The financial crisis on stage and screen

I posted a couple of weeks ago about the film Margin Call but that's not the only manifestation of the money madness appearing in the arts world.

The current production of Shakespeare's Timon of Athens at the National Theatre is another, perhaps surprising, example.

Timon of Athens isn't performed very often. It's a 'difficult' play, not solely by Shakespeare's hand, and there are disputes about how much of it is actually his - but it's certainly 'Shakespearian'. It's a play about, among other things, the mutual reinforcement of power and money, and it contrasts the élite with the mob. Well, in these times, that's just crying out for a treatment set in the City of London with the mob as the Occupy movement, which is what this new production is doing.

Interestingly, The Guardian's review of the play was written not by one of its regular theatre critics but by Paul Mason, BBC Newsnight's economics editor. His article is a very interesting read, even if you don't plan to see the play . . . but, having read it, you might decide you do want to!

And if you can't get along to the South Bank, the National Theatre will be broadcasting live from the theatre to cinema screens across the UK and abroad on Thursday 1 November. I'm going to see it at an independent cinema 10 minutes from where I live - a huge saving in time and money compared with getting all the way from the West Midlands to South London. You can search for a screening near you.

Another film made about the crisis, Inside Job (2010), is a documentary rather than a drama. Charles Ferguson is a former academic who made a fortune from computer software. He's funny, witty, tells it like it is, and is just furious that none of the bankers have gone to jail for the frauds that led to the crash. Ferguson interviews a range of the key players in the crisis, the big beasts in the financial world. Some of them seem oblivious, which is extraordinary; some of them squirm; some of them seek to justify themselves; a few refuse to speak on camera. It's truly eye-opening, even this long after the event, to put faces to the scandal.

The film won an Oscar for best documentary and you can listen to his acceptance speech.

Ferguson has now written a book (also called Inside Job) which fills in the background to his film and brings us up to date on what happened next. His argument, that corporate America has bought up politics wholesale, isn't new, of course. But he is particularly scathing about Obama, from whom we expected better. His government's alliance with the banks is particularly appalling, after all the hopes that were invested in the change from the Bush era. Ferguson's account of the hold that big finance has over academia is truly horrifying because it tells us that nothing escapes the clutches of Big Money.

Ferguson's furious energy, his righteous indignation, are delivered with a lightness of touch that keeps the non-specialist reader enagaged and entertained. You can read two extracts from the book:

Heist of the century: Wall Street's role in the financial crisis - Wall Street bankers could have averted the global financial crisis, so why didn't they? In this extract Charles Ferguson argues that they should be prosecuted

Heist of the century: university corruption and the financial crisis - Why was the response from US academic experts to the global financial crisis so muted? In this second extract Charles Ferguson argues that corruption in universities is deeply entrenched

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I've been posting here a lot about money! I think there's one more to come, and then I'll move on to other topics - promise!

Britain - a de-developing country?

On Sunday, I took advantage of one sunny day in the midst of rain, went out and picked my redcurrants, and have been making jelly. This is one small practical skill - I wasn't taught it at home when I was a child, but anyone can follow instructions in a book (or on the web).

When I said in my Swarthmore Lecture

Everyone needs to learn how to grow food, how make, mend and fix things. Between us, as extended families, networks of friends and local groups, we need to take back all the hand-skills that the modern world has ‘outsourced’ to mass production.

I didn't have in mind only the more common 'sustainability' ideas, but also hard-nosed economic issues. This is why one of the Good Lives courses offered at Woodbrooke this year was designed to follow up this theme - our 'preparing for new skills' course [in reality, that included some very old skills!] to be offered in August was the subject of an earlier guest post here, by Liz Perks.

