Default Swaps and Denuded Swamps

While subprime lending precipitated the latest financial meltdown, credit default swaps drove us over the cliff. Greedy and unscrupulous lenders are easy to blame, and rightfully so, but pinstripe suits are in fact minor players in the crisis. The proximate villains are government deregulators working in conjunction with commercial banks to create a grand Ponzi scheme of hiding risk to bilk taxpayers out almost $1 trillion. However, even these obscene self-proclaimed masters of the universe and criminally compliant feds are not the real problem. We the American people, individual investors, families struggling to fund retirement accounts, are the ultimate cause of this crisis. We are the enemy. We allowed this to happen by pretending we could have something for nothing, that we could create wealth with no risk, that we could invest with impunity no matter how weak the underlying fundamentals. We were had, but we let ourselves be taken on the false hopes of empty promises.

The mentality and collective insanity that enabled the creation of destructive financial instruments like credit default swaps have had consequences that extend well beyond the financial sector, reaching all the way to the deepest jungles of the Amazon. Not just the obvious impact of collapsing banks, but the philosophy and herd-instincts that led us to this sad state. Much of our domestic and global environmental woes share a common cause with the implosion on Wall Street. The shared denominators are hubris, greed, wishful thinking, willful ignorance and a deep arrogance about our relationship with the material and natural worlds. The seemingly unrelated financial and ecological crises are in fact bound together by the same incredible idea that somehow humans are unaffected by the laws of nature, that we are above and separate from all other forms of life, free of earthly constraints. If we wish to avoid a bleak future in a failing economy, and conserve the resources on which we depend for our survival, we absolutely must adopt a more modest view of our rightful place on the planet.

So far our record is not enviable. The very same arrogance that allowed us to think we could defy gravity in the stock market gives us confidence to ignore the destruction of 40 million acres of tropical forests every year, be indifferent to the catastrophic loss of our coral reefs and dismiss the urgency of climate change. The hubris that encouraged us to invest with wild abandon in bundled mortgage securities with no corresponding inherent value makes us dangerously complacent in the face of mass extinction, now reaching a level of 50,000 species every year.

The implosion of our financial system is a wake up call, a warning of other impending crises caused by our conceit. If only we would listen to the blaring alarm. What we have done to our economy we are doing to our environment. Unfortunately the same characteristics that led us down this path of self-destruction have made us deaf to the ear-splitting signals all around us. Saying that the "jury is still out" on climate change is like doubling down on credit default swaps. The effect will be equally devastating.

When our banks collapsed, the government immediately stepped in to stop the slide to chaos. Yet we are not contemplating an equivalent bailout to protect our atmosphere or to save species or to conserve the ocean's resources on which we depend to feed much of humanity. We ignore the impending environmental implosion at great peril, just as we now suffer for turning a blind eye to the growing financial storm before the winds of insolvency hit with hurricane force. We had plenty of warning but were hypnotized by greed.

Chaos should not be our first call to action on the environment. The signs of impending trouble are clear, and we need to act now. Let us respond with urgency, with humility, and with an eye on Wall Street as a reminder of our errant ways. After eight years of neglect, climate change, deforestation, loss of biological diversity, depletion of ocean resources, and water and air pollution all require immediate attention, and international cooperation guided by a strong leader in Washington. Starting on November 5, following his historic landslide election, Obama and his team of advisors should put in place comprehensive action plans in each of these critical areas, ready to implement the moment Obama takes office in January.

Comments

[Cactusman]

I love your posts, Jeff. I've been writing similar things as you just said to my circle of contacts for years, about the hubris of human and American (both) view that we are the most valuable species, and most valuable culture, on the planet. It's an anthropocentric view breathtaking in its arrogance. It will kill us unless we manage to utterly revamp it, and quickly!

That said, I do believe that humans and Americans (both, again) have a unique and valuable role to play in creation. But we've got to do it far differently, more as a part of an ensemble cast rather than as a singular pop superstar who takes almost all the egotistical glory, all the while ignoring the other supporting players. That's not a perfect analogy, but it's much more along the lines of what Obama's campaign has been run on than the "America is always exceptional and can do no wrong and everyone wants to be just like us" meme in the McCain campaign.

Electing Obama to the presidency along with an increased majority of Democrats to Congress will help give new breath to the environmental focus needed in an administration. We are, of course, all in this together.

Keep up the great work!

[Jeff Schweitzer - Huffpost Blogger]

Thanks for the kind words; your analogy is good; we are part of not separate from or above the environment, and your analogy captures that idea.

[francoise]

Jeff,

Great great post, thank you !

Unfortunately, not many listen to you, and especially in the USA and China.

People don't like to be predicted doom. And when the MSM hasn't done its educating job, people are ignorant of what might happen.

In France we've had a set of environmental laws presented to French Congress : it passed with next to a hundred per cent votes, right center and left ;-) Perhaps with your next president your country will take the right direction. We need to work together.

Sometimes when I remember Al Gore's words during the debates against Bush I want to cry in despair for the years, the lives, and the money, that have been wasted.

[Jeff Schweitzer - Huffpost Blogger]

No doubt the world would have been a better and safer place in Gore took his rightful place as president. There is no way the last 8 years could have been any worse. Let's hope the next four get us back on track.

[Semaj51]

I remember back to my Business Economics class in college and remember the first principal of all economics: "TINSTAAFL".

[JBS]

TANSTAAFL - RAHeinlein "The Moon is a Harsh Mistress".

[jhNY]

When I put money in a 401K, I could, I suppose, have regaled myself with subscriptions to financial periodicals wherein I might have been educated to the points of view of the advertisers, but I would bringing my ignorance to an arena controlled by the publicists of the investment industry, duly parroted by the journalists resident therein. Fact is, my retirement 'choices' are basically a list of marketing scams by people who profit precisely because I have no intelligible information by which to make an intelligent choice.

And now it turns out I should have known better to put my faith in the market, according to the author. I was unreasonable to expect I could park my money there and watch it grow, as the market is populated by reckless gamblers. What a fool I was to listen to the political leaders of the last quarter century, or the heads of mutual funds. If only I had realized that every leader in business and politics that promoted the 401K was a scam artist and a liar, because there is no sure thing in the market save fluctuation itself. Perhaps I should have realised too that all business journalists were fronting for a giant kleptocracy of which I was not a beneficiary. Then I could have invested wisely. It's all my fault.

[Jeff Schweitzer - Huffpost Blogger]

We are all indeed responsible, in spite of the sarcastic retort. We elected officials who prayed at the altar of deregulation, and who encouraged the use of credit default swaps to hide huge vulnerabilities, keeping them off the books and hidden from the public. We elected these guys, and then believed their lies. The concept of 401k is not a scam, but investing resources for that account in securities that have no fundamental underlying value is a scam. Brokers encourage trades to generate commisisons, not to protect you or grow your assets. They will whether you win or lose, and that is formula for abuse. And abuse the system they did indeed. Don't feel bad; we were all had, we were all duped. The lies were institutionalized, and made mainstream. But we were also primed to be had because all of us, I believe, were willing to invest without asking too many penetrating questions because the money seemed easy. We come back to the old saw that if it is too good to be true...