Limbourg brothers, Gillaume de Machaut, Francesco Landini (and other Christian artists of late antiquity and the Middle Ages)

For the Department of "Do as I say, not as I do" files

Just read this over on Naked Capitalism:

Friedrich Hayek Joins Ayn Rand as a Hypocritical User of Medicare

We’ve been a bit hard on the left of late, so we figured we’d take some steps to balance our programming. Mark Ames, who has been doggedly on the trail of the Koch brothers, found a delicious failure to live up to his oft-repeated standard of conduct by a god in the libertarian pantheon, Friedrich Hayek. And this fall from grace was encouraged one of the chief promoters of extreme right wing ideas in the US, Charles Koch.

Bear in mind that Charles Koch has not merely promoted libertarian ideas generally but in particular founded the Cato Institute, which has done more than any other single organization to wage war on Social Security. Koch wanted Hayek to come to the US in 1973 to become a “distinguished senior scholar” at the Institute for Human Studies, which Koch quickly made into a libertarian citadel. Hayek initially turned the opportunity down, saying he had just had an operation, which made him particularly aware of the dangers of falling ill abroad. Austria had close to universal health care; Hayek’s comment strongly suggests he took advantage of it.

Per Yasha Levine and Ames in the Nation:

IHS vice president George Pearson (who later became a top Koch Industries executive) responded three weeks later, conceding that it was all but impossible to arrange affordable private medical insurance for Hayek in the United States. However, thanks to research by Yale Brozen, a libertarian economist at the University of Chicago, Pearson happily reported that “social security was passed at the University of Chicago while you [Hayek] were there in 1951. You had an option of being in the program. If you so elected at that time, you may be entitled to coverage now.”

A few weeks later, the institute reported the good news: Professor Hayek had indeed opted into Social Security while he was teaching at Chicago and had paid into the program for ten years. He was eligible for benefits. On August 10, 1973, Koch wrote a letter appealing to Hayek to accept a shorter stay at the IHS, hard-selling Hayek on Social Security’s retirement benefits, which Koch encouraged Hayek to draw on even outside America.

                (go here to see a copy of Charles Koch's letter  to Friedrich Hayak)

This should put Hayek in some sort of libertariam circle of hell, along with Ayn Rand, who took Medicare and Social Security payments when she was diagnosed with lung cancer.

To quote Blue Texan at FireDogLake:

And before any glibertarians come back with “but…but…she paid into it so there’s no hypocrisy” in comments, Rand herself wrote,

There can be no compromise on basic principles. There can be no compromise on moral issues. There can be no compromise on matters of knowledge, of truth, of rational conviction.

Adding an extra layer of crow to the deliciousness, the Ayn Rand Center for the Center for F*ck You I Got Mine Individual Rights has an article on its website right now titled, “Social Security is Immoral“.

The Problem, explained

The New Perspective and Justification

File for future use:Scott McKnight has begun a new series on the New Perspective, the Old Perspective and Justification. Here is his analysis of the historical background:

October 19, 2011
New/Old Perspective on Justification 1
Filed under: New Perspective — scotmcknight @ 12:08 am
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Nothing has rocked the theological world of evangelicals and the Reformed more than the “new perspective on Paul.” In contrast to the “new” perspective is the “old” perspective, but it ought to be observed here that this is mostly an evangelical intramural debate and not a widespread scholarly debate. Ed Sanders got this going way back in the late 70s and he was a liberal Methodist, and Jimmy Dunn was next and he’s a Methodist, and then Tom Wright’s stuff came along, and he’s an Anglican. But it was the conservative evangelicals of the USA who mostly got upset about this new perspective stuff, and they asserted the “old” perspective, which mostly means Reformation/Augustinian theology either in a Reformed or Lutheran key. So let’s not think “New Testament” when we think “old” because both the “new” and the “old” think they are most faithful to the New Testament.

Thanks to the fine efforts of James Beilby and Paul Rhodes Eddy, we now have a new volume that gets major thinkers to interact over the new perspective vs. old perspective on justification. The book is called Justification: Five Views (Spectrum Multiview Books). I’m really glad the first piece is by Michael Horton because I haven’t received his book “For Calvinism” yet and so the blog has tipped toward Roger Olson’s book “Against Calvinism.” But at least we can begin this series on a Reformed note, even if not today. Today we look at the big picture in the history of the church: How has justification been understood? (Next post will examine just the “new” perspective.)