Alas, we've had to cancel the course for lack of enough bookings - it needed a goodly number to create a real skills exchange, in addition to some pre-planned inputs. Perhaps it was too expensive for people in these straitened times (a week-long course, it was twice the cost of a weekend). Perhaps people aren't yet ready to take this aspect of life on board in a serious way. Here's the list of some of the skills we hoped to be able to learn/teach during the week (and we invited people booking to add their own ideas):
Starting a food project
Making clothes
Knitting
Sprouting seeds
Using a slide rule or log tables
Mending clothes
Making soap
Making a hay box
Cooking with a hay box
Spinning with a drop spindle
Sprouting seeds
One-pot cooking
Using a storm (Kelly) kettle and cook-set
Germinating seeds
Container vegetable gardening
Entertaining ourselves without electricity
Felting recycled woollens
Crochet
Square foot (vegetable) gardening
Keeping bees
Ham radio
Pottery without a kiln
Basket making
Making a compost toilet
Making remedies and medicines from herbs
Assembling a useful collection of hand tools
Starting a LETS scheme
Starting an alternative local currency
Starting a Transition group
Making a gravity-fed water filter
Fitting a rain diverter/water butt
Using a hand-cranked sewing machine
Using a treadle sewing machine
Making paper boxes
Making carrier bags out of newspapers
Seed saving
Mending a bicycle tyre puncture
Maintaining a bicycle
Remaking old garments into new clothes
Weaving all sorts of useful and beautiful baskets

But do we yet really believe that we need these skills in our communities? Or are we sleep-walking into a future for which we are deeply unprepared?

Larry Elliott, the Guardian's Economics Editor, has a new book out: Going South: Why Britain Will Have A Third World Economy By 2014, by Larry Elliott and Dan Atkinson (available in paperback and on Kindle). He argues that Britain will soon have a developing (or, more accurately, a de-developing) economy.

In a recent Guardian article, based on the book, he wrote:

A developing economy – or strictly, in the case of the UK, a de-developing economy – exhibits certain features. It cannot find work for all its young people, and contains a large number of unemployed graduates, traditionally a major source of social tension. Despite this, it imports workers from abroad to fill the gaps left by its own dysfunctional education system, and it supplies beer money, in the form of cash benefits, to its hard-to-employ native workers. Its economic policies lack clarity: on tax, on inflation, on public expenditure. It is particularly vulnerable to price movements in major world commodities. Above all, and perhaps in summary of these symptoms, it is weak, dependent on outsiders for finance, skilled workers and energy supplies.

The UK accounts for just 3% of the goods exported globally, down from 4.4% at the turn of the millennium, and is a net importer of industrial products, food and energy. Put simply, it used to be a great manufacturing nation but is one no longer. . . by 2040, and perhaps sooner, the UK will have dropped out of the list of the 10 biggest economies in the world.

The danger is not that we will lose our place in some global club or other. Such an outcome may dent the pride of our leaders as they are denied a place in a prestigious venue, but would be of little concern to ordinary people. The genuine worry is that we will endure falling real living standards – actually get worse off.

To which I want to add: of course we're all going to get worse off. Larry Elliott fails to factor all the other sustainability issues into his economic narrative. We're going to need all these practical skills - some local Transition groups are doing something about this, but this leaves out most people.

Start acquiring these skills now - for yourself, to teach your children and grandchildren, and to share with your community. If you're the kind of practical person who can already do all these kinds of things, start sharing your skills with others.

The Transition Quaker blog has a recent post related to this: an account of the economics discussion that took place at Britain Yearly Meeting in May this year; and the Sheffield Quakers blog has further comments and ideas arising from that.

Who are these banksters?

About an hour after publishing last week's post, I was listening to the evening news on the way home as the first reports were coming through about the Libor scandal that has now led to Bob Diamond stepping down from Barclays. So not only have the banks been reckless, they've been fraudulent.

At the same time, there were reports of another fraud perpetrated primarily against small businesses: they would only be able to borrow money if they agreed to purchase a complex financial instrument that would 'protect' them against rises in interest rates. But the sting in the tail was that the banks themselves were betting on interest rates actually falling and were making money out of those bets; meanwhile these 'insurance' polices charged hefty premiums to the customers when the rates fell. This has been enough to bankrupt some small and family businesses.

This has all given rise to some new words - 'banksters' came first, though I'm not sure when it first appeared. More recently a verb, 'to be bankered'. But who are the people behind all this, beyond the public faces like Fred Goodwin or Bob Diamond?

