Saturday, December 22, 2007
In reading today’s print version of the Wall Street Journal, I happened to take in the primary front-page story, “Banks Abandon Effort to Set Up Big Rescue Fund” (sorry, I have no online link for this story).
In brief, the story explains that the large US commercial banks no longer require a Federal Government Structured Investment Vehicle (SIV) to rescue their off-balance-sheet toxic mortgage debt, due to the intervention of offshore sovereign funds (the most recent case being Singapore’s $5 billion reinvestment of US funds in Merrill Lynch – in this case an investment bank).
OK, let’s deconstruct this. What is taking place here?
First, Asian and Middle Eastern governments are holding more US dollars than they know what to do with, so seeming fire-sale prices on US banks in trouble may be at least a temporarily attractive place to unload excess US dollars (the current most-favoured option being short-term US government bonds, the rush to which in recent weeks has caused the interest rate on these short-term money market vehicles to fall on the order of 2%).
This latest development has pulled the banks out of the hottest water, at least for now. The script being played is that of past rescue efforts, such as the Asian currency collapse of 1987, and the LTCM rescue of 1998. The idea is that the problem may not be as bad as it now seems, so these international cash infusions may pay off handsomely in the long term, and perhaps even in the short term.
Second, the government-sponsored fund was only going to buy the best slices of the “toxic” mortgage debt, leaving the banks still holding the least desirable and most unmarketable tranches. Thus, the rescue would only relieve the banks of the best part of their worst commercial paper. Therefore, the banks are biting the bullet, returning the questionable stuff to their balance sheets, and declaring so far only moderate losses.
Here, the assumption is that the subprime contagion won't get worse, for example, spreading to Alt-A mortgages, or even to supposedly higher quality mortgage paper taken out by higher-income real estate holders who may have over-leveraged themselves in response to low interest rates and the only recently-ended climate of relentlessly gushing liquidity.
However, news article after news article continues to reference the fact that bank-to-bank liquidity is still “frozen,” as the banks are now “on” to each other’s game – that is, the maneuver of selling high-interest debt as a “premium” investment vehicle.
So long as it remains difficult to pry new money loose from the mortgage originators, the possibility remains that the mortgage contagion could spread far further than is presently being discussed. This looming development could potentially undermine the quality of mortgage-backed securities at all levels, including those that are presently considered most marketable.
So now we come to the third issue, which so far I have not seen covered in the mainstream financial press.
This is the place where we will attempt to connect a few additional dots.
So far, the only solution being discussed to the liquidity freeze at the consumer mortgage level is to freeze interest rates as well.
Now, tell me if I'm misunderstanding something about how the financial system works here, but….
Let’s just say that the problem is a little bit bigger than unrecoverable subprime mortgage payments, which it almost certainly is. And let’s surmise that continued solution-thinking may not extend too far beyond the current rate freeze idea (which doesn't apply to all mortgage servicers in the first place, anyway).
What again was the main idea of originating this toxic financial waste in the first place?
Yes, you’ve got it. The idea was to sell a product that would generate higher interest rates for end-market investors.
And, why was that necessary?
Again, because liquidity-addicted governments and financial markets have created a long-term financial climate in which saving money at market interest rates is a losing game.
Interest rates are held artificially low due to a continuous stream of central bank money creation. Inflation statistics are massaged to the point of unrecognizability in order to keep the game going, and dividends and interest payments have diminished to a mere fragment of their past importance, punishing savers and citizens on fixed incomes.
For many years, the only way to create increased wealth has been through the appreciation of asset values. This is based on the idea that the next purchaser will pay more for the assets you hold than you paid at the time that you acquired them.
This is the game that is drawing into its final chapter, at least in the current phase of the multi-decade (post-World War II) liquidity-creation game.
Yes, this is the environment where investors and savers have been forced to take on ever-increasing risk in order to stay ahead of the government and central bank liquidity game. So the recently-popular, low-quality, nominally high-interest mortgage products resulting from so-called “financial innovation” are now going to have their interest rates frozen. Mortgage payers will no longer be required to increase their monthly payments to service their planned “post-teaser” higher interest rates.
