What I Learned Fishing With Dad

In Cook Inlet, where my father and I used to fish, the difference between high and low tide is often in excess of 40 feet and when the ocean is in full flow, it collides through narrow channels like bath water roiled by a stumbling giant. In large inlets, the tide rushes in from opposite directions and leaves a distinct line of ripples, whirlpools and drift wood referred to as the flood line. The flood line isn’t dangerous, but it’s an eerie place where the ocean spits and slurps and is filled with floating debris and tiny lives trapped by the circular motion of currents and waves.

Like the flood line, life is a focal point where countless indomitable forces meet and, as participants in its tireless motion, we find ourselves mated to a confusing mix of debris. But without it—without the flood line's confusion, eerie motion and birthing sounds—we couldn’t appreciate the beauty of Snug Harbor (Earth’s most peaceful place) where mountains stretch to heaven and flocks of white birds dive to the sea like milk pouring from a carton. So you might say opposition is necessary in order to provide a contrast.

Yet, contrast constitutes a small part of its purpose. Just as there are several things we must do to travel straight and safely through the flood line, there is much we must accomplish in life. And it’s not an accident that accomplishment requires improvement and that improvement can only occur in less than ideal worlds. On some distant day, when our mortal eyes blink their last, shall we feel sad to leave this imperfect place? Perhaps, because we will have recognized this home as the perfect place to gain wisdom and appreciate what is noble in ourselves.

The Higher Law and the Gettysburg Address

In my opinion there are two great discourses that have done more to motivate and revolutionize the western world than all others. They are Christ’s Sermon on the Mount and Abraham Lincoln’s Gettysburg Address. Both are similar in one remarkable respect: In the way of all revolutionary ideas, they sought to override existing social paradigms.

In the case of the Sermon on the Mount, Jesus asked His followers to exceed the requirements of the Mosaic Law by focusing on the development of pure hearts in addition to clean hands. According to His sermon, it isn’t good enough to avoid acts that inflict pain and suffering on others, but we should also cultivate the kind of virtuous thoughts and intentions that guide charitable behavior. Anger, lust, greed and vengefulness, therefore, have no place in this construct.

In the same way, Lincoln successfully rebuffed aspects of the prevailing law of the land in favor of a higher standard. Garry Wills, in his Pulitzer-winning book, Lincoln at Gettysburg, makes an important point about the speech: Lincoln essentially pulled rank on the Constitution, which had perpetuated slavery in order to keep peace between constituents of a divided nation. The Constitution, for example, contains the following provisions, which were repealed by the 13th Amendment:

• Article I. Section 2 required the counting of slaves as 3/5ths a person when determining state populations
• Article I. Section 9 restricted Congress from prohibiting the importation of slaves (prior to 1808)
• Article IV. Section 2 required states where slavery was illegal to return escaped slaves to their owners

By contrast, Lincoln laid claim to an authority higher than even the Constitution by reminding the nation of “the proposition that all men are created equal.” This notion, of course, comes from the Declaration of Independence, which in its totality acknowledges God’s laws.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Though Lincoln had ostensibly gone to Gettysburg to “dedicate a portion of that field, as a final resting place,” he used the opportunity to rally the nation by insisting: It is rather for us to be here dedicated to the great task remaining before us.

While the subsequent changes that Lincoln instituted were concrete and obvious—including the implementation of a constitutional amendment that led to the abolishment of slavery—I believe Christ’s gospel hasn’t had its intended revolutionary effect on the people who profess to follow Him. In numerous ways, we continue to follow the lesser Mosaic Law. Christ asked us, for example, to rise above the requirement to exact “an eye for an eye,” which was meant to establish maximum punishments that didn’t exceed the nature of crimes committed. Yet, implicit in our allowance of capital punishment is the Old Testament notion that only blood can atone for blood. Furthermore, attempts to restrict gay marriage is more influenced by the Mosaic Law's requirement that homosexuals be stoned, than the gospel of love Jesus taught.

The Power of Mindset

I’m amazed at how two people can go through the same experience and interpret it in radically different ways. Take, for example, my life at home. I happen to be a pretty romantic guy, but Lori refuses to see me in that light. I can’t count the number of cozy evenings that I’ve planned for us—evenings complete with bowls of popcorn, mugs of root beer, and carefully selected sporting events on television. I invite Lori to cuddle beside me, so we can revel together in slam dunks and home runs, but she doesn’t appreciate my efforts.

Early in our marriage, she used to ask me an unsettling question. It was: “Do you love me?” And because I’m a pretty romantic guy, I would answer with something sweet and sensitive, something like: “I married you, didn’t I?” (which to me only served as a reminder of that day when we exchanged vows). Yet Lori seemed somehow disappointed and compelled to follow up with a second unsettling question: “How much do you love me?”