The various authors who define justification and then interact with other views are Michael Horton (traditional Reformed), Michael Bird (progressive Reformed), James Dunn (new perspective), Veli-Matt Kärkkäinen (deification view), and Gerald O’Collins/Oliver Rafferty (Roman Catholic). Well, this is a dream team.

If justification is so central to the gospel, and it surely is for the Reformation, why does it not come up in 1 Cor 15 and only once in the sermons in Acts, and hardly at all in the Gospels? Or, does it come up in those texts? How important is justification by faith to the gospel?

And the editors provide a wonderful sketch of the history of justification theology in the church. Origen, who against Marcion did not separate faith and works as many have done. The earlier Augustine didn’t either, but later in his life Augustine (392, 396 and later) did develop a much more grace-shaped justification. But, Augustine saw justification as transformative and not just forensic. Medieval justification theory is Augustinian. So Aquinas: infusion of grace, movement of free will toward God through faith, movement of free will aginst sin, and remission of sin. Thus, justification is both forensic and transformative process.

The Reformation, which is what most mean by “old” perspective, shows a powerful “newness” when it comes to justification. For Luther, justification is the heart and soul and the article by which the church stands or falls. Here ar three major ideas about justification for the Reformation, and this is what “old” perspective basically believes: it is a forensic declaration about status, it is not the same as either regeneration or sanctification (so transformation is not a part of justification), and it is an alien righteousness (imputed righteousness). (McGrath famously argued that Luther was himself more Augustinian in seeing transformation while it was later Lutherans that developed the forensic stuff so thoroughly.)

Wesley: forensic but not emphatic on imputed righteousness; sanctification differs from justification. John Henry Newman: both declarative and transformative. Trent: declarative and transformative. Same in modern Catholic Catechism: “… not only the remission of sins, but also the sanctification and renewal of the interior man.”

Pietism worried about separating the forensic from the transformative, though most were traditional Protestants in this issue. Schleiermacher, a Pietist and a Lutheran, resisted an purely forensic view. Ritschl found a way to move form a Reformation view into a Kantian view, in that justification is a means to an end: communal striving for the kingdom of God. Tillich moved between sin and doubt as conditions of justification. Bultmann sees justification as a forensic judgment by God in the present time, but he emphasizes the confrontation through preaching of the human in order to make a decision (and here Bultmann has a curious likeness to much of contemporary evangelicalism). Karl Barth makes justification profoundly christocentric. Both declarative and “a making righteous.”

Anabaptists have struggled with the prospects of a too-forensic imputed righteousness for it can undo the moral vision they had/have. But JC Wenger’s view is essentially that of the Reformation. Justification has not been central to either liberation or feminist theology. Among the Pentecostals the same wariness about too much forensic is clear enough. It becomes more Trinitarian and Spirit-shaped for Pentecostals and thus leads to transformation. And Veli-Matti Kärkkäinen explores justification through Spirit and the Eastern idea of deification/theosis.

And there has been serious dialogue between Catholics and Protestants about justification.

Why evangelicals reject reason, or, Catholics have an easier time

A friend pointed out this article from the New York Times:

The Evangelical Rejection of Reason
By KARL W. GIBERSON and RANDALL J. STEPHENS
Published: October 17, 2011


THE Republican presidential field has become a showcase of evangelical anti-intellectualism. Herman Cain, Rick Perry and Michele Bachmann deny that climate change is real and caused by humans. Mr. Perry and Mrs. Bachmann dismiss evolution as an unproven theory. The two candidates who espouse the greatest support for science, Mitt Romney and Jon M. Huntsman Jr., happen to be Mormons, a faith regarded with mistrust by many Christians.


The rejection of science seems to be part of a politically monolithic red-state fundamentalism, textbook evidence of an unyielding ignorance on the part of the religious. As one fundamentalist slogan puts it, “The Bible says it, I believe it, that settles it.” But evangelical Christianity need not be defined by the simplistic theology, cultural isolationism and stubborn anti-intellectualism that most of the Republican candidates have embraced.