What then happens to the end-market investors who are holding these supposedly higher-interest-paying investment products?
Well, the most obvious outcome is that no matter what happens, these investors will now no longer be compensated for the increased risk that they have taken on in return for expected higher interest incomes. That is, the fix for the strapped borrowers will once again punish the somewhat desperate investors who parted with their own savings in order to finance these supposedly higher-interest products.
That is, strapped savers and investors now have one less option to recover interest rates high enough to compensate them for the raging inflation in asset prices that has been created in the most recent chapter of the international liquidity game.
The current government and central bank-sponsored rescue plan comes to the aid of the irresponsible and the unforesightful, and once again punishes the group who have already been receiving most of the punishment administered by the liquidity creators – even their premium (higher) interest rate investments are being taken away from them as the US government casts out a lifebuoy to irresponsible or unwary borrowers at their expense.
In fact, this so-called rescue effort doesn't really aid the strapped borrowers (who will face rising debt obligations against declining asset values), or the lenders (who once again will be unable to secure returns on savings and investments sufficient to compensate them for the mounting ravages of inflation).
The rescue effort does, however, pull the commercial and investment banks and other low-quality mortgage originators out of their current jam – at least for now.
So now, what do we foresee?
Borrowers with mounting debts and with payments now set at the maximum they can afford are unlikely to be big spenders in the consumer marketplace.
Further, lenders (savers and investors) who cannot obtain sufficient income to compensate them for elevated risk or raging inflation will remain in a very tight corner. They will certainly have no surplus funds to pass on to the consumer marketplace.
If this is how it is now, then how can there have been a US-led economic boom over the past 4-5 years?
This question isn't too difficult to answer, even for a thinker so naïve as myself (I am certainly not a financial professional, just a saver/investor trying to figure out how to set aside sufficient funds for a secure retirement, as are most of my compatriots in this global liquidity “game”).
The major flow of “free” funds into the financial marketplace has resulted from the various fees that are charged by investment managers (in particular the big investment banks) to create the so-called “financially innovative products” (an Alan Greenspan phrase) which have driven the financial asset bubble of the past two decades or more.
With every mortgage-backed security, collateralized debt obligation, structured investment vehicle, corporate acquisition, corporate bond issue, reprivatisation, corporate takeover, share buyback and corporate consolidation, the professional investment community has been able to create a new vehicle for increased income flow. (By the way, John Mauldin has explained this all very well in a series of articles on Safehaven.com.)
From the internet bubble of the 1990s through the real estate bubble of the 2000s, the professional investment community has been able to generate massive and ever-increasing fee income. This source of (entirely unproductive but absolutely massive and perhaps ultimately incomprehensible) revenue has fuelled the consumer-driven boom of the past 2 or more decades – particularly at the luxury end, accounting both for the widening disparity between the rich and the poor in the so-called capitalistic economies (this phenomenon has nothing whatsoever to do with free-market capitalism by the way, but with short-sighted and self-centred central bank, government and financial industry collusion), and the boom in the creation, sale and value of assets at the luxury end of the spectrum in particular (read any issue of the Robb Report to get a taste of where this trend has taken us).
As I have mentioned previously, Austrian economics makes clear that excess financial liquidity, generated by escalating government spending and irresponsible central bank practices, inevitably results in capital misallocation – that is – the excess flow of money always goes to the “wrong” places – to locations where less and less value is created while more and more “paper” wealth evanescently explodes outwards in inevitable financial booms, followed by ineluctable financial collapses.
The basic rule is, the bigger the bubble, the bigger the crash.
But remember, the primary point of my blog today is this – the new government/central bank/commercial bank/investment bank-sponsored rescue scheme is just one more manifestation of the inevitable punishment of savers and investors in the largest financial bubble in world history, of which the main beneficiaries have so far been those who can charge fees for the rearrangement of financial assets.
Let me make clear, this development, which has grown to previously unimagined proportions over the past decade, is not capitalism. It is a manifestation of a partnership of big (financial) business and government to manipulate and exploit the flexibility of free markets.
It will only be the collapse of this massive financial bubble which will return true freedom to our markets. At this point, the piper will be paid, and today’s winners will become tomorrow’s (over-extended) losers.