Now, let me ask you: How is love measured? By the pound? The cubic foot? The mile? No math text I ever studied could answer that. The fact is I disappointed Lori with one response after another, until one day I raised my thumb and forefinger and told her, “I love you this much.”

You should have seen the explosion. All Lori seemed to see by my gesture was a few inches of warmth out of a potential sea of heart-felt emotion. That’s when I reminded her of something she’d learned in high school but apparently forgotten. I asked her, “How many points are there between zero and one?” After a split second of thought, she recalled the paradox of decreasing halves.

It goes something like this: If you stand in front of a wall and take a step one half the distance to it and continue to take steps one half of each subsequent distance, you never reach the wall! The first step takes you halfway there. The next step, an additional quarter. The next, an eighth and so on, but no matter how many steps you take, there will always be a distance midway between you and the wall. So in my romantic way, I showed Lori that infinity lie hidden within the inches.

We turned this rediscovered knowledge into a game of sorts. Lori would ask, “Do you love me?” and I would answer, “I’m still here, aren’t I?” She would follow up with, “How much do you love me?” and I would hold up my thumb and forefinger. Finally Lori would smile and say—as if announcing to the world—“You love me infinitely, don’t you?” and I would smile back.

Boy, were we idiots.

So here’s the point: The way we perceive our world contributes to the way we engage it and this extends even into matters of faith. This mindset determines, in part, our successes and failures and the degree to which we can be deceived. Clearly, having the wrong frame of reference can lead us to make mistakes. What some people don’t realize is how easily we can be deceived. Let me give you an example.

The 11th president of the United States was a man whose last name rhymed with “folk.” Do you remember him? The man, of course, was James K. Polk. We don’t talk much about him, but he did much to contribute to the nation’s early notions of manifest destiny and his name was spelled: P-O-L-K. Now, what I’d like you to do is spell his name aloud three times, after which I’ll ask a question that you’re to answer as quickly and correctly as possible. Ready?

P-O-L-K. P-O-L-K. P-O-L-K.

What’s the white portion of an egg called?

If you’re like most people, you answered, “yolk.” If so, look at the question again. I asked: What’s the WHITE portion of an egg called? Most of us eat eggs that are nearly all white and you could have given the definitive answer: the egg white. But you might have also said the shell, or that membrane-thingy, or (if you’re familiar with egg anatomy) the blastodisc. Most people, however, give the one incorrect answer available to them. Why is that?

Obviously it’s due to the mindset of the people asked. This is one reason why I believe it’s important to embrace uncertainty. A mindset that assumes our articles of faith to be nothing less than immutable will lead to a lack of progress when new information contradicts the belief. On the other hand, growth is possible to a people who believe God’s directives are geared to their level of enlightenment.

The Economics of Jesus

I believe that Christ’s gospel is as much an economic ideal as it is a construct for defining proper behavior. If we’re to become the people Christ intended, we’ll not only feed the hungry, clothe the naked and heal the sick, we’ll strive for common ownership in productive resources, decision-making processes and the resulting value created. The benefit of doing so extends beyond support to those who require succor. Enterprises that are owned by insiders—employees, for example—behave as though they possess a social conscience. Here’s why.

I lived in Japan during a time when the country was under intense criticism for its export surpluses. Detractors accused the government of unfair trading practices ranging from high import duties to an overly complex product approval process. One of the most interesting complaints, however, was that Japanese corporations had a lower cost of capital. While the observation was certainly true, it wasn’t due to any government intervention or policy. Rather it was a reflection of the unique ownership structure of many companies there. As an investment banker, I knew firsthand how cheaply Japanese corporations could borrow. Many were issuing Euro Bonds with attached warrants that gave issuers a borrowing cost lower than that of the US Treasury. While this was easy to demonstrate, the reason wasn’t as easy to explain, but let me try.

There’s an interesting book written by the Japanese economist, Michio Morishima, entitled Nihon wa Shihonshugi Dewanai (Japan Is Not Capitalist). As the title suggests, Morishima’s contention is that Japan is not a capitalist nation, at all, but is actually quite feudal in its mindset and approach to national and corporate governance. This is so, in part, because Japan went through an incredibly long feudal period and continues to be influenced by it. Its government machinery, for example, is dominated by large—and often competing—ministries. Yet, the most notable example of feudalism’s influence on Japan is the existence of what is referred to as corporate “keiretsu” groups.

Prior to World War II, Japan’s military production was concentrated among a few highly diversified and industrialized enterprises known as the Zaibatsu. Some of their names—Mitsubishi, Mitsui and Sumitomo, for example—are familiar today, because they continue to exist despite the post-war efforts of the US government. After the war, Japan was ordered to break up the conglomerates, a requirement that was accomplished in form, but not in substance. As companies were spun off, they simply divvied up their shares to each other, resulting in a latticework of equity holding among the former Zaibatsu components. At the center of a typical keiretsu group is a bank and trading company, but it will also include a range of heavy manufacturers, high-tech companies, mining and other primary industrial enterprises and others.