Like other evangelicals, we accept the centrality of faith in Jesus Christ and look to the Bible as our sacred book, though we find it hard to recognize our religious tradition in the mainstream evangelical conversation. Evangelicalism at its best seeks a biblically grounded expression of Christianity that is intellectually engaged, humble and forward-looking. In contrast, fundamentalism is literalistic, overconfident and reactionary.


Fundamentalism appeals to evangelicals who have become convinced that their country has been overrun by a vast secular conspiracy; denial is the simplest and most attractive response to change. They have been scarred by the elimination of prayer in schools; the removal of nativity scenes from public places; the increasing legitimacy of abortion and homosexuality; the persistence of pornography and drug abuse; and acceptance of other religions and of atheism.


In response, many evangelicals created what amounts to a “parallel culture,” nurtured by church, Sunday school, summer camps and colleges, as well as publishing houses, broadcasting networks, music festivals and counseling groups. Among evangelical leaders, Ken Ham, David Barton and James C. Dobson have been particularly effective orchestrators — and beneficiaries — of this subculture.


Mr. Ham built his organization, Answers in Genesis, on the premise that biblical truth trumps all other knowledge. His Creation Museum, in Petersburg, Ky., contrasts “God’s Word,” timeless and eternal, with the fleeting notions of “human reason.” This is how he knows that the earth is 10,000 years old, that humans and dinosaurs lived together, and that women are subordinate to men. Evangelicals who disagree, like Francis S. Collins, the director of the National Institutes of Health, are excoriated on the group’s Web site. (In a recent blog post, Mr. Ham called us “wolves” in sheep’s clothing, masquerading as Christians while secretly trying to destroy faith in the Bible.)


Mr. Barton heads an organization called WallBuilders, dedicated to the proposition that the founders were evangelicals who intended America to be a Christian nation. He has emerged as a highly influential Republican leader, a favorite of Mr. Perry, Mrs. Bachmann and members of the Tea Party. Though his education consists of a B.A. in religious education from Oral Roberts University and his scholarly blunders have drawn criticism from evangelical historians like John Fea, Mr. Barton has seen his version of history reflected in everything from the Republican Party platform to the social science curriculum in Texas.


Mr. Dobson, through his group Focus on the Family, has insisted for decades that homosexuality is a choice and that gay people could “pray away” their unnatural and sinful orientation. A defender of spanking children and of traditional roles for the sexes, he has accused the American Psychological Association, which in 2000 disavowed reparative therapy to “cure” homosexuality, of caving in to gay pressure.


Charismatic leaders like these project a winsome personal testimony as brothers in Christ. Their audiences number in the tens of millions. They pepper their presentations with so many Bible verses that their messages appear to be straight out of Scripture; to many, they seem like prophets, anointed by God.


But in fact their rejection of knowledge amounts to what the evangelical historian Mark A. Noll, in his 1994 book, “The Scandal of the Evangelical Mind,” described as an “intellectual disaster.” He called on evangelicals to repent for their neglect of the mind, decrying the abandonment of the intellectual heritage of the Protestant Reformation. “The scandal of the evangelical mind,” he wrote, “is that there is not much of an evangelical mind.”


There are signs of change. Within the evangelical world, tensions have emerged between those who deny secular knowledge, and those who have kept up with it and integrated it with their faith. Almost all evangelical colleges employ faculty members with degrees from major research universities — a conduit for knowledge from the larger world. We find students arriving on campus tired of the culture-war approach to faith in which they were raised, and more interested in promoting social justice than opposing gay marriage.


Scholars like Dr. Collins and Mr. Noll, and publications like Books & Culture, Sojourners and The Christian Century, offer an alternative to the self-anointed leaders. They recognize that the Bible does not condemn evolution and says next to nothing about gay marriage. They understand that Christian theology can incorporate Darwin’s insights and flourish in a pluralistic society.


Americans have always trusted in God, and even today atheism is little more than a quiet voice on the margins. Faith, working calmly in the lives of Americans from George Washington to Barack Obama, has motivated some of America’s finest moments. But when the faith of so many Americans becomes an occasion to embrace discredited, ridiculous and even dangerous ideas, we must not be afraid to speak out, even if it means criticizing fellow Christians.