If you are a small player in this global liquidity game, how can you enter the game so as not to be punished?
There is literally only one safe course I know of.
When financial assets deteriorate in quality, as is most transparently the case today, precious metals in all cases return to favour.
Interestingly, the one secure investment which resolves a game in which reasonable interest premiums on conservative investments are nowhere to be found is the oldest investment product, and the ultimate non-interest-paying investment: gold, silver and other precious metals.
Can’t get sufficient interest or dividends on your savings?
I've got an answer for you.
Take no interest or dividends at all.
Buy and hold gold, silver, precious metals generally, and shares in the mining companies that produce them.
In today’s savings and investment environment, precious metals are the only investment product that offer a secure store of value. And, paradoxically, even with gold presently stable at a near-record high $800 US per ounce, this ultimate store of value remains dramatically undervalued.
Why is that?
The past two decades have created a climate in which financial paper and other forms of financial assets have been accorded excessive value, on the assumption that continued government and central bank-originated liquidity flows would fix “every” financial problem.
Well, today's financial problem is that liquidity (read “easily-available loaned money”) has simply stopped working to repair the widening financial damage resulting from the relentless punishment of savings for 2 decades or longer.
The tables have already turned.
If you think $800 gold is pricey, think again.
Gold will be worth thousands of dollars per ounce before the last chapter of the current global liquidity game has been played out.
Gold has been a great investment since 2001. It is a great investment at today’s prices. And it will be a great investment for years and perhaps decades to come (if finding long-term value is your true investment interest).
There is a millennia-old answer to the complex financial problems created by today’s so-called “innovative” and ever more complex financial products. Simply stop playing the game of financial innovation, and return to holding a secure and tangible asset which never loses value in times of financial insecurity.
Don't think in terms of interest, dividends, or even capital appreciation. Consider one factor only – value.
Gold works now, has worked for thousands of years, and will continue to work for thousands of years to come. It is not an archaic relic but the ultimate store of value.
Value is not easily found.
My advice, take value where and when you can. Take gold as your guide, companion and friend through the global liquidity game.
The Swiss Franc has corrected over the past three weeks or so, in response to the US Dollar bounce and the continuing carry trade in Swiss Francs and Japanese Yen.
On November 9, 2007, I recommended that Canadians diversify into the Swiss Franc, as our currency has been very strong, and the very sound Franc has been lagging the Canadian dollar.
For Canadians who missed that early November opportunity, there appears to be another chance to own this high quality currency. The following chart, is not yet definitive, but you can see that the Franc's recent weakness against the Canadian Dollar may be short-lived. The Franc relative to the Canadian Dollar is hugging the lower Bollinger Band, and intersecting the 50-day moving average. We are also looking at a 50% Fibonacci retracement. The weakness of the Swiss Franc against the US Dollar has already subsided.
Therefore, I suspect that this is yet another opportunity for Canadians to consider this particular investment, though watch closely. If the Franc relative to the Loonie falls below the 50-day moving average, a steeper correction may be indicated.
Note: "Captain Hook" has just made a bullish call on the Swiss Franc (click here).
Here is a list of my blog entries concerning the Swiss Franc:
1. Canadians, Buy the Swiss Franc Now!
2. The Swiss Franc Continues To Climb in Canadian Dollars.
3. My first compliment from Fleck.
4. Currencies 101.
5. Another Swiss Franc Buying Opportunity for Canadians.
6. All You Need To Know About Global Money Supply in One Place.
7. The Swiss Franc Is Still Strong.
8. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc.
9. Gold is Better Than the Swiss Franc.
10. Swiss Franc Alert.
11. Gold Isn't Gaining All That Much... In Canadian Dollars!
Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!
August 5, 2008: As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.
Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.
In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).
October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.
While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.
Sunday, December 16, 2007
I was moved to address the present topic after visiting some of the “Flippers in Trouble” websites based here in the southwestern United States, where Susan and I have been staying for a 6-week period.
Let me offer two as an example for you.
Phoenix Flippers in Trouble is fairly objective, documenting the plight of those who unwisely bought into the Phoenix real estate market at the “top” of its recent bubble.