Much can be said about this corporate structure, but what’s important here is to note that large Japanese companies are owned primarily by insiders. I once compared the equity structure of IBM with that of NEC, one of Japan’s largest high-tech companies. At the time, while over 80% of IBM’s stock was held by institutional investors—mutual funds, pension funds, insurance companies, Taft-Hartley Plans and the like—Over 80% of NEC’s shareholders were insiders, including suppliers, distributors, employees, and various vendors.

How does this change the way a corporation behaves? First, it allows the company to plan for the long-term. Institutional investors are impatient and will sell shares of a company once it hints at a weak quarter. This forces public companies to engage in behavior that is often uneconomical and seemingly irrational. At one public company where I worked, pricing was often slashed—sometimes by as much as 50%—ahead of each quarter-end in order to achieve revenue targets. Our customers knew this, of course, and delayed purchases in order to negotiate heavier discounts. Sales, therefore, were lumpy, with nearly all revenue coming within the same few weeks. The upshot is it was difficult to plan beyond a three-month horizon.

Insiders, on the other hand, demand little more than stability and longevity. They’re willing to overlook short-term reductions in revenue and profit, as long as company policies insure long-term success. Several of Toyota’s shareholders, for example, are responsible for distributing and selling the company’s vehicles. What do they demand as investors? I’m sure they wouldn’t mind if Toyota showed income growth and dividend increases, but that’s not important to them. Their first priority is that the company continues to improve vehicle quality and competitiveness. After all, they want products that sail out the door. In recent years they’ve been willing to forgo short-term profits associated with gas-guzzling SUV sales in order to devote resources to a new world order based upon higher gas prices. Other shareholders include parts suppliers, who see themselves as much more than order-taking vendors, but as partners who must assist Toyota in the auto design and manufacturing process.

In this way, the needs of inside investors are far different than that of a mutual fund. Going back to my explanation of why Japanese corporations were able to get cheap funding, the answer is this: Their investors were from the same keiretsu groups and provided capital for reasons that went beyond a simple rate of return.

Consider what would happen if employees held most of the shares of the companies where they worked. At the very least, it’s a way to combine Adam Smith’s invisible hand with Christ’s admonition to put our neighbor’s interests equal to our own. I believe the gulf between haves and have nots would diminish as a result, but there are other benefits, too. If a company’s employees were its primary shareholders, would its CEO dare to spend a million dollars of corporate funds to throw his wife a birthday party on a Greek island? Of course not, but that’s exactly what happened at Worldcom. Would a utility dare pollute the water its employees drink, if its workers were also its shareholders? Not likely, but that’s exactly what PG&E did.

I would love to see government policies that attempt to put ownership in the hands of employees. It could happen overnight, if there were tax advantages to doing so. In the meantime, I will bank at a credit union, purchase products from co-ops and seek insurance from mutual companies.

What does it mean to be obedient?

As I’ve said in earlier blogs, one of the most salient of Christ’s teachings is that there are higher and lesser laws. The implication is that we cannot help but be obedient. The question we should ask ourselves is: To what shall we be obedient? After all, God once commanded that adulterers be stoned. Are we to obey that directive today?

It seems clear to me that the instructions written in the Old Testament were meant for a people who’d experienced little social order—a people who had emerged from slavery living a hand-to-mouth existence that could rise no higher than the law of the jungle. (If this is an unfamiliar concept, please take a look at some of my earlier references to higher and lesser laws). The point is: God wants us to be better than what is prescribed by the Ten Commandments. In fact, as our society becomes more enlightened, we will learn that there are yet higher laws of which we must be aware. For example, the necessity to properly care for our earth is a notion we have only recently come to understand. Yet, there are hints to its importance in Genesis, when God ordered Adam to, “nourish and replenish the earth.”

As an overlay to this construct is the idea that there are numerous claims to obedience. Take, for example, the following story set in feudal Japan.

The evil daimyo, Lord Aku, gazed across the northern border of his fiefdom at the rice paddies owned by his nemesis. For many years his samurai had fought against Lord Zen’s loyal army without success, but now he had a better, more diabolical, plan. Under the cover of darkness, he would enter the neighboring territory and capture the unarmed farmers who worked in the paddies. After a winter without food, he reckoned, the opposing warriors would be weak and unable to mount a proper defense. Under such circumstances he could launch another attack and make the fertile land his own.

When Lord Zen learned that the farmers of his fiefdom had been captured and led away, he immediately understood the implication of his enemy’s act. Without food, Lord Zen’s people would suffer terribly. The thought alarmed him and so he called his most trusted samurai—Kato, Sato, Nato and Fuji—to meet him at the castle. After sharing news of the nighttime attack, Lord Zen gave the following brief, but urgent,
instruction.

“Go,” he said. “Gather up the rice—each available kernel—so that we may have food to last the winter.”

Now, this is what his men did.