Karl W. Giberson is a former professor of physics, and Randall J. Stephens is an associate professor of history, both at Eastern Nazarene College. They are the authors of “The Anointed: Evangelical Truth in a Secular Age.”

Here's my response, after reading the above article: 

Mark Noll wrote "The Scandal of the Evangelical Mind" in 1995. Things haven't changed much, have they?

Protestantism has always had a complicated relationship with the mind. Recall Luther's 1569 Table Talk: “Reason is the greatest enemy that faith has; it never comes to the aid of spiritual things, but—more frequently than not—struggles against the divine Word, treating with contempt all that emanates from God.” Then there's this little gem: "Reason is the Devil's greatest whore; by nature and manner of being she is a noxious whore; she is a prostitute, the Devil's appointed whore; whore eaten by scab and leprosy who ought to be trodden under foot and destroyed, she and her wisdom ... Throw dung in her face to make her ugly. She is and she ought to be drowned in baptism... She would deserve, the wretch, to be banished to the filthiest place in the house, to the closets."
Martin Luther, Erlangen Edition v. 16, pp. 142-148. Also,

Calvinists have a more difficult time articulating their nuanced attitude toward the mind, because they hold differing interpretations of the extent and the degree to which man has been corrupted by original sin. See this . Furthermore, it is harder to hold a balance between faith and reason when one stresses the "sensus divinitatus" as the means of knowing God, and denies argument and disputation a role in that process. Ultimately, for Calvinists, faith is "beyond reason;" See this. For those whose Calvinism is more loosely held, or more remote (for example, many Baptists and non-denominational types) a "faith beyond reason" can easily slip into being a "faith AGAINST reason."

No doubt, Catholics have had their share of Jacopone da Todi's, mystics, and holy tortillas...but they've never been able to completely repudiate the "both-and" orientation of Thomas Aquinas toward faith and reason. I know many Catholics who are infuriated by American Catholic politicians, whose spiritual formation reflects more of Protestant nominalism/modernism/anti-intellectualism than their own tradition. But at least they can appeal to their tradition, which is not anti-intellectual, in criticizing those politicians. I envy them.

Happy Sukkoth!

In honor of Sukkoth, 2011, I give you one of my favorite films: "Ushpizin" ("Guests")

A Brief Summary of the 2008 Financial Collapse

Matt Henderson reflecting on Michael Lewis' The Big Short, gives  a brief summary of the 2008 financial collapse:

The Big Short, by Michael Lewis, is an amazing book about the banking crisis of 2008. Having watched the events unfold over the course of about a year, and not really understanding everything involved, the tragedy of situation wasn’t quite as impressive to me at the time, as it is having read Lewis’ concise, clear and compressed explanation of it.

While I’d encourage everyone interested to read the book, I’m going to try to summarize the story here.

1980s—Adding innovation to the boring old bond

A bond is a promise — usually from a government or corporation — to make regular interest payments on borrowed money, and, eventually, to pay back the borrowed principal. For generations, financial markets have traded bonds.

Given that a bond represents an income stream based on borrowed money, Wall Street, in the late 1980s realized that it could create “bond-like” financial products from other debt-based income streams like credit cards, student loans and home mortgages.

The “mortgage bond” was born, and became another financial product bought and sold by Wall Street investment banks, such as Goldman Sachs, Merrill Lynch, Bear Sterns, JP Morgan and Morgan Stanley.

Addressing the inherent problem of the mortgage bond

The mortgage bond collects thousands of home mortgages, purchased from lenders, and packages their associated income streams (monthly mortgage payments) into a financial product, that can be bought and sold like a bonds. Mortgage bonds, however, suffer from a couple of unique problems, related to the fact that home owners often refinance their debt during periods of low interest rates, prematurely repaying the principal.

To address this, Wall Street structured mortgage bonds into stacked layers (called “tranches”) — the lowest layer representing the first N mortgages to be paid off early, and the highest layer being the last N mortgages. Investors seeking the higher returns on their money (and accepting the highest risk) could invest in the lower “tranches”, and those wishing lower return (and lower risk), could invest in the higher tranches.

