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Friday, Aug 10, 2007

It’s not a good thing when central banks decide that they need to pump money into the financial system on an ad hoc basis in response to a market meltdown. This means the system as a whole has unexpectedly frozen up, or to put it another way, that liquidity has dried up, which means simply that no one wants to buy the assets that everyone is desperate to sell. In this case, that means mortgage-backed securities, which the Fed is now buying as a means to inject cash into that market.

Why won’t investors playing with their own money touch these? That’s a somewhat long story, but it boils down to a massive failure to responsibly assess the risk of lending to borrowers with questionable ability to repay. What drove this irresponsibility was not naivete or ignorance but, not surprisingly, greed. Investors grew restive earlier this decade at the unexciting yields offered in the bond market. Because Asian central banks were buying so many Treasurys (in part to keep their currency weak relative to the dollar and keep their exports affordable in the American market), the yield curve was unusually flat. This created an appetite among institutional investors for more risk, which seemed capable of being well-hedged via various derivatives, collateralized debt obligations, and the like.

The main strategy, apparently, was to get good ratings from credit-rating agencies (Moodys, S&P) for once-risky loans made to subprime borrowers—people in America who wanted houses they probably couldn’t afford in the past—which made them salable to a wider span of pension-fund and fixed-income investors. Good ratings were obtained mainly by dividing loans into tranches by quality and regrouping them in various proportions into packages that the raters would certify. With the loans readily resalable, it became exceedingly profitable to get into the mortgage-writing business, as you could collect fees for making the loan and then sell off the risk without having to worry about whether the borrowers could ever repay.

That was the hedge-fund investor’s problem, not the small-time mortgage brokers’. These brokers had virtually no incentive to investigate a borrower’s credit history or prospects, and plenty of reason to help these borrowers falsify information to qualify for loans with the larger banks the brokers were working with. The banks could turn a blind eye, because the investment banks were eager to suck up the loans from them to securitize the debt (turn it into something more easily exchanged) and sell it all off to hedge funds. This NYT graphic from Sunday has a good graphic representation of the process, though I don’t think it was as sequential a situation as the chart implies—many of the stages were occurring simultaneously. Securitization was meant to so widely disperse risk so that it wouldn’t compound itself. But as we are seeing now, it merely spread it so that all corners of the world’s markets would be affected by the same group of borrowers’ failure to pay. As economist John Kay explained in this FT editorial, “If trading was motivated not by differences in attitudes and preferences but by differences in information and understanding, risk would gravitate not to those best able to bear it but those least able to comprehend it.” Risk doesn’t end up spread out, it ends up consolidated with the greedy and ignorant.

So what happened to make so many borrowers suddenly default or fall behind on payments? Basically the housing bubble popped. Previously, as real-estate values were doubling yearly and buyers were falling over one another to buy properties, the brokers and small banks, as we have seen, had plenty of incentive to say whatever they had to overcome the subprime borrowers reluctance to get in over their heads. If they could write them loans, they could pocket the fees and sell the risk down the line. Thus they advertised the availability of credit heavily in less-than-affluent areas and pushed loans with attractive initial rates (teaser loans, interest-only loans, ARMs, no money down loans, etc.) to make payments seem within borrowers reach and they downplayed the long-term consequences of such loans—the way payments would skyrocket when interest rates reset.

For a while, though, none of this mattered, because the housing market was booming. The expansion of mortgage credit meant that housing prices were bound to bubble up, fueling speculative interest. The increase in value of the properties borrowers were buying with their non-traditional mortgages meant they could always refinance if they fell behind in payments. Others took out home equity loans against their houses’ new value. Interest rates remained low, in part because of Greenspan’s generous rate policy in the wake of 9/11, so ARMs did not reset to higher rates for many borrowers. And those who got into the home-buying frenzy early were among the better credit risks.

And as Paul Krugman argues in his column today, this led to a sense that risk itself had disappeared, prompting investors to act as though there was no difference between junk bonds and T-bills. (The yield spread between the two was at a unusually low level as of a few months ago.)

But eventually inflation began to leak out of the housing sector and into the economy at large. Bernanke took over for Greenspan as Fed chairman, and needed to prove his bona fides as an inflation fighter to assuage Wall Street. Rates began their inexorable climb to their present level. And everyone who was paying attention knew that this meant trouble for all those borrowers. Mortgages would become more expensive and more difficult to come by, leading eventually to a downturn in the housing market. This would make it harder for existing owners to refinance, or to sell if worse came to worse. And higher rates meant that ARM borrowers would face higher payments, ones they may not have been prepared for. Also, grace periods began to come to end, also presenting borrowers with steeper payments. Inevitably, defaults began to climb—and the pain of these losses began to spread through the financial system, into all the corners where the dicey loans had been hidden away.