As you know, bubbles collapse quickly, and this has been the case here in Scottsdale/Phoenix. Therefore, individuals who made their purchases at the bubble’s peak (2005 through early 2007) are now listing their homes for sale at discounts as high as 48.3%.
It’s not that bad for all of these purchasers (who are now re-sellers), but significant losses, onsetting rapidly, appear to be indicated. And properties are sitting unsold for months even at drastically reduced prices.
I found, however, that the Marin Réal Estate Bubble site tends to take a particularly uncharitable view towards the unfortunate “flippers,” referring to the victims of the crisis as “fools” and whiners.”
How in fact did these real estate investors get into trouble?
There is not a single narrative that unites all of the situations.
Certainly some “flippers” were speculators who hoped to buy in a rising market that was gaining say 20% per year, and then to resell at a later date, possibly very soon, in order to capture quick and substantial profits. Many such speculators would then plow the gains into purchases of additional properties, thus over-extending themselves when the flow of easy money ground to an abrupt halt this summer.
Others facing significant losses are long-term homeowners who borrowed too much money against their homes when money was easy, and then faced the double whammy of personal financial setbacks combined with a declining real estate market.
Another scenario is one in which a mainstream family takes advantage of low interest rates to upgrade to a larger home that, in the case of unanticipated adversity, they cannot afford.
Finally, some buyers, hoping to see gains on resale, chose more expensive homes, hoping to capture a larger net increase in home value by applying the growth percentage to a larger initial number (say purchasing an $800,000 home instead of a $400,000 home).
A uniting theme is that these nominal homeowners (many in fact no longer hold any equity in their homes) are financially underwater. That is, what they owe on their homes (or real estate speculations) is either greater than the current market value of the home or greater than the amount they can currently pay on their monthly mortgage account. It is apparently not unusual to find individuals who are $100,000 or more underwater.
In this case, these individuals cannot properly be called “homeowners” at all. They are merely “debt servicers.”
In fact, the mortgage holder is the full owner of the home in many such cases. Further, the mortgage holders are often large investment funds (or participants in such funds) which bought “sliced and diced” mortgage-backed securities from faceless loan originators who essentially sold the mortgage products quickly to unqualified buyers in order to unload them for quick profits and fees to unwary investors seeking enhanced interest income.
Strikingly, these low quality products (“collateralized debt obligations,” often called “garbage” securities) have ended up in a broad spectrum of “money market” funds held by mainstream, even conservative, investors, who in many cases did not know that such questionable products were “spicing up” their (anticipated) interest income – by promising to pay higher interest rates than bonds, but in fact offering little reasonable expectation that the higher rates would ever be paid at all. (Bear in mind that Mr. Paulson, the US Treasury Secretary, is now promising to freeze the rates on such products – assuring that the money market funds will certainly not produce the returns they have promised.)
As we all know, financial bubbles entice the unwary, robbing multitudes of mainstream investors of their hard-won life savings.
Unfortunately, that has happened again to many hundreds of thousands if not millions of American real estate investors (Paul Kasriel of Northern Trust reports that 2 million US homes are now unoccupied, up from 1/4 that number as recently as 1978; he reports that Americans' liabilities have tripled against their assets since 1950).
Obviously, many of these persons were engaging in behaviour they knew to be risky with their eyes wide open. Others were simply caught unaware when fortune turned against them, as the following story from the Marin Bubble blog indicates:
Wealthy Marin not immune to foreclosure crisis
"Ian Minto isn't exactly homeless, but he sure doesn't have his home. The 58-year-old former banker lost his job and, last fall, began falling behind on mortgage payments on the Mill Valley house he grew up in on East Manor Drive. Desperate, he sold the home - appraised at $1.2 million - for about $300,000 less than it was worth. "(I felt) like I wanted to kill somebody or jump off the bridge," said Minto, who just took a job at Radio Shack to help cover the cost of a $600-a-month windowless room he is moving into on Fourth Street in San Rafael…."
The author of the blog adopts a very blaming attitude towards Mr. Minto, presumably because he appears to have extracted excessive equity from his family home when times were good, leaving him in desperate straits with the loss of his job.
