26 August 2009

Authentic Tourism

Two weeks ago, Mirena and I spent a few days soaking up Aegean sun, sand, and surf on the Kassandra Peninsula in northern Greece. Our first night was in Fourka Beach, and while looking for an authentic Greek dinner we were disappointed to find only gyros (fast food) and pizza—in fact, most restaurants were “Italian.” We discovered the reason for this incongruity lies in the demographics of the vacationers (holiday-makers): except for a smattering of Serbian, Bulgarian, and Romanian tourists, this was an overwhelmingly domestic vacation destination (although it will probably become more and more multinational with easier border crossings—see my previous post.) This means these people eat Greek food everyday! When on vacation, they want something different—in this case: Italian.

Three years ago, during my project in Bulgaria, I was tangentially involved in thinking about “authentic” tourism. Specifically, the projects were intended to promote rural and cultural tourism instead of the already over-developed beach and ski destinations. I was skeptical at the time; outside of a tiny, scholarly minority, who really wants to go to a village to experience authentic Bulgarian (or Romanian, or any other) culture? This was skepticism was reinforced when, wherever I went in the region, I found myself a minority in a crowd of domestic tourists. I came to the conclusion that instead of tourism being the path to development, it was actually a sign of the progress these countries had already made internally.

Furthermore, I found that these domestic tourists (who, in a developing/transitioning economies we assume to be poor) want luxury accommodations and attractions as well; for the most part they are not interested in staying in a farmhouse, sharing a bathroom down the hall, no matter how idyllic the setting. Sometimes these local tourist do need some help, and this is why I am in favor of price discrimination. (See my contribution to this discussion in Bulgaria's expat newspaper, Sofia Echoes.)

Tourism promoters of any given country often earnestly speak of the majestic mountains, untouched forests and natural areas, beautiful beaches, and rich cultural history of their country as potential destinations for foreign tourists without realizing that nearly every country has magnificent mountains, verdant forests, some kind of sun/sand/water combination, and a proud history. Unless your beaches are better than the sun-drenched, perfect white sand and clear-water beaches of the South Pacific, Mediterranean, or Caribbean, then it is unlikely you will capture the interest of the proverbial rich, international tourist. (The same goes for mountains—compared to the Alps; history/art/culture—compared to France, Italy, or Greece.)

Despite hand-wringing by environmentalist and cultural preservationists in response to the sometimes ugly developments found at the sea coasts, ski resorts, and other such mass-audience tourist destination—with their tacky gift shops selling the same souvenirs, made in China—just stamped with a different name, and associated troika, this is apparently what the masses want wherever they go: Myrtle Beach, Cancun, Barcelona, or Tahiti. They actually prefer to collect a t-shirt from the “local” Hard Rock Cafe instead of authentic, local goods; and who am I to tell them they must not do this?

Coincidentally, a few days after starting to write this post, I watched My Life in Ruins (in which Nia Vardalos sort of reprieves her role from My Big Fat Greek Wedding as the sometimes beautiful Greek-American woman looking for love.) Her character bemoans the simple-minded tourist she is guiding around Athens, who only seem interested in buying souvenirs and ice cream, but eventually learns to loosen up and just have fun—which, I suppose is my conclusion as well: don't beat your self up about not fully immersing yourself in the “rich cultural heritage” of the county you are visiting, and certainly don't be so pretentious call those that enjoy the crasser side of tourism as boors.

20 August 2009

United States of Europe

Recently, Mirena and I took a road trip from Sofia, Bulgaria to Thessaloniki, Greece to visit the IKEA store there, and then spend a few days enjoying the sun and sea a little bit further south. We had made nearly the same trip in 2006—before Bulgaria entered the EU—and were pleasantly surprised at how quick and easy the border crossing procedures had become. Three years ago, a line of cars and trucks stretched back at least one kilometer from the border, and the whole experience added over an hour to the trip. Each country still has an exit control as well as immigration/customs, but the whole thing—including waiting in a short line—took less than 15 minutes.

Although they are the newest EU members, Bulgaria and Romania will eventually join Schengen, meaning these border controls will be totally eliminated, as they already have been throughout most of the rest of Europe. Then a trip to a neighboring country will be little more than us driving to another state for some shopping and/or a weekend getaway (eventually this will also include exotic Istanbul if & when Turkey joins the EU.) Now, I realize that language and cultural differences make this a bigger deal both in practice and psychologically, and nationalism runs deep in the Balkans—so a significant percentage of people will be more than happy to stay in their own country regardless of the benefits of this easier international travel. Never the less, this openness: namely the free flow of goods, people, and money—the very pillars of the European Union—is inexorably binding EU member nations together into something that is starting to look more and more like a super-nation. While this causes concern for some, I see it as a hopeful future—especially for the Balkans, which has been beset with petty infighting, fragmented markets, and most troubling—systemic corruption. In this new, friction-free super-nation countries will be forced to compete on a more or less level playing field: for investments, for shoppers, for weekend tourist, and even permanent residents.

