It is Dec 24th, Christmas Eve and it is a good time as any to reflect on the happenings of 2008. Immediately what comes to mind is the recovery of the fifth and, hopefully, last victim of the landslide in Bukit Antarabangsa in Kuala Lumpur, Malaysia.
Her name was Mary. She was a Sri Lankan maid. One can imagine how those last moments may have been for her.
Was she awakened by the horrifying “loud boom” as described by witnesses? Did she then find herself trapped, in severe pain and shock, gasping for air and struggling to claw her way out? Might her first thoughts have been about the three children under her charge (later rescued) or her own home and family back in Sri Lanka?
Indeed, we know so little of Mary, an immigrant who left behind a family, a mother, a father, possibly siblings, cousins, aunts, uncles, nephews, nieces and grandparents, who will moan her sudden and tragic loss. But the epitaph of Mary sorely needs to be written.
For her story is our story. It is the story of a person, lacking education, employment or financial access, striking out for strange shores to seek out a better life, in order to survive and maybe thrive.
Mary’s death may not even deserve a footnote in our history, as most of us are mere voyeurs to the tragedy of Bukit Antarabangsa, the same way we would be to a pileup on the highway.
The media persists to refer to the 14 destroyed houses as “bungalows” – and not as they, more accurately, should be called “homes”.
I guess to call them homes would connote they were once filled with real people who were loved and cared for, not the materialistic troves of branded stuff and locked safes of the indulgent.
Overheard at a recent house-warming was the callous commentary: “Well, rich people who want to live up in the hills had it coming.” Or worse still “It was all karma, they got rich through suspicious and corrupt means.” Our knee-jerk, defensive disdain suggests a deep psychosis.
If the landslide happened in a squatter area full of illegal immigrants, among whom was one named Mary, would we have cared?
Need we step back only a generation or two or three, to realize that we are all descendants of those who struggled to make this place our home, even as some of us continue to chase bungalow-sized dreams.
Do we not all share the same aspirations for a better life on a daily basis?
Why do we continue to bicker over the preferred rights of some over others? Aren’t we all of common immigrant stock, no matter which boat we came on, or when that arrived? More rights for some only makes it seem all wrong for others.
We should care – really care – for those among us who suffer – whether they be rich or poor, working class or marginalized, citizens or immigrants. For it is the same boat we’re all on, and we sometimes have no control over the tides or storms that befall us. Victims, of whatever standing, we all matter.
In the darkness, buried under rubble, and heaving her final breaths, might Mary’s last thoughts have been: “Please someone care enough to find me. I matter.”
Nassim Nicholas Taleb’s book The Black Swan: The Impact of the Highly Improbable argues that we should never ignore the possibility or importance of rare, unpredictable events.
Here are excerpts of his interview with McKinsey Quarterly:
The Quarterly: For people who haven’t read The Black Swan, can you quickly summarize what they should know to understand your point of view on recent events in global financial markets?
Nassim Nicholas Taleb: Before Europeans discovered Australia, we had no reason to believe that swans could be any other color but white. But they discovered Australia, saw black swans, and revised their beliefs. My idea in The Black Swan is to make people think of the unknown and of the potency of the unknown, particularly a certain class of events that you can’t imagine but can cost you a lot: rare but high-impact events.
So my black swan doesn’t have feathers. My black swan is an event with three properties. Number one, its probability is low, based on past knowledge. Two, although its probability is low, when it happens it has a massive impact. And three, people don’t see it coming before the fact, but after the fact, everybody saw it coming. So it’s prospectively unpredictable but retrospectively predictable.
Now that we’re in this financial crisis, for example, everybody saw it coming. But did they own bank stocks? Yes, they did. In other words, they say that they saw it coming because they had some thoughts in the shower about this possibility—not because they truly took measures to protect themselves from it.
Now, a black swan can be a negative event like a banking crisis. It also can be positive: inventing new technology, making new discoveries, meeting your mate, writing a best seller, or developing a cure for cancer, baldness, or bad breath. In The Black Swan, I say that in the historical and socioeconomic domain, black swans are everything. If you ignore black swans, you’ve got nothing. And I showed that the computer, the Internet, and the laser—three recent technological black swans—came out of nowhere. We didn’t know what they were, and when we had them right before our eyes we didn’t know what to do with them. The Internet was not built as something to help people communicate in chat rooms; it was a military application and it evolved.
So these things have a life of their own. You cannot predict a black swan. We also have some psychological blindness to black swans. We don’t understand them, because, genetically, we did not evolve in an environment where there were a lot of black swans. It’s not part of our intuition.
