11 August 2007

Crisis of Trust

Filed under: Culture, Reflections — ktismatics @ 4:40 pm

Yesterday’s sell-off started in France, after BNP Paribas, the largest publicly traded bank there, suspended investors’ ability to remove money from three funds that had invested in American mortgage securities. The bank said it had become temporarily unable to place a value on the funds, which have turned sour as increasing numbers of homeowners have defaulted on their loans. “Trust was shaken today,” said Thomas Mayer, the chief European economist at Deutsche Bank in Frankfurt. “Credit depends on trust. If trust disappears, then credit disappears, and you have a systemic issue.” (from a 10 August article in the NY Times)

Yesterday we bought several pieces of used furniture from a small local company that specializes in “staging” homes. Homeowners can’t always get their homes sold before they have to relocate. So they move, taking all their furniture with them. But an empty house is hard to sell. Apparently buyers lack imagination: confronted with the raw physicality of the house as a container, it’s hard for most people to picture it as a home. And I suppose the empty house also implies to potential buyers that the absentee owner is eager to sell, that maybe the house can be had at a bargain price. So, for a fee, the seller can hire a staging company to decorate the empty house with tasteful and elegant furniture, reinforcing the message to house-hunters that this is indeed a high-end buy.

The staging business isn’t really needed in a red-hot market, when houses sell so fast they never get empty. In a cold market owners become reluctant to put their houses up for sale, afraid that they’ll have to settle for far less than they believe the house is worth. Our town, and apparently most of the world, constitutes a cold housing market. So, with a decline in demand for their services, the little home staging company has decided to reduce its inventory of furniture and move into a smaller warehouse. That means bargains for us: some nice used furniture that’s never actually been lived in.

For the second consecutive day, President Bush sought to soothe investors by pointing out that the American job market and the global economy were healthy. He added that deep pools of capital were available. “The fundamentals of our economy are strong,” he said at a news conference. “Another factor one has got to look at is the amount of liquidity in the system. And I am told there is enough liquidity in the system to enable markets to correct.” But his remarks appeared to have only a brief and limited impact on the stock market. Later in the day, several Democrats criticized the administration’s response to the mortgage problems as weak and shortsighted.

In response to this “crisis of trust,” the European Central Bank (ECB) lent $130 trillion at low interest rates to European mortgage banks, while the Fed pumped $24 billion into American lending institutions. The purpose behind these moves was to keep mortgage rates from jumping, which would depress the housing market even more. The immediate effect, though, is to keep the mortgage lenders from going belly-up from too many home mortgages that have gone into default. And why so many defaults? Because people were buying houses at inflated prices. And why? Because they could qualify for very big mortgages at very low interest rates. And the banks would extend these big loans why? Because housing prices kept going up up up, so banks were eager to compete for a small share of big profits. Now that the market has cooled, these heavily-morgaged houses aren’t even worth the amount of the outstanding loans. So the buyers default, and the banks can’t recoup their losses by selling the houses. Short on cash, the banks try to sell off non-liquid assets. But what do they have to sell? Bundles of home mortgage loans. But the loan consolidators are taking a hit too, for the same reason the banks are — they’re selling, not buying. Which brings the central banks into play. With their loans financed by tax dollars, and with the ability to print more money, the central banks are there to bail out the banks and their investors during this “crisis of trust.”

But the European bank’s extraordinary response — its first since Sept. 12, 2001, the day after the terrorist attacks in New York and Washington — deepened investors’ anxiety. “The E.C.B. ignited a fear that there is something really bad going on that the markets don’t yet know about,” said Jacob de Tusch-Lec, a fund manager at Artemis Investment Management in London. “It will take time until investors are sure that this is not the case.” …“It’s like popcorn in a kettle,” said James Melcher, president of Balestra Capital, a hedge fund in New York. “First you have one or two pops, then it turns into a cacophony. I think we are about halfway through.”

Macroeconomics shape our environment, and our responses to the environment, in ways that are beyond our control and for the most part outside of our conscious awareness. Economic trends emerge from collective unconscious factors like trust, anxiety and greed, which spread across the society like a virus. Economics is like a language: we are immersed in it at the macro level and it’s inside of us at the microlevel. It shapes our thoughts, attitudes and behaviors from both the outside in and the inside out. I try not to think about these things very often — a psychological defense mechanism known as dissociation. But just because I don’t make the effort to make conscious sense of the economy doesn’t mean it’s not affecting me. And these effects aren’t only psychological; they’re also tangible. After all, if it wasn’t for this crisis of trust we wouldn’t have gotten such a good deal on those three tables we bought from the home stagers.



