Monday, August 15, 2011


Motto: It's no measure of health to be well adjusted to a profoundly sick society. Jiddu Krishnamurti

What made me think of approaching this subject today? In a few words: the world around us.

Let’s go through some recent world events, in no particular order. I will have to underline at this point that my origins (Romanian) and my current working environment (Austrian-based, with significant exposure to ex-communist countries) is influencing my perception and therefore below writing. I have never been a keen observer of US economy or politics; therefore I will try to stick to what I can perceive.

Social crisis – extreme right parties gain more and more popularity, while social and individual aggression is surfacing. The recent shooting in Norway can no longer be classified under the ‘classical’ terrorist definition. People were buried alive by criminal bands in Budapest and it looks like it is the same group that murdered an exceptional Romanian handball player in a nightclub dispute in 2009; it also looks like it did not stop there, as the police did not get them off the street... UK is facing robberies and street fights, with no particular criminal profile – all ages, colors, religions or education background and the prime minister has invited to London, as consultant for solving the crisis, the famous ‘zero-tolerance’ New York police chief – Bill Braton.

Sovereign crisis is spreading through the world. The social and political unrest has been going on for some time now in the Middle East. The European countries are falling one by one under the scrutiny of rating agencies, while having difficulties in refinancing their debts, at the same time with trying to get their deficits under control. Initially it was the so-called PIIGS, but now the number of affected countries is steadily expanding. The discussion about the future of the EURO-zone is dragging for months. Russia and Ukraine are pulling away from each other and we may witness another ‘gas war’ between the two, with much wider implications. China is over-heating. The US should have got out of the woods after the voting on August the 2nd, however it only took a couple of breaths before being hit really hard by the downgrade and stock market plunge.

All in all, this month a new earthquake shook seriously the financial world and now everybody is watching out for the potential tsunami-effect.

Hundreds of thousands of experts are out there in the world, some more prolific than other, trying to be the first to specifically predict when the world as we know it will come to an end. In 2008 voices also raised, reminding us the lessons of history: after all big world crisis, world wars followed. Since then, we have heard a couple of times that the line of events could lead to World War III (the Middle East unrest, the sovereign crisis, the rise of extreme right rulers). We have also been reminded over and over again about the Maya calendar ending, as of 2012. What will come after that - only the survivors of 2012 will be able to tell? As we have successfully surpassed the year 2000, let’s be optimistic once again and assume a large part of us will beat the odds.

There is of course another theory and it is that the WWIII is already here – just a different kind of war, without guns and blood-shed, just financial and political fights. It is of course a matter of definition, but this is a complicated debate and anyway is not the purpose of today’s posting.

During this week-end I started to read all these news in a different way. I remember the sensation that I felt years ago, before any of the ‘crisis’ symptoms surfaced. It was a period of glorious growth that people thought will never end, it seemed so natural for them that prices can go nowhere but up and money will always be easy to gain, while spending was the only logic purpose of having money at all. Saving was not ‘trendy’, old age was something we would never reach (because we work so hard and we are so stressed by our own importance in this crazy spinning world – right?). Therefore we must seize the day, seize also tomorrow and the day after. Well, what the hack, why not seize them all TODAY? (it is so easy to get a 35 years credit nowadays, right?).

The people who followed this line of thinking were either over-optimistic or ignorant or plain crooks (meaning they never intended to pay back what they borrowed). But they were also... a lot! And it is only natural that in those countries where spending is chaotic and individuals over-indebted, the companies they own and the governments they elect do more or less the same. This is one side of the coin.

The other side of the coin is that in the last decade almost everybody was allowed free access to money, on a market where everybody was treated more or less the same. And this is when it all went wrong - subprime on several country levels. Before the EURO period, the currencies and credit spreads reflected the countries’ profiles. The access of individuals to the credits was also restricted to their local market availability (and I am talking here in terms of volumes, prices, currencies). Globalization meant that Western money came to the ‘new’ markets after the drop of the iron curtain, with Western-like organizations, Western-like mentalities and Western-like mind-set about spending. They saw he opportunities of enlarging the markets for their products and, as the local people did not have the proper purchasing power to take on the huge quantities of available goods, the West also brought along their Western-like lending.

What they faced here was first of all that there was no history of prosperity in those countries, there was no prior accumulation and no middle-class. Therefore there were not too many second-ways out for bad loans. There was also a significant mass of ignorant and crook on those markets. There were also completely different legal systems and they worked (or better said did not work), as per local standards. Western lenders aggressive expansion policies and high competition did not help either, as the labor market was also not so well unprepared. To put it short, there was either lack of western-like professional and managerial know-how (within the senior professionals that came from the communist era) or a complete lack of experience (in the young and junior, even thou theoretically well trained staff).