The Quarterly: Say a little more about the relationship between black swans and the global financial crisis.
Nassim Nicholas Taleb: I warned in The Black Swan against some classes of risk people don’t understand and against the tools used by risk managers—tools that could not fully capture the properties of the world in which we live. The financial crisis took place because people took a lot of hidden risks, which meant that a small blip could have massive consequences.
In fact, I tried in The Black Swan to turn a lot of black swans white! That’s why I kept going on and on against financial theories, financial-risk managers, and people who do quantitative finance. I warned that they were dangerous to society.
The Quarterly: What are your concerns with statistics and portfolio theory?
Nassim Nicholas Taleb: The field of statistics is based on something called the law of large numbers: as you increase your sample size, no single observation is going to hurt you. Sometimes that works. But the rules are based on classes of distribution that don’t always hold in our world.
All statistics come from games. But our world doesn’t resemble games. We don’t have dice that can deliver. Instead of dice with one through six, the real world can have one through five—and then a trillion. The real world can do that. In the 1920s, the German mark went from three marks to a dollar to three trillion to a dollar in no time.
That’s why portfolio theory simply doesn’t work. It uses metrics like variance to describe risk, while most real risk comes from a single observation, so variance is a volatility that doesn’t really describe the risk. It’s very foolish to use variance.
The Quarterly: What would your ideas look like in practice for, say, a manufacturer?
Nassim Nicholas Taleb: If risk doesn’t cost you a lot, take all the risk you can. That’s how economic growth is generated. Don’t fear being aggressive if that only costs you a little. Do more trial and error. Learn to fail with pride, comfort, and pleasure.
But try to have less downside exposure by building more slack into your system through redundancy, more insurance, more cash, and less leverage. Imagine a shock. What will happen if there’s a shock? How many months could you keep operating?
The problem is, Wall Street penalizes companies that have more of this kind of insurance, because they are going to lag behind companies that don’t take on the expense. I see this in my investment business. But you know what? The people who insured against catastrophes are still standing today. The other people are bust. So don’t fear overinsurance for your downside, even if you lag behind as a result.
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Psychology Today Nov/Dec issue has a great piece about rumours: The 8½ Laws of Rumor Spread by Taylor Clark and an accompanying solutions sidebar: When the Rumor Hits Home – What to do if you find yourself the subject of a rumor by Jay Dixit.
Clark cites an impressive panel of rumour experts including Barbara and David Mikkelson of hoax-busting site snopes.com, Martin Bourgeois, a rumour researcher at Florida Gulf Coast University, Nicholas DiFonzo of Rochester Institute of Technology, sociologist Duncan Watts, Chip Heath, Stanford business professor and co-author of Made To Stick, and Ohio University psychologist Mark Pezzo.
Her 8.5 rules:
1. Successful rumours needle our anxieties and emotions.
Example rumour: When Hurricane Katrina struck New Orleans in 2005, water wasn’t the only thing that flooded the city. Grim rumours flourished: Sharks have infested the water! Terrorists planted bombs in the levees! Murdered babies and piles of corpses filled the Superdome!
2: Rumours stick if they’re somewhat surprising but still fit with our existing biases.
Eg rumour: President George W. Bush supposed quote: “The problem with the French is that they don’t have a word for ‘entrepreneur.’” Fits in with belief that Bush is a klutz.
3: Easily swayed people are more important than influential people in passing on a rumour.
Kids, like some adults, are credulous, and credulous people make rumours go. Eg rumour: Bubble Yum was made with spider eggs.
4: The more you hear a rumour, the more you’ll buy it — even if you’re hearing that it’s false. Eg rumour: Barack Obama is secretly a radical Muslim who refuses to say the Pledge of Allegiance and was sworn into the Senate on the Qur’an. Repeating a rumour, or even hearing its denial repeatedly, makes people believe it comes from a credible source.
5: Rumours reflect the zeitgeist.
Rumours have the greatest chance of multiplying when the topic is current. Eg rumour: When you flash your brights at an oncoming vehicle without its lights on, you might be inviting a gang member to kill you. It’s always in mid-Sept when the rumour surfaces. Headlights are on people’s minds. That’s why you never hear it in the dead of winter or the height of summer.
6: Sticky rumours are simple and concrete.
Vivid details stick in the mind. Eg rumours: We only use 10 percent of our brains. The Great Wall of China can be seen from space. People swallow eight spiders a year in their sleep.