Kato left the castle claiming under his breath, “I will gladly fight all enemies for my Lord, but this work is beneath me.” Nevertheless, he located a paddy of rice and, while complaining to anyone who might stop to listen, harvested grain by the handful. In just a few days, he gathered five koku of rice. Unfortunately, in a fit of rage he wrenched his back inventing a new obscene gesture and was unable to continue through the full season.

Sato went straightaway to the closest paddy and—so that he wouldn’t miss a single kernel—feverishly plucked them one-by-one from their stalks and gathered them into sacks. For days he worked, seldom stopping for sustenance or rest. By the time the harvest was over, he had gathered ten koku of rice. Sadly, Kato developed an inexplicable fear of tiny white objects and now resides at the Shady Rest Home for Retired Samurai, where he eats his sushi on whole wheat bread.

Nato felt an uneasiness about Lord Zen’s request and went to the nearest law library to locate the source of his discomfort. There he found an obscure local statute that prohibited samurai from working in fields. Professing a love for the law, he pledged obedience to it and returned home to await the end of the harvest. Nato now publishes a popular newsletter entitled: Know Your Employment Rights.

Fuji took a moment to contemplate his actions. He calculated the amount of rice needed to save his people and considered various ways to maximize the volume he might gather. Suddenly an idea came to him. Why not use my sword to cut down swaths of grain? By the end of the harvest, he had gathered over a thousand koku of rice. In recognition of his efforts, Fuji was offered a senior position at the Toyota Rickshaw Company, where he is now in charge of strategic planning.

Once the grain was safely stored, Lord Zen called for his samurai once again. With gratitude in his eyes, he told his loyal vassals that enough rice had been harvested to feed the people through a cold winter. Sure, they would need to eat more than their usual share of tofu—nevertheless, the people would live.

“Thank you,” he said. “Thank you for your obedience.”

Honesty: The First Step to Progress

I despise intellectual dishonesty as counterproductive and potentially harmful. Here is a case in point. I was recently asked, as an officer of a small financial institution, to write an article for a publication regarding the state of the financial markets. Since I'm a former investment banker who used to structure mortgage related investments and also provided consulting services to the mortgage industry, I had a lot to say on the subject. Once the article was written, I presented it to my public relations people, where it was killed. The reason? No one could argue with the accuracy of the content. Neither could anyone deny that it was an insightful summary of recent developments. The article was killed because it made what were considered disparaging remarks about regulatory and rating agencies. Since having an investment-grade rating is important to a financial organization, no one wanted to risk the ire of the companies that provide them.

I can understand the sentiment, but there's a serious problem with an inability to speak the truth. In short, if we can't be honest about the problems we face, how can we solve them?

At any rate, here's the article.

BEHIND THE DEBACLE

The subprime market’s collapse didn’t surprise most experienced lending officers. They understood that extending credit to borrowers who had little means to repay and insufficient collateral resulted in foreclosures waiting to happen. The real surprise was that such high-risk financings became commonplace at all. Given the subprime market’s history of excess, a knowledgeable observer might ask: How did it survive for as long as it did? By answering the question, we gain clarity to the underlying causes behind today’s credit crunch.

Easy Money Years

For the decade leading up to 2004, the subprime market grew from $35 billion in originations to over $510 billion, a compounded annual increase of nearly 28%. Much of the growth was an indirect result of the Federal Reserve’s reaction to the tragedy of 9-11, which had fueled the unease of financial markets already suffering from the bursting of the Dot.com bubble. To keep the US economy from dipping further into recession, the Federal Reserve embraced a monetary policy that resulted in a steady decline of the Fed Funds rate from 6.5% in January of 2001 to 1.0% in July of 2003.

In retrospect, the effect of that monetary policy was more impactful than anyone had anticipated. Due to its influence in reducing market interest rates:

• Housing suddenly became more affordable as mortgage rates and resulting average monthly payments fell.
• Real estate values rose as housing demand increased.
• A combination of increased property values and low interest rates encouraged homeowners to borrow against home equity. Cashout refinancings added $600 billion to the US economy in 2004—more than twice the value of that year’s tax cuts.
• Much of the added liquidity was used to purchase second homes and investment properties. The percentage of second home purchases, for example, increased from 7% in 2000 to 14% in 2004 and this further fueled the increase in property values.
• While all this was going on, the government (particularly HUD) inadvertantly pushed lenders into speculative lending practices through aggressive home ownership goals

These developments had a profound influence on how Wall Street assessed risk in subprime lending. In an environment of declining interest rates and rising property values, defaulting homeowners had more options to avoid foreclosure, including the refinance or sale of mortgaged properties. Even when defaults did occur, loss severity was mitigated by improving collateral values. Over time rating agencies, investment banks and some of the best managed hedge funds in the world accepted these conditions to be the norm and, by doing so, made critical errors in judgment.