So now we have lots of nervous investors, who, thanks to the complicated diversification of risk, have no idea how much exposure they or their money managers have to bad mortgage debt, and have no clue which hedge fund will implode next. And the people who were lured into mortgages they couldn’t afford—whether by unscrupulous lenders or by their own optimism—find themselves in danger of losing their homes and having even worse an even worse credit rating. Only the institutions that collected fees and walked away from these loans have made out scot free. But it will likely turn out that we have all paid their fees, in a way, as a likely outcome is that the government will have to bail out the default-ready debtors by extending them fixed-rate loans they can afford (perhaps through Fannie Mae and Freddy Mac, though our wise president rejects such an arrangement, preferring to have faith in the wonderful market that brought us the current crisis) while buying up the securitized bad debt that no one else wants to touch, all with taxpayer dollars.

It would seem that regulators should step in and prevent this kind of crisis from happening again by curbing the abuses the previous arrangement invited. But it is at this point that free-marketeers and conservative skeptics of government intervention step in and start whining about “credit snobbery” as in this recent Economist editorial. Such critics reject regulation of the subprime market on the basis that it will restrict credit availability, contending that lenders were doing otherwise uncreditworthy debtors a favor by extending them credit at usurious rates, because the borrowers could decide for themselves whether it was worth it—despite the heavy advertising, misleading terms, and fraudulent representations of brokers in many instances. But banks didn’t decide to lend to bad risks out of moral generosity; they did so because they thought they could charge rates usurious enough that Wall Street would have incentive to make the risk seem to disappear through their dark arts of securitization. And even if the subprime borrowers (i.e. poor people) elude the debt traps that the editorial writer seeks to convince us are myth, they still are saddled with a burden that the middle and upper class borrowers escape, and this burden stigmatizes. Credit snobbery, in the minds of conservative critics, is when we don’t trust the poor to borrow on whatever terms they can, but it’s better understood as the institutionalization of the idea that those without a good credit history should be exploited to preserve the advantages of those who’ve managed to climb out of that situation. 

If we want to expand credit—if we are willing to wager that poor credit risks are simply needing an opportunity to establish a reputation—better that the risk be borne socially, and the loans administered through the government offering market rates available to ordinary borrowers. Let Fannie Mae and Freddie Mac issue more loans—that is what they are for, to broaden credit availability without magnifying risk due to borrowers’ ignorance and lenders’ greed and irresponsible fee-taking. If government agencies were involved in expanding credit, and the costs and risks truly spread out via use of tax dollars, this would have the beneficial side effect of making it clear that the society as a whole was determined to leave behind “class warfare.” But if we leave credit expansion up to the market and for-profit banks, risky borrowers will continue to be exploited and their ignorance reinforced so that it may be taken advantage of and so that the government’s ultimate largesse (in bailouts or loan repurchases) will go toward underwriting profits already booked by middlemen.

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Friday, Aug 10, 2007

The long-awaited StarCraft II has garnered much attention as more and more information has been released. As a sequel to the hit computer game, StarCraft, SCII will be taking the best from both worlds, incorporating new and old features. Blizzard Entertainment, the game’s developer, has produced such hit games franchises as Warcraft and Diablo, and produced World of Warcraft, an MMORPG with over nine million players worldwide. Although a multiplayer demo was previewed at Blizzcon 2007, SCII will be released after this year.

Official In-Game Demo with Commentary:

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Friday, Aug 10, 2007

For those in America, of a certain generation (or two), a knowing smile, perhaps. For, the words in the title form the catch-phrase associated with Supreme Court Justice Potter Stewart’s famous struggle to define pornography. For most of us, it may be clear what porn is (within a relative range of gradations, accommodating blips of difference here and there), but can we actually define it? Can we articulate the standard by which

this one is and that

one isn’t?

Like many aspects of our social world, hard and fast rules often elude us over the most consequential of matters.

(For instance?

Nation X is part of the “Axis of Evil”. Hence, we

must attack them for possessing weapons of mass destruction. On the other hand, Nation Y is also a part of the “Axis of Evil”. Hence, we must refrain from attacking them

for possessing weapons of mass destruction . . .