One attempt to reveal the hidden world of investment bankers comes in the film Margin Call  starring Kevin Spacey, Jeremy Irons, Demi Moore and others. It's about the 36 hours leading up to the collapse of - effectively - Lehman Brothers in 2008. It's an independent film that's done well at the box office and the Awards. This might be thought surprising, given that it deals with the obscurities of leveraged investments, sub-prime mortgages, derivatives trading . . . and so on.

We see the trading floors and the boardroom, the technicalities and the human stories. We see the traders, the risk managers, the lawyers, the maths whizz-kids, the management, the security staff . . . and one cleaner. There are goodies and baddies, and we get some of the technical stuff explained to us. But the drama is essentially a human drama.

The two bits you may have seen in trailers show Jeremy Irons, playing the chief executive of the bank concerned. In one exerpt he's saying that the imminent collapse will leave the company holding a 'large bucket of excrement'. In the other he's explaining to one of the managers that 'It's just money. It's made up. It's bits of paper with pictures on so we don't have to kill each other to get something to eat.'

The human stories play out amid the financial collapse that's about to engulf the world's markets, and as the endgame starts, it becomes clear that even the good guys have their price. They can all be bought because, if they refuse, the company will sell them down the river. They're all in thrall to money, and to the lifestyle it buys; even those who agonise, who have a conscience about it all, in the end sell their soul to the system.

It's worth seeing - 110 minutes well spent. It doesn't seem to be available on UK-format DVD yet, but it can be watched on any hardware that will play a US-format DVD, it can be streamed online, and it's currently in some independent cinemas.

But it's really important not to end up just feeling bemused, angry, dwarfed or disempowered by it all - what can ordinary people do?

One thing we can do is consider our own banking habits. The banks that run our current accounts, savings and credit cards aren't investment banks (or 'casino banks' as they're being called in some quarters), but most of them engage in investment (or 'casino') banking. That's what lies behind the political discussion about forcing either separation or ring-fencing between the high-street and investment arms of the banks.

There is a growing movement to persuade us to take our money and our custom away from these banks. Move Your Money offers information, advice and assistance to help us move our money to more ethical banks, mutual building societies, credit uninons, or community development finance institutions. As was quoted in an Editorial in The Guardian (talking about pensions), research shows that 'by and large human beings are not very good at this financial stuff' (aside, says the paper's leader writer, from the minority that has the talent for cleaning up) - but we can get good some small parts of it, like more ethical banking.

Taking a broader view of our predicament (4)

As I flagged up last week, I want to think about money+environment this time, in particular reflecting on the second extract from Peter Selby's lecture.

Over the past weekend I spent time in my garden, working in my tiny vegetable plot which, although tiny, usually produces a lot of food (using something called the Square Foot method). I say 'usually' because the very strange weather this year has played havoc with the normal cycle of spring germination and growth of vegetable plants. As I was sowing more salads I was reflecting on what it would be like if this was all I had to eat - if what I could grow, or those in my immediate local area could grow, was all that we had. It's not so very long ago in human memory that this would have been a given - poor weather, a failed harvest, low yields, would mean hunger or starvation.

It's one of the reasons that I think 'everyone needs to know how to grow food' (as I said in my Swarthmore Lecture). Pragmatically, we need to grow food so that we can become less dependent on imports (uncertain, insecure, high food miles); but we also need to grow food to remind us, daily, of our utter dependence on the earth. In the industrialised West it's far too easy to forget this, although recent flooding and other adverse weather effects may remind us.

In the end, all of life depends on the photosynthesis of green plants, on their capacity to turn sunshine into starches. We eat the plants, we eat the animals that eat the plants, we use the timber (plants again). The energy we need, to mine metals and other minerals from the earth, also comes from plants. What we call 'fossil fuels' (oil, coal, gas) are fossilised sunshine - the results of millions of years of photosynthesis, deposited and 'fossilised' by ancient geological processes.