19 July 2009

Racism, Tribalism, Nationalism, Patriotism

The United States of America has often been characterized as a virulently racist country. In many cases this characterization exists because of our own depiction in our own popular media (which much of the world watches) of our shameful past and sometimes even exaggeration of present-day racial attitudes (especially of the south.) Certainly some of this hand-wringing is justified, but I posit that, at least for youngest generation—Generation Y, we have really moved past this and, while electing a black president doesn't heal all wrongs, I think most of the rest of the world does recognize that we have truly turned a corner in race relations.

With this said, I think it is fair to examine the issue of racism in other countries, more specifically the problem of nationalism. Granted, Americans are very patriotic, to the point that many Americans naively consider all other countries vastly inferior in most regards, but it is not the same kind of nationalism or even tribalism seen elsewhere in the world. For one thing, we are not really a nation! We are a country made up of various nationalities and ethnicities to the point that we consider the word “nationally” synonymous with “citizenship.” I have been surprised to learn that in many countries, ethnic minorities are never considered “(country)-ians” regardless of how long their forefathers have shared the same territory with the “true” citizens of said country. By definition, anyone born inside to borders of the United States is automatically granted citizenship and—certainly by the second generation—no one would not consider their children as full-fledged Americans.

Nearly every ethic/national group in the world says something to the effect of: “we are the proud (blank) people, the ancient and noble race that once ruled over this entire area (insert greatest extent of borders) in a large, prosperous, and peaceful kingdom/empire, but then at another time were brutally oppressed by our evil neighbors, yet managed maintain our special cultural practices and identity.” Then they go on to list all kinds discoveries and inventions regardless of how tangential their countrymen’s contributions were. I trust that I don't have to try to explain how ridiculous this concept is, since you have to agree there is no people group in the world that is not proud of its progenitors and therefore does not say something like this!

This “us vs. them” rivalry is seen between similarly sized and advanced people groups—each of them claiming a certain measure of superiority. It is often rooted in language; the endonym of many nations and their language are derived from a word meaning “the true/real people.” This is not only the case of small tribes in remote jungles, but even the word “German”—for example—suggests that the old Germans (soft G) considered themselves as descendants of the true seed or germ of humanity. Likewise, exonyms are often derogatory; for example, in most Slavic languages the German language and people are referred to as some variant of “Nemski,” suggestive of someone who is mute (unable to speak or use words) as opposed to “Slavo” meaning “word” (please note, this happened many centuries ago, I am not saying modern nationals believe or even know this.) My point is that these cultural mythologies are so deeply ingrained that all but the most cosmopolitan consider them as fact.

Vicious Cycle
The more harmful nationalism/racism is that which oppresses already downtrodden minorities. In the USA this generally means blacks (who, actually, often have a longer history in this country) and Hispanic; in Western Europe it is immigrants (especially non-European); and in Eastern Europe it is the Roma (Gypsy) population that has lived among their countrymen for centuries without assimilating. I was surprised to discover that—even in as homogeneous place such as Japan—there is a minority group called the Burakumin, members of which are still discriminated against to this day based solely on their family names (and the lowly occupations their ancestors held.)

For most of my life, I have been against affirmative action, or any other policies that favors any group over another. Growing up, I naively thought that since I was presented with the same opportunities in school that many of my black classmates (and in many cases, their parents as well) seemingly purposefully rejected, that—collectively as the majority—I was no longer responsible for the well-being of this population. Even today, I am surrounded be people who believe we should immediately end (or, at least, drastically cut) all welfare and affirmative action programs. While this attitude is understandable in the proverbial (Aesop's Fable) “ant and grasshopper” context, I remind people that I have lived in such a country—where minorities are simply ignored—and it is not pretty: Roma villages and ghettos across eastern Europe are third-world communities within developing countries that benefit no one as they spiral downward into ever-worsening conditions.

The problem with this “it’s not my fault” attitude is that without external assistance these communities are never going to pull themselves out of the mire…by virtue of the fact they are already in this desperate situation. Then, due to the inherit hopelessness of this kind of situation, the logic of some follows a most disturbing conclusion: genocide.