Garbage In, Garbage Out

To understand how rising property markets affected Wall Street’s thinking, consider how we make decisions. When contemplating where to go for lunch, for instance, we consider the options already known to us—places where we’ve eaten before and locations our friends and acquaintances may have recommended. Decisions, in other words, are generally rooted in past experience and knowledge. Given this natural dependence on prior events to guide our future choices, what did the marketplace know about subprime lending?
Not enough. And here’s why:

• Until 1994, subprime was an inconspicuous niche in the broader mortgage market, amounting to less than 5% of originations. Although a decade later the product would represent one out of five new mortgage loans originated, the history of subprime lending as a mainstream financial option was relatively short—not much more than ten years.
• The period during which subprime grew from a niche product to a borrowing option with broad appeal was atypical of most business cycles. Interest rates were in a nearly continuous decline and, aside from a few regional dislocations, real estate markets were buoyant.
• Subprime lending changed significantly during the period as guidelines became less restrictive. Virtually every metric used to measure loan risk—including metrics meant to gauge collateral value and a borrower’s ability to pay—were gradually relaxed.

All of this led to a classic “garbage in, garbage out” problem. As rating agencies, Wall Street firms and investment houses analyzed the risks in subprime loan pools, they relied on past performance data that reflected: 1) a short and unusually sunny history and 2) loan guidelines that had once been far more restrictive. While they did assume default rates as high as 30%, their financial models tended to predict that strong collateral values would mitigate against severe losses. That, of course, proved to be false. In keeping with our earlier restaurant analogy, Wall Street made lunch reservations at Le Benardin, but ended up at IHOP.

A House of Cards

In the third quarter of 2004, when the Fed reversed its four-year old easy money policy, it set in motion a series of events that uncovered weaknesses in the subprime market and reversed the earlier rise in property values. The effect was to reduce liquidity, leading to fewer borrowing options, which in turn spawned rising foreclosure rates and further reductions in liquidity as lenders abandoned the market.

The subsequent decline in property values was like an ebbing tide that exposed the decay of subprime excess in its retreat. As losses mounted, lenders quickly learned that much of what they’d presumed to be credit problems were instances of fraud instead. These misrepresentations had gone undetected—or ignored—while the home price tide was rising.
Consider the following:

• Basepoint Analytics estimates that up to 75% of Early Payment Defaults (defaults that occur within the first few months after loan origination) can be tied to material misrepresentations in the mortgage application. This result, in part, is due to the subprime market’s overuse of State Income Loans (SILs) that don’t require proof of income entered on the loan application. It is estimated that 90% of SILs overstate income by 5% and that 60% of SIL applicants overstate income by 50%, or more.
• The FBI estimates that one in ten mortgage loans contain some type of fraud, 80% of which include over-inflated appraisals. As the Mortgage Brokers Association for Responsible Lending has said, “Pressure is applied to appraisers who are forced into coming up with predetermined values for homes in order for deals to go through.”

Unfortunately, investors have suffered heavily for their lax underwriting and inaccurate financial models, but are all their losses related to defaults? The answer is yes, but not in the way many people think. Consider the example of Countrywide, which in October last year announced in its 10Q that its delinquencies were up 1.81%. Was that a problem severe enough to fell the mortgage giant? Probably not, but it was only one measure of the lender’s predicament—an aspect that paled in comparison to another result mentioned in the same 10Q. Countrywide’s mortgage volume for the quarter had dropped 44.3%! In short, the company had lost its subprime investors and could no longer originate the volume of loans it once had. Suddenly it had too much costly infrastructure chasing too few deals.

In this way, much of the writedowns attributed to mortgage lending are due not to direct default losses but their secondary effects. These include:

• Operational writedowns associated with the downsizing (or closing) of once flourishing businesses. Many recently bankrupt lenders had made a practice of selling all their loans into the secondary market and retained only limited exposure to credit risk. Their financial problems were due to revenue shortfalls rather than borrower defaults.
• Contingent liabilities stemming from the possibility that fraudulent loans might be subject to buy-back provisions. This problem receives little mention in the press, but it’s a significant concern to large originators. For the time being, a lack of clarity regarding the true ownership of loans is a saving grace. It’s not apparent who has the right to demand repayment!
• Mark-to-market losses arising from investments in mortgage backed securities and whole loans. The overwhelming majority of mortgage investments are still paying according to schedule, but there is little demand for the assets and their market prices have fallen, in some cases 30% to 70%.

Where Are We Now?

Obviously the market is in a shambles, but just how bad is it? In some respects it’s worse than anyone is letting on and here’s why.

The majority of subprime loans eventually find their way into Collateralized Mortgage Obligations (CDOs). These are structured transactions that employ a kind of financial alchemy to turn pools of mortgages into securities that can be bought by institutional investors. The securities come in various risk classes or tranches. The highest classes—generally rated AAA and perceived to be low risk—are purchased by insurance companies, banks, mutual funds and similar institutions. By comparison, the other classes are more prone to losses and receive lower (or no) credit ratings.