7: Rumours that last are difficult to disprove. Eg: Loch Ness monster. Reason: It’s a big lake.
8: We are eager to believe bad things about people we envy.
Celebs are easy targets and we are eager to believe the worst to prick the bubble of adulation around them.
8.5: Sometimes, there is no “why”.
Often, we tell remarkable tales to build relationships or show off our yarn-spinning prowess — not necessarily because we think they’re true.
Clark’s rules borrow heavily from Chip and Dan Heath’s book “Made To Stick”, which I recently got my hands on. They postulate that ideas that stick must be Simple, Unexpected, Concrete, Credible, Emotional and turned into a great Story. (In short and cornily S.U.C.C.E.S.s)
(Photo credit: Brian Watters)
Dixit’s sidebar quotes DiFonzo on some solutions:
1. DON’T LIE. If the rumour is true, don’t try to deny it. If people are motivated, they’ll figure out the facts.
2. DENY THE RUMOUR IF IT’S FALSE. “A denial still raises questions in people’s minds, but properly done, it helps inoculate people against believing a false rumour.”
3. USE A TRUSTED NEUTRAL THIRD PARTY TO REFUTE THE RUMOUR. “When Proctor & Gamble had a terrible time with false rumours alleging they were Satanists, they recruited Christian religious leaders to help refute the rumour.”
4. PROVIDE A POINT-BY-POINT REFUTATION. The more specific and concrete you are, the more likely it is your refutation will be believed and remembered.
5. PROVIDE A CONTEXT FOR WHY YOU’RE REFUTING IN THE FIRST PLACE. Don’t just deny a rumour in a vacuum, saying, “Bob Talbert is not a member of the mafia,” “I am not a crook,” or “My products are safe.” People will wonder why you’re saying this and may conclude you’re trying to cover something up.
Better to do as Barack Obama did and explain, “You may have recently heard right-wing smears questioning Obama’s Christian faith. These assertions are completely false and designed to play into the worst kind of stereotypes. The truth is that Barack Obama is a committed and active Christian.” By explaining why he was refuting the rumours, Obama provided a context that made his denial more believable.
Additionally, I would suggest some rules of my own on the use of social media in fighting rumours:
1. KEEP EMPLOYEES INFORMED: Your staff may be the prime source of a damaging rumour. Keep them informed either through your internal blog or wiki. Do a one-to-one if you have to.
3.CULTIVATE STRONG RELATIONSHIPS WITH THE MEDIA: When a rumour is about to break, sometimes the only thing that can prevent it going viral is your credibility with news editors. Work on those relationships, so they count when it matters. Otherwise…
4.BE PREPARED: Have planned responses ready. A well-written holding statement released quickly can turn the tide to your side right from the start.
IDesiTV is livestreaming the CNN-IBN coverage of the Mumbai terrorist attack.
Twitter feeds are updating fast and furiously.
Vinu has posted his photos on Flickr including this one (below)
Dina Mehta has posted some important links.
Spy listens in.
The AFP has a nasty habit of doing hatchet jobs on the net in stories like this one: Web 2.0 gives new tools to hate groups: experts
Social networks MySpace and Facebook and video-sharing site YouTube are being used as powerful new tools by extremist groups to spread a message of hate, participants in a conference on Internet hate speech warned here on Monday.
“MySpace, Facebook and YouTube are the ‘killer apps’ of the Internet today, and they’re used by millions, but the virus of hate certainly has infected those technologies,” Christopher Wolf, chair of the International Network Against CyberHate (INACH), told the Global Summit on Internet Hate Speech.
“The Internet continues to be exploited by people who espouse hate in many different ways — anti-Semites, Holocaust deniers, racists, homophobes and terrorists,” Wolf said on the opening day of the two-day event hosted by the French embassy.
“The Internet toolbox that is available to hatemongers has had a number of new items added to it over the last several years,” Wolf said, citing Web 2.0 features such as blogs, social networks, video sites and instant messaging.
Take the same headline, change it to “Web gives new tools to hate groups: experts”, interview the same so-called “experts” and place it anywhere circa 1994 and you will see what I mean.
That this story will receive a lot of airplay in dying print newspapers, manned by closet web-hating editors clinging on to the “good old days” of their profession is a given. AFP really knows its market.
“Spread the fear! Web 2.0 is gonna kill you! Another reason to log off, log out, run for cover!”
The un-named reporter for this piece did not find one single dissenting voice on the subject at the conference. It’s heavily biased in spreading the false premise that hate is all around us online.
