Punchinello's Chronicles

April 20, 2011

Atlas Shrugged, Part 1 – The Movie

im·ply
–verb (used with object), -plied, -ply·ing. (Implication – noun: the act of implying)

  1. to indicate or suggest without being explicitly stated: His words implied a lack of faith.
  2. (of words) to signify or mean.
  3. to involve as a necessary circumstance: Speech implies a speaker.

I went to see part one of “Atlas Shrugged,” the movie, today and thought it was great! From what I hear, parts two and three should come out in 2012 and 2013, respectively, depending on audience reaction, profits and so forth. I look forward to seeing the remaining parts. I’m a conservative in all ways and disagree that Libertarians are the same thing as true conservatives.

The movie is a clear and direct representation of Ayn Rand’s novel, which was published in 1957. Rand took 12 years to write the book, so she began in 1945, right around the end of World War II and the emergence of the Soviet Union. Rand grew up in Russia, with her family having lost their status and wealth to the communist takeover. She managed to emigrate to America, taking the pseudonym Ayn Rand in order to protect the rest of family back in the USSR.

Few people have the combination of perspective and articulation to witness and directly experience the difference between communism and capitalism, and only Rand herself had the genius to extract the underlying core principles of philosophy. Throughout her life she vigorously defended capitalism (not crony capitalism, but true capitalism), eventually laying out the philosophy of Objectivism.

It’s not easy to summarize a 1200-page novel, but the basic idea is that little by little, all the competent people in the world are mysteriously disappearing. They’re quitting their jobs, going away and nobody knows why or where. At the same time, everyone is seeing and hearing the odd question, “Who is John Galt?” Dagny Taggart, Chief of Operations for Taggart Railroads, and Hank Rearden of Rearden Steel are soon the only remaining competent industrialists in the country.

(Side note: I thought that Taylor Schilling, who plays Taggart, looks quite a bit like Ayn Rand, particularly around the eyes. Rand was a brunette, Schilling is a blond but the resemblance is certainly there, in my opinion.)

Little by little, as those inventors, builders and developers quit and vanish, the politicians begin to take control of the economy. They pass more and more burdensome laws, mandating the equal sharing of all profits and revenues, not to mention intellectual property. Yet nobody can understand why the economy is collapsing.

Atlas, in Greek mythology, was one of the primordial Titans who gave birth to the more familiar pantheon of gods and goddesses. Atlas supported the heavens, and Ayn Rand held that selfish individuals operating under the morality of capitalism support the entire world and its varying economies. To Rand, selfish meant something totally different from today’s simplistic sense of the word, and she wrote her non-fiction book, “Virtue of Selfishness” to make the distinction.

Her core question was what would happen if all the competent and virtuously selfish people in the world went on strike? Who gives anyone the right to co-opt the efforts, labor and fruits of the individual’s mind for the so-called benefit of others? If 5% of the population produces 90% of the jobs, wages, invention and development, what would would happen if that small group of people simply walked out on the world?

Selfishness, in Objectivist philosophy, stands absolutely opposed to altruism. Altruism is the sacrifice of something you value highly in favor of someone else’s values, in many cases, in favor of a lesser value. In other words, altruism is placing someone else’s need ahead of your own core values. Another way to say it quickly is “to compromise” in today’s political sense of the word.

Like Plato, Rand believed that for a philosophy to work it should be viable in a life-simulation like a novel. Her first experiments, “We The Living” and “Anthem, were followed by “The Fountainhead.” She brought forth the argument that capitalism and private ownership are morally opposed to altruism, and that the individual always supersedes the collective. She tried to show that altruism rests at the foundation of almost all modern liberal, progressive, socialist and communist economics.

Not satisfied with the first three books, Rand moved into non-fiction where she laid out the principles of Objectivism (her name for the new philosophy). Eventually, she decided to pull it all together in the epic novel, “Atlas Shrugged.”