The reason why some tranches are more risky than others is that they are placed in a payment hierarchy referred to as subordination. In a typical deal, the lowest subordinated tranche (often called the “hurdle” or equity class) is the first to be hurt by defaults in the loan pool. It will generally take the first losses—which reduce its pro forma yield—until it is completely wiped out. At that point, the next higher class begins to absorb defaults and so on according to the increasing level of seniority. Obviously, the higher in the hierarchy a tranche appears, the less likely that it will ever suffer a loss.

For the subprime market to flourish, it must have investors ready and willing to purchase the range of securities that are created through CDO issuance. However, the market for these securities is virtually non-existent today. In particular, the lowest class securities—once purchased by specialized hedge funds and REITs—attract few, if any, buyers currently. Many of the hedge funds, such as those once run by Bear Stearns, are no longer with us. This is a noteworthy development, since the investors in equity class securities once crafted the loan programs and guidelines that added hundreds of billions of dollars in liquidity to the mortgage marketplace. Until such investors are resurrected or replaced, we will continue to experience today’s liquidity squeeze. However, when a better day comes—as surely it will—let’s hope the investment community will possess improved data and financial models that can translate into more appropriate and sustainable loan programs.

The Alternative Garden Scenarios

While considering Adam and Eve’s temptation in the Garden of Eden, I became vaguely uncomfortable with it. In time I realized my discomfort focused on several questions, some of which were simple matters of curiosity while others were central to the underpinnings of my faith. For several years my study of the gospel centered on the questions and I read everything about the topic I could find, including both canonized and apocryphal scriptures, Biblical commentaries and Jewish folklore. (This was before I decided apologetics held little value). Eventually I reached two conclusions:

1. The events, as recorded in Genesis, couldn’t have happened (a possibility with which even Joseph F. McConkie concurs).
2. Nevertheless, the account remains a remarkable and important sacred text.
   

Eager to codify my thinking, I began to put down on paper a treatise on the subject, but what resulted surprised me. Rather than craft an argument that was indicative of my conclusions, I ended up with a series of vignettes that described alternative versions of the events in the garden. Each vignette incorporated one or more of the questions I had investigated. Some of them reflect Mormon thinking on the subject, but they should be of interest regardless of doctrinal persuasion.

Here they are.

Scenario One

Boy, was Adam stumped! Faced with the toughest decision of his life, the future prophet knelt on Eden’s fertile ground and called upon God. The problem was that Eve, his helpmate, had partaken of the forbidden fruit and was arguing for him to do likewise.

Because Eve had disobeyed a commandment, Adam figured she would be expelled from the garden. That possibility caused him to feel something new, an emotion he called loneliness. The feeling was awful, and he knew it would only increase once Eve was gone. Her pleas, therefore, didn’t fall on deaf ears. In fact her arguments seemed to make sense.

“God told us to multiply and replenish the earth,” she said. “And since we need each other’s help, you need to eat the fruit, so we can stay together.”

“What do you mean?” Adam asked.

“Don’t you see? You have to be expelled from the garden, too.”

Adam thought long and hard, when a notion suddenly occurred to him. Having been formed outside of Eden, he’d seen the world before. Surely the Lord of heaven and earth wouldn’t confine him to the garden. Otherwise their home was more a prison than paradise. Adam wanted to avoid loneliness at all cost, but must he disobey God in order to be with his helpmate?

Eve seemed to sense her own vulnerability and continued to plead her case. If Adam—without partaking of the forbidden fruit—was allowed to exit the garden, he might decide to return at a later date and leave her alone.

That’s when God appeared in a stream of light and inquired as to the problem. He listened to their summary of events and said there was only one thing to do. God commanded the woman to leave, then created another helpmate to replace her.

“But I want to be with Eve,” Adam said.

“And leave paradise?”

The man considered God’s words, then turned to his new helpmate and said, “I shall call you Eve.”

Scenario Two

After the second Eve confessed to partaking of the forbidden fruit, God demanded to know the reason for her disobedience. In time she provided a full accounting—and what a fascinating story it was!

“A serpent beguiled me,” she said.

“How’d he do that?”

“He claimed I could be like the gods, knowing the difference between good and evil.”

“Hm.” God put a hand to His chin, as if considering a serious philosophical question. “And was your mind then opened?”

“Afterwards I realized that I was naked.”

“So prior to partaking of the fruit, you were innocent and unable to feel shame for your nakedness?”

Eve shrugged. Her eyes were full of questions. “I guess,” she said.

“Because, if you couldn’t tell right from wrong, I’m not sure you were accountable for your acts. The way I see it, I’d be cruel to punish you.”

Eve nodded emphatically.

“Okay,” God said. “But now you know better. No second chances.” And He left in a stream of light.

