Financialization

I was reading a Common Dreams report on the corporation-sponsored financialization of biodiversity concerns. Their effort is being made at the United Nations 11th Conference of the Parties to the Convention on Biological Biodiversity. Both Friends of the Earth International and Food and Water Watch have warned the assembled delegates from 170 nations against this practice as being disastrous for biological diversity and the future of our species, which is dependent upon that diversity.

You may be familiar with the concept of financialization as expressed in the cap and trade “control” of greenhouse gas emissions. The practice puts a polluting value (the cap) on a unit of emissions and companies can purchase the right to pollute from other companies who do not use their alloted pollution rights. This creates a speculative market for the right to pollute analogous to any other commodity market such as pork bellies.

Obviously this process favors the wealthy, including the wealthy nations. In creating one more market, including the inherent speculation, it is also a source for generating more profit from the basic needs of the planet and mankind.

As I read the article, titled 'Recipe for Disaster': Group Says No Financialization of Nature! found at http://www.commondreams.org/headline/2012/10/13 , it occurred to me just how much financialization is a disease of our time, but also what other common denominator can we find that will allow us to exchange our values and avoid engendering value conflicts, the most unresolvable of all conflicts.

Financialization is a relatively new financial concept. Some have traced it to Milton Friedman and his Chicago School of Economics. Financialization is not quantification, which had a somewhat similar effect during the Industrial Revolution and was heavily criticized by those who resisted the quantifying of qualities. This concern is illustrated in John Galsworthy's narrative essay titled Quality about a bootmaker who was known for the high quality of his boots, but who was losing customers who bought cheaper factory made boots. The work revolves around the bootmaker's loss of self-worth.

Quantification leaves whatever was quantified untouched. The quantified object, whether boots or bricks remains itself and is simply counted. Financialization transmutes the object into a financial instrument that can be sold and purchased like any other real commodity. As a security it can enter markets it had never seen before and therefore establish values it had never seen before. This, in effect, is what happened in the recent subprime mortgage fiasco. Mortgages are very old, established, instruments of debt and enjoyed a greater repayment likelihood than many other forms of debt. Mortgages were financialized by breaking them up via computerization and repackaging these parts into securities to be sold in the financial markets. It was argued that this process minimized risk because a single mortgage default would affect only part of the security's value that contained it. The common mortgage was turned into a financial instrument no longer thoroughly attached to the property that generated it. Eventually this disconnect sank into the heads of investors generating a massive sell-off and the resulting recession. As securities very loosely attached to anything real the mortgage was subject to the uncontrolled speculation the market is capable of. This financialization led to the practice of subprime loans because the value of a mortgage became what it could generate in the speculative financial market rather than the value of the asset it was based on.

Another liability of financializaton mentioned by Friends of the Earth is the lack of accountability it generates and the games corporations tend to play. For example, Enron set up numerous corporations and then declared as profits the moneys they moved among these entities. Corporations can so dilute relationships that accountability is extremely difficult and expensive to prove, if indeed it can be done.

In my judgment financialization is also an instrument by which power is transferred from government to corporations. Up until the introduction of financialization government determined any exchanges that were to take place in the achievement of public purpose. Indeed, when the matter became serious enough, as in World War 2, government simply rationed materials such as gasoline. The market was not used because the market always favors the rich. During World War 2 everybody had to get to work, not just the wealthy. If you had an emergency or other extremely important job your ration would be commensurately higher. There was, of course, the usual attempts to misuse ration cards, but the system itself responded directly to the need. The profit motive exploited by the market approach of financialization exposes critical decisions and processes to the whims of speculation.

Financialization is a form of abstraction, about which I have expressed my concerns before. Abstraction has been a, if not the, fundamental instrument of human development. It has taken humans from the concern with the immediate and mundane world of the hunter-gatherer to the world of planetary exploration. But it is a two edged sward that can destroy with equal ease and efficiency. The reflective precautionary principle should apply to the use of abstractions, especially in areas critical to human well-being. In short, Alan Greenspan should never have been “shocked” by the collapse of the mortgage market as he testified before Congress. That he was, betrays how much his economic understanding was little more than the doctrine of Milton Friedman that the market will always correct itself and, therefore, government should have no role in regulating it. As philosopher Alfred North Whitehead said of science Seek simplicity, but distrust it, so we should say seek abstraction, but distrust it.

Bob Newhard

Will Prudence Replace Morality in Humanity's Effort to Survive?

In the past I have argued that mankind needs to transition its social values from nation, tribe, religion etc. to humanity itself, and this lonely planet itself, if it is to survive. But what if this cannot be done, as is so evident in the Middle East, where people of the same religion, but different sects, are willing to kill each other in large numbers rather than compromise? Is there another path to survival open to mankind?

Have you ever noticed that the larger the group, the less the role of moral values in major decision making? Foreign policy of a major country is not conducted on the level of whether a country, its leader, or its people are morally reprehensible or not. At levels such as these prudence takes the place of morality in making judgments.

A general truth of large numbers of things, whether natural resources or human beings, is that as the numbers increase the value of each constituent decreases. Put another way, scarcity breeds value. If human beings are to be valued, you do not overproduce them.

I suggest that at some point mankind may find that it has to replace assessments of what is the right thing with assessments of what is the wise thing. This is because prudential assessments are related to facts, especially those of the natural world. Moral assessments are all too easily divorced from the facts of human existence and can create havoc with human well being. There is no fantasy that cannot be endowed with moral value. Consider that the fantasy of a human soul contributed to human overpopulation by denying contraception to women, not to mention what it has also contributed to the limits placed on women ranging from denial of education to denial of employment.

The problem with prudence is that it tends to neglect minority or individual needs. Our Constitution sought to deal with this tyranny of the majority in its Bill Of Rights.

However, remember we are talking about the survival of the human species. I was reading to day of the outrage of some African women at being sterilized without their consent. However, what if the survival of our species required such action, except it would apply to humanity in general, both men and women? Such is possible, indeed given China's mandatory “one child” family, likely. Perhaps, considerations such as these can begin to convey to the world's populace the urgency of the need to reduce our human population. As in China, people will lose the right to have as many children as they desire. This is but one example of the revaluation, if not transvaluation, of values that the unique and overwhelming consequences of impending global catastrophe will impose on humanity.

The answer to those who pose the moral argument that the majority does not have the right to dictate to the minority, which is held sacred in our Bill of Rights, is that these rights cannot survive in a world threatened with human extinction. If we want our rights we must protect their existential foundation. Dealing with our moral values is but one consequence of the world humanity has made for itself. There are many other, neglected as this one is, that need to be articulated until the full dimension of what we are faced with begins to take shape. We cannot assume that we or people like us or societies like ours will be dealing with these unprecedented global forces as we have dealt with large issues of the past. I remember in the 1950s the evacuation plan for the Los Angeles basin announced by the authorities in the event of a nuclear attack. It made, for example, assumptions about the freeway capacities which anyone familiar with normal rush hour traffic found ludicrous. Katrina is another example of our refusal to take the future seriously. We can expect more of the same on a much larger scale if we do not come to grips with the world we have created. Prudence requires that we do everything we can to reduce our population, our consumption and our wanton destruction of our planet's ecosystems.

Bob Newhard