300-400 million years ago we were in a period called the Carboniferous – warm earth, high sea levels, lots of wet and swampy land. Trees dying fell into these swamps, they sank and were gradually transformed over millions of years – the continents continued their drift, the earth’s crust was squeezed and moved, land was buried and mountains were thrown up, intense heat and pressure took their toll . . . and here we are, several hundreds of millions of years later, using coal – coal consists of ancient trees. And, recalling their photosynthesis, they are buried stores of ancient sunshine. When coal is used to generate electricity, or directly to generate heat, we’re using up the earth’s savings account, the earth’s energy bank.

Using solar power is using our current account; burning trees is like spending what we put in a jam jar to pay the rent – we have to keep filling up the jam jar, so we can pay next week’s rent – we have to keep planting trees. Burning coal is like spending the family inheritance, accumulated over generations, and not investing it any more.

Oil (and gas) are similar, but the’re formed of sea creatures, tiny plankton and some larger creatures, that fed on green algae and sea plants, and fell to the ocean floor when they died. They were subject to the same kinds of processes as the trees – and they made not coal, but oil. Sea creatures that eat plants are further up the food chain than the plants themselves, so when they form a fossil fuel – oil – it is even denser in energy than the coal, formed directly from plants. So oil (gas) is also buried sunshine, burning it is also burning the savings account.

If we take oil and gas together, about 80% of the energy we use today comes from these fossil fuels – we’re living way beyond our means and there’s no way of putting the stuff back in the savings account – when it’s gone, it’s gone. To give you and idea of what this energy density means:

- 1 barrel of oil is roughly equivalent to 25,000 hours of human manual labour; that’s 12½ years of a 40-hour week
- a 40 litre tank of petrol is roughly equivalent to 8000 hours of human manual labour – 200 weeks of a 40-hour week
- 1 litre of petrol is roughly equivalent to 5 weeks

My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel. Saudi saying

We are burning each year roughly what took a million years to lay down:

In evolutionary terms, we are a baby species – anatomically modern human beings have only been around for about 175,000 years – but already we dominate the real global economy. The real economy is not that of the banks and hedge funds, it is that of photosynthesis: our entire life, our food, our clothing, our buildings . . . everything depends on green plants converting the energy of sunlight into biomass. Humanity in total constitutes less than 1% of the biomass on the surface of the Earth, yet already – at our present population level, and present distribution of technology – we use up 24% of all the products of photosynthesis. As well as current photosynthesis, our use of fossil fuels means that, every year, we are burning up the results of previous millions of years of photosynthesis, we are burning our capital as if there were no tomorrow: ‘We have built an entire civilisation on the carbon deposits of the Jurassic age,’ says Jeremy Rifkin, ‘We have to change or we have to go.’ (Swarthmore Lecture 2011, Chapter 3). 

And all this is deeply intertwined with money, with debt, and with our current global financial problems. In his lecture, Peter Selby said:

The authority to create money was in times past no different from the authority to raise an army: a sovereign act. The passing of that power, virtually unchallenged, to boardrooms is a passing of sovereign power.

Once upon a time, money used to be metal coins with the ruler's head stamped on it. Only the ruler could authorise the issue of these coins, they were made from real metal, dug from the earth, and they therefore had 'real' value - the supply was fixed, they were difficult to make, they had real scarcity value. Then we had paper money, based on this 'real' money. The £10 (or any other denomination) note in your wallet has written on it, underneath the words 'Bank of England', 'I promise to pay the bearer on demand the sum of ten pounds'. Now that Sterling is no longer tied to the gold standard, that phrase has no real meaning. There is a scene towards the end of the film Lawrence of Arabia where a tribe of Bedouin are looting a Western stronghold - a huge suitcase is opened and spills out thousands of US dollar bills. The looter throws them away in disgust as worthless - he wants only gold.

Then we had promissory notes, and cheques, and other forms of paper that stood in for paper money . . . Now we have pulses running down wires and fibre optic cables - and these pulses are 'real' money, in that they have real effects in the material world.

But as we have lost the tangibility of money, we have also lost sight of the reality of debt. Debt was originally a useful and facilitating invention. Someone with money (real money, metal coins) would lend some to someone who had insufficient, on the understanding that real coins would be returned (or real goods to the same value), with or without some extra to compensate the lender for the temporary loss of assets. This was based on both trust and on some method of enforcement. The real money and the real goods were derived from a physical economy - a 'real' economy as I've described above.