What we often forget is the advantages we have from the family and community we grew up in. These advantages came from our parents, who read to us from an early age, imbibed us with a strong work ethic, and insisted we do well in school, the peers who challenged us academically, the older siblings and cousins who showed us the ropes to succeeding in high school and college, the friends with whom we competed for success throughout our educational and professional careers, and—most importantly—an expectation of success from nearly everyone, based solely on our background. Certainly we do see highly successful individuals come out of the most neglected communities, but these are rare exceptions. Just as most of us come from an average, middle class background that led us to become middle to upper-middle class citizens; the average, lower-class minority has little hope of moving up in society—there is simply no expectation of this happening, so it doesn’t happen. While this is sometimes manifest in actual prejudice/discrimination, more often the problem is just lowered expectation, even from within this disenfranchised community.

Certainly the most effective solutions could come from within these communities, members of which know best the intricacies and thinking of their own community and therefore are more influential than an outsider. Unfortunately, this rarely happens; there are just not enough of these people, and they are often not esteemed in their own community—they are frequently seen as having abandoned their culture by virtue of their discipline and success.

Another option to address these inequities is through private and religious-based charities. These are generally very effective, but are so small that they are only able to help a very few people in a few, select communities. Therefore—despite a general dislike of large and wasteful government programs—I must admit that the only solution for under-performing minority populations is the costly government and inter-governmental programs that just “keep their heads above water” with the hope of an eventual assimilation into the middle class.

Win-win
I don’t want sound like the proverbial naïve liberal who thinks we just need to hold hands and sing Kumbaya around the campfire to make everything better. No, I am the cold, calculating MBA that is simply looking for the most beneficial outcome for all parties involved, because if my neighbors (both near and far) are richer and more educated, it benefits me as well (more consumers for my employer’s/industry’s products and less crime due to desperate situations.) Certainly countries, nationalities, and regions have various competitive advantages (meaning some are indeed more educated, some better at manufacturing, some at agriculture…and, of course, these advantages change as a nation develops), and this is exactly what makes global trade so successful (the old zero-sum game thinking has long ago been discredited.) This is why I am in favor of any policy that encourages free trade, free movement of people, intercultural exchange, and effective international development/aid.

I do not purport to have all the answers; I only write this—dear reader—to ask you to consider the following: why do you find pride in the accomplishments of your ancestors and countrymen, and what does it really matter; aren’t others just as proud of their heritage? Are you just a pawn being played by the propaganda of your country or ethnicity? What benefit do you derive from the suffering of other people? Even in this self-examination, don’t get lulled into the trap of thinking “I’m not as bad as those people; they are really prejudiced!” I readily admit that I also pre-judge strangers based solely on outward appearance—this is human nature, so let’s at least be aware of it. Despite my German ethnicity and American citizenship, I will only boast that I am Joel Froese, human being; resident of planet Earth.

24 June 2009

Islam's Last Gasp

As witnessed by my post of June 2008, I have been intending to write about this subject for some time now. The recent events in Iran makes this issue more pressing, but I am under no illusion that this is the start of a Muslim version of the fall of the iron curtain (although that would certainly be welcomed!) I am just reminded of a disappointing time exactly 20 years ago this month that I thought we were seeing the beginning of a revolution in China. Although the Tiananmen Square protests did not result in the toppling of a repressive regime as we hoped then, China has certainly changed in the intervening years, so a gradual liberalization is hopefully possible in the Muslim world as well.

The other preliminary issue that must be addressed is the frenetic Internet activity regarding Iran’s recent elections, which—by too many people—is being used as evidence that the protests in Tehran represent the majority of Iranian public opinion. While “citizen journalism” (blogging, twittering, posting pictures & video) is a valuable supplement to traditional media and intelligence sources, especially when those are restricted, we must remember that we are hearing from a self-selected group. By virtue of the fact that these people speak English, have Internet access, Twitter accounts, camera phones, etc. we must assume that they are richer, better educated, and more western-oriented than the average Iranian. I don’t want to discount the suffering evident from some of the gruesome photos and videos we have recently seen from Tehran, but there seems too much incestuous (think “re-tweeting”) and unverifiable hysteria circulating around the Internet lately, contributing nothing, just decreasing the “signal-to-noise ratio” of any intelligent discussion. And don't get me started on the useless, feel-good actions of changing your avatar to green and setting your time zone to GMT +3.5. Jack Shafer of Slate agrees.