Social networks, mobile networks and the web have a huge potential for doing good online – for effecting change, for improving people’s lives, for organising like-minded people in causes that matter, and spreading understanding, tolerance and yes, even, love.
As long as I have been on Facebook, I have never once been solicited to join a hate group to “demonize Jews and Muslims and Gays and other minorities”. Unless you consider the Vampire Bites app is an insidious Transylvanian tool of human-haters.
This kind of sloppy, one-sided, fear-inducing journalism is dead, dead, dead. And AFP should know better to encourage such reporters to report such stories without including a single counter viewpoint within.
For journalists still spreading the fear online, please take a long, hard look in a mirror and ask yourselves : “Why am I so afraid of the big, bad Web 2.0?”
“In particular, the Senator was personally interested in the rise of social networking, Facebook, Youtube, and user-generated content, and casually but persistently grilled us on what we thought the next generation of social media would be and how social networking might affect politics — with no staff present, no prepared materials, no notes. He already knew a fair amount about the topic but was very curious to actually learn more,” Marc Andreesen, the co-founder of Netscape, recalls when he met Senator Barack Obama in early 2007.
Barack Obama’s ascendancy to the highest office in America is attributed to various factors: one lame-duck president, two unpopular wars, trillions in deficits, foreclosures galore and the quintessential coolness of the man.
New media fed off old media in an endless but consistent recycling of the message of Hope and Change. It was this willingness to engage online and harness the Yes We Can-ness of the many that has ushered in America’s first Multimedia President.
Commandeered by new media advocacy company Blue State Digital, comprising four alumni of Howard Dean’s failed but praised 2004 online campaign, the skills of 24-year-old Chris Hughes, co-founder of Facebook, and the genius of strategist David Plouffe, MyBO showed the way on how to organize voters and raise money online.
Such was its success that all future presidential hopefuls must look to MyBO if they even want to get a whiff of the Oval office.
For the net generation, McCain’s, Palin’s and even Hillary’s early accusations about their opponent’s “inexperience” was incongruent with the mature way Obama’s campaign conducted itself online.
McCain’s admission that he doesn’t use email, and his inability to articulate his plans for the Internet generation, didn’t endear him to the wired and the wireless. Both young and old, including a 106-year-old, found him wanting online.
The “generational shift” was clearly evident in Obama’s multi-pronged, multimedia approach.
The campaign’s viral videos, text messages, email blasts and online advertising, organizing and solicitation for funding was unprecedented.
Here are 10 ways new tech trumped old-school campaigning:
1. Viral videos: The Obama campaign uploaded over 1,821 videos on their YouTube channel over the course of two years with views upwards of 18. 4 m and subscribers at 114,559 by Nov 4 compared to 329 videos on McCain’s channel and with 2m views and a paltry 28,419 subscribers. (Source: Jeremy Owyang).
Hot videos from the Obama fan-base were embedded on blogs and Facebook walls and enjoyed healthy circulation including will.i.am’s Yes We Can (21.4 m views, Source: Viral Video Chart), I’ve Got a Crush on Obama by Obama Girl (11.3m views) and the Hillary-Apple 1984 mashup (6.3m views).
Derrick Ashong enjoyed his 5-minutes of fame (1.08m views) when he was picked out in a street interview as the “Clueless Black Guy” and stunned the arrogant reporter with his articulate replies. Ashong then went on to expand his views online and even scored an interview with the New York Times.
2. Raising Money Online: The Obama campaign’s bottom-up strategy raised US$650 million from some 3.1 million donors. Nearly half of that sum were from those who gave less than US$200 compared to 34 percent for McCain. Blue Digital estimates that by July 2008, the campaign had raised more than US$200 million from more than a million online donors.
Obama’s online fundraising, with its constant email prodding of small donors, was a game changer. It gave the campaign enough confidence to forgo the federal funding cap of US$84.1m which McCain’s campaign took and was crippled by. In September alone, Obama raised a record US$150m – a figure Palin’s makeover specialist might have salivated over.
3. Social Networks: The tools on MyBarackObama.com was based on rebuilt versions of those created for the Howard Dean’s 2004 campaign. But four years had changed the social networking landscape with millions more familiar with blogs, MySpace, Facebook, Friendster, Meetup.com and various online activism tools.
MyBO not only enabled supporters to donate money and distribute media but it empowered them to find, convince and canvas other registered voters among their neighbours.