Beyond money and debt, there were other financial inventions. One of these was what we now call a futures market. The modern forms of futures trading have old roots. The Dutch tulip mania of the sixteenth and seventeenth centuries was a commodity bubble that started with an uncontrolled futures market. The vastly inflated prices were not, for the most part, being paid for actual tulip bulbs. The commodity changing hands, at ever increasing prices, consisted of pieces of paper which gave the right to purchase a tulip with a particular coloured flower if and when it was produced . . . it might not yet even exist except as an idea in a bulb breeder's mind.

Similarly today we have inflated commodity prices (food, metals, phosphate, timber, etc) because speculators buy an option on a crop, say, that has not yet even been planted. Other speculators buy and sell these options, the price of the real commodity (which might not yet exist) goes up and up - so, for instance, aid agencies can no longer afford to buy sufficient food stocks to take into a famine emergency. There was a suggestion that this form of speculation could be regulated by the requirement that the purchaser must at some point own and store the actual physical commodity . . . but the idea was abandoned because it would merely serve to create a global market in proxy-managed storage facilities!

Now we have something else altogether. At least all of the speculation and trading described so far had real, physical goods embedded somewhere in the transactions. Now we have mathematically complicated financial instruments that turn not just electronic money, but 'products' derived from electronic money, into assets that can be traded and speculated upon. If you read the financial pages of your daily paper you will come across things called 'credit default swaps' (here's a simple explanation; a more serious one; and one for geeks); or 'collateralised debt obligations' (again, here's simple, serious, geek). The details don't matter here - these, and others like them, are clever ways of gambling on a massive scale, driven by fast powerful computers that can make millions of trades (bets) in a working day, sometimes making only fractions of a penny on each transaction, but doing this so often that fortunes can be made . . . and thus, also, lost.

Each one of these layers of financial product builds on the one before like an inverted pyramid, or a giant global Ponzi scheme; each layer apparently creates more 'value' making the world 'richer' . . . but it's not real money, it's debt on top of debt on top of debt. And it appears to work as long as everyone believes in it - it's like the story of Peter Pan, where the children are all asked to clap if they believe in fairies, to keep Tinkerbell alive. If we all keep clapping, it will all be alright. It all carries on working only as long as we believe it does. This takes us right back to the start of the story of debt being based on 'trust' - these days we call it 'confidence' (and the story of the credit rating agencies wrongly and knowingly giving triple-A ratings to dodgy products is another story that would take too long to tell here). The markets are fragile, febrile things, swayed by rumour counter-rumour. If people (or institutions) start to believe there's going to be a problem, they think they won't get paid what they're owed, the panic and start to unload their debt, thus creating the problem they fear - it all comes crashing down at once. It's like the run on Northern Rock Bank - once people believed that the bank was in trouble, it was therefore in trouble.

But what happens when it all comes crashing down? All this debt has to be paid for somewhere, and in the end it has to be paid for out of the real physical economy - fuel and food and metals and timber and manufacturing and construction . . . and so on. But at its height, before the crash, the total so-called 'value' of all these constructed financial instruments being traded (gambled on) was estimated to be about six times the value of the whole world's real economy. If all the plates were kept spinning (to change the metaphor) somewhere up in the stratosphere, then it was all ok (sort of). But once just one plate had to be paid for on the earth, they all fell down. The financial crash impoverishes the whole world - you, me, us, the Chinese, Ethiopia, the local hospital, the next generation . . . everything - for years to come. The economic model says we get out of this mess by 'growth' - the world's economy has to grow, to create more real value to pay for all this virtual value.

But 'real' growth requires energy and raw materials, and we have an increasing population on a finite earth where energy and raw materials are becoming scarcer and more expensive. Growth on the scale needed isn't going to happen, and even if we had the energy and raw materials, we can't afford the climate change effects they would produce. The whole model is bust.

As the Saudi saying has it, 'my grandson will ride a camel'.

More next week on the financial crash, and more following that on the global resources issue.

Taking a broader view of our predicament (3)

This is the first post explicitly reflecting on Peter Selby's lecture (extracts already posted here and here).