Mr. Minto is hardly a flipper. He may have made unwise financial choices, but he is clearly not the sort of real estate “speculator” that is currently being blamed for driving up the current housing bubble.
Why are investors around the world engaging in higher and higher risk behaviour? Are people simply growing more and more irresponsible, or is some other causative factor at work?
Let me assert here that in blaming the home equity extractors, the flippers and the over-reachers, we are misunderstanding the fundamental problem.
As I have discussed many times previously on this blog, the fundamental financial wrong driving United States and much of global monetary policy is “easy money” (that is, excessively low interest rates and accommodative central bank policy, in fact a misnomer, but we'll get to that).
How do people behave in a healthy economic environment?
First of all, and most importantly, in a healthy economic scenario, growth is driven by business investment and gradually growing consumer spending deriving from accumulating savings and return on invested savings.
In our present scenario, the investment community pays only lip service to business and consumer spending. All eyes are in fact fixed on the Federal Reserve, which, by providing injections of liquidity (increasing the money supply through creating new “federal funds” literally out of thin air), has now become far and away the most important driver of global economic growth. This is fundamentally and deeply wrong.
One need not read very far in the current financial literature to see references to central banks “increasing economic growth” by “assuring liquidity” (read: printing money out of thin air).
And, what is everyone in the investment community waiting on tenterhooks to hear? Not that business is growing and investing in productivity, which has become a concern of the past, but that the “Fed” is lowering interest rates to “stimulate economic growth.”
The notion that lower interest rates will drive so-called “economic growth” has now won such widespread acceptance that it is hardly questioned in the mainstream financial media.
But this unquestioned certainty is fundamentally erroneous.
Low interest rates punish savers, plain and simple – and punishing savers is no way whatsoever to “create economic growth.”
In fact, by punishing savers (and retired citizens) with low interest rates, our government authorities (read big-spending governments at all levels) and our central banks (the printers of the “make believe” money) are directly not only encouraging but forcing citizens to engage in incrementally riskier and riskier behaviours.
When saving is rewarded, citizens rein in risk and invest for meaningful gains in bank deposits, bonds and dividend-paying stocks.
When saving is punished – and it has never been so roundly punished as it is today – citizens seek out higher returns by investing in risky ventures to compensate for excessively low interest rates.
What I am asserting is that irresponsible government policy makers and central bankers are literally forcing citizens to engage in high risk financial behaviours, and that the entirely foreseeable and inevitable outcome of irresponsible low interest rate policies will be financial ruin for many citizens – and not economic growth whatsoever.
There is a better way, which I have discussed here many times before.
Allow interest rates to seek a natural (market-driven, and from here, certainly higher) level, and give the economy back to savers and business investors, who, much more slowly and gradually (without dramatic economic booms and busts) will create a more stable but also a more steadily-growing economic environment for us all.
In fact, let’s take the central banks, particularly the United States Federal Reserve – out of the business of running the economy altogether (let alone playing the role of the economy’s primary driver).
Let’s then make the financial news about business again, and no longer about central bank liquidity injections.
And let’s place the responsibility for the real estate bubble, including the entire spectrum of fruitless speculation in that bubble, where it truly belongs. It is government policy-makers and central bankers who have created this bubble and forced citizens to raise the bar on risk in order to compensate for chronically low interest rates in an economy driven by liquidity rather than by citizen savings and business growth.
Speculators have not driven the real estate bubble, but have merely responded to the long-term government and central bank policy of punishing savings and attendant normal investment practices.
The speculators are not the guilty party in the present situation. But the central bankers and the big-spending government policy-makers are very much at fault in creating a climate which forces people to speculate in increasingly risky and dangerous ways.
Hopefully the above exposition has set the record straight on the question of real estate speculation here and now and once and for all.
Monday, December 10, 2007
I’d like to present today a fairly simple but profound psychological idea.
What we focus on increases.
Human beings learn through classical and operant conditioning and through role-modeling (observational learning).
In classical conditioning, we generalize our responses to a wider range of similar or related initial stimuli. The classic study was Pavlov's ringing bell. When the bell was rung at mealtime, the dog in Pavlov's study learned to salivate in response to the ringing of the bell alone. Food was no longer required.
