On the L(Edge)

This week we found out the use of covert information for individual advantage is officially a bad behavior…officially. Well, that’s so long as you’re not part of the Administration's Citizen Espionage Cabal in which case the misuse of secret-court-sanctioned covert collections is in the best paternalistic interest of the citizens who are incapable of knowing what is right or wrong and need a benevolent spy to insure that they are not seditious or subversive. And we’ve learned this because we have been treated to a steady drumbeat of the allegations of misdeeds perpetrated by Steven Cohen’s SAC Capital Advisors. For those of you who are trying to keep track of which criminal activity is criminal and which is “stimulus” to “support the economic recovery” you need one simple rule to keep it straight. If it’s authorized by the Administration, it’s good, legal and beneficial for the promotion of all of our collective interests. If it’s taking advantage of those stimuli monies by private traders not in the official Letter of Marque Privateering club, it’s criminal. Wasn’t it so much easier when you could see the Jolly Roger and say, “Oh, that’s a pirate!” before your wealth was stolen?

The indictment clearly highlights, among the alleged wrong-doing, “solicitation and use of illegal inside information”, (clearly you need a secret court to adjudicate as legal what is unconstitutional) on “a scale without known precedent in the hedge fund industry.” By accessing Inside Information, SAC Defendants provided “high conviction” trading ideas giving management and investors an “edge” over other investors.  In doing this, they made “millions of dollars of illegal profits and avoided losses at the expense of members of the investing public.” 

This activity was happening, according to the indictment at the same time Goldman Sachs was independently advising the Government of Mongolia to assume 12% debt on the development of one of the world’s largest copper reserves to “purchase” illiquid equity in their own national resource despite the fact that they were also advising people to buy into Ivanhoe and Rio Tinto – the beneficiaries of the structure developed to bankrupt the country.  This was happening at the same time that the World Bank and the IFC were advising governments around the world to enter into indentures that would destabilize governments for the sake of accessing natural gas reserves and minerals.  This was happening at the same time that rating agencies were defrauding investors using inflated credit quality ratings.  This was happening at the same time that the LIBOR price-fixing behavior was happening with nary a glance.  This was happening while the criminal enforcement division of the Internal Revenue Service was privately acknowledging billions of dollars of corporate taxpayer abuse of the In Process Research & Experimentation Tax Credit – one of the largest tax frauds by government estimates – while the Treasury turned a blind eye towards evidence provided by whistleblowers.  Unprecedented?  Seriously.  Steven Cohen’s indictment is a rounding error for the abuses listed above.  And the U.S. Department of Justice action on ANY of these other matters is…, well, umm…, oh, that’s right – these other ones are in our National Interest!

I don’t know Steven Cohen and I don’t know the individuals named in the indictment.  I am intimately aware of the industry.  What Steven did was wrong but the hedge funds that purchased real estate right next to equity and bond trading switches so that they can trade in and out of positions at the speed of light (literally) are perfectly legal.  High frequency, low latency trades; proprietary trades trading against high net worth wealth management account clients’ asset allocation; and, misrepresentation of pension solvency (and the insurers thereof) – these multi-billion dollar defrauding activities are beyond the scope of investigators.  No criminal indictments.  Just political donations.

It may be the case that SAC ran afoul of the law and for that I am certain that law enforcement (including criminal convictions) is appropriate.  But I’m getting quite tired of the selective enforcement of laws in which the language contained in indictments actually specifically indicts the un-prosecuted behavior of sanctioned actors.  This is the part that really is an offense.  And worst of all, the public is led to believe that the judiciary is actually doing its job while the real crimes go undetected.  We The People, the ones who pay taxes for the authorization of the Department of Justice, are being defrauded by “Justice” and nobody’s the wiser for it. 

“The accumulation of gold in the treasury of private individuals is ruin of the timocracy; they invent illegal modes of expenditure; for what do they or their wives care about the law?

Yes, indeed.  And then one, seeing another grow rich, seeks to rival him, and thus the great mass of the citizens become lovers of money.

Likely enough.  And so they grow richer and richer, and the more they think of making a fortune the less they think of virtue; for when riches and virtue are placed together in the scales of the balance, the one always rises as the other falls.  True.  