Thus a vicious circle was set – the ignorant and the crook looking at each other over the counter. Of course there was also to a large extent a population of highly qualified professionals (both on customer and on staff level) and whenever they were part of the equation, the system returned expected results. However other various scenarios may have occurred: whenever one ignorant met one crook (or the other way around) small personal profits were gained and hidden within the system; whenever two ignorant met, the balance could go each way; whenever two crooks met, huge personal profits were gained and hidden within the system.

Of course the above aspects were considered by the Western investors when they came into those countries and were included in their ‘risk premiums’ – translated into prices that Eastern economies and individuals paid for the services. What the investors did not know was exactly how to measure this, as they experienced no real track record of crisis in those markets. The Western economies are only now paying the bills for the markets which they artificially created, to sell out their own products. It also means that the good borrower and the competent professional will have to pay even more ‘risk premium’ in the future - for the ignorant and the crook that has been unveiled in this crisis.

This is one tiny little side of the story, and only the West / East Europe flavor of it. The world is much bigger and the problems much deeper. Some experts try to attribute the current social and political unrest in some countries to the effects of the crisis, while linking the historical lessons of a long-term depression to an increased probability of a world war.

There is one question however growing inside my mind: ‘what if they got it wrong?’ What if the 2008 crisis is not the trigger, but one of the many effects of a much deeper and older problem? I will take you back to the main explanation that we received about the 2008 events. I will simplify this to an extreme, for the purpose of exemplification.

Three years ago the main culprit identified was the sub-prime mortgage lending in the US. The effects spread through the financial as well as real economy - like a metastatic cancer. Some voices are raised now, wondering whether the treatment (supporting the financial industry from breaking apart) was actually palliative, while the cancer kept on spreading and the countdown is still on. I personally like very much these two articles:

There are voices saying that we face a completely new crisis now, the sovereign crisis, significantly different from the one that hit three years ago. Yet the pattern is rather similar – good ratings and good prices bringing on over indebtedness and spending more that ‘they’ could afford and more than ‘we’ (i.e. contributors) would be able to repay in our lifetime. Our children and our children’s children would keep on paying for what ‘they’ spent these years (yes, the governments ‘we’ have chosen). It would sound fair if our children would actually be able to use those things that have been built or created with that money. If our countries’ spending would have gone to infrastructure, education, research – then there would be a reason for our children to contribute their share to repayment of the money spent. But if the money went for social privileges and for fueling inefficient state apparatus, for investing into useless things, then our children would certainly have a moral issue while paying for it.

And so I finally get to today’s subject. When I started writing this, I wanted to write about tolerance. After a while I understood that it is just one of the many things that I should be writing about, if I was to go to the roots of my understanding of the current crisis. Therefore I will choose another name for today’s post and will call it ‘Roots’. I will use it as a start for a series of writing on this theme, as I have stolen enough of your time already.

The conclusion that will end my posting today will be the following: I see the moments of January 2008, September-October 2008 and August 2011 as effects of something that started some 50 years ago in what we (Eastern countries) call the Western world. It gradually spread to the rest of the world. It seems to me now that it is a crisis of understanding and applying the basic human rights.

There are many religions, social systems and legal systems in this world; yet, in the name of the basic human rights, there is huge pressure towards bringing the entire world obey by some common rules. Without being wrong, it is also not right. Over-complicating the basic human right principles, expanding them into basic social and/or economic rights, applying it differently as per different environments and even worse, misusing their concept on individual or social levels has thrown the global human into a trap similar to the paradox of tolerance.

This is also why I initially wanted to write today about tolerance, because it seems to me it is praised as the key towards understanding between all people, as the ultimate virtue that must be universally practiced in order to get everything in good order. Of course that ‘good order’ in the view of tolerance is that I would let you do whatever you want even thou I disapprove and it is wrong as per my standards. Alternatively, being intolerant means I try to stop you and inflict my view of right and wrong upon you, which would be breaching your basic human rights. Tolerance does not seem wrong as a basic concept; however it is a fine line between tolerance, acceptance and then practice. And this is where Pandora’s box opens, but this will follow in another post. For the time being, I will leave you with two basic Wikipedia definitions, a glimpse at one of the most controversial notions ever:

Tolerance is ‘the practice of permitting a thing of which one disapproves, such as social, ethnic, sexual, or religious practices’.

Paradox of intolerance: a tolerant person might be antagonistic toward intolerance, hence intolerant of it; the tolerant individual would then be by definition intolerant of intolerance.

It is almost like a circular reference in an Excel file, no? However does not come either with the warning “you have just created a circular reference...” or with any ‘fixing’ solution. We have to deal with it as it is.

All the best until next time,
Georgina Popescu

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