In operant conditioning, the intensity and frequency of our behaviours varies depending upon their consequences. For instance, the two most “clicked-on” features of this blog so far have been my article on gold’s historic $5000 inflation-adjusted peak value and my posting of Picasso's groundbreaking artwork, Les Demoiselles D’Avignon, in my entry on retribalization. I confess I am somewhat intrigued by what these two topics may have in common – perhaps not that much….
But it often crosses my mind to repost similar articles, as these two have by far been the most widely read on this site.
The most subtle – and profound – aspect of human learning is observational learning, often referred to as role-modeling or social learning. Humans are much more influenced by role-modeling than the other species that walk this planet. In fact, our susceptibility to role-modeled behaviours is clearly a factor that distinguishes us from essentially all of our animal peers (though the chimps, for example, who share 99% of our genome, are also notably receptive to role-modeling).
Through role-modeling, we learn primarily problem-solving behaviours by observing how those around us solve their problems.
I would now like to target one particular aspect of human learning that particularly concerns me.
In the hope of clarifying my primary point through the use of historical analogy, let me begin with the following exemplar of the principle I wish to present.
We can now look with considerable distance at the public panics that swept the western world from about 1450-1700 AD, resulting in the notorious witch hunts and trials of that period. From our present perspective, this 2-1/2 century era in human history is challenging to grasp. The obsessive preoccupation with witchcraft and the associated fear and panic of that era seem impossibly bizarre to us now.
My fundamental point is that all three aspects of human learning keyed into the witch-hunting process of that era. That is, humans became increasingly concerned about women whose behaviours appeared to resemble widely disseminated portrayals of the conduct of witches.
Women meeting privately? It must be the gathering of a coven!
This is classical conditioning at work. If it looks and acts like a witch, it must be a witch. The public preoccupation with that particular stimulus (in this case, “witchy” behaviour) increased the saliency of all similar or imaginatively related behaviours. People paid increasing attention to behaviours in this particular category of concern.
When these innocent women were tried, the process employed forced them to admit their status as witches. Thus the behavioural pattern of hunting down witches and extracting confessions from them was reinforced, and the practice increased, sweeping across New England and Europe.
The role of public confession in reinforcing the public’s concern with the perceived practice of witchcraft represents the importance of operant conditioning in magnifying broad societal behavioural patterns.
Finally, and most importantly, individuals who felt uneasy about their female neighbour; women who disliked their husband’s interest in another woman; those who envied the success or freedom of a neighbouring woman – all had ample exposure to role-modeled demonstrations of how to resolve their dilemma.
All that was needed was to identify behaviours suggestive of the practice of witchcraft, and these women could be rounded up and tried by the authorities, and then executed in public. Problem resolved. In a gruesome and ultimately horribly shameful way.
Perhaps the obsession of that era with women’s practice of witchcraft had most to do with the growing freedom of women in the emerging industrial age.
Nonetheless, the principles of human learning – particularly role-modeling – strongly drove this disturbing process.
Where are we today with respect to this matter?
Well, we are no longer particularly concerned about witches, are we? At least not so much now as then… and certainly not to the point of rounding up women and publicly executing them!
Today we have other foci of public concern. In my view, these are easily discerned through examination of our public media.
The contemporary media offer us – instead – unceasing images of random and unregulated public assaults on personal safety and privacy, causing us to feel increasingly threatened and fearful.
What specifically am I referring to?
Well, you know and I know all that it is necessary to do to take over the front page headline of our local and national newspapers, how to lead the evening television news, and how to be a top pick on Google News….
What is required is to engage in a horrible and shocking public assault on the safety and privacy of our neighbours.
Today’s media are driven by stories of mass murder, serial killings, child abductions, child sexual abuse and terrorist violence…. or, if you will, of the moral peccadilloes of presidents and celebrities.
Though lacking in innocence (bear in mind that the supposed witches had in fact done no wrong to anyone), the perpetrators of these horrifying acts otherwise function as the witches of our era. They dominate our public consciousness, alter the focus of our attention, drive defensive and fear-driven changes in our behaviour, and – most importantly – serve as reflexive (and profoundly misleading) explanations of what is wrong in our current world.