Scenario Three

Satan was concerned. Over the last hundred years Adam and Eve had become restless and he knew it would lead them to no good. Still he could smile at the irony. Having been expelled from heaven for trying to force humankind to live righteously, Satan was surprised at God’s chosen home for Adam and Eve.

“What trouble can they get into?” he said aloud. “They have everything they need, with no distractions. God must have changed his mind about free will, because there’s no mischief here in Eden.”

Yet even as he spoke, he realized that Adam and Eve’s unspotted existence would end if they became too restless. He noticed how they looked longingly at the forbidden fruit, but he hoped to keep them from eating it. The act, he reckoned, would usher in God’s plan and unleash events beyond Satan’s control.

With free agency unleashed upon the world, opposition would become a part of human existence. Though weak individuals might not survive the chaos (justifying Satan’s plan of coercion) the strong would thrive on new opportunities. In the way some folks might learn how to get warm in the cold, many would obtain courage when afraid. Some would acquire integrity when given opportunities for illicit gain—even patience over adversity.

“No, I can’t let God win,” he said. “I’ve got to keep them from eating that fruit!”

But Satan was too late. The deed had already been done. He shed a tear, watching God toss the couple out of Eden. That’s when a thought occurred to him. Just because Adam and Eve were expelled from the garden, were they subject to opposition as a result? After all, who creates all lies? Who manufactures all adversity?

“I do,” Satan whispered. “If I leave Adam and Eve alone without temptations, what will happen to God’s plan?”

Scenario Four

Adam and Eve had been living in the garden for a long time. In fact it was their 9,673 anniversary of being lead into paradise, when Adam reflected upon the many years of tranquil, yet uneventful, years he’d been with his helpmate.

“Eve,” he said in a peculiar way. “I’m bored.”

“Bored? What’s that?”

“Well, it’s a word I made up. It means I want something new. I want excitement. I need a challenge.”

Eve looked surprised. Being the first humans on earth, they were accustomed to inventing new terms to describe their experiences, but a great deal of time had passed (almost eight hundred years) since they’d increased their vocabulary. Now in the space of a handful of seconds Adam had used three new words. What had gotten into him?

“Excitement?” Eve asked. “Challenge?”

“Never mind. I’m not sure I understand it myself. It’s like I’m not growing.”

“Growing?”

Yet the more they talked, the more she seemed to understand. Eve said she’d felt the same emotions herself—particularly over the last two centuries. The garden was a lovely place, but just like Adam said, it was boring.

Suddenly Eve jumped up. “I know!” she said with more exuberance than either of them had showed in quite some time. “Partake of the fruit of that tree. That’s the one thing you haven’t done since coming to the garden.”

“But Eve, don’t you remember what God told us?”

And she sat down, as if to ponder her existence.

A thousand years passed, and Adam and Eve woke up to another perfectly dreadful day of peace and sunshine. This time they were both using new words they’d come to understand and employ fluently. These included: restless, useless, character, improve, and wrong.

“You’re right, Eve,” Adam said. “I think it’s time we ate the fruit of that tree. I’d rather not live than go through another day of bliss.”

Without understanding the consequences, but sensing the necessity, Adam tasted the joy of the forbidden fruit and opened a door to opportunities born out of conflict.

Scenario Five

There was a great tumult in heaven, for God had gathered His spirit children in order to present a plan. It was the means, He said, by which His children might acquire physical form, an important step in their progress toward increased happiness. With bodies, not only would they have a chance to grow, but they would experience pleasure, as well. God specifically mentioned the thrill of consuming tasty foods and engaging in physical love.

Then His countenance grew solemn as He explained the risks of having such appetites and passions. These attributes, God said, could be a source of joy if indulged within certain bounds. But without personal restraint, their new feelings might enslave them and lead to sorrow. Some spirits would be tempted to perform all manner of wickedness. Others would receive physical abuse at the hands of wayward brothers and sisters. Their bodies would be subject to sickness and death.

Suddenly God smiled and said that only by overcoming these physical appetites, passions, and weaknesses, would His children acquire the characteristics He Himself possessed. He spoke joyfully of the lessons that could be learned by encountering and overcoming challenges.

The sea of spirits broke into a whispered debate. Adam and Eve spoke together, saying they hadn’t expected the need for work. Work and opposition, after all, were difficult concepts for them to understand, much less anticipate. It was then that a single hand went up from among the crowd and God recognized Lucifer, the Son of Morning.

Lucifer stood and spoke with quiet assurance. “Father,” he said, “I have sat in council with You, and I know You would do nothing contrary to the interests of Your spirit children. I am in awe of Your power and glory. I am even more in awe of Your desire to share glory with us. But when You speak of risks, I shudder to think of the implications. I would gladly suffer pain to be like You, but to see my brothers and sisters in anguish—to watch them cause each other grief—would be more than I can bear. Surely, You will allow me to remain in my present state rather than suffer such afflictions.”