And in proportion as riches and rich men are honoured in the State, virtue and the virtuous are dishonoured. “  

Plato had it right.  And we need to be as wise today as he was when he dictated The Republic.  Sitting in the Shenandoah Mountains with my aunts and uncles at yesterday’s family reunion I was reminded that intelligent, thoughtful citizens are living in entire oblivion to the nature and structure of the perpetuation of financial high crimes.  That needs to change and you, the reader, need to make sure that you share information that can illumine what is being done in secret in our names.  Until we shine light on the real corruption, we’ll be hanging over the edge without knowing our own precarious state.

Fabricated in Detroit

On December 11, 2010 I wrote a blog post on Article 1, Section 10 of the U.S. Constitution entitled “Debtor in Possession… well at least Possessed.”  In the wake of that posting, many professional investors and advisors (those who have a vested interest in picking the pockets of pensioners) suggested that my conclusions were overstated and the risk to bonds was not as great as I stated.  The Honorable Rosemarie Aquilina, Judge for the Ingham County Circuit Court in Michigan sided with my precedent-setting blog post.  Sorry Chrysler and Eminem – “Imported from Detroit” doesn’t get you free from the long arm of the law.  And for those of you have been sleeping, when a Circuit Court judge finds it necessary to add, in her own handwriting on the court order, “A copy of this Order shall be delivered to President Obama.  It is so Ordered.”, my warnings on the fixed income pension crisis are not black swans anymore – they’re a whole flock of buzzards getting ready for the carcasses. 

Michigan Attorney General Bill Schuette immediately announced that he’s appealing Judge Aquilina’s ruling at the Michigan Court of Appeals.  Governor Rick Snyder’s trying to limit the collateral damage from Detroit’s filing and Kevyn Orr, Detroit’s emergency manager is left looking like President Nixon at a Chinese table tennis match.  At issue is the constitutional provision in Michigan barring a Chapter 9 bankruptcy that prohibits actions which “threatens to diminish or impair accrued pension benefits.” 

Now, I’m not saying I told you so but I did thus inform you years ago!  We’ve got a real problem on our hands and the Detroit filing – a reality that President Obama desperately tried to cover with a thin veneer in his acquisition of the Presidency – is neither isolated nor the most consequential.  What makes this one somewhat ironic is that conservative pundits and many Republicans thought that unions put Obama into 1600 Pennsylvania Ave.  Detroit will give us another interesting view of the President turning his back on that very population at the whim of his true benefactors: “The Powers That Be”.  Detroit wasn’t spared in the auto bailout.  The financial institutions exposed to distressed financing of the auto sector that had a lot to lose were paid off handsomely (and anonymously)! 

So this record-setting $18 billion bankruptcy is fascinating on its face.  In the actual filing Detroit states that:

It has over 100,000 creditors;

It has “More than $1 billion in assets”;

It has “More than $1 billion in liabilities”;

It has over 60,000 parcels of land and more than 7,000 vacant structures which pose “a threat of imminent and identifiable harm to the public health or safety”; and,

Detroit has been in a state, “of 60 years of decline for the City, a period in which reality was often ignored.”

It’s this last line that really jumps off the page.  Call me Cassandra (think Trojan Horse) but the reference to “60 years” is particularly fascinating and vindicating.  What was it in 1953 that put Detroit on the collision course with today?  Ian Fleming introduced us to James Bond in Casino Royale, Watson and Crick unwound the helix, the CIA authorized the use of LSD to test human cognitive potential, Hugh Hefner published a nude photo of Marilyn Monroe in his first issue of Playboy.  A more careful view of history may suggest that this reference hearkens back to the contentious polarization of relationships between management and unions which, under President Harry S. Truman, was punctuated with events like his veto of the Taft-Hartley Labor Management Relations Act of 1947.  In his veto, he played the part of Cassandra to today’s Trojan Horse with his preamble, “I have no patience with stubborn insistence on private advantage to the detriment of the public interest.”

Private advantage insistence over public interest!  Seldom could such a ringing indictment of our current fiscal state be more succinctly stated.  And seldom have fewer paid attention to principles of fostering constructive understanding between management and labor evidenced in Truman’s veto.  Ironically, however, one must consider what’s lurking behind the masquerade in Michigan.  Does the court, the Attorney General or the Governor actually have the pensioners’ interest in mind or are they, once again, mere marionettes on the fiscal strings animated by benefactors who will profiteer from this bankruptcy?  Tragically, when the City Manager seeks to put General Obligation Bonds (munis for those of you who are in the capital markets) on the same level as unsecured creditors and retirees, you realize that “safe assets” are getting far more volatile than sellers would want you to believe.  PowerShares VRDO Tax-Free Weekly Portfolio (PVI) and PowerShares Insured National Municipal Bond Portfolio (PZA) reportedly have significant (over 3.5%) exposure to Michigan’s bond headaches according to S&P.  And while retirees read the headlines wondering what this means for them, bond traders are placing bets against their future liquidity.