. . . now, wait a minute, I know I was making a point here . . . )

. . . Ah yes, the relativism of “I know it when I see it” (since “it” might end up being two and the same thing, at once).

That point was driven home the other day when I visited the Pompidou, the site of Paris’s National Museum of Modern Art. Leading to a variation on the Potter Stewart (and, by deficiency of ratiocination, the George W. Bush) test.

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Thursday, Aug 9, 2007

Chris Tucker is smart as Hell. Don’t believe it? Well, can you name another actor earning $25 million for doing the same thing he’s done for the last nine years – the EXACT same thing, mind you. In 1998, the African American comic moved from minor supporting roles in films like Jackie Brown and Dead Presidents to a starring stint alongside then hot Hong Kong action icon Jackie Chan. The movie, Rush Hour, directed by novice filmmaker Brett Ratner, went on to be a massive hit, spawning a sequel and a whole new career for the newly minted megastar. After Rush Hour 2 did similar boffo box office, Tucker’s professional path was clear: do nothing; wait around until the audience demands another dose of Detective James Carter; maximize the upfront money. It didn’t matter if Rush Hour 3 was a derivative take on the previous cross culture buddy pic. It would be time, once again, to give the people what they want.

And you know what – he’s worth it. Oh, don’t misunderstand. Rush Hour 3 is junk – witless, uncomplicated, consisting of disposable vignettes of vaudeville like burlesque followed by borderline racist returns to the days of Mantan Moreland. That last analogy is rather appropriate – Tucker’s Carter isn’t a clever or confident police officer. He’s a prop, sent into each and every scene as a low brow Greek chorus waiting to make with the urban smart-ass spiel. Instead of bugging his eyes and mangling the language like those outrageous and despicable portrayals of minorities past, he’s a post-modern pawn screaming his shrill one-liners about Michael Jackson and booty with all the subtlety of a sledgehammer. He’s not an actor – he’s the Corbin-screeching character from The Fifth Element refitted with some styling clothes and a hip-hop swagger. And the audience just eats it up.

If there is any rationale for his outsized payday, it’s the fact that Tucker knows his demo. He’s not playing to suburbia, or the critics who seem to find nothing but fault in his donkey bray bravado. No, he’s directly connected to the hardworking, hope-driven people who, after paying their carefully controlled disposable income, merely want to sit back and have a good time. When he channels James Brown via the King of Pop during an opening setpiece underscored by Prince’s “Do Me Baby”, it’s not meant to have narrative or aesthetic significance. It’s a stand-up shout out to the people paying to see him. Similarly, he gets another onscreen song and dance when he tries to save a suspected informant by crooning Roberta Flack’s “The Closer I Get to You”. Tucker knows these crowdpleasing vanity fairs leave the fanbase reeling. This means that Rush Hour 3 as a thriller or other cinematic genre has to do very little to get by.

For those interested in the backdrop to all this buffoonery, Tucker and Chan reteam when an Asian ambassador to the World Criminal Court (???) is gunned down by an assassin. Turns out this hitman is working for the Triad, whose goal is to protect the identity of someone or something called the ‘Shao Shin’. All leads point toward France, and so our slightly ditzy duo is off to Paris to procure the mysterious item. There, they meet a sadistic police chief (a weird cameo from Roman Polanski), an American-hating cabby, and the standard array of misplaced Hong Kong killers. After a few dust-ups and a completely gratuitous car chase, our heroes end up at the top of the Eiffel Tower, where they must take on gun totting hoods, rescue the kidnapped daughter of the now hospitalized diplomat, and find an efficient way of tying all the loose ends together from their sloppy, shoestring plot.

Now, some will sneer and say that us ‘haters’ shouldn’t be so dismissive. After all, this is just some mindless fun fostered by a couple of likable screen gems. That being said, success breeds imitation, and if the studios ever figure out how to create another martial arts/mismatched personality pariah like this (watch out, Jet Li), we could find ourselves back in 1986. Indeed, much of Rush Hour 3 feels like a throwback to the days when lazy scriptwriters cooked up half-assed premises so that otherwise talented men and women could walk away with an easy paycheck and a bit of bankability on their resume. While the post-millennial versions are really no better (the Ocean’s films, for one), this trending back to the days of Gordon Gecko only works when you have something novel (Live Free or Die Hard) or naughty (Superbad) to say. 

