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Rethinking the Goals of Finance: Lessons from the Amherst Arbitrage

By: John Brodie Gay & Jeremy Kingston Cynamon

I. BACKGROUND

Financial devices, like all technologies, develop – sometimes intentionally, sometimes by historical accident – to benefit particular interests and reinforce certain values at the expense of others. Therefore, the form in which we encounter these various technologies today is not a necessary characteristic of those technologies, but the result of their respective histories. If those histories had unfolded differently, then those technologies might benefit sharply different values and interests. Given this contingency, we can plausibly pursue different ways of repurposing financial devices (as well as technology more generally) and thereby altering the interests and the values they protect. With a bit of imagination, we can realize alternative potentials in these devices.

The sort of argument just previewed has been largely ignored by the left. In general, progressives tend to treat the financial sector as a scapegoat for the ills of society.  In our view this is a mistake.  There is nothing inherently problematic about finance. Insofar as our contemporary financial practices are troubling, they are troubling because of their execution, not because finance is itself problematic. To the contrary, finance – if directed purposely – can be a great asset to the political programs of any stripe.

Our goal in this short essay is merely to demonstrate the aforementioned contingency and transformative potentials in our financial devices. We argue by way of example, using a peculiar story about the use of credit default swaps after the 2008 mortgage crisis to illustrate our larger themes.

II. FINANCIAL DERIVATIVES

We begin with a rather strange fact: our financial system allows individuals and firms to place side bets on any homeowner’s ability to pay his/her mortgage. Known as financial derivatives, the total amount gambled in these bets can greatly exceed the outstanding amount on the underlying mortgage. Bizarre as it may seem, this is the financier’s utopia: a “complete market” that allows participants to bet on any chance event. Natural catastrophe, the result of an election, even a terrorist attack could be the source of profits for the shrewd gambler.

In theory, these financial derivatives can be tools for prudently distributing risk across parties. In practice, however, the use of financial derivatives often results in dangerous concentrations of risk. As it happens, a significant proliferation of these sorts of financial derivatives coincided with the real estate bubble and the subsequent 2008 mortgage crisis.[1] Though much has been written about that crisis, the story presented in the following section will likely be unfamiliar to most readers – even to those who keep up with this sort of thing. This is probably not a coincidence. The story illustrates the potential inherent in our financial technologies and devices to disrupt the common practices of finance and harness its power for varying purposes.

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What is “Fascist”? Umberto Eco on Ur-Fascism

Howl of the Day: Nov 30, 2016

There is in our future a TV or Internet populism, in which the emotional response of a selected group of citizens can be presented and accepted as the Voice of the People.

In 1995, the late Umberto Eco wrote an essay on what he called “Ur-Fascism”. What he meant by this term is the fuzzy constellation of ideas and feelings out of which fascism grows. “[B]ehind a regime and its ideology there is always a way of thinking and feeling, a group of cultural habits, of obscure instincts and unfathomable drives.” In the case of fascism, this is Ur-Fascism.

Eco’s essay is as relevant today as when he wrote it. Indeed, with the election of Trump, and the debate over to what degree it is fair to call him or his positions “fascist,” it is extremely timely. (A topic we have covered a number of times before.)

The key insight of the essay is that fascism, and the underlying mode of thinking that gives rise to it, are impossible to clearly define, because they embrace many contradictory elements. “Fascism was a fuzzy totalitarianism, a collage of different philosophical and political ideas, a beehive of contradictions.”

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Diogenes on Current Affairs

It is folly to lament the passing of a man who made a career out of writing beautiful lamentations for his own eventual passing.
Diogenes, regarding the death of Leonard Cohen

In death, as in life, may he lead his people as first among equals, and so may his funeral surpass in squalor those of the many poor dead of his nation.”
Diogenes, regarding the death of Fidel Castro

Diogenes the Cynic spent most of his life challenging the social, political, and philosophic views of Ancient Greece, often residing in a barrel in the marketplace. Long thought to have been torn apart by a pack of wild dogs outside the walls of Corinth in 323 BCE, he had in fact fallen asleep in a pool of molten amber. Now, thanks to the miracle of modern science, he has been extracted, restored, and returned to us. Diogenes is busy catching up on both the contemporary scene as well as the last 2300 years of historical development. He occasionally sends us these notes from a cardboard box that he is living in, somewhere in the nation’s capital.

Chuck Klosterman and Relative Morality

Thoughts on “But What If We’re Wrong?: Thinking About The Present As If It Were The Past”

By: Matt Ryklin

When I was fifteen I had ridiculous opinions. Of course, at the time I didn’t think they were ridiculous, I thought they were well deliberated, intelligent, and insightful.

