A Recovering Banker's View of the Economics of Jesus

When I was just a young grunt working on Salomon Brother’s capital markets desk, one of my tasks was to structure what were then cutting edge products known as option-embedded notes. Typically, the investments were designed to pay a fixed coupon, but return principal based upon the performance of an index. My job was to manage and close the transactions, which involved pricing the deals and then negotiating and finalizing their terms. One day a senior salesperson came to me and said a client of his—one of the biggest institutional investors in the world—had a pile of cash to put to work and wanted to see investment ideas, including the products I developed. Then he told me what his client wanted to achieve in yield.

The first thing I did was to check with our banking group on the borrowing rates of various high-grade issuers. After making a few calls and running some numbers, I couldn’t believe what my spreadsheet was telling me: We stood to make tens of millions of dollars on the deal! I confirmed with our traders that my calculations were right, and then thought: Why be greedy? Give the investor a slightly better yield and give the issuer a slightly lower cost of capital. They’ll both be giddy and Salomon will still make several million dollars for the effort.

Before I could talk to the various parties, however, my boss caught wind of my intentions and called me into his office. The next thing I knew, he was yelling and screaming and doing what people sometimes refer to as rip me a new one. Before it was over, he’d impugned my intelligence—not to mention my manhood—and offered me two rules, which he said I should live by, if I wanted to amount to anything on Wall Street. The two rules were:

• Never leave money on the table
• Protect the firm
  

I never forgot his words. In fact, I bought into them like they were the last two Beanie Babies at Walmart, but a year later circumstances caused me to recognize how the rules could be at odds with each other.

At the time, we had an aggressive government trader, who was known for bumping up against volume limits at Treasury auctions. During one such auction he—in violation of the rules—sent in principal orders that were destined for Salomon’s own book and disguised them as agency trades for clients. He was able to do it, because Wall Street firms use fictitious street names when bidding on behalf of others. As you probably already know, however, the trader was caught and the SEC fined us. Since other sanctions were possible, Salomon was put on credit watch and clients left us, especially those who were involved in my structured trades.

Eventually our stock price fell to such an extent that investment guru, Warren Buffett, couldn’t resist but purchase a controlling share in the company. To put Salomon’s fiscal and operational house in order, he fired people, changed our management structure, established new rules for the business and met with key clients in an effort to keep them loyal. Later, as the new face of our company, Buffett was called to testify before a congressional committee to speak of the changes occurring at the firm. And here I’m getting around to making my point.

At that extraordinary session before a congressional committee, Buffett was asked a question I’ll never forget. The inquisitor—a congressman who’s name I don’t remember—asked about one of our traders, a man named Larry Hilibrand, who had negotiated a sweet compensation package that included a piece of every dollar his proprietary trading desk earned. The prior year Hilibrand had been paid a whopping $15 million, which prompted the congressman to ask what the trader had done to deserve that kind of money, adding that traders, after all, did little else than buy low and sell high.

Buffett, in response, agreed with the congressman’s assessment, but used a baseball analogy by claiming that Hilibrand—while only a trader—had been the equivalent of a .400 hitter and had made the firm a lot of money. (I can’t help but digress here: To say a trader only buys low and sells high is akin to claiming Maxwell only solved a nifty little arithmetic problem. Most of the proprietary traders on Wall Street are physics and math Ph.D.s, which indicates how numerically rigorous and demanding the work is). But let me get back to the point. The congressman, in reply, said he couldn’t understand how a trader, who did nothing else but buy and sell for a profit, could make millions of dollars when our country’s most dedicated and inspirational teachers—teachers who were preparing future generations for success—were earning barely enough to survive.

Wow, I can’t tell you how much I thought about that statement. In fact, over the years I looked at it from all directions. At first it made me angry. I wanted to write the congressman and tell him how my job was different than any other in the world—that by me saying, “You’re done,” I could send billions of dollars across the globe. My job, I wanted to say, brought liquidity and stability to the marketplace, which is something that can’t be valued. Besides, I lived a principled life—a life ruled by two aphorisms: Never leave money on the table (after all, as Ivan Boesky once said: Greed is good) and protect the firm.