  1. Man is first and foremost an economic entity. As a minister I deplore this…but it remains a fact….

    The above is a loose paraphrase I remember hearing from Martin Luther King, Jr.

    What are the ramifications of viewing a human person primarily as an economic being?

    Who we are depends, I think, both upon what we have, why we have it, and what we are planning on doing with it in the future. All of these are economic decisions that we tend to under emphasize in daily life. I may decide to get a nicer car and a nicer house in the suburbs, but this will invariably change who I am. I would begin to think and to act and to feel differently. There is a tight connection between where I am (my situatedness) in the current and flow of historical movement.

    On the other side, what shape does my life take if I reject the bourgeois value-system and detach from yuppie society? Invariably this detachment shapes the way I am.

    I think a lot of this line of thinking has to do with Heidegger’s development of Dasein. The unfolding of history seems as though it may be primarily an economic unfolding. Can we conceive of history without economic reality? Can we speak of a historical time period without the economic foundations that gave rise to it?


    Comment by Erdman — 11 August 2007 @ 6:13 pm

  2. As you say, we tend to underestimate the impact of economic considerations, which is remarkable since even consciously most of us spend a lot of time thinking about money: making it, spending it, saving it, investing it. We would like to think about our homes as places of shelter, comfort, nurture, stability, self-expression, neighborhood, etc., but houses are often our biggest expense, our biggest investment, and the thing on which we spend the most money. That gives everything associated with home an economic overlay. Probably everything we value takes on a monetary hue. When you try to detach you perhaps recognize more acutely how frequently money comes into conversation — expensive hobbies, vacations, extracurricular programs for the kids, etc. Perhaps even more pervasive than media.

    “On the other side, what shape does my life take if I reject the bourgeois value-system and detach from yuppie society? Invariably this detachment shapes the way I am.”

    You could make a case that this very concern about MY life, MY values, who I AM and so on is an artifact of bourgeois culture. The individual becomes the central economic unit of production and consumtion, where money becomes the source of a particularly bourgeois form of personal plenitude. This is a PoMo argument — also probably an argument from Christianity and Marxism.


    Comment by ktismatics — 11 August 2007 @ 7:55 pm

  3. That gives everything associated with home an economic overlay. Probably everything we value takes on a monetary hue. When you try to detach you perhaps recognize more acutely how frequently money comes into conversation

    Where your treasure is there your heart will be also.

    Interesting thoughts about the economic overlay of the home. It really is a fascinating phenomenon. Because we define ourselves in terms of home (and what we have in it) the majority of our lives are concerned with maintaining and growing the value of our homes. A higher income means more stuff in the house. I kind of wish I could go back to the days when you put up a mud hut and were done with it! The house was just a practical construction to keep the rain out when you sleep. But now, of course, it is so much more. We think we own the home, but in reality home owns us. This is what Jesus was going after, I believe. Is this also what you were referencing by your PoMo argument??


    Comment by Erdman — 12 August 2007 @ 7:58 am

  4. The PoMo argument has to do with the emphasis on individual selves that’s characteristic of modern bourgeois culture. Houses become extensions and expressions of the self, rather than just a necessity. The same can be said for everything we buy — that goods and services are sold to individuals as ways of exercising their personal freedom of choice and enhancing their personal happiness, self-esteem, sex appeal, power, whatever. PoMo regards this sort of excessive individualism as a product of various aspects of modernity, including the unmediated individual access to God/Scripture of the Reformers, the valorization of the self in Romanticism, and the world dominance of capitalism.


    Comment by ktismatics — 12 August 2007 @ 7:23 pm

  5. I feel that I can read Greek more fluently than contemporary economic languages/trends (and, sort of…this post).

    On another note…one’s moving to the suburbs is or can be more than just an economic decision. And even if its not, it is or can effect us in many other ways. Interestingly, I thought that, and then from The Doyle read: “shelter, comfort, nurture, stability, self-expression, neighborhood”. My identity changes in ways other than my identity as an “economic entity.”

    Interestingly: “…but houses are often our biggest expense, our biggest investment, and the thing on which we spend the most money. That gives everything associated with home an economic overlay.” Compared to: “Where your treasure is, there your heart will be also.” Well…I wrote that…then read Erdman’s saying it. Lol.