Everyone looks back with some disgust and amazement at how they behaved when they were younger, but the opinions I’m talking about weren’t only related to music, or fashion, or how to get girls. When I was fifteen, I was of the opinion that we shouldn’t legalize gay marriage. Now, I couldn’t imagine holding this opinion, and I even look disdainfully upon those who do. How could you not legalize gay marriage? It has no effect on anyone except for the positive effect it has on people in love who want to be together. I can’t possibly imagine not being for the legalization of gay marriage. And yet nine years ago, I didn’t think it was necessary.

This is where my head went when I first heard of Chuck Klosterman’s newest book, But What If We’re Wrong?: Thinking About The Present As If It Were The Past. He seeks to explore how future society will look back upon the time in which we currently live. To do so, he first explores how we look at the past and how our present morals and values shape our perception and distort reality. Then, he examines how predictions about future society are almost always wrong, because we naturally employ present-day values in order to create these predictions. Klosterman then uses this analysis as reason to question nearly everything we think about ourselves in the present, asserting that our present is draped in an unavoidable relativism that makes it difficult to reckon with right and wrong, and makes it almost impossible to attempt to understand how future societies will think about their past – our present.

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Chimes of Freedom: The Politics of Bob Dylan’s Art

By: Stefan Schindler

The demand to abandon illusions about our condition is a demand to abandon the conditions which require illusion.Karl Marx

Bob Dylan’s winning the 2016 Nobel Prize for Literature – the most coveted literary prize in the world – presents us with an opportune moment for looking back on his long and astonishing career as a constantly evolving musical icon.  It is the first time that the Nobel Prize committee has awarded the literature prize to a musician.  In defending this almost revolutionary break with tradition, the committee’s chairman, quoting Dylan’s most famous line from the ‘60s, announced, “The times, they are a changin’.”  Dylan’s originality as a surrealist lyricist was elevated by his engagement with profound social and political themes.  So in honor of his award for “literature,” let us examine what Mike Marqusee calls “the politics of Bob Dylan’s art.”

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The US Left: A Short Introduction

by Victor Wallis
October 2016

Is there a US Left? More specifically, is there a popular movement for socialism in the United States? And what chance does such a movement have for affecting national policy any time soon?

There have been several promising signs. The first was a national survey conducted in May 2012 which found that, among people under 30, there were slightly more who had a positive view of socialism than had a positive view of capitalism [1]. This is quite remarkable considering the endlessly negative evocations of socialism by politicians and the mass media. The second hopeful sign was the election to the Seattle City Council, in December 2013, of Kshama Sawant, representing a group called Socialist Alternative; she received an absolute majority against an incumbent Democrat [2]. Perhaps even more striking, she overcame a massively financed campaign against her to win reelection in 2015. Third, of course, is the popularity of the presidential campaign of “democratic socialist” Senator Bernie Sanders. Although Sanders’ conception of socialism corresponds to 1930s policies of President Franklin D. Roosevelt (a Democrat), his acceptance of the socialist label removes a stigma that had long been attached to it as a result of the ideological repression that has plagued the US Left through much of its history [3].

Underlying this new openness to socialism is a broader public awareness, especially since the economic collapse of 2008, that capitalism is incapable of satisfying the basic needs of the majority. This awareness is indirect but unambiguous. It is manifested in overwhelmingly hostile attitudes toward politicians and, more importantly, toward big corporations. These attitudes became sharply visible during the Occupy movement of 2011. More recent expressions have included nationwide demonstrations and strikes by low-wage workers against fast-food companies and against the mega-store Wal-Mart.

Still, there is an enormous gap between these developments and the emergence of a solid and coherent national political force with a capacity to grow. To understand this gap – and why it has been so persistent – we must return to a question that has been posed about the United States for more than a century: Why is the US so difficult for the Left? Deep structural factors are at work, and we need to take these into account before returning to the question of what can now be done.

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Philosopher-Kings in the Kingdom of Ends: Why Democracy Needs a Philosophically-Informed Citizenry

By: Richard Oxenberg

I. Introduction

I would like to begin with a bit of a riddle: How do you turn a democracy into a tyranny? The answer, as those familiar with Plato’s Republic will know, is: Do nothing. It will become a tyranny all by itself.

Plato spends a good part of the Republic developing his argument for this, and yet the gist of that argument can be found in the word ‘democracy’ itself. ‘Democracy’ is derived from two Greek words: ‘demos,’ which means ‘people,’ and ‘kratos,’ which means ‘power,’ and might be defined as ‘power of the people.’ This corresponds with Abraham Lincoln’s famous designation of democracy as “government of the people, by the people, and for the people” – which he hoped would not perish from the earth.