I’ve said this too many times but today begs recitation.  Economies built on debt (uncorrelated, perpetual growth-dependent, leverage) must fail.  Whether it’s the U.S. Treasury’s debt currency model that mandates perpetual GDP expansion or Detroit’s 60 year descent into insolvency, the jury is in and capricious debt speculation has once again failed.  It took World War II to mask the first 30 year maturity default; Nixon’s gold default to mask the second; and, planes into the World Trade Center on 9-11 to mask the third sovereign default.  Bottom line, we’ve never proven that debt works in the long run and the actions we take to cover our illiquidity events are dramatic and far-reaching to say the least.  In last week’s post I warned of the looming specter of pension harm that is casting an ever-growing shadow across the G-20 economies.  Detroit is merely the canary in the coal mine and, with any luck, some of you will wake up before the methane knocks you out.

“I got a question for you.  What does this city know about luxury?  What does a town that’s been to hell and back know about the finer things in life?  You see, it’s the hottest fires that make the hardest steel, add hard work and conviction.  When it comes to luxury, it’s as much about where it’s from as who it’s for.  This is the Motor City.  And this is what we do.” – Wieden & Kennedy / Eminem

It’s going to take more lawyers charging millions and more slogans than Wieden & Kennedy (that’s right, the same guys that Just Do Nike) can muster to paper the mess that Detroit’s in now.  But none of that will fix the real problem.  Until we align capital to measurable productivity (including contractions), we’ve got more promises to break.  And We The People must wake up from the trance or there’s more wheels to fall off.

Until QE3 Do Us Part

 If we are careless, we’ll look at the last two weeks of market volatility and conclude that as goes Ben Bernanke’s bipolar Fed-speak, so goes the economy.  At his Wednesday conversation with economists, Ben told the National Bureau of Economic Research:

 “I think transparency in central banking is kind of like truth-telling in everyday life.  You got to be consistent about it.  You can’t be opportunistic about it.”

He went on to clarify:

“I think if you think about the recent developments and the information that we’ve provided to the public about our thinking — I guess I would ask you to consider the counterfactual, if we hadn’t said anything. The information we provided about, for example, our contingent data-dependent plans for the asset purchase program, we’re actually pretty close to our understanding of what markets expected for that program. But suppose we had said nothing and that time had passed and that market perceptions had drifted away from our own thinking and our own expectations for policy. In addition, during that time, again in the counterfactual where we don’t provide any information, it’s very likely that more highly levered risk-taking positions might build up, reflecting, again, some expectation of an infinite asset purchase program.”

Transparency is kinda like truth-telling.  If you’re not really transparent, are we to expect that the premium on the truth is kinda like your opacity?  The ‘accommodative’ monetary policy that the Fed continues to pursue is disguised under the argument that zero interest rate environments and asset purchase manipulations at $85 billion a month will stimulate employment and build momentum in the economy.  In reality, Ben’s obsession has more to do with cheap money to support wealth dislocation by enhanced leverage than it does with unemployment.  Cheap leverage for private equity buy-outs and M&A do not stimulate employment.  To the contrary, leveraged transactions typically lead to consolidation efficiency and job cuts.

To justify his ‘optimistic’ view on the economy, Ben pointed to housing – another asset bubble in the making courtesy of artificially low interest rates – and debt-financed automobile purchases.  The former is particularly fascinating given the fact that the Fed is buying a lot of mortgage securitizations.  The lower the interest rates, the lower the terminal asset value of the mortgages that they’re buying.  Now if they were a buy-and-hold investor, this would be problematic.  But they’re not.  They’re a buy-while-intervention-is-expedient investor and they’ll be a dump-when-politically-expedient seller.  In other words, the quality of the assets they’re creating through the illusion of low interest and the 30 years that those assets will be ‘underwater’ from a yield perspective doesn’t bother them.  But it should be highly troubling to the public for two reasons.