After a while, however, that question poked and prodded me. Why does a teacher—one like my high school choir teacher, Renee Henderson, who inspired so many kids that the community named a 2,000-seat auditorium in her honor—get paid so little. After all, if a teacher by his or her acts inspires students such that they stay in school, avoid drugs and unplanned pregnancies, and otherwise contribute to society, what is the value of that? If that value is greater than their pay, what accounts for the difference?

That’s when I began to view free-wheeling economies (and the increasing gulf between haves and have nots) in a whole new light. Even the staunchest laissez faire economist admits that capitalism breaks down to a less-than-optimal solution in certain situations. When monopolies occur, for example, they tend to restrict production and keep prices higher than would be the case in competitive marketplaces. Furthermore, monopolies are a natural end to certain markets that require infrastructures that are difficult to duplicate—like telephone landlines, for example, which is why AT&T had a telephone monopoly before it was broken up in the 70s.

There’s another downside to capitalism that’s referred to as the problem of externalities. Many externalities occur because ownership rights aren’t clearly defined. For example, the sky gets polluted, because there is no clear owner of it and therefore no one who is bearing the cost of ownership. If, on the other hand, the sky could be parceled out to individuals, who each then carried around his or her portion that was affected only by what he or she did, the sky would be much cleaner. Individuals would consciously weigh the tradeoffs between pollution in their personal spaces and the value of their pollution causing activities.

Perhaps a better example of an externality is how we care (or don't care) for public land. Without clear ownership rights or regulations, forests are harvested without concern for how they will be replaced. Public policy regarding such externalities is generally designed to induce people to act like owners. The development of green credits is a case in point. When a company buys a green credit, it’s paying for the cost of the pollution it’s putting in the air and begins to think like an owner by weighing tradeoffs of further production. Similarly, forests are parceled to timber companies through long-term leases that give them the benefits of proper stewardship. They become better caretakers, because it’s in their best interest to do so.

Now, here is where I make a leap in logic, but let me introduce it with a question: What is our greatest resource? If you’ve ever been to a graduation ceremony, you know the answer. Our children are our greatest resource. They’ll eventually pay for our mistakes, not to mention our social security benefits. But do we treat them as such? Going back to the question that Warren Buffett was asked, the fact that teachers are paid so little seems to indicate that we feel little “ownership” for society’s children. As a result we incur the costs of economic externalities in the form of crime, drug use, and the wasted lives of young people.

While a successful trader can negotiate a portion of the profits he or she generates because the profit is calculable and “owned,” when it comes to the cost of failed education, there is little attempt at a proper calculus, because we don’t seem to take ownership in the resource it’s meant to develop. But this is just an example of a much larger problem that is vectoring us toward a catastrophe. The gulf between executive pay and compensation for the working class is unconscionable and unsustainable, especially when considering the costs of decisions made by Wall Street CEOs—not to mention the strategic choices made by auto executives—that have led to today’s economic malaise. When a CEO screws up, chances are he or she has pocketed millions of dollars leading up to the mistake. It’s a condition that encourages enormous risk taking, while in the end failure hurts the working class most. Shouldn’t that be part of the payment calculus for all people involved?

For this, and a host of other reasons, we must encourage companies—and other public institutions—to look for ways to put ownership into the hands of workers.

Walking My Dogs In Briones

I’m so angry, I could spit.

For a couple of days now, I’ve been thinking of the ways in which we practice a cultural Judaism that ignores what Christ tried to teach, when a perfect example slapped me with a citation. Do you mind if I vent a little?