Bogeymen
I must first address America’s perception of the Muslim world. Especially since 2001, we have been led to believe that radical Islam is a cancer spreading over the world much in the same way as the supposed scourge of Soviet-style communism was in the previous century. It seems we must always have a bogeyman—an enemy to unite us. With the fall of the iron curtain in 1989, we—especially as Americans—were somewhat confused regarding our place in the world; we were the proverbial dog who finally caught the automobile he had always been barking at. There was no longer the clear division between countries, leaders, and movements that were pro-communism (our enemies) and those that were anti-communist and therefore our friends (which had, incidentally made us strange bedfellows with some really questionable characters!) Thankfully—and of course I say this tongue in cheek—a new enemy arrived just in time: Islamo-fascism. Ironically our first major enemy, Saddam Hussein, was actually quite secular and we actually climbed in bed with the strictest Muslims around—Saudi Arabia—to fight him. But our worldview was not sufficiently polarized until that fateful day in September 2001. Then we were bombarded from all sides: political leaders, religious leaders, military friends and elderly aunts were all wringing their hands over the danger posed by radical Islam. Terrorist training camps in Afghanistan, refugee unrest in and around Israel, Al-Qaeda in Iraq, the rise of Islamic parties in Egypt and Turkey, and even riots in France and England all seemed to be conclusive proof of the grave threat we were under (besides, of course, the 3000 countrymen we lost on American soil that day.) A population already growing faster through natural means (greater birthrate) now was proselytizing and radicalizing moderate/cultural Muslims from Europe to Africa and even Southeast Asia! And best of all, we now had a man—with a very distinctive visage—to pin our fears and anger on: Osama Bin Laden.

A Power Shift
Despite the fact there are some young men falling under the influence of radical clerics and running off to madrasas and training camps to become terrorists—a few of which then actually will commit acts of terrorism—they represent a minuscule percentage of young Muslims in the world. In fact, I predict that the saber rattling and actual terrorist attacks we have witnessed in the last decade or so, are in fact the death-throes fundamentalist Islam. We generally don’t hear much about the vast majority of young people—and this is important because the median age of most predominately Muslim countries is in the teens to twenties—who actually yearn for, if not devour, western pop culture and all its accoutrements. It seems only natural then that as older religious and political leaders die off, we will see liberalism sweep over—or at least creep into—these young nations. Of course power being what it is, I am not naïve enough to think that anyone is going to willingly give up their control regardless of their age; these leaders still want to groom their young, like-minded lieutenants to eventually take the reigns of power and carry on the status quo. But with the advent of modern communications, health care, and education, combined with family structure intended for a bygone era (i.e. numerous children,) it will continuously become more difficult for them to retain this power. I really do believe that we will see a change in our lifetime…and certainly this not limited to the Muslim world; it has happened and will continue to happen all over the world; young people in even the remotest corners of the world are being exposed to most exciting aspects of what the west has to offer via satellite TV and the Internet (granted, often an unrealistic view.) The grip of their elders and their culture/traditions naturally weakens in this onslaught.

Response
I trust that I have stated my case sufficiently to demonstrate that we don’t need to send troops to instill freedom and democracy in these lands; in fact, it is quite evident from our failures over the last seven years in Iraq and Afghanistan that this cannot work, and is a terrible waste of billions of dollars and thousands of lives. It should be obvious that we needn’t do anything but foster social engagement; if we really want to spend billions to conquer al-Qaeda, the Taliban, et. al, let’s just distribute free satellite dishes, TVs, Internet routers, computers, and license MTV programming for Voice of America and similar propaganda outlets—we can just let Hollywood “degenerate” the young people of the Muslim world to our liking! I say this half-jokingly, but also half-serious; we really need to look at the long-term cost/benefit of any strategy. In the July 19-25, 2008 of The Economist, I found a perceptive article titled “How to win the war within Islam” that summarized the situation thusly: “In the long run, al-Qaeda will be defeated by Muslims, not foreigners.”

References
Below is a chart listing the median age (meaning half of the population is younger than this age) in selected, predominately Muslim countries (by comparison, the US is 36.7 and EU countries are all within a couple of years of 40!)
CountryMedian Age
Afghanistan17.6
Egypt24.8
Gaza Strip 17.4
Iran27.0
Iraq20.4
Jordan 24.3
Libya 23.9
Morocco25.0
Pakistan20.8
Saudi Arabia 21.6
Syria21.7
Turkey27.7
- CIA factbook accessed 24 June 2009

Further Reading
Interesting books about young Muslims:
  • Muhajababes 25-year old author Allegra Stratton talks to other her age across Middle East
  • Heavy Metal Islam by Mark LeVine; youth embracing western music in failed societies
  • Lipstick Jihad by Azadeh Moaveni; teenagers being teenagers even under the watchful eye of morality police

09 June 2009

A Tale of Two Tragedies

This might just get me in more trouble, but here goes...

A few days ago two young Bulgarki, in effect, chided me for being an insensitive boor in the face of tragedies affecting people I don’t personally know. I will argue that—at least when it comes to discussions of policy—we absolutely need the cold, hard calculation that only a disinterested third party can make.