The 'sovereign' who has the say over 'bare life' as Peter discusses in his first extract takes many forms. Historically there is the the individual tyrant who threw people into jail, tortured them, had them clandestinely murdered, or said publicly 'off with his/her head'. But of course the tyrants never worked alone, didn't do their own dirty work. They had an army of spies, enforcers, hit-men, lackeys and fixers who did their bidding, either their explicit bidding, or their implied bidding - think of: 'will no-one rid me of this turbulent priest?'

In a modern democracy it is supposedly the apparatus of the state that exercises the rights over 'bare life' - the state run police, the criminal justice system, the prisons and other forms of legal punishment. But there are questions about this arising in our twenty-first century experience. Many people feel that turning over aspects of policing or imprisonment to private companies seeking to profit from these activities is, in some ill-defined way, 'wrong'. The prerogative of the sovereign (or the state) to exercise control over 'bare life' should not, it is felt by many, be exercised by other than the state, and should not make profits for shareholders. Of course in the times of Henry VIII, say, this prerogative of the sovereign made profits for the king, as lands, estates and wealth were confiscated by the crown when someone was executed.

But there are less direct ways of impacting on 'bare life' and in this respect the state has limited power, is more like King John at the mercy of his barons - in this case the barons are the faceless markets who pull the strings of governments. Open western democracies who live by the market will also, it seems, die by the market. In The Guardian of 19 June, Simon Jenkins likens the single European currency to Colditz - a jail from which people cannot escape. We see in Greece that a quarter of the population is now in poverty; people are dying from lack of common medicines and medical equipment; elderly people are scavenging in dustbins for food; parents are handing their children over to state childcare because they can no longer afford to feed them.

And it's not just Greece. The Guardian has a series of articles about poverty in Britain, and in particular about school breakfast clubs for children. Children are arriving at school in the morning having eaten nothing since their free school lunch the previous day. Teachers speak of  'mid-week hunger' as the money runs out by Wednesday and the children arrive at school unfed [for the full series of articles, search for 'Breadline Britain' on www.guardian.co.uk]. My father used to speak of his childhood in the 1920s when there was nothing but bread and dripping to eat on Thursdays until the wages came in on Friday. At least the money lasted until Thursday!

The poverty we are seeing in Britain now is often in working households. Low wages, high rents, high food costs, and government cuts to benefits are all contributing. It is impossible to disentangle government ideology (the desire for a small state) from compliance with the faceless markets who will punish Britain if we don't reduce the deficit. And remember, the cuts have barely begun, the cutbacks in the NHS have barely begun . . . we ain't seen nothing yet.

Many aspects of our globalised life now impact on 'bare life'. Globalised extraction industries impact on the health, and sometimes very lives, of local people - think about uranium mining, mining for Rare Earths, tar sands oil extraction, oil drilling in the Niger Delta, to name but a few. Globalised markets sentence whole populations to poverty. Climate change - for which we all share responsibility - brings drought and starvation to societies that are already the poorest. The control over 'bare life' is now so widespread, so pervasive, that it's historical basis in 'the sovereign' is now almost irrelevant.

How we got into this mess is a long and complex story, but I believe it involves at root a serious disconnect from reality in western market capitalist societies. We are removed from direct contact with the bare necessities of life, we have lost touch with our utter dependence on the material world of the planet we live on, and furthermore, we have lost an understanding of what money is - we have been behaving as if it's magic, as if we can just wave a conjurer's wand. We have behaved as if debt can be ignored, both financial debt and planetary debt - this latter links to last week's post about Global Footprint Network being given the Kenneth Boulding Award.

I'll explore the money+environment issue next time. In the meantime, I'll just recall that more than 150 years ago (1858, in Theses on Feuerbach) Karl Marx wrote:

For the first time, nature becomes purely an object for humankind, purely a matter of utility . . . whether as an object of consumption or as a means of production.

And he also, of course, famously predicted that capitalism would collapse under the weight of its own contradictions. I recommend Terry Eagleton's most recent book, Why Marx was Right - much food for thought in our present situation.