    “The house was just a practical construction to keep the rain out when you sleep. But now, of course, it is so much more.”

    from Amazon’s review/summary of “On Adam’s House in Paradise: The Idea of the Primitive Hut in Architectural History” by Joseph Rykwert


    “This strange and engaging book is an excavation of an old and cherished idea: that the original, Adamic conditions of human dwelling-in-the-world can be glimpsed in some basic form of primitive hut. Joseph Rykwert guides us backwards through the history of this idea, from Le Corbusier and Gropius, through Ruskin and Viollet-le-Duc, then through the thickets of Classicism [Laugier, Perrault, Blondel, etc.] and finally back to the atavistic architecture of archaic Greece and Egypt. Such a search for firstness is of course not a search for a building per se. It is a search for an archetype, or, more crucially, for a central feature of the human condition. Of course, every age in this survey stamps the idea with its own theoretical anxieties, so the idea, in its wild trajectory, has accreted a fascinating record of Western ideas about dwelling.

    One particularly startling example of the development of this idea of the first human house is the difference between the ancient and the modern ideas about architectural ornament. As Rykwert renders it, the ancient temples replicated in stone the forms of earlier wooden structures that had become sanctified and meaningful through sacrificial rite and through ritual/liturgical association. So the origins of the neo-classical details that so decorously decorate the White House, for example, have their origins in ritual slaughter and rites of propitiation, investiture, and oath-making. In stark contrast to this brutal and significant immediacy is the modern tendency to think of ornament in purely aesthetic terms, [hence the modernist project to rid us of it, no doubt, because it has lost its meaning and become an encumberance].

    A fascinating historical study.



    Interesting to me how the “modernist project to rid us of…becuase it had lost its meaning” seems to resonate, to a degree, with the Derrida to come. Deconstructionist (Peter Eisenman) architecture is also ornament-less though too.


    Comment by Jason Hesiak — 13 August 2007 @ 11:32 am

  6. Houses can offer an opportunity for self-expression architecturally and decoratively, but it’s so daggone expensive. On the other hand (and I’m sure you can speak about this more poignantly than I) high-end houses aren’t necessarily very interesting — mostly they’re just big. Design risks are practically engineered out of the system, because it’s tougher to sell a “quirky” house. So you end up with a lot of huge houses with features widely regarded as “custom” or “fancy” in the marketplace; e.g., granite countertops. It’s more like a language connoting money than an aesthetic. The average American home has doubled in square footage over the past 40 years, while the size of the average American family has shrunk. It’s kind of sad. What about nicely designed smaller houses, more sparsely Zen-like furnishings emphasizing quality?


    Comment by ktismatics — 13 August 2007 @ 6:10 pm

  7. Preach it brother! Amen! Mmmhhmm.

    I would just add or contribute by saying that high end houses are ONLY “interest(ing)” RATHER THAN “good.”

    And I would say that that design risks are more operationally DRIVEN out rather than engineered out. Although maybe if I could read the language of contemporary economics better I wouldn’t say that (?).

    And I would also say that the language connoting money is itself a language connoting power and greed and fear and such things as that.

    And I didn’t know that the average home has doubled in size in 40 years. Although it makes sense, actually. That’s really “interesting”.

    So far as nicely designed smaller houses go…folks when they commissioned Le Corbusier…they knew they were goiong to get small and economical. It simply had to be accepted.

    One more note…what if houses were actually more family rather than market oriented? As if a house were to be passed down through generations rather than sold to the next abstract figure meant to fit into the very generally outlined lineaments of a consume(r/d) human in America?


    Comment by Jason Hesiak — 13 August 2007 @ 7:18 pm

  8. I agree on your points about greed, fear, etc. driving out risk and excellence. Houses used to be more family than market oriented, at least within that sector of the populace that could afford it: the country estate, the villa, the family farm, etc. I suppose the peasants always had pretty crappy dwellings, owned by the lord or the estate rather than the people who lived there. Company towns were like that too in the industrial age. In European medieval towns the individual housing units weren’t very distinct from one another; probably the same was true of Greece and Rome. Still, the city architecture seems distinctive as a whole, the houses collectively conveying a sense of beauty.


    Comment by ktismatics — 14 August 2007 @ 1:55 am

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