This past week we witnessed two transportation-related catastrophes: on May 28th an old bus likely suffering from faulty brakes, plowed through a crowd of pedestrians near Yambol, Bulgaria killing 17 and injuring another 20. Then—of course—on the first of June, Air France 447 went down over the South Atlantic Ocean taking all 228 people aboard to a watery grave. While the numbers differ by an order of magnitude, the tragic loss is the same for the surviving friends and family whose lives were lost. Besides the grief they share, there must certainly be some anger and outrage over the fact that their loved ones’ lives were cut short. Everyone realizes that nothing can bring these people back, but I am sure each one of the victims' families would love to see measures taken to prevent another such incidents in the future, so at least their loved one did not die in vain…and certainly we should thoroughly investigate these accidents to determine the cause and possible changes in equipment or procedures that would prevent such an accident in the future. However—and this is where the cold, calculating third party comes in—it is necessary to determine the cost/benefit of any changes. For example, a $100,000 per plane retrofit may actually not be justified for an issue that occurs once in a million flights. This may sound callous, but in the larger scheme of things, it might be justified since this kind of money could be spent elsewhere, potentially save many more lives per dollar/euro or whatever metric you wish to use.

What is really ironic in this past week's accidents is the (probable) response: French and international officials will spend a million plus Euros on an extremely thorough investigation resulting in recommendations that will likely cost even more to implement, for what is likely a very rare confluence of event that caused this airliner to crash into the ocean. (Already they have issues a warning about the possible faulty airspeed indicators.) On the other hand, Bulgarian officials will likely go through the motions of a cursory investigation, whose results will be rubber-stamped and forever filed away in some obscure archive. Just like in the rest of Eastern Europe, auto, tuck, and bus drivers will continue to obtain their drivers licenses through bribes, vehicle inspections will continue to be a joke, and Bulgaria will continue to be one of the EU’s leader in highway deaths.

What really irks me though, is that all this seems acceptable to the general public! While air travel continues to be the safest method of travel (per passenger mile/km)—because we feel in control behind the wheel of our own vehicles—we accept and even insist on onerous restrictions and other measures to ostensibly make air travel safer [seriously, how am I going to make a bomb with a full-sized container of toothpaste or shampoo?!], yet we balk at any invasion of the supposed sanctity of our own vehicles, such as the reasonable expectation that you shouldn't use your mobile phone while driving. Probably the wisest use of any transportation safety budget would be to retrofit all automobiles with 5-point, racing-style seatbelts and issuing (and insisting on the use of) helmets for all auto passengers; just in the US, this would dramatically cut into the 40,000 plus deaths that occur on the roads every year! Of course the public would never accept this, so we spend more money on other issues that—in the end—save fewer lives.

Likewise, our opinion of the importance of any heath or safety issue is directly proportional to how “closed to home” the issue or incident hits. We are much more concerned if someone has been in affected in: our family, among our friends, then friends of friends, and finally the celebrities’ lives we follow. Instead we should look at the broad picture: what are the biggest killers and what are the most cost effective methods our governments can effectively implement to save live regardless familiarity, race, nationality, etc.

24 May 2009

Mark Twain's War Prayer

I think it is appropriate, on this Sunday before Memorial Day, when—in churches all across the United States—living and fallen soldiers are venerated for their actions in "fighting for our freedom," that I republish this often overlooked short story by America's favorite author.

The War Prayer


It was a time of great and exalting excitement. The country was up in arms, the war was on, in every breast burned the holy fire of patriotism; the drums were beating, the bands playing, the toy pistols popping, the bunched firecrackers hissing and spluttering; on every hand and far down the receding and fading spread of roofs and balconies a fluttering wilderness of flags flashed in the sun; daily the young volunteers marched down the wide avenue gay and fine in their new uniforms, the proud fathers and mothers and sisters and sweethearts cheering them with voices choked with happy emotion as they swung by; nightly the packed mass meetings listened, panting, to patriot oratory which stirred the deepest deeps of their hearts, and which they interrupted at briefest intervals with cyclones of applause, the tears running down their cheeks the while; in the churches the pastors preached devotion to flag and country, and invoked the God of Battles beseeching His aid in our good cause in outpourings of fervid eloquence which moved every listener. It was indeed a glad and gracious time, and the half dozen rash spirits that ventured to disapprove of the war and cast a doubt upon its righteousness straightway got such a stern and angry warning that for their personal safety's sake they quickly shrank out of sight and offended no more in that way.