4. Fighting Smears: Accused of being a socialist, a closet Muslim, an Arab and “palling around with terrorists”, Obama’s campaign launched its own FightTheSmears.com site, not unlike Coca-Cola’s Facts and Myths. But a vigilant press, perhaps still smarting from missing WMDs and the 2004 Swift Boat Veterans debacle, fact-checked every claim.
The St Petersburg Times’ website PolitiFacts.com and its Truth-O-Meter and Flip-O-Meter kept popular graphical scorecards of the specific candidate attacks and rated them accordingly. Eg: A chain email accusing Michelle Obama of ordering US$400 worth of lobster and caviar at the Waldorf Astoria complete with receipt was given its lowest rating: Pants on Fire.
6. ObamaMobile on the iPhone and text messaging:
Although it reached only a few, the app may be the harbinger of the future. ObamaMobile allowed users to take a look through their contacts, and organize them by key battleground states, making it fast and easy to reach friends during the campaign. It also anonymously reported how those calls initiated in the app and relayed the info back to the Obama campaign.
“Get Involved” utilized the location capabilities of the iPhone to provide the address of the closest Obama HQ, complete with a link to Google Maps, while “Local Events” informed users of events they could participate in.
The Obama campaign also sent out an SMS to 2.9m mobile users who signed up to be the first to know of his VP selection. It instantly created a mobile phone database that the campaign could exploit.
7. Twitter updates: Twitter is quickly becoming the defacto 140-character news alert tool for media companies. Twitter updates were rife during the elections with 122,000 followers @barackobama alone. The constant stream provided at election.twitter.com was addictive suggesting a live microblogging platform may be a mainstay in the future.
8. Tech plan: Unlike McCain, Obama had a clear blueprint on his plans for technology in both video and PDF format at his campaign website. Although tech hardly came up as an issue in the campaign, Obama collected US$1.44 million in donations from employees at the 20 largest Silicon Valley companies.
His tech policy promises pandered to the Google-loving crowd and included: Net neutrality, broadband access for all, doubling the federal funds in basic research, re-establishing the National Aeronautics and Space Council scrapped by Bush, creating a technology-based curriculum for schools, and increasing H-1B non-immigrant visas needed to recruit foreign guest workers.
It seems likelier that some of these ideas may come to fruition if Obama stays for a second term.
10.Media Coverage: CNN’s John King and his Magic Wall, a Perceptive Pixel multi-touch device first demo-ed by Jeff Han at the TED Talks may not have persuaded voters to swing red or blue, but the tech for tech sake showcasing by various broadcast media had its appeal for those listening to the Change mantra.
On election night, CNN’s Holograms and Virtual White House definitely scored points for those wanting flashier 3D visualizations and who grew up on either Star Trek, Star Wars or The Matrix. It seemed fitting that the choice of beaming will.i.am, a black singer onto a stage predominantly filled with white analysts, would shortly herald the United States of America’s first digitally-savvy president of colour.
David Carr laments in “As print media declines” that the “sky is falling” in print media:
“It has been an especially rotten few days for people who type on deadline. Just Tuesday, The Christian Science Monitor announced that, after a century, it would cease publishing a weekday paper. Time Inc., the Olympian home of Time magazine, Fortune, People and Sports Illustrated, announced that it was cutting 600 jobs and reorganizing its staff. And Gannett, the largest newspaper publisher in the country, compounded the grimness by announcing it was laying off 10 percent of its work force – as many as 3,000 people.”
Amazing how Carr classifies “people who type on deadline” as an exclusive term for those in print.
I also wonder why “newspaper Web sites” are referred to as such. Why can’t we call a “news site” a news site and be done with?
And here’s Carr’s pitifully ignorant old media apologizer comment: “The blogosphere has had its share of news breaks, but absent a functioning mainstream media to annotate, it could be pretty darn quiet out there.”
Phooey. Wake up and smell the roses and hear the din Mr Carr. It’s as “noisy” out here as the clatter of any newsroom. For every newspaper that dies, thousands of news sites sprout up. The ignorance on Mr Carr’s part is that this won’t qualify as “mainstream media”. Mainstream is over-rated, just as Wall Street analysts had over Main Street bloggers about a month or two ago.
Finally, he quotes Google’s Eric Schmidt: “If the great brands of journalism – the trusted news sources that readers have relied on – were to vanish, then the Web itself would quickly become a ‘cesspool’ of useless information.”
Consider a ZaaK433 comment:
“if the great brands of journalism — the not so trusted news sources readers don’t rely on — were to vanish, then the Web itself would quickly fill the vacuum and see the attention it deserves and become a decentralized but trusted source of information.”
Can a news site draw more readers via a complementary wiki?