This morning I took my dogs to a wilderness area not far away. It was still early and no one—not a single solitary soul—was in the staging area. I scanned it to make sure and then did something that was technically wrong. You see, the dogs aren’t supposed to be off-leash until they’re on a trail beyond a gate approximately a hundred yards from where I parked. To get to the trail—again, only a hundred yards away—I had to walk through an open field that includes a number of picnic tables and barbeque grills, where the dogs are supposed to be on leashes. Now, it seems clear to me that the reason for the rule is to prevent unrestrained pets from becoming nuisances to the people who are enjoying the picnic area. Since I was all alone, I freed the dogs and they immediately headed for the trail. They know where it is.

Twenty feet short of the gate, I stopped to pick up some poo—I’m very conscientious that way—when a cop drove up and told me to leash my animals. He then asked for my ID and told me to wait while he ran a check on it. Fifteen minutes later, I was still holding the bag of dog poo, when he cited me. I don’t know what it will end up costing, neither did he. I asked why a ticket was necessary, when at 7:30 in the morning there was no one in the park to disturb. His answer: “It’s the rule.”

I know what you’re thinking: We can’t be arbitrary about how laws are enforced—that was his point, too—but quite frankly that’s a load of…well, it’s a load of what I had in the bag when he gave me the citation. There are all sorts of laws that are arbitrarily enforced. Californians, for example, aren’t supposed to use hand-held phones while driving (now, that’s a heck of a good idea) but I’ve never seen it enforced. Yet, the more important point is this: When we’re so caught up in the technicalities of rules, rather than the intent behind them, we haven’t gotten beyond the nitpicking that Christ described as, "Strain at a gnat and swallow a camel."

Even as I vent, however, I understand the allure of having clearly defined standards to define our acts, whether they be good or evil. I, too, am seduced by the belief that our regulations can and should be enforced in all circumstances and in all places. The Mosaic Law was meant to do that and it did a lot of thinking for us in the process—going so far as to dictate our actions when one of our oxen gets stuck in the mud on the Sabbath—but Christ wants us to use our heads and hearts. He doesn't want us to be commanded in all things. His gospel sounds simple, but it’s infinitely complex. In short, he tells us to love and then He does a remarkable thing: He lets us decide how to accomplish it. The trust implicit in that is astounding. Can we do the same for each other?

Perhaps not, but I feel so much better, now. Thanks for listening.

We All Play Together

The house is quiet now, but when the kids were with us, we were always surrounded by music. We made them practice their instruments in the living room so we could hear the progress they made. Boy, am I glad we did. Though in the beginning the sounds they made were more reminiscent of geese flying overhead than anything musical, they improved.

Josh, who is a genius and therefore welcome to make his own mistakes, left school for a period of time to play guitar in an alternative rock band, which is to say he really waited on tables. He had one of those VH-1 Making the Band experiences and is now back in school. Matt, while an undergraduate studying physics at Berkeley, was the principal bassoonist for the school orchestra. He's scheduled to begin a Ph.D. program in the fall, but I'm sure if he had his choice, he'd play for the San Francisco Symphony instead. Aaron is the most serious musician of the bunch. A jazz trumpet player and multiple DownBeat Award winner, he's the 2008 Jimmy Lyon Scholar at the Berklee College of Music in Boston (the other Berkeley).

When I was a young father, my dream was to have a family band. You'd think it had been within my grasp. Unfortunately, our tastes in music are so different that when we try to play together, we nearly come to blows. Yet, my sons are my greatest joys. Music, as you'll see here, is pretty high on the list, too.

A week before I began my sixth-grade year in school, my father set in motion a series of events that would lead to nearly every good and wonderful thing that has happened to me since.

And he did it against my will.

Early that morning, before he left the house to register me for my classes, I reminded him of the courses I didn’t want. At the top of the list were these: art, drama and music—especially music.
Back then I had a clear vision of my future self. I would be the kind of man who could walk into the hills with just a pocketknife and a shaker of salt, then return two weeks later with a