But what exactly are we to understand by the word ‘people’? I can illustrate the problematic character of this word through the title of a book I was assigned to read many years ago when studying for my Bar Mitzvah. The book was entitled, When the Jewish People Was Young. Even as a twelve year old the title struck me as grammatically odd. Shouldn’t it be: When the Jewish People Were Young? No, because the word ‘people,’ generally a plural, was here functioning as a singular. The phrase ‘The Jewish People’ was not intended to refer to a multitude of Jewish individuals, but rather to a singular entity made up of these individuals.

May we say the same about democracy? When we define democracy as ‘power of the people’ are we using the word ‘people’ in the singular or the plural sense? Do we mean a collection of separate individuals or do we mean some singular entity made up of these individuals?

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Muhammad Ali and the Spirit of the Sixties

By: Stefan Schindler

Muhammad Ali died on June 3rd, 2016, at the age of 74.  Unsurprisingly, the media has been flooded with articles celebrating history’s most famous boxing champion.  But Muhammad Ali was more than just king of the ring.  He was a political figure with enormous influence.  Too many people today, perhaps especially young people, are unaware of this important fact.  It is a fact worth recalling.  The social conflicts informing the revolutionary turbulence of the 1960s are still with us, and in some ways are more extreme now than they were then.

It is appropriate, therefore, to take another look at Ali’s life, and to note the inextricable intertwine of his boxing fame and his political impact.  Mike Marqusee’s book on Ali – Redemption Song: Muhammad Ali and The Spirit of The Sixties (Verso; 1999) – acts as an excellent guide.  It reminds us that we still have a long way to go in achieving social justice, and that the socio-political battles of the Sixties are far from over.  Marqusee’s opening paragraph is astute and provocative:

“A strange fate befell Muhammad Ali in the 1990s.  The man who had defied the American establishment was taken into its bosom.  There he was lavished with an affection which had been strikingly absent thirty years before, when for several years he reigned unchallenged as the most reviled figure in the history of American sports.”

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Progress and its Implications

By: Jeremy Kingston Cynamon

A Klee painting named ‘Angelus Novus’ shows an angel looking as though he is about to move away from something he is fixedly contemplating. His eyes are staring, his mouth is open, his wings are spread. This is how one pictures the angel of history. His face is turned toward the past. Where we perceive a chain of events, he sees one single catastrophe which keeps piling wreckage and hurls it in front of his feet. The angel would like to stay, awaken the dead, and make whole what has been smashed. But a storm is blowing in from Paradise; it has got caught in his wings with such a violence that the angel can no longer close them. The storm irresistibly propels him into the future to which his back is turned, while the pile of debris before him grows skyward. This storm is what we call progress.[1]W. Benjamin

DEVELOPMENT OR PROGRESS?

How do we determine whether our society is getting better or worse? Have we experienced progress or regress in the last 100 years? 1000 years? Ever? Herbert Marcuse writes that critical thought when: “confronted with the given society as an object of reflection…becomes historical consciousness; as such it is essentially judgment.”[2] However, this does not suggest relativism, continues Marcuse, because “in the real history of man” we can find “the criteria of truth and falsehood, of progress and regression.”[3] Perhaps Marcuse is too optimistic in his belief that the criteria of truth and falsehood can be found in history, or anywhere else, but he is on to something useful with his historicized notions of progress and regress.

Any claim that something has progressed requires a value judgment. Since progress denotes something good we must have some notion of what is good (or ‘the good’), however vague, in order to defend our claim. For example, one cannot say that community X has made progress when it builds new housing developments unless one believes that new housing developments are something good for the community. It might be the case that the construction of these homes has destroyed something believed to hold great cultural/historical value and so the construction actually indicates a regress.

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The Back of Atlas: How restructuring the American military can revitalize American cities and create middle-class jobs

By: Mercer May

The professionalization of public policy has led to an era in which experts rule the field – each individual seeking to stake out their own niche and claim ownership over it. Because of this, in depth analysis of specific topics is rampant. Policy prescriptions carry down to the tiniest of details.  While in some cases this may be viewed as a positive, it has also led to the dangerous norm of viewing policy in isolation and not as an interconnected, holistic practice.

For far too long now, experts have been attempting to solve public policy questions as though they exist in a vacuum. This article plans to serve as a template to how we can approach public policy as an interconnected ecosystem, looking from one area to the next for positive changes that will effect a plethora of other areas. In this case, how a revamping of the military in America could solve a myriad of issues, including the economy, our declining cities, and national security.

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