1990s—Where to find new profit? Subprime mortgages

In the 1990s, Wall Street firms began to create mortgage bonds from “subprime” mortgages, i.e. mortgages of much higher risk, but paying much higher interest rates, made to borrowers with lower levels of credit. The structural “tranches” of the mortgage bonds built from subprime mortgages, at this point, represented not only pre-payment, but also outright default.

With increasing demand from Wall Street to buy subprime mortgages, lenders became motivated to place ever more subprime loans (since they were no longer at risk, should the loans fail), and began to push messages like, “refinance your home, unlock all that equity, pay off your credit card debt, and go on vacation.” Often, lenders convinced those without credit and who can’t afford a mortgage at all to get one anyway. To entices these consumers, a new type of mortgage was created — variable rate, with extremely low (even zero) initial interest rates, which later reset to higher levels.

Americans took on these mortgages in masses, not realizing that the real estate bubble forming around them was being fueled by their own actions.


Early 2000s—How to address an ever risker foundation? Rating agencies

As the underlying mortgages became of lower quality, Wall Street’s mortgage bonds became inherently riskier, which should have made them more difficult to sell to investors. Why? Because buyers of Wall Street products look to the rating agencies Moodys and Standard & Poors for guidances, through their ratings, and risker products are supposed to receive lower ratings.

But there’s an inherent conflict of interest between Wall Street and the rating agencies, since it’s Wall Street who pays the agencies to rate their products. Likely due to this conflict, the rating agencies assigned surprisingly high ratings for these ever-riskier mortgage bonds.

Using models provided to them by the Wall Street firms, the agencies would rate mortgage bonds based on the average borrower FICO scores. This allowed Wall Street firms to structure bonds to contain mortgages from both high and low FICO borrowers, to increase the overall bond rating. It never occur to the rating agencies that the solvency of a bond composed of 10 borrowers of score 680 is dramatically different than one with five 700s and five 670s, since only a relatively small percentage of the underlying mortgages needed to default for the bond to fail.

2000s—Insatiable desire for more profits. The collateralized debt obligation

Despite the boom in mortgage bonds, Wall Street’s desire for ever more profits grew stronger led them to focus on the relatively lower ratings of the bottom (riskiest) tranches of the mortgage bonds. They came up with a clever idea. If they could package the bottom tranches of hundreds of different mortgage bonds together, then on the principal of diversification, perhaps they could convince Moodys and S&P to give higher ratings to the collection as a whole.

That’s exactly what happened, and the “Collateralized Debt Obligation” (CDO) was born. What in retrospect seems unthinkable, the rating agencies gave CDOs a rating of triple-A (AAA) — communicating a risk rating equivalent to US Treasuries. This was based on the premise that if one group of Americans began to default on their mortgages, it would be unlikely that other groups would.

Just think about that.

These AAA ratings opened the door to a huge market for Wall Street firms — allowing them to sell CDOs to organizations such as state and private pension funds, whose bylaws prohibited them from investing in anything other than AAA-rated financial products.

2003—An autistic man foresees the collapse. The credit default swap.

Rather than focus on the culprits, the The Big Short tells the story through the eyes of the few who foresaw the coming collapse, and made fortunes as a result. One was Mike Burry, a young man with autism and a glass eye (from a childhood cancer tumor).

Mike studied what was happening, and performed deep analysis of the underlying mortgages. He recognized that the enormous demand by Wall Street for mortgages drove the lending process, which in turn artificially drove up housing prices, creating an unsustainable real estate bubble from the fabric of financially fragile American consumers. When that bubble would eventually burst, through massive defaults, he realized it would result in the collapse of the entire mortgage-backed financial markets.

Considering how he could profit from this collapse, Mike went to Deutsch Bank and asked, “Can I buy insurance against the failure of a mortgage bond?” Deutsch Bank obliged, and when a couple more people wanted such insurance, an industry standard product was conceived, and the “Credit Default Swap” (CDS) was born.