Sunday morning came—next day the battalions would leave for the front; the church was filled; the volunteers were there, their young faces alight with martial dreams—visions of the stern advance, the gathering momentum, the rushing charge, the flashing sabers, the flight of the foe, the tumult, the enveloping smoke, the fierce pursuit, the surrender! Then home from the war, bronzed heroes, welcomed, adored, submerged in golden seas of glory! With the volunteers sat their dear ones, proud, happy, and envied by the neighbors and friends who had no sons and brothers to send forth to the field of honor, there to win for the flag, or, failing, die the noblest of noble deaths. The service proceeded; a war chapter from the Old Testament was read; the first prayer was said; it was followed by an organ burst that shook the building, and with one impulse the house rose, with glowing eyes and beating hearts, and poured out that tremendous invocation: God the all-terrible! Thou who ordainest! Thunder thy clarion and lightning thy sword!

Then came the "long" prayer. None could remember the like of it for passionate pleading and moving and beautiful language. The burden of its supplication was, that an ever-merciful and benignant Father of us all would watch over our noble young soldiers, and aid, comfort, and encourage them in their patriotic work; bless them, shield them in the day of battle and the hour of peril, bear them in His mighty hand, make them strong and confident, invincible in the bloody onset; help them to crush the foe, grant to them and to their flag and country imperishable honor and glory...

An aged stranger entered and moved with slow and noiseless step up the main aisle, his eyes fixed upon the minister, his long body clothed in a robe that reached to his feet, his head bare, his white hair descending in a frothy cataract to his shoulders, his seamy face unnaturally pale, pale even to ghastliness. With all eyes following him and wondering, he made his silent way; without pausing, he ascended to the preacher's side and stood there waiting. With shut lids the preacher, unconscious of his presence, continued with his moving prayer, and at last finished it with the words, uttered in fervent appeal, "Bless our arms, grant us the victory, O Lord our God, Father and Protector of our land and flag!"

The stranger touched his arm, motioned him to step aside—which the startled minister did—and took his place. During some moments he surveyed the spellbound audience with solemn eyes, in which burned an uncanny light; then in a deep voice he said:

"I come from the Throne—bearing a message from Almighty God!" The words smote the house with a shock; if the stranger perceived it he gave no attention. "He has heard the prayer of His servant your shepherd, and will grant it if such shall be your desire after I, His messenger, shall have explained to you its import—that is to say, its full import. For it is like unto many of the prayers of men, in that it asks for more than he who utters it is aware of—except he pause and think.

"God's servant and yours has prayed his prayer. Has he paused and taken thought? Is it one prayer? No, it is two—one uttered, the other not. Both have reached the ear of Him Who heareth all supplications, the spoken and the unspoken. Ponder this—keep it in mind. If you would beseech a blessing upon yourself, beware! lest without intent you invoke a curse upon a neighbor at the same time. If you pray for the blessing of rain upon your crop which needs it, by that act you are possibly praying for a curse upon some neighbor's crop which may not need rain and can be injured by it.

"You have heard your servant's prayer—the uttered part of it. I am commissioned of God to put into words the other part of it—that part which the pastor...and also you in your hearts—fervently prayed silently. And ignorantly and unthinkingly? God grant that it was so! You heard these words: 'Grant us the victory, O Lord our God!' That is sufficient. the whole of the uttered prayer is compact into those pregnant words. Elaborations were not necessary. When you have prayed for victory you have prayed for many unmentioned results which follow victory – must follow it, cannot help but follow it. Upon the listening spirit of God fell also the unspoken part of the prayer. He commandeth me to put it into words. Listen!

"O Lord our Father, our young patriots, idols of our hearts, go forth to battle—be Thou near them! With them—in spirit—we also go forth from the sweet peace of our beloved firesides to smite the foe. O Lord our God, help us to tear their soldiers to bloody shreds with our shells; help us to cover their smiling fields with the pale forms of their patriot dead; help us to drown the thunder of the guns with the shrieks of their wounded, writhing in pain; help us to lay waste their humble homes with a hurricane of fire; help us to wring the hearts of their unoffending widows with unavailing grief; help us to turn them out roofless with little children to wander unfriended the wastes of their desolated land in rags and hunger and thirst, sports of the sun flames of summer and the icy winds of winter, broken in spirit, worn with travail, imploring Thee for the refuge of the grave and denied it—for our sakes who adore Thee, Lord, blast their hopes, blight their lives, protract their bitter pilgrimage, make heavy their steps, water their way with their tears, stain the white snow with the blood of their wounded feet! We ask it, in the spirit of love, of Him Who is the Source of Love, and Who is the ever-faithful refuge and friend of all that are sore beset and seek His aid with humble and contrite hearts. Amen.

(After a pause.) "Ye have prayed it; if ye still desire it, speak! The messenger of the Most High waits!"

It was believed afterward that the man was a lunatic, because there was no sense in what he said.

-Samuel Langhorne Clemens (November 30, 1835 – April 21, 1910)

Incidentally, this pervasive militaristic (and, quite frankly—heretical) patriotism is why I generally avoid church on Memorial Day, 4th of July, and Veteran's Day.