First, manipulation of the mortgage securitization market is a contributing factor to the 2008 recession.  Cheap money (then it was second mortgages being “cheaper” than consumer credit) doesn’t create stable economic conditions.  If buyers are only buying because credit is cheap, then manufacturers are prone to establish a “normal” condition that’s not resilient in economic shocks.  This problem has manifest several times in the past 15 years.  But that’s the least of what should be worrisome.  Far more problematic is the perfect storm that the Fed’s policy has put in motion for pensioners and retirees over the next 15 years.  Let me explain.

Investments in liquid stocks have seen an apparent growth over the past 5 years.  With prices rising from their 2008 lows and with leverage-fueled dividends, apparent asset value has increased.  This should be seen as good news.  However, lurking beneath the surface of this ‘growth’ has been a leverage Charybdis waiting to yawn its terrible mouth open to unleash a deadly whirlpool into which the populace can fall.  While profits rose on the corporate down-sizing efficiencies and cheap leverage, top-line organic revenue has not followed suit.  Made worse by ‘accommodative’ monetary policies in other G-20 countries (something Ben also addressed obliquely), exporters face highly volatile markets and are not growing new business as quickly as their perceived ‘value’ has inflated.  In other words, we didn’t get more workers more productive over the past 5 years.  Rather we got fewer workers more efficient.  Second, long-term assets (the fixed income kind) have been depressed.  From your CDs that barely cover the postage to report on their meager performance to your 401(k) fixed income accounts with PIMCO and Templeton, what was modeled to generate 2-3% has barely eked out half that value after fees (which haven’t changed enough to compensate for the degradation in performance).  And at the bottom of the yawning chasm – far beyond the watchful gaze of most investors – insurance companies (life, mortgage, and pension) have been holding onto loads of cash that has not kept up with the mandatory returns that they need to fulfill their future obligations. 

This last point is the one that could really take out the next generation.  What made the first hundred years of the Federal Reserve work was its inextricable accommodation to match asset duration between the banking and life insurance and (insured) mortgage sector.  Take away life and property insurance and you don’t have the U.S. real estate market.  Take away these markets and you don’t have long-term investments.  And have insurance companies fail to keep up with their actuarial investment requirements and you don’t have liquid insurers in a decade or so.  Conspicuously missing from the Chairman’s comments were any references to the Pujo Committee and its investigations leading up the authorization of the Fed.  What was supposed to be a mechanism to break the banking monopoly on financial and monetary policy in 1912 actually turned into a mechanism which now is entirely an asset monopolist on both the U.S. Treasury and the mortgage market fronts.  And worst of all, this particular monopolist is actually undermining the future in triplicate.

Preservation of the current interest rate environment has not worked nor will it in the indeterminate future.  In fact, the longer it persists, the bigger the implosion.  This ‘bubble’ won’t pop – instead it is a giant vacuum that will suck future economic interests into a downward spiral.  We’ll have to make up new names – not Recession and Depression but Coriolis and Charybdis.  And, to be clear, the present course has been set for so long that we’ll necessarily have to pay to unwind it.  And that, unlike Ben’s speech, is not conditional, situational truth.  It’s the cold, hard facts.  At the undoing of QE3, equities will fall, insurers will default, and real estate will collapse again.  And we’ll keep sharing this fate until we embrace an economy that fosters productivity-based policies rather than monetary manipulative accommodation.

The Golden Lure: Factor Ficiaries

Oh the good I could do with millions of dollars!  Never mind how I get them.  If I had them, then I would…

Just a few short centuries before the great time change, Aeschylus (525-456 BCE) gave us one of our more venal terms: “Philanthropy”.

“For he, thy choice flower stealing, the bright glory

Of fire that all arts spring from, hath bestowed it    

On mortal men. And so for fault like this      

He now must pay the Gods due penalty,       

That he may learn to bear the sovereign rule

Of Zeus, and cease from his philanthropy.”

Prometheus Bound (lines 6-11)

Ironic, don’t you think, that the first use of philanthropos tropos in literature is associated with a chained Titan hero being punished by the gods for loving humanity too much?  Prometheus, having given humanity the divine utility of fire thereby unleashing civilization and the arts, was bound in chains and riveted to a rock so that an eagle could feast on his liver each day (the liver would magically regrow through the night for the eagle’s next chomping). 