Besides, the inherent value in this long delayed tre-quel could be summed up by the proverbial statement, ‘absence (in this case, from the Cineplex) makes the heart grow fonder’. Since Tucker chooses to stay outside the cultural fray until one of these immaculate paydays come along, he gets the benefit of perspective and popularity. Had he been making movie after movie, honing his craft and redefining his skills, his fans would be angry with such a treading water workout. But since they’ve had to wait nearly a decade to see their favorite funnyman act the fool, they’re willing to leave the lack of context at the turnstile. It’s the same, more or less, with Chan. After the mediocre combo of Shanghai Knights and The Medallion, he went back to Asia and continued his A-list career. Rush Hour 3 his first Hollywood film since the incredibly lax Around the World in 80 Days remake from 2004.

Even more disconcerting, the man has gotten OLD. Gone are the days when the genial Asian action hero looked like a bewildered little boy. The last decade seems to have dragged the majority of vitality out of his persona, replacing it with a quiet resolve that, if exploited properly, could lead to a late in life resurrection as a character actor. Yet people want to see him stunt it up, and time has apparently mandated the need for the heretofore verboten double. It’s obvious during the opening act car chase through LA (especially when “Chan” is crossing a busy freeway), and as part of the last act fight at the top of the Eiffel Tower. There is no begrudging the 53 year old a little help – he’s been a more than impressive daredevil for far too long. But it doesn’t bode well that Chan is in the last phase of his signature stage. It will be interesting to see where he goes from here.

So, in what appears to be a case of either studio shrewdness or luck-induced synchronicity, New Line seems to be striking while the iron is as hot as its going to get. Besides, since they are fully aware of the film’s inherent silliness (it could be subtitled Abbot and Costello-san Meet the Chinese Mafia) and lack of sophistication, they are banking on the frequently potent paradigm known as “the lowest common denominator” to see them through. Success will not be based on the wit – after all, do audiences still find old white ladies talking jive and oily loser lotharios funny? – nor will it be founded on the hackneyed whodunit - see if you can’t guess the secret bad guy before the initial credits are complete. No, Rush Hour 3 will earn its scratch on the carefully controlled commerciality of Chris Tucker. Just don’t be surprised when, eight years and $30 million dollars from now, he comes crawling out of the woodwork for another anemic encore. It’s apparently all he, and this franchise, seem good at.


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Thursday, Aug 9, 2007
by Duncan Edwards
John Peel: Margrave of the Marshesby John Peel, Sheila RavenscroftChicago Review PressJune 2007, 432 pages, $19.95

John Peel: Margrave of the Marshes
by John Peel, Sheila Ravenscroft
Chicago Review Press
June 2007, 432 pages, $19.95

A portrait of the life of John Peel, not only the best radio DJ ever, but arguably the most important cultural figure in Britain in the last 50 years. Margrave Of The Marshes is a love story, or several: the love between John and his wife Sheila and their kids, for Liverpool FC, between John and music, and for John from his very fortunate listeners. 

No one needs have heard John Peel on the radio, or even be a huge music fan to appreciate this beautiful book. It contains enough intimate tales from John’s childhood and schooling to entertain and shock. His reference to the smoking of blotting paper at boarding school with the accompanying talk of the effects of different colors, brilliantly skewers drug-culture and pokes fun at himself. Included are refreshingly ordinary examples of his shyness and insecurity to which many people can relate, and there are hundreds of amusing asides and plenty of magnificent anecdotes. The book is a vivid joyful celebration of a life well lived, though tinged with sorrow that a terrific marriage is interrupted by his passing.

Another strength lies in the fact that Margrave of the Marshes is far from a litany of My Life With Various Rock Stars. For sure there are some low-key tales of a few musicians that will delight: John and Marc Bolan feeding their rabid addiction to Scaletrix, phone calls with Captain Beefheart about keeping chickens, messages from Bowie before he hit it big, but name-dropping was never John’s style. Instead, he spends more time talking about the people who wrote to him over the years, (like the disturbed person who simply would not accept that he did not share an apartment with Stevie Wonder and Lou Reed), or telling of characters he met during his National Service or while living near the White Rock Lake area of Dallas, than focusing on Mark E.Smith or the Undertones. Whilst the writing has a keen edge with a tone that is mostly gentle, enthusiastic, warm and dry, a sense emerges that the very few people of whom he speaks badly probably deserved worse.

John’s time in America could stand alone as reason to read this book. His interaction with JFK is both startling and a sad depiction of a bygone age of innocent connection. His comments on the attitudes of the time and of his adventures in cars, bowling alleys, and bars have a magical quality. Elsewhere, we can chuckle at photographs showing John trying to be Gene Vincent, and at his school reports, including remarks from the astute R.H.J. Brooke who also taught Michael Palin. Brooke appears to have been instrumental in giving the young Peel a lot of lasting confidence, though he wrote: “It’s possible that John can form some kind of nightmarish career out of his enthusiasm for unlistenable records and his delight in writing long and facetious essays ...”