11 April 2009

Devil's Advocate

As our economic woes deepen, everyone is eager to place blame at the feet of whatever nemesis his or her ideology deems fit. On the right, this entire downturn was precipitated by undisciplined and untrustworthy individuals getting sub-prime mortgages to buy homes outrageously out of their price range and then defaulting on said mortgages…triggering an avalanche that eventually lead us into the current credit crunch. Furthermore, many will claim that lenders were forced to do this because of federal “fair housing/lending” and “anti-redlining” regulations.

On the left, there is an agreement that sub-prime mortgages are at the heart of this mess, but blame is placed on the unscrupulous brokers who apparently tricked unsuspecting (and admittedly unsophisticated) homebuyers into taking risky loans just to make a quick commission, and on the “financial geniuses” who devised the now toxic “collateralized debt obligations” as well as other exotic derivatives. From this view, the whole of the rest of the cascade of events that has brought us to this point is entirely the fault of greedy (and by virtue of this unraveling—incompetent) executives, brokers, and associated “money-men.”

My view
I say there is enough blame to go around; we ALL contributed to this mess! Collectively and individually, as corporations, and governments—almost as a rule—we overextended ourselves in respect to debt; and from the most unsophisticated wage earner to the brightest minds working in the most prestigious investment firms, we all assumed that asset values, growth, and incomes would only go up. This crisis is finally the slap in the face that we all needed: we cannot borrow our way into prosperity! As the offspring of depression-era, immigrant parents, financial discipline and thriftiness was ground into me from an early age, so I have been aware of—and avoided at all costs—the trap of living beyond ones means. Never the less, I will not even hold myself blameless; I truly believe that all of us in the materialistic west have some culpability in this mess.

Reaction
No doubt, new government regulations addressing the problems that got us into this mess will be soon be put into effect; unfortunately, as backward-looking legislation, they will generally not address those issue that will eventually precipitate the next economic crisis. In fact, it is almost impossible to predict the future in this respect. The only thing we can hope for is that the laws our governments are creating will make the financial world a little more transparent; the bright light of transparency in the murky world of finance is the only reform that, in the long term, really ever works.

What I find disturbing though, is this “eat the rich” sentiment that lumps all executives and everyone in the financial industry together as greedy, incompetent, and useless. There is a disconcerting air of bolshevism in a lot of the rhetoric I’ve been hearing lately. Yes, a lot of the financial middlemen will rightly lose their jobs, and I admit that I feel a certain schadenfreude in seeing the business school colleagues who went into the finance specialty losing their lucrative positions. However it is naive to think that these functions are unnecessary and that “workers can control the means of production,” as the communist experiment of the last century disproved. We will always have executives and financiers who—by virtue of their extraordinary skills and intelligence—will demand and receive compensation commensurate with their abilities, just as highly skilled entertainers and athletes do without question.

The worst possible outcome would be the introduction of salary caps; they would most certainly be circumvented, further muddying the waters of the business and financial worlds—the opposite of what we want: transparency! Likewise, a ban on derivatives (which given the simplest definition—a bet on an underlying security—sounds like a good idea,) but would contribute more opaqueness, as these instruments would be reinvented in other forms. These exotic vehicles actually have a legitimate use: they hedge and balance other business transactions.

Bailouts
I am generally not in favour of “rescue packages” for private businesses, even large ones like General Motors that will effect dozens or hundreds of partners, thousands of employees, and maybe hundreds of thousands of others not directly employed by the company. I just have an aversion to anything that creates a distortion in the marketplace, be it subsidies, regulations, or taxes that affect one company or industry more severely than another (or, more perversely, prevents a business from entering a certain field/industry or—in the current situation—prevents it from failing/dissolving.)

That being said, I do understand why large financial institutions cannot be allowed to fail, as the resulting banking and credit crisis the would cause the entire economy grind to a screeching halt. Therefore the questions are: “how are bailout funds to be used” and “who decides how the money is used.” Specifically, whom do you trust more to “save” these firms: corporate executives—the rascals that caused (or at least contributed) the failure, or the rascals in Washington (or where ever your lawmakers/bureaucrats reside.) Quite frankly, I’m not sure of the answer myself.

Where does the money go?
On the most basic level, the problem with these troubled institutions is that their balance sheets were out of whack: their assets no longer equaled their liabilities, and therefore the government infused this money—fixing the problem. Now the question is: what happened to this bailout money? There aren’t little cubbyholes in the company’s treasury for general funds, bonus funds, electricity expenses, etc. it just become part of the company’s assets and is used in the same way that all the rest of its assets are used—fulfilling the company’s obligations to its stakeholders: investors, partners, employees, vendors, and yes—executives.