A credit default swap is an insurance policy, against something you don’t have to own yourself. It’s a mechanism to speculate. To purchase a credit default swap, Mike (and others) paid regular insurance premiums to insure massive dollar amounts of CDOs and mortgage bonds (again, which they didn’t own themselves). As long as the CDOs and bonds didn’t default, the insurers made profits on the premiums. If, over the life of the CDOs and mortgage bonds, they collapsed due to defaults, then Mike (and the others) would be paid fortunes.

But who was selling the insurance?

From 2003 through 2007, Mike and a few others built up large portfolios of credit default swaps, paying their regular insurance premiums and waiting for the day their investment would reap fortunes.

They often wondered who was on the other side of their bet — i.e. who was selling the insurance. Turns out, it was the world’s largest insurer, AIG. Somehow, through utter incompetency, the world’s largest insurer insured massive amounts of CDOs and mortgage bonds. Rather than deeply analyze the internal makeup of these CDOs, they were content to trust the AAA ratings of Moodys and Standard & Poors. To them, it was like insuring US Treasuries, and so they considered their regular income stream of insurance premiums to be easy profits.

An important aspect of the credit default swap market was the absence of regulation, the way insurance is normally regulated. For example, AIG wasn’t required to post a percentage of insured asset as collateral.

2007—Running out of mortgages, let’s just used the credit default swaps!

Around 2007, the market for mortgages was drying up, home prices were leveling off, and defaults were already on the rise. Rather than seeing the obvious by now, the Wall Street investment banks remained focused on the continued sale of CDOs. But with their source of mortgages drying up, what income stream could they collect, and pack into these CDOs?

The answer was the income streams from credit default swaps. So the banks themselves got into the business of selling credit default swaps, and packaging those income streams (the insurance premiums) into new CDOs.

2008—The collapse

By 2008, the Wall Street investment banks were making obscene profits, but held large amounts of CDOs and mortgage bonds waiting to be sold. They were also on the liability end of huge amounts of credit default swaps, often sold and exchanged between themselves. AIG was on the liability end of billions of dollars worth of credit default swaps. Pension funds around the world had huge investments in CDOs and mortgage bonds. And then everything collapsed.

Real estate prices began to drop. American began defaulting in masses on their mortgages. The investment banks began seeing losses on their CDOs and mortgage bonds, and the market for hedging credit default swaps collapsed. Reports of potential insolvency of Bear Stearns surfaced and its stock collapsed, triggering the same for the other financial firms. The government allowed Lehman Brothers to go bankrupt, which triggered more panic in the markets. Commercial lending froze, paralyzing businesses in American and across the globe. Many Americans lost their jobs, savings and retirement funds.

With AIG and other of the world’s largest financial firms facing collapse, the US government stepped in, and bailed them out, paying off their debts, assuming their liabilities, and placing a burden of debt on the American people that likely won’t be paid off through the lifetimes of our grandchildren.

And after it was all over, the executives of these same Wall Street firms went home with billions of dollars of taxpayer money in their pockets, in the form of bonuses.

Reflecting on what happened.

Wall Street, in its search for profits, created products based on ever riskier mortgages, and found ways to sell them as secure investments.

The rating agencies, Moodys and S&P, gave risky assets gold-plated ratings, equal to US treasuries, which opened the door to a huge market of CDO buyers.

Having someone to sell their mortgages to, lenders were no longer concerned about whether a borrower could pay them back. Freed of risk, and in search of profits, lenders used deceitful tactics to convince Americans to take out mortgages that they couldn’t afford.

Americans, with their insatiable desires for consumption and for whom the average savings level had dropped to less than 1% (consider that the Chinese save 30%), accepted these mortgages in masses, giving up the equity in their homes.

When everything collapsed, the US government rescued the Wall Street firms, passing an unimaginably large bill to the US tax payers, and creating a debt burden that will take generations to repay.

Much of the US tax payers’ rescue money went in the private pockets of the Wall Street executives, in the form of bonuses.

It seems hard to uniquely place the blame.

I’ve always been a believer in the free-market philosophies of Milton Friedman, and I wonder whether, in the long run, it would have been better to allow the banks to fail, even if it meant the collapse the American economy. (I also now question my own beliefs against government involvement in business through regulation.)