The love between John and Sheila (for decades the woman referred to on-air and off as The Pig) is conveyed in many ways, from little notes and gestures, to her detailed understanding of his emotions. He was a great man and it’s not hard to conclude that she is a great woman. Their bond may be best summed up by John’s reaction when called by his daughter to learn of Sheila’s brain hemorrhage: “Do you realise that if your mum goes, I go too?” he blurted. “I don’t want to go on living without her.” Some aspects of John’s relationship with his children illustrate his vulnerability, particularly being convinced that the young Danda hated him, and fear of the infant Thomas. Nevertheless, the descriptions of him broadcasting from their house, always mockingly referred to as Peel Acres, and family photographs show a relaxed unity. The picture of Tom, in his “The Mighty Wah” t-shirt is interesting. Often John would announce some track and claim it was “a big favorite in our house” or “one of the Pig’s favorites”. It sounded true, and the overlap between music and family life is laid bare, not least with the picture of the White Stripes playing in the house. Sheila leaves us in no doubt that John was the emotional fellow his on-air tone drollery could never disguise. Sheila writes “I don’t think he ever shed quite so many tears as when the children left home” and John’s words when the youngest left for college should strike a chord with every father: “I felt as low as I can remember feeling in all my life as Floss disappeared down the lane.”

I follow a different team but can respect the clear evidence of John and Sheila’s devotion to Liverpool FC: the middle names given to the children, getting married in red, the framed photograph of Bill Shankly and even a Kenny Dalgliesh pillow-case in the house. The depiction of their thoughts and deeds on and after the sad tragedies at Heysel and Hillsborough are extremely moving. Maybe best of all is the whole family praying for John to intervene during the 2005 European Champions League Final and subsequently pouring champagne onto his grave when the Pool came back from a 0-3 deficit to claim the trophy! These, and other examples, strip away any idea that the famous should be considered fundamentally different from the rest of us. Peel has a measure of fame, yet his refusal to embrace celebrity was maintained with such natural aplomb that he never lost his accessibility. So, (although he would have heartily disapproved of my team) now I don’t feel so daft for naming my son Ryan and (after the name Erika was rejected) giving my daughter the initials EC.

That John’s love of music was an all-consuming obsession is an understatement. Excusing himself when friends were over for dinner so he could go and listen to something, music always on in the house, in the car, summers at festivals, rare family holidays punctuated by trips to record stores, thousands of demo tapes endlessly pored over and sometimes sadly discarded without being heard (presumably when the sheer weight threatened the foundation of Peel Acres, or when access to external doors became blocked). As with the notes for forthcoming volumes of his autobiography we are left with a sad feeling that there is so much now that we will never get to hear.

The surprising origin of the Peel Sessions is mentioned and like other more shocking episodes in Margrave of the Marshes I won’t spoil it by mentioning them here. Some of John’s favorite stories reappear in the book, not least concerning the Radio One Roadshow and the Bay City Rollers. I take issue with his dates concerning the Buxton Pop Festival, but the telling of the story is the thing, not exactly when it occurred. It’s fair to assume that John’s favorite record was the next undiscovered gem for which he endlessly searched. That he had access to the airwaves for so long is something for which millions of people will always be grateful. If only we could have cloned him.

A lot of words have been written about John Peel since he died in 2004, grand statements about his importance in bringing fresh music to several generations, tributes from artists giving him credit for their careers, heartfelt messages of thanks from listeners. All the words I’ve read seem to come, not out of a manufactured hysteria, but from a deep and genuine sense of the loss of somebody whose contribution to a broad section of cultural life was really appreciated. In Margrave of fhe Marshes John’s wife, Sheila, talks about how the public response has helped his grieving family, how respectful and real it has seemed, and how much it has meant to them.

Amongst many quotes is one from Harold Pinter:
“I pay tribute to John Peel. It is to John Peel that I pay tribute. The guy that kicked shit. And not only did he kick shit, but he kicked it right back up the arsehole, where it fucking belonged ... and he made sure it fucking stayed there.”

That he always did it with a self-effacing charm and a down-to-earth wit makes it all the more impressive. John Peel, is quite simply, irreplaceable

More of the reviewer’s thoughts on the late, great, John Peel can be seen here:


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