When you or I start a job, we generally negotiate or just accept a certain hourly wage or weekly to monthly salary plus a possibility of a bonus and benefits. At a certain level, these wages/salary become trivial compared to the prospect and promise of bonuses, stock options, golden parachutes, etc. Corporations must make these lucrative offers in order to hire & retain the best and brightest in the field, just as professional sports team have to offer star players multi-million dollar contracts. To those who are outraged at bonuses paid to executives at failing companies such as AIG, I ask: “where do you make the cutoff?” Imagine that you cut all bonuses and stock options for a CEO who earns a salary of $1 per year (actually very common), what is he to do? Furthermore, with this reputation, how do you expect to hire a new CEO in the future? Remember, in 1994, Ben & Jerry’s Ice Cream initially insisted that they would only pay their CEO seven times what the lowest paid employee made; despite their progressive credentials, they soon had to abandon this promise in order to find an individual of the caliber needed to guide what had become a large corporation.

Outcome
Regardless of what new regulations are enacted, we are seeing the end of the secretive back-room dealing-making that has characterized so much of the financial industry. Even if governments do nothing, the market will demand more transparency and lower costs (spreads) for financial transactions. The result will be higher returns for investors and less cost to borrowers, which of course means lower earnings for the businesses and individual that broker these transactions…and, of course, less of those high-paying financial-sector jobs.

More specifically, we will see a convergence of returns. We all know that riskier investments demand higher returns. This relationship is not punitive—it is not just to punish the reckless—it is to cover the inevitable losses that riskier investments entail. In the long-term everybody gets about the same return plus a premium proportionate with the volatility the investor must endure. What everyone has looked for was that elusive, safe investment with a higher than normal return. While there have always been a few of these, I predict that these “secret” investment will all but disappear, to the point at which we can finally say with certainty that the outliers on the risk to return graph are definitely scams (as should have been obvious with Madoff.)

The one bright spot for governments investing (and it is not just the US Federal government that is doing this) in private industry is that they are buying in at a low point; In a few years they will almost certainly have realized a substantial profit—at which time they should divest of these private concerns. It is a mistake to think that these bailouts are a gift from government to private industry; remember that Chrysler was bailed out in 1979, and by 1983 had totally repaid it 1.5 billion dollar loan to the government.

Opportunities
I find that, as individuals, this hand-wringing and finger-pointing is entirely useless; what does it help you or me to assign blame to this or that group, person, or ideology? In a time of turmoil such as now, it is prudent for a bright, young person to look around and ask, “where is this going, and where should I place myself to benefit from the inevitable changes ahead?” I really think now is the time to position oneself for the new business, regulatory, and financial climate that is coming upon us, and I am convinced that it will be characterized by more transparency—and therefore be more information-oriented, and consequently utilizing more information and communication technologies.

We have seen part of this technological revolution in finance on the personal investment front; we no longer call our broker to place a trade (from which he would take a percent or two in commission.) Instead we log on to our discount brokerage website and enter trades ourselves for a fixed $12-$15! Furthermore, on the NASDAQ stock exchange, there isn’t even a trading floor; it all takes place inside of computers. Yes, there are still brokers and market makers, but we’re definitely seeing the disintermediation of actual human beings transacting financial business. Likewise, we see that the computers of Experian, Equifax, and TransUnion (in communications with the computers of nearly all consumer credit providers) automatically determine an objective credit score for nearly every adult in America. Even loan origination (well, shopping at least) is being automated by sites such as LendingTree.com.

The ratings of corporate entities however, have long been suspect. With this crisis, we have confirmation that the stars and letter grades assigned to bonds, equities, and derivatives by the likes of Moody and MorningStar are worthless. So the obvious need is an objective system like that of the FICO (300-850) credit scores assigned individuals. I assume that someone like Dun & Bradstreet is ideally positioned to fill this need. Obviously you can’t as readily assign a single number to represent the fiscal health of a complex organization with all its divisions, subsidiaries, assets, investments, and liabilities, but together with governmental and market pressure for more transparency, I am convinced we will see the creation of one or more objective, independently audited corporate/financial rating service.

With the availability of all this data, the next obvious step is an electronic marketplace where businesses and investors can transact short and long-term lending directly without the packaging and interference of financier or their hefty commissions.

So, dear reader, if you agree with my predictions, how do you think an IT nerd with an MBA like me should position himself to catch this next wave? More specifically, where is this financial information revolution going to start—geographically and with what companies/groups? (Obviously I’m not talking about the existing and useless “financial news” industry that just speculates and rehashes earnings reports, annual reports & 10-Qs, nor the endless speculation of pundits.) I’m serious about this; I would appreciate any advice.