In almost all cases, whenever I’ve spoken with people who’ve read the book they didn’t understand what it was about. Nor did they understand the way it was written. A common criticism is that the dialog isn’t “realistic.” It’s stilted, and that “nobody talks that way.” Many people find the extensive and lengthy sections of dialog to be boring, onerous and a chore to follow. Someone asked her about it in an interview.

What Rand wanted to do was first lay out the circumstances of a real-world economy. She then developed individual characters, each of which represented a basic philosophy. Additional characters represented more simplistic ideologies, where the characters didn’t understand the underlying philosophy of their thinking. To round it out, she added in ordinary people who rarely think about philosophy and have no ideology.

The next step was to put each of these characters into action, bringing them together and having them interact with each other. The initial parts of dialog are the way people ordinarily talk. But the key point of both Atlas Shrugged and The Fountainhead is that Rand then wanted to bring into the open the underlying premises, assumptions, logic and consequences of each concept. All of them, in their totality.

In other words, the characters in Atlas Shrugged aren’t “real people.” They’re symbolic representatives of whole philosophies and ideologies. Each character thinks and behaves according to the rules of logic making up those philosophies. But instead of speaking only part of their arguments, Rand has them speak out each and every component of their thought processes. Each conversation follows its internal logic to its inevitable end.

The characters in the book, now in the movie, true-to-form all speak the complete sentences and arguments that they mean to say. They don’t fade off into some vague, ill-defined “Y’know what I mean?” Nobody is allowed to rest on the laziness of incomplete thinking. That’s why the dialog isn’t what you’d normally expect.

That being said, the director has done a sort of reversal for the sake of time and entertainment value. He’s extracted the true essence of each passage of dialog, let go of the “fullness,” and laid bare the most necessary steps of logic. It’s very well done, and I found myself remembering whole sections of the book as though I were watching a sort of condensed version up on the screen.

Additionally, Atlas Shrugged was Rand’s first major attempt to clearly defend capitalism, and demonstrate the empty husk of altruism. That’s the core morality behind all the progressive ideas of sharing, equality, social welfare, fairness and so forth — all the many catchphrases we hear in the news today.

Gaining public notice by 1963, Atlas Shrugged could have been written yesterday afternoon. The reason the plot fits so well isn’t that Rand was psychic. It’s that she began to see the emergence of a hybrid philosophy and morality in the United States with the treaties signed following the war. She saw that capitalism had no philosophic justification, being an entirely new form of economics. She also understood at the deepest level what communism was all about, having lived under the system.

Rand eventually wrote, “Capitalism: The Unknown Ideal,” which sets forth the foundations for the philosophy of capitalism. Almost nobody I’ve encountered has ever read this book. Every argument we hear today about “taxing the rich,” “sharing the wealth,” and whatever other politically correct blather coming from “the Left” is old hat. It’s been around for decades, and the developing Tea Party conservative movement is all that stands against it.

We’re entering the end stage of the inevitable conflict between a poorly defined capitalism and the more typical socialism that swept the world back in the early 1900’s. Due to the lack of integrated and articulated philosophy of capitalism, it never caught on as a complete system. Instead, America cautiously adopted several major premises from German philosophers and Karl Marx. Those premises stand at the foundation of today’s massive deficit.

What we’re seeing today is the destructive cancer of altruism having been embedded in Western economic and social thought for the past 60 years. As it’s failed everywhere else in the world, so too it’s now failing here in America. Ayn Rand knew it would and wrote out the entire laborious process. That’s why the book is so long.

One of the most difficult things to produce in the movie is the fundamental dependency of the US economy on both railroads and the steel industry. Back in 1945, those two industries were critical to the United States industrialism, along with coal, oil, science, and technology. They did a fascinating “trick,” which works very well!

Postulating that the price of oil and gasoline would skyrocket, the movie opens with $37/gallon gasoline. As a result, all forms of cheap energy and the resulting industries collapse. The airline and trucking industry lay in waste, leaving only railroads as the least expensive way to move goods around the country. This is NOT the stupid “high-speed rail” we hear bandied about nowadays.

