Five Things You Need to Know: The Fluidity of Change
We prepared you for the worst, but all things must pass. Now prepare for something new, something different.
Can you see the shift that has occurred? If you have not participated in or observed the financial services and money management industry throughout the 1990s and before, then perhaps not. Prior to 2000, the very concept of a black swan -- an unexpected event that has an outsized impact and which endures post-impact rationalization as wholly expected (a la dot-com crash, subprime collapse, debt crisis, etc.) -- was anathema. The models accounted for all possibilities. Math and science, financial engineering and the science (science!) of risk management had permanently eliminated tail risk. This is not overstating things. Fast-forward a full decade, black swans are everywhere, their ubiquity serving as a sort of psychic balm. Today, every unexpected event is black swan-worthy.
I would like to attend an event on how to prepare for a white swan, an unexpected positive event that carries with it an outsized impact, rationalized in hindsight as an inevitability given our desire for progress etc., etc. No such thing exists, of course. I don't know if I would fork over $695 to go this event, however. Times are, after all, tight.
Preparing for white swans, moving past collapse, it all sounds so good... in theory. It's a happier existence, to be sure. But there remain problems, serious problems, that must be dealt with. Take, for instance, the debtor prison. Debt has always been about morality, and the intensity of the moral conviction that you must pay what you owe, is nowhere as fierce as it is in America. Despite forgiving, literally forgiving, banks and hundreds of other companies in all industries for owing more than they can pay, for the average citizen in America, forgiveness comes hard, if at all.
More than a third of all US states allow borrowers of money who find themselves unable to repay their debts in harsh economic times to be jailed, and US judges have signed off on more than 5,000 warrants since the beginning of 2010 in nine US counties, according to the Wall Street Journal.
Philosophically, it is an ill logic that presents itself. The much misunderstood Occupy Wall Street is fighting this illogic.
"You must repay what you owe. You borrowed it, after all. We are sorry your circumstances may have changed, but a contract is a contract. See, you signed this contract. And you owe this. You must repay it."
This conveniently papers over, literally, the lending side of the contract. In this logic, lending is an economic activity without risk. What, then, is the rate of interest, the cost of the money that one borrows? Theoretically, this was to compensate the lender for the possibility that you have made a promise you cannot keep. That's what borrowing is, after all, a promise. So what is this rate of interest in a system where banks face no risk whatsoever for overestimating your ability to keep your promise? A fee perhaps, or gratuity? After all, you borrowed the money and agreed to the rate of interest, the fee. You promised. And the promise is viewed as sacred. How is it different from any other promise? A campaign promise perhaps?
Risk-free economics. Our bankers and lenders may be evil, a role they embrace because to do otherwise would illegitimize their risk-free lending activity, (see Bank of America's (BAC) debit card fee increase) but woe be to the individual who refuses to pay his debt.
Enough. Enough preaching. You know it's time to hang it up when everything you write comes out like a roadside revival sermon fueled by secret sips of whiskey.
So this week is my final week in this chair. I leave with a tremendous respect and much admiration for what Minyanville has accomplished. It is Todd's vision, of course, and it's also thanks to the many hours of work behind the scenes by those whose faces may not be on the homepage, creating content, editing it, working with partners, creating new relationships and building this community. While this week may be my final week as Minyanville's Editor-in-Chief, it's hardly my final week in Minyanville. I'll be joining the community as someone who actively follows the content here, even though I may not write about finance as much. Like I said above, it's just time. Let's stay in touch. Meanwhile, I'll see you at Festivus.
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