Following the well-trodden path of metaphysical catechist annexation, Judaism (tzedakah), Islam (Zakat), Christianity (charity), Hindu (dāna) all promoted the importance of using material wealth as a means of evidencing concern for “others”.  The principle of charity as a means of manifesting social justice in the present and prima facie evidence of goodness in the great beyond has been a fixture in cultures for thousands of years.  In the over 1.5 million “charitable organizations” in the U.S. alone over $2 trillion dollars are parked awaiting deployment.  Pope Benedict XVI in his Papal Encyclical Caritas in Veritate, quite carefully articulated the centrality of charity as a means of evidencing and transcending social justice in genuine expressions of love for humanity.  Carefully reading his exposition, you see a recapitulation to the Pope Paul VI Encyclical Populorum Progressio view which states that a globalized society, “makes us neighbors but does not make us brothers.” Benedict and Paul conclude that it’s the gods who are responsible for making us genuinely care.  So there’s a paradox: deities punish a hero for loving humanity too much and the same deities are the only pathway to evidence philanthropy!

I was around a lot of money in the last several weeks.  Loads of it!  And I was struck by two seemingly disparate issues expressed by the people who had it.  First, they were really upset that they don’t know how on earth to invest it to make more of it.  Do you put it in Treasuries, gold, equities, real estate?  What’s going to be the best hedge against Black Swans, irrational exuberance, and other metaphoric specters?  How do I know that I’m not having my pocket picked by my wealth managers who are prop trading against my portfolio?  And second, they didn’t know how to give it away.  NGOs, charities, random acts of… well, randomness? 

One of the most desperate communities needing philanthropy – and I mean a genuine sense of the love of humanity – is philanthropists!

Now the title of the post, “The Golden Lure”, is meant to be what at least a few of you “caught” when you first read it.  We know the reciprocal ethic of, “Do unto others as you would have them do unto you,” referred to by many as the Golden Rule.  But through the prism of materialistic charity (the myopia attending disproportionate monetary wealth) the reciprocity is missing.  In a world of “benefactor” and “beneficiary”, the ‘factors’ are seen for what they have – not who they are – and the ‘ficiaries’ are seen for what they lack – not who they are.  The more mournful the caricature of lack (think children and puppies here), the greater the lure.  Tragically, the currency utilized to satiate the endless cycle of futile charity is held in disproportion most often because the impoverished were unseen prior to predatory endeavors.  Had we engaged resource stewards with suitable honor, we wouldn’t have the IMF and World Bank’s much ballyhooed “resources curse”, for example.  We’d have less billionaires but we’d also have less sex slavery, human trafficking, and permanently dislocated refugees “needing our charity”. 

Philanthropists, like their mythical progenitor, are riveted to the golden rock of their enslavement only to have their livers pecked out by each tale of woe born of monetary resource asymmetry.

So here’s an idea.  Why don’t We the People wake up from this 2,500 year trance?  If we are in possession of excess in one dimension of wealth – money for example – why don’t we examine where we failed to fairly price the contributions of others and seek to remedy that imbalance?  Maybe it’s with our money.  Maybe it’s with our time, communities, technologies, knowledge or any of the other Integral Accounting dimensions.  Rather than relying on the morning eagle’s feeding torment to rob us of our joyful engagement with humanity, why don’t we enlist humanity to chip away at the rock thereby reducing its anchoring qualities?  Then one day, when the eagle comes, we can teach it to fish and it can eat for a lifetime.

National Secrets: Treasure or Treason?

Sitting in the mist just north of the Eiger, Mönch, and Jungfrau mountains in Wilderswil, I watched the momentary afternoon sun concede to the onslaught of rain that soaked me earlier in the day.  The dense fog erased the glaciers, then the rocky crags, and then the nubile clouds dropped curtains of rain blocking everything beyond the closest tree-line.  Shrouded in their watery vapor, these sentinel mountains vanished.  Switzerland’s notoriety as a state of discretion and secrecy was, in modern times, highly valued as the 1934 Swiss Banking Act shielded countless assets from “enemies” of the Nazi state – notably continental European corporate and Jewish deposits from occupied countries.  Secrecy and privacy as constitutional rights under Article 13 of the Swiss Federal Constitution affords absolute protection of citizens’ “private and family life”.  Swiss banking and securities professionals are prohibited from breaching confidential client information (Article 47 of the Banking Act and Article 43 of the Federal Act on Stock Exchanges and Securities Trading).

Swiss secrecy predated the scourge of Nazi Germany by several hundred years.  Swiss cantons were both the sanctuary and crucible for 16^th century religious reformers who, together with their patrons, sought to move life and wealth to safety in the mountain state.  On the lam arising from charges of ecclesiastical treason and heresy, Swiss resident John Calvin opened the door to equitable usury which created an ethical loophole for Protestant bankers to exploit.  Catholic and Protestant bankers alike all found this more expansive interpretation of canonical sin desirable.  Discretion regarding the identities of their valued depositors during a period of religious and political upheaval was a helpful corollary to solidify the Swiss primacy of fiduciary secrecy. 