This gimmick allows us to continue with cell phones, limousines, private planes and modern technology. But it also allows the movie to remain true to the original plot, with the railways and steel industry being the main focus.

For anyone who read and loved the book, the willing suspension of disbelief is simple to do. It makes the movie even more vivid, turning it into an authentic visualization of what we’ve wanted to see for decades. For those who disagree with individualism, fair-market capitalism and smaller government, this focus on railroads makes for an easy way to dismiss the entire movie as unrealistic.

We’ve reached a nearly 100% polarization now, with conservative Constitutionalists on one side and everyone else on the other. Nobody is going to be swayed to change their philosophic or ideological beliefs by this movie. So what? There is one demographic that this movie may very well help to rescue: young adolescents with functioning minds and critical thinking skills.

I thought it was a terrific movie, and it only steps away from the book for the purpose of “teasing” anyone unfamiliar with the entire novel. We get a basic hint as to what John Galt is doing, and we learn just enough about what’s to come that we don’t end up in a complete quagmire of unanswered questions.

At the end of the movie, an oil tycoon is persuaded to walk away from his business. He burns down his entire oil field, and there’s a sign that I thought could have been better lighted: “I’m leaving this as I found it. Take it, it’s yours!”

That’s the thing that today’s politicians utterly and abysmally fail to grasp about the economy and business: Not one single productive thing, anywhere on the planet, at any time in history simply popped into existence by natural forces or wishful thinking. ALL of what we use in our daily lives to make those lives better, more comfortable, more convenient, safer, and healthier is the result of the human mind!

Individual business people have spent their lives, their work, their money, their thoughts, and their love of creation to bring into existence all that we so casually use on a daily basis. Without a profit and satisfactory exchange of value by The World for their personal investments, the rest of us (The World) would still be living in caves!

Atlas Shrugged is the story of how politicians and philosophic altruists are using every coercive trick in the book to take away everything those dedicated capitalists have tried to build. Those “selfish” individuals have worked for the betterment of mankind. The altruists, regardless of the words coming out of their mouths seek to enslave mankind and concentrate the power of control under an elite group of government functionaries. Who’s the more virtuous type of person? Perhaps this movie (and the book) will make the answer more clear.

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November 27, 2009

What’s a Credit Default Swap – CDS

Filed under: Word of the Day — Punchinello @ 6:08 pm
Tags: , , , ,

I never really understood much about the world of finance. There are all these strange words, secret acronyms and phrases that sound like priestly incantations. It’s mostly because I’m now at the bottom of the economy that I’m curious about how all this happened, why it happened, and what will happen to the rest of the people in the workaday world. So I figured I’d use some of my free time to learn about economics and finance. One of the terms flying around everywhere is the credit-default swap, also known as the CDS.

At first I thought it was like an insurance policy. Think about when you were a kid and wanted to buy a car with a loan. You probably had to get a co-signer; someone with good and trustworthy credit, like your parents. That co-signer would vouch for you, and stand in to cover the loan if you couldn’t make the payments. Both you and the co-signer actually had a stake in the loan for the car. You, of course, wanted the car. The co-signer was placing their credibility on the line, along with their trust in your loan payment actions.

I’d thought that a CDS was a way to get something like credit-card payment insurance if you lost your job. You pay the insurance company maybe $10/month while you go out and use your credit cards. If you get sick or lose your job, then you can make a claim on the insurance and they’ll keep your payments up to date for some period of time.

Nope. It turns out that credit default swaps are legal gambling. It’s why we have the term “casino economy” floating around.

Imagine two guys on the school playground; one with a red shirt and the other a blue shirt. They’ve decided to get into a fight.