God looked at Lucifer and frowned. “You can remain,” He said, “for it’s your choice to make. But despite the possibility of failure, there’s a portion of glory reserved for those who try. The greatest failing is to make no attempt.” Then looking over the immense gathering He added, “Perhaps we should all spend time considering this important decision.”

The spirits seemed to recognize the importance of God’s invitation. It marked the first decision of their existence and introduced them to the contrasting emotions of anxiety and anticipation. To some these feelings were exhilarating and gave them a hopeful glimpse into mortality. To others the implication of facing still more choices was frightening. In the end they all exercised free agency for the first time. While some of them chose never to choose again, others selected mortality as a step towards greater immortality.

Adam and Eve were the first to begin their journey. After receiving instructions, they bid farewell to their brothers and sisters and left for a new place. It was an existence that would teach them to love, once fear and enmity owned a place in their hearts.

What do we learn from Abraham's sacrifice?

You know the story.

Late in his life, Abraham and his wife, Sarah, are blessed with a son, whom they name Isaac. The boy is the long-awaited culmination of a divine promise (for his seed is destined to give rise to a vast nation and a chosen people) but then God demands what seems to be an inexplicable and terrible task. He commands Abraham to take Isaac to Mount Moriah and offer the boy as a burnt offering.

Abraham’s reaction, recorded in Genesis, is as follows.

…They came to the place which God had told him of; and Abraham built an altar there, and laid the wood in order, and bound Isaac his son, and laid him on the altar upon the wood. And Abraham stretched forth his hand, and took the knife to slay his son. And the angel of the Lord called unto him out of heaven, and said, Abraham, Abraham: and he said, Here am I. And he said, Lay not thine hand upon the lad, neither do thou any thing unto him: for now I know that thou fearest God, seeing thou hast not withheld thy son, thine only son from me.

Clearly, God had been conducting a test, one which Abraham apparently passed with flying colors. Now, I have an admission to make. For most of my life the account seemed to say just one thing: People readily sacrifice what’s most important in order to gain God’s blessings. To me, Abraham’s willingness to offer his son seemed horrific and cruel, not to mention self-absorbed. Then I read Kierkegaard’s Fear and Trembling (which, at its core, is an insightful treatise on faith) and was almost convinced to believe otherwise. Kierkegaard begins the work with four vignettes that describe variations to what occurred on Mount Moriah.

1. Prior to raising his knife, Abraham claims to be a murderer and idolater, so that Isaac will blame Abraham rather than God.


2. After the event, Abraham never forgives God for putting him through the ordeal.


3. After the event, Abraham never forgives himself for the anguish he caused Isaac.


4. At the moment Abraham raises his knife, Isaac sees his father hesitate, which leads the boy to lose his faith.
   

In comparison to the scenarios above, Kierkegaard shows how Abraham’s attempted sacrifice, as it is recorded in Genesis, was perfect in execution. Rather than second-guess the necessity of the task, Abraham was infinitely resigned to God’s will. In this context, he didn’t waiver. He didn’t make excuses. He didn’t wish the task away.

While I acknowledge the need for faith—and in the absence of certainty, the need to follow our articles of faith perfectly—I part ways with Kierkegaard in one significant respect. If God were to ask me to sacrifice one of my children in return for some blessing, I would refuse without equivocation, because I would rather suffer the eternal consequences of such disobedience (if we must call it disobedience) than hurt someone I love more powerfully than the need to breathe. In other words, my faith is placed in principals based upon Christ’s two great laws, not in conflicting assertions of what constitutes God’s will. Besides, in the final analysis, there is no truly altruistic obedience to a commandment, if the sole objective is to earn divine blessings.

There’s a story from the Bhagavad-gita that summarizes what I mean. Though the following version isn’t true to the original text, it serves its purpose.

Yudistra and his brothers left their homes, accompanied by their family dog, in search of heaven. Along the way, each of the brothers became distracted. Shahadev, who loved learning, saw wise men at the gates of a city and remained behind to discuss the great philosophies of men. Nakul met a beautiful woman and stayed with her to marry and raise a family. Arjun, a great warrior, noticed a gathering army and joined the ensuing battle. Bhim, a connoisseur of delicious foods, left to attend a feast.

Eventually, only Yudistra and the faithful dog pressed on. After a long and arduous journey, they arrived at the top of a mountain, where a chariot waited to take them the remaining distance. Yudistra stepped into the chariot and called the dog to him, but the driver refused it entry, saying, “Such beasts are not welcome in heaven.”

To this Yudistra answered without hesitation, “If heaven will not allow such a loyal friend into it, neither will I enter.”

Thereupon the dog suddenly transformed into Yudistra’s beloved father and the two men joyously entered heaven together.

I believe there are times in life when we are justified in saying: I may be wrong in this instance—after all, life is full of uncertainty—but I would rather be wrong and accept the consequences, than be right and violate the overriding principal to love my neighbor.