Reminiscent of the conditions giving rise to Swiss secrecy in the era of Calvin and Zwingli, and the codification of the same on the eve of war, secrecy and treason have once again vaulted onto the awkward international stage.  The Swiss National Council just rejected “Lex USA” – a bill that would have aligned Swiss rules with demands in the U.S.  Foreign Account Tax Compliance Act (FATCA).  While the U.S. will undoubtedly pierce the Swiss veil to go after tax evaders (together with their EU taxation counterparties), one cannot avoid the paradoxical timing of this simmering conflict.  The U.S. wants disclosure of information from Swiss bankers at the same time it seeks to prosecute information disclosure by Booz Allen Hamilton former employee turned temporary Moscow airport resident Edward Snowden.  Apparently the “self-evident Truths” version of “truth” and “TRUTH” are not compatible.  If it serves the corporate objectives of Obama’s “powers that be”, then we want as much information as possible.   If it could incriminate them for treasonous acts against the U.S. national interests (like disclosing intelligence cover operations and covert financing), then we want to lock-up the leaker. 

Incoming National Security Advisor Susan Rice assured the public that Snowden’s activities had “not weakened the President.”  That’s true.  Given that many of the programs outlined in Snowden’s leaky goodie bag likely predate this Administration, it’s reasonable to assume that Obama’s Guantanamo-perpetuating, willy-nilly drone assassination reputation won’t be further tarnished.  Maybe she hasn’t been fully briefed on what Defense Secretary Chuck Hagel and Joint Chiefs of Staff General Martin Dempsey seem to know.  But in a time when the Internal Revenue Service is rushing to deal with damage control on its identity targeting; with the President justifying violations to fundamental Constitutional rights; and, with a runner in Moscow with secrets that are either trivial or of dire consequence if leaked, I’m fascinated by the myth and mystique of secrets.

What’s in a secret?  And why do we presume that they are a necessary component of the social order?  The notion that a democratic, representational power – such as a country – can only secure itself through opacity is oxymoronic.  Undercover representational government is somewhere between offensively elitist and fascist.  It is contrary to the principles of commerce (willing buyers and sellers informed of all material facts), contract (fully-informed counterparties), and community (consensus to an established, stated order).  There’s no surprise then that it is fiduciary interests, not representational governments that need secrecy.  Our paternalistic lords know that if they were operating in full transparency, neither they nor their benefactors would enjoy the benign endorsement of the taxed and governed.

For Switzerland, there’s a fraction of 10.3% of its economy derived from the financial sector (CHF 59.4 billion) that’s riding on secrecy.  For the U.S., there’s at least that much or more riding on keeping the national defense and central intelligence budget (and their contractors) secret.  And for We The People, it may be time to actually step into the light and break the tyrannical illusion that secrecy is in our interest.  As long as we espouse its merits, we’re subject to its oppression and misuse.  Prioritizing transparency and accountability within ourselves and our communities will diminish the value of opacity.  And lest I be misinterpreted, I’m not suggesting that discretion and privacy need to be abandoned in inter-personal relationships.  But in positions of stewarded power and accountability, secrecy should have no quarter for in its precinct thrives treachery and treason which knows no rank, office, or distinction.

Head in the Clouds

Last night I watched the Tom Tykwer, Lana and Andy Wachowski adaptation of David Mitchell’s 2004 novel Cloud Atlas.  I needed to put my feet up for a long rest as I had spent three hours on my bike riding across Albemarle and Nelson Counties for my pilgrimage to Rockfish Gap.  Three hours of riding, three thousand feet of elevation, and three cramped leg muscles were great motivators for three hours of plumbing the tapestry of Mitchell’s imagination.  There were times in the film where my mind felt on the verge of following my legs into tonic contractions but the $102 million dollar film undulated just enough to stave off fatigue.