Like many situations, red-shirt and blue-shirt are pissed at each other and begin this fight. And of course people start to gather around. There’s a lot of yelling and cheering, and a crowd starts to form. Depending on where you’re from, there’s always one guy who decides to start taking bets on who will win the fight. He’s the bookie, betting agent, and also the bank.

Our bookie starts taking bets from the kids around the crowd. Ten bucks says red-shirt will win, so a kid hands the bookie $10 and gets a notation in a book. Now think about it. If red-shirt “wins” that means he’s continuing on with life. But that means blue-shirt has lost.

Now suppose that red-shirt and blue-shirt are in business. If one or the other “loses,” that could mean anything. Maybe red-shirt can’t pay a loan, or perhaps their stock goes down. It could mean they postpone a dividend or it could mean they go bankrupt. Whatever the terms of the deal, that’s the “trigger.”

So let’s offer “fight-default swaps” in the playground. I’ll “swap” you $10 for a piece of paper that says I’m “in the game.” I’ve place a bet. We’re swapping some money for a “note” otherwise known as a “security.” That note gives me the right to collect my money if I win, or lose my money if you win.

We could even make this complicated and offer “derivatives.” I give the bookie $10 to bet on the fight. In return, I get a piece of paper that says I’m “in the game.” Then I sell my piece of paper to my younger brother for $9. That way, I get at least 90% of my money. If the guy I bet on loses, my brother loses. If the bet pays off, my brother makes $1 on the deal.

And, of course, my brother could then sell another derivative to our younger sister. And so on down the line.

The ENTIRE output of the planet Earth works out to be $54-trillion. That’s the gross-domestic product (GDP) of Planet Earth. The “estimated” (i.e. wild-ass guess) of the total derivatives market is anywhere from $200-trillion to $400-trillion!

Ten bucks says that red-shirt will win the fight. Five bucks says that red-shirt may win the fight, but will end up in the hospital. On the other hand, blue-shirt is hyooooge! One dollar says that blue-shirt will lose the fight, since it’s “obvious” he’s going to beat the crap out of the other guy. Someone else doesn’t agree and says that twenty bucks says blue-shirt will lose.

Do you see how ALL these bets going on have NOTHING to do with being in a fight yourself, or the people making the bets being in the fight? They’re ALL just standing around in the crowd, watching. They have no stake whatsoever in the fight itself! If they win or lose a bet, they only win or lose money. They don’t get punched in the face!

A credit-default swap does NOT require any direct stake in the business, company or event under consideration. The bookie handling the various bets is NOT required to keep ANY of the actual money being placed for bets! None! The bookie can do whatever with the money. When the fight’s over and people want to collect their money, they just “assume” the bookie has the money.

Finally, there are no regulations whatsoever as to the process of making these bets. There are no rules, no regulations, no laws, no nothing. Anyone can start taking bets on anything.

A typical CDS bookie is a bank of some sort. They’re involved with this or that “fund,” and they look around for various things on which to place bets. It’s like any Las Vegas casino offering bets on boxing matches, horse races, soccer games or whatever. It also offers a solution to addicted gamblers. If a “legitimate” casino won’t offer odds on something weird, you can sure as hell find someone to offer odds.

You could go to Las Vegas and hear that because a lot of rain is falling in California, someone is betting $100 that 10 houses in a particular county will wash off a cliff. If you’re an addicted gambler, you’ll find someone willing to take that bet and offer odds.

So too, there is SOMEone, somewhere who’s willing to take a bet that ANY event at all, anywhere in the world is likely or unlikely to happen. And many times, the “someone” is a big bank, like Bank of America, JP Morgan, Citibank, Bank of England, or you name your favorite “too-big-to-fail” bank.

Think about our bookie in the school playground. Lots of people are handing over money, betting on blue-shirt or red-shirt. Soon, our bookie (a bank) has $1,000 in his or her pocket. Looking around, he or she sees ANOTHER fight about to break out, this time between black-shirt and yellow-shirt, somewhere else on the playground.