Paul Bradshaw posted on E-Media Tidbits about the U.K. daily Trinity Mirror’s launch of what he describes as a wiki-blog hybrid at Wiki-North-East.co.uk from an idea from web developer Louise Midgley.
Midgley, 28, who works for Trinity’s North-East division ncjMedia, won a cash prize and will also get a future share of any profits from her idea.
“I’ve written extensively on wiki journalism and its possibilities, and it’s great to see some experimentation in the U.K. However, at this stage there is a small problem: It’s very hard to find anything to edit.
For instance, Wiki North East features several “topics,” such as Kevin Keegan or wind farms. But users cannot edit these topic overviews themselves — only the “articles” underneath them. To further confuse things, “articles” that are taken from the newspaper archive are not editable. Also, at the moment, those are the only articles I can find on the site.
In other words, there’s nothing to edit. The result is something of a wiki-blog hybrid.
The most obvious button, “Add your content to this topic,” does allow you to create an article from scratch. (You also can add a topic — you can only do that from your account page.)
This approach is puzzling. One of the reasons Wikipedia was so successful is that it did not start with nothing — it took content created in a prior (edited) incarnation, along with copyright-free encyclopedia material. Wikipedia also explicitly invited users to help with incomplete entries (”nubs”).
Wiki North East might benefit from a similar approach:
-Make archive articles and topics editable.
-Offer incomplete content that needs editing.
In other words: Let go!
Of course, the biggest challenge is building a community that cares enough about the site to repair the inevitable vandalism. Good luck with that.
Actually, I like the interface of Wiki North East — it’s clearly more user-friendly and less dour than Wikipedia.
Perhaps, for any news org, the proposition of assigning a few to manage the many Wikipedia-style may be too scary. Especially for smaller media companies trying to re-charge their sites with limited resources. The threat of suits also may be too high a price to pay for naively trusting everyone to play nice.
Even Wikipedia has changed its policy on this, and the Los Angeles Times and The Washington Post have aborted free-to-critique projects after being deluged with crude comments from highly-motivated trolls.
Wiki North East encourages readers to dig deeper for information in a site they can trust. Credible content is more link-worthy and baits advertising.
The next step is for the project to constantly provide links to more contemporary stories/most-viewed stories on its current sites in the ncjMedia stable and vice versa and perhaps to link out to blog posts about the region.
(via Mindy McAdams)
A very moving story by Lane DeGregory of the St Petersburg Times of a feral child Dani imprisoned in her own home:
Just before noon on July 13, 2005, a Plant City police car pulled up outside that shattered window. Two officers went into the house — and one stumbled back out.
Clutching his stomach, the rookie retched in the weeds.
Plant City Detective Mark Holste had been on the force for 18 years when he and his young partner were sent to the house on Old Sydney Road to stand by during a child abuse investigation. Someone had finally called the police.
They found a car parked outside. The driver’s door was open and a woman was slumped over in her seat, sobbing. She was an investigator for the Florida Department of Children and Families.
“Unbelievable,” she told Holste. “The worst I’ve ever seen.”
The police officers walked through the front door, into a cramped living room.
“I’ve been in rooms with bodies rotting there for a week and it never stunk that bad,” Holste said later. “There’s just no way to describe it. Urine and feces — dog, cat and human excrement — smeared on the walls, mashed into the carpet. Everything dank and rotting.”
Tattered curtains, yellow with cigarette smoke, dangling from bent metal rods. Cardboard and old comforters stuffed into broken, grimy windows. Trash blanketing the stained couch, the sticky counters.
The floor, walls, even the ceiling seemed to sway beneath legions of scuttling roaches.
“It sounded like you were walking on eggshells. You couldn’t take a step without crunching German cockroaches,” the detective said. “They were in the lights, in the furniture. Even inside the freezer. The freezer!”
While Holste looked around, a stout woman in a faded housecoat demanded to know what was going on. Yes, she lived there. Yes, those were her two sons in the living room. Her daughter? Well, yes, she had a daughter . . .
The detective strode past her, down a narrow hall. He turned the handle on a door, which opened into a space the size of a walk-in closet. He squinted in the dark.
At his feet, something stirred…
When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany’s inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls “the real Great Depression.” She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America’s heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region’s assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.
As the panic deepened, ordinary Americans suffered terribly…
Interesting lessons as banks start to collapse around us and rescue plans and bailouts are rife. Nelson goes on:
The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.
In the end, the Panic of 1873 demonstrated that the center of gravity for the world’s credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India…