If today’s headlines were to focus on what I personally believe is causal of our contemporary dilemmas, the above stories would not lead the headline news at all.
From my perspective, stories about central banks expanding the money supply; cabals of military industrialists setting international policy; chief executives sitting on each others’ boards voting each other ever-larger pay and bonus packages; business interests pressuring governments to offer favour to their enterprise or field of business; special interest groups seeking advantage at the public trough by disrupting the social order; and public policies which marginalize families and communities would dominate the (problematic) headline news.
Obviously my stories don't dominate your headlines – but they might if I were managing the media. Fortunately, I can find most of what I need to know through the wonderfully individualized internet-based news services.
And there is a second problem. Were my stories to dominate, they would still be problem-focused.
Do you begin to perceive the fundamental dilemma here?
It has often been said that the media pander to the lowest common denominator. I will not dispute that.
But there is a far more important and more insidious aspect of the media's obsessive emphasis on the recurring disturbing themes I mentioned earlier.
The pernicious focus of the media on these archetypal fear-inducing stories is informing individuals who may already be emotionally disturbed or otherwise unbalanced about what behavioural strategies they can adopt to win the recognition of their peers, while also unleashing their troubled emotions at the devastating expense of others around them.
What I wish to assert is that the daily wash of horror stories flowing through the media and into our consciousness is in fact exposing us to a very negative and dysfunctional cast of undesirable and entirely inappropriate role-models on a daily basis.
My simple proposal is to refocus the media on positive rather than negative role-models.
By the way, I'm not talking about bad news versus good news stories here, but rather stories about how people in all walks of life manage difficult or even tragic circumstances with courage, dignity and imagination. I hope that this distinction is clear.
I don't think we have the option of suppressing stories about multiple killers, child abductors, child abusers, terrorists and lapsed celebrities – but I do suggest that the media adopt a code of conduct by which it is agreed that stories of this kind are not suitable as primary or leading news items.
It’s really that simple. Put these stories back on page 5. Avoid sensationalism in their coverage. Assign them minimal television time. Make the information available for those who truly need to follow it up – but don't allow the supposed witches of our era to dominate our news features in media of all kinds on a day-in and day-out basis.
Instead, let’s consider more stories about positive role-models – individuals who are engaging in constructive action to heal the harms suffered by individuals, families, communities, peoples, nations and our planet itself.
Imagine today’s news headed, for example, by the latest exploits of
Muhammed Yunus rather than Osama bin Laden; by Jean Vanier rather than William Pickton; or by Warren Buffett rather than Conrad Black.
Again, I'm not asking for an enlarged emphasis on "feel-good" news stories.
What I am asking for, in brief, is news stories about positive role-models… and more and bigger stories about positive role-models than negative role-models!
It’s that simple.
What, if anything, might be wrong with this simple idea?
The only profound challenge I can presently imagine to my idea is the concern that the concept simply may not be marketable.
This may be a valid objection.
However, I would counter with the following rejoinders:
(1) The idea hasn’t really been tried, so how would we know without testing it first?
(2) Even if news of positive role-models proved to be a niche market, it so far appears to be a largely unexploited niche, the exploration of which may yet prove commercially prospective.
Perhaps you believe that news stories of positive role-models is just not that interesting. If you wish to adopt this argument, first take time to consider your own positive role-models, and tell me how interesting – or uninteresting – their life stories have been to you.
Based on my own life experience, there is little of greater interest than the stories of positive role-models – individuals who may in many ways be flawed and imperfect, but who have nonetheless figured out solutions to problems that are personally meaningful to many of the rest of us.
Therefore, let’s not decide that news stories of positive role-models don't work until we've tried it – OK? OK!
By the way – the role-models may be yours or mine. Just make the case that the person has somehow created a positive solution to a significant problem.
I'm probably willing to listen to your stories if you are willing to listen to mine.
And now we re-enter the retribalized global village – gathering about the community fire to share the exploits of the great people among us. But this time – if I have my way – these stories will begin to be told through the local, regional, national and international media!
It is not good news that we require (though that is certainly welcome). It is news of good role models that is critical to our cultural health and survival.