Our bookie truly believes that yellow-shirt is absolutely going to win that particular fight. So he or she wanders over to the other fight and finds yet another bookie taking bets. This time, our bookie (the bank) decides to bet $1,000 that yellow-shirt will win. Someone else in the crowd bets $1,000 that black-shirt will win.

What happens if the first fight comes to an end and blue-shirt loses?

Given the odds, the bookie is suddenly obligated to pay back a significant amount of money to all the kids who were placing bets in that first fight. But…unfortunately, the second fight is still going on! He or she has the $1,000 “invested” in that second fight.

A liquidity problem!

If the bookie doesn’t pay off the bets on the blue-shirt red-shirt fight, then either he or she will go bankrupt, or will get his or her kneecaps broken! Ah…but the beauty of it all is that there are NO laws that require the bookie to do squat! They just declare bankruptcy, and “someone else” (the FDIC) will pay off the bets! How sweet is THAT!

So the FDIC decides to take over the bookie’s business. Their first order of business is to sell the entire thing. To whom? Well, isn’t it lucky that the Federal Reserve has created “qualitative easement,” or QE for short. The Fed, using taxpayer money, will buy up the bookie’s business. Why?

We could let the bookie get his or her ass kicked, but they’re also the student-body president! It simply wouldn’t look good! So although the FDIC “should” put the bookie (bank) out of business, instead, they let the Federal Reserve “give” the money to cover the bets. The Fed now “owns” the bookie’s business, and hands over the $1,000 so the bookie can cover the bets.

Oddly enough, although the US Federal Reserve is now that supposed owner-of-record for the bookie’s betting business, they “actually” don’t own the business. They only have an IOU that they’ll maybe own the business. In “fact,” they let the bookie keep the business (the bank), and keep placing more bets.

The “influx of liquidity” to the “market” means that every time the bookie decides to bet on yet another fight, no matter WHAT happens, the Federal Reserve will pay off the bets! It’s like the Fed is a co-signer with unlimited money!

Credit-default can mean anything. It doesn’t actually have to mean that a company defaults on its loan payments. It doesn’t have to go broke, go into bankruptcy, become “insolvent” (has more debts than assets). In fact, a bet for or against the company can be “triggered” by anything at all. And anyone can play the game, anyone can place bets.

Better yet, the bookie taking the bets (the bank) is guaranteed to have the money to pay off those bets! That means that the bank can make more and more bets, on weirder and riskier “fights” anywhere with NO LOSS!

Nice work if you can get it!

You and I, average folks out in the world struggling to survive; we’re in “the fight.” It’s the fight to survive, to put food on the table, to pay the phone bill. We’re trying to start a business, find a job, sell something online, or whatever else it takes to keep a roof over our head.

Imagine thousands and thousands of faceless strangers, gathered around in easy chairs, munching popcorn and watching each of us (you and me). They’re laughing and joking, placing bets on our daily events. “Hey…I’ll bet that guy loses his job next week and gets thrown out on the street!”

“Ten thousand bucks says you’re wrong!”

That’s the financial markets today. That’s the so-called stock exchange, commodities markets, foreign exchange markets and so forth. That’s the “playground.” If you have the money and know-how, you too can get into the game! Bet on your neighbor losing his house! Bet on your town going broke. Or, conversely, bet on your neighbor buying a second house and selling it again for less than he thought he’d make.

It doesn’t matter. Whomever “defaults” in a credit default swap, they lose. The default is the “trigger.” Whatever the trigger is set up to be, that’s simply the bet being made. “I’ll bet that Home Depot only sells 1% more than they did last year on the day after Thanksgiving!”

You don’t have to own stock in Home Depot. You don’t have to shop there. You don’t even need to know what “Home Depot” means! All you have to do is take the bet or make the bet. If Home Depot sells 1.00001% more than they did last year at this time, then you win. If their number are down by 0.00001%, you lose.

It’s amazing, isn’t it! And you didn’t even know anyone was that interested in your life, did you!

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