For those of you unfamiliar with the film, it seeks to weave a trans-incarnated narrative across time and geography including the South Pacific in 1849, Cambridge and Edinburgh in 1936, San Francisco in 1973, the UK in 2012, a future Neo Seoul Korea in 2144, and a post-apocalypse Big Island in 2321.  Reminiscent of what would happen if James Michener, Siddharta Buddha, and George Lucas were all channeling Georg Wilhelm Friedrich Hegel in a German coffeehouse in 1951, there’s more than enough gruesome angst to satisfy the most fatalist observer.  The grotesque visuals of the orgy of consumerism at its extreme in Neo Seoul regrettably leaves little to the imagination – both in how depraved unchecked consumption can be and how close our current society’s trajectory is aligned for that outcome.  Hegel’s rational unity and dialectical tension from which social ‘progress’ was thought to emerge are indicted by self-replicating illusions across time and space with periodic ethical glimpses amidst the prevailing degeneracy.

A few paragraphs into this and some of you are wondering if I’m channeling the Wachowskis, Hegel, or if I just had a depressing week.  Put down the dictionary, the Wikipedia, or whatever other reference you’ve been using to probe the preceding darkness and read on.  I’ve got an important observation to make.

In a rather poignant scene towards the end of the film (spoiler alert), there’s an energized conflict between a slave holder and his son-in-law as the former is about to disown the latter and his wife.  Seething at the foolishness of his utopian ideals, the father-in-law berates the young man with the predictable admonition that seeking to overturn the inertia of an incumbent (albeit, unjust) system is futile as the effort is, “but one small drop in the ocean.”

The young man replies, “My life amounts to no more than one drop in a limitless ocean. Yet what is any ocean, but a multitude of drops?”

In 1982, on this day, the United States passed the Intelligence Identities Protection Act (PL 97-200).  On this, its first day of adulthood, Edward Snowden reportedly requested asylum in Ecuador for his role in unveiling massive spying activities perpetrated by the U.S. government and its contractors.  In 1982, the law sought to protect spies.  In 2013, there is no law to protect the public from a government that has determined that covert actions are more justifiable than the democratic ideal.  Did we learn from the cold war and the futility of lives lost in covert operations 21 years ago?  Are we learning any lessons about accusing foreign governments of spying while we’re guilty of the same crimes?  Far from Hegelian progress, our ethics are in retrograde.

As this week came to a close, Fed Chairman Ben Bernanke’s statement merely stating the unsustainability of the Fed’s reckless balance sheet expansion and debt manipulation (by the way not saying that he’s of the mind to stop the madness just yet) triggered interest rates spiked and financial commentators expressed concerns about another “housing bubble”.  Did we learn from the Bush Administration’s consumer indebted response to 9-11 where we turned houses into ATMs?  Did we take in the lessons of the “Global Financial Crisis of 2008”?  Far from it.  We actually have achieved in half the time even greater systemic instability.  The housing market wasn’t coming back.  Investors incapable of seeing their fixed income and high-yield assets dwindle pumped cheap money into the housing market again and Ben’s moment of lucidity diagnosed just how frail the illusion is.

Which brings me back to Cloud Atlas.  As an individual who seeks to facilitate an alternative model of productive engagement and resource stewardship, I puzzle over the Pavlovian predictability of consensus indebted consumption.  We know it’s going to harm us.  We know it’s going to destabilize communities and countries.  Our collective capacity to evidence, enact and demand transparent accountability seems to be dwindling at the very moment we need to transform our systems.  Are we so sedated that the prima facie abuses to the values we espouse simply no longer evoke engagement?  Our sanctity is being violated in the name of security.  Our means of value exchange is being debased.  Our infrastructure is being consolidated in the cloud where our vulnerability is greatest.  And all this is going on by ‘leaders’ who callously admit to their contempt for the law, for justice, and for manifesting a productive and fruitful future favoring, in its stead, the momentary satiation of the demands of their benefactors. 

We The People are more than this.  Our myths, legends, religions, and idols all strive to justify acquiescence to the futility of this macabre karma.  From our Tower of Babel to our sadistic blood thirsty cults, we tell a story of diminished capacity of humanity so that we can justify the madness that swirls around us.  Well, here’s one drop that’s not going to that ocean.  We are not the problem.  Our myths are.  We are not harmful when we collaborate, when we aspire, and when we place ourselves in service to a higher purpose.  We have nothing to fear in a world where we’ve refrained from predation on those we see as less than ourselves.  We - you, me, all of us - need to live in ways that honor all those in our lives and then repeatedly recite the accounts of a more favorable humanity thereby improving the possibility for others to see and engage the same.

For nearly 5 years, I’ve spent every Sunday striving to illuminate topics that I hope encourage a few of you to think and act differently.  I trust that a few of you take a moment, once again this week, to encourage those you know to read, think and act in a manner befitting the symphony that is only elegantly heard when we each play our part.  