Perhaps all we did is simply defer that collapse (and perhaps a more consequential version of it) to the lifetimes of our children, or their children. At least in allowing a collapse, our children could have likely looked back, and have seen the dire consequences of irresponsibility and unbounded greed.

Update 2011-03-11

Reading the thesis work of A.K. Barnett-Hart, discussed in this WSJ article, she believes the AAA ratings from the rating agencies wasn’t due to a conflict of interest:

The errors of the rating agencies stemmed from neither conflicts of interest nor preferential treatment given to certain banks. The true culprit behind the rating agencies’ failure was the outsourcing of credit analysis to computer models and the low level of human input used to rate CDOs.

Extremely interesting article. And the thesis is directly downloadable here....

Purpose of the Occupy Protests?

QUESTION: Does anyone involved in a single one of the occupy protests actually know specifically what they are trying to achieve and why they think protesting will do something to achieve it? Because try as I might, all I see is confused people saying things that are not even close to consistent and factual information.

MY RESPONSE: Hanging around Wall Street could be a way to remind those on Wall Street of the effects of mortgage bonds, subprime mortgages, and collaterized debt obligations on the average American. People who are angry and frustrated because their voices have been drowned out by lobbyists also tend not to be very coherent. Angry people attract other angry people, who might not be on the same page as they are. When viewed through a camera lens, all one sees is confusion. Most of us prefer stability to chaos, so we dismiss the entire thing and go on surfing the internet and listening to our Ipods.about a minute ago ·

Correcting an Increasingly Common Misconception

Here are my comments on Chad Estes' review of Rachel Held Evan's Evolving in Monkeytown:

Thanks for your review...but I'd like to address one part of it. I know it's popular nowadays to see postmodernism as the "synthesis" of premodern mysticism and modernist reason, but this reveals a shallow understanding of history and philosophy.

Chad, where did you get your information about the Middle Ages? Unless you take the Middle Ages to be a 300 year period from 500-800 AD, it wasn't "all mysticism, all the time." Among other scholars, Charlemagne brought Alcuin of York to start his Palace School and other schools (particularly in the Frankish empire), develop a standard curriculum, edit corrupt manuscripts, standardize Latin, introduce the Carolingian miniscule (that later inspired Renaissance Italic). These folks weren't just praying and doing Gregorian chants all day!

Scholasticism was huge throughout the Middle Ages,and it was a LEFT brain enterprise that focused on analysis, definition and verbal clarity. Every educated person had to study dialectic as part of the Trivium. Only then could they move on to the Quadrivium, which included the hardly-mystical study of arithmetic, geometry, music and astronomy.

We can thank the Middle Ages for the invention of the university, and the dialectic practiced in places like the Universities of Paris, Bologna and Oxford was a method of thinking that proceeded as follows:

1. The Question to be determined
2. The principal objections to the question
3. An argument in favor of the Question, traditionally a single argument ("On the contrary..")
4. The determination of the Question after weighing the evidence. ("I answer that...")
5. The replies to each objection

This is exactly how the greatest philosopher/theologian of the Middle Ages-- Thomas Aquinas-- structured his magisterial Summa Theologiae. And I haven't even begun to discuss science...for that I refer you to Edward Grant's The Foundations of Modern Science in the Middle Ages.

I hope I've made a case that as well as being an age of faith, the middle ages were also an age of reason. In fact, it was the only time in Western Civilization when the two were in such equilibrium. Nothing would please me more than for Postmodernists to rediscover that equilibrium...and admit that they weren't the first to achieve it. ; )

Five Facts about the Wealthiest 1%

5 Facts You Should Know About the Wealthiest One Percent of Americans

1. The Top 1 Percent of Americans Owns 40 Percent of the Nation’s Wealth
2. The Top 1 Percent of Americans Take Home 24 Percent of National Income
3. The Top 1 Percent Of Americans Own Half of the Country’s Stocks, Bonds and Mutual Funds
4. The Top 1 Percent Of Americans Have Only 5 Percent of the Nation’s Personal Debt
5. The Top 1 Percent are Taking In More of the Nation’s Income Than at Any Other Time Since the 1920s

(see the article for helpful charts)