Letter to Kevin Kimberlin

It doesn’t seem that long ago that you were in our M∙CAM offices at an annual meeting talking about the future of innovation and the central role Spencer Trask and M∙CAM would play in migrating the markets from the industrial to the innovation economy.  That was 2006.  My, how time flies.  I was reminded of your visits a few weeks ago when you wrote the Wall Street Journal opinion about the commercial importance of illegal gene patents and medical innovation.  As a “co-founder” of Myriad Genetics, I regrettably understand the desire you had to monetize the scourge of breast cancer as investing on fear has been a safe bet for centuries.  I’m also deeply grateful that the U.S. Supreme Court confirmed what we said back then.  The patent Myriad acquired on natural genetic mutations was invalid and the fact that Myriad received it didn’t make it any more legal.  You can buy a patent examiner's integrity but you can't buy legality or morality.  Many of their other patents are susceptible to invalidity and, in time, they will be tested in the market.

(Note: The breathless coverage of Angelina Jolie's mastectomy on CNN and elsewhere appears to be timed to attempt to influence the Supreme Court's decision by the people who wanted to trade the fear of cancer - Kevin's Myriad.)

For those of you who don’t remember the man that funded Edison’s light bulb, Spencer Trask also kept the New York Times out of bankruptcy in 1896 and became a funding partner for the now dishonored Moody’s Investors Service.  His relentless support of actual invention – Marconi’s wireless telegraph, the phonograph and other breakthroughs – fostered many industries that persist to this day.  His investments sought to stimulate the betterment of humanity – not the economically elitist selective culling of cancer patients based on their ability to feed investor returns.

It seems fitting that, on this same week that Kevin’s venture was found to have violated patent law, we actually did something here at M∙CAM that actually is sympathetic to the impulse of his firm’s namesake, Spencer Trask.  Also in 1896, Charles Dow and Edward Jones launched an equity index that sought to quantify an average performance of a class of industrial stocks that reflected the American economy.  One hundred and seventeen years later, we launched the Innovation 30 – an index of public equities that match the Dow’s market scale and volatility but represent firms that have prioritized innovation in their businesses.  Interestingly enough about ½ of the Dow components get replaced with firms that more accurately measure the impact of the innovation economy.  If you measure the productive deployment of actual research, development and deployment, you can find several new companies that more accurately reflect the productive economy.  You can also, through the substitution, measure consistent and substantial out-performance in those equities over time.  And best of all, you don't need to follow Myriad's lead in breaking the law to do it.

What does this mean in everyday life?  Well, that’s a good question.  Kevin’s Myriad Genetics built its enterprise on a violation of patent law.  In his justification for making breast cancer detection the domain of economically equipped women, Kevin insisted that the labor associated with the description of a naturally formed gene justified the firm’s patent claims.  This logic drove centuries of colonial arrogance that asserted that putting a boat in the water and sailing for a few months gave misfit seamen the “right” to the continents on which they landed.  Exploitation of nature and people – who cares!  It was done with considerable effort.  Innovation which involves violating the law (to say nothing about morality and regard for human life) is not innovative – it’s un-Constitutional.  When we measure genuine innovation, we actually measure legality and then take the next step: we measure the degree to which legal innovation is put to productive use.

The Supreme Court decision is a hollow victory.  The fact that the Court had to rule on an abuse of the law that enriched shareholders at the expense of human life is a travesty.  While we can take some solace in the fact that the law was upheld – an all too infrequent occurrence of late – we should be gravely concerned with a humanity that perpetuates the mercenary impulses of those who trade on mortality.  Far from the rich cultural and philanthropic legacy of Spencer Trask – whose contributions to the arts expanded MoMA, literature and culture – Kevin’s last stand will be remembered by the press offensive trying to influence the Supreme Court by celebrating painful therapeutic and prophylactic mastectomies. 

The Supreme Court decision was the first step towards emancipating nature from the misappropriation of inhumane actors.  There are many more.  For those of you who wish to build on the impulse unleashed by the Myriad decision, I would invite you to become part of a campaign of bringing light to this illegal and unethical practice.  Using M∙CAM’s All Patents Considered website, get a perspective on other efforts to expropriate nature and then use your networks to get people informed and engaged.  And Kevin, the world doesn’t need more Myriads – we need a little more of what Spencer Trask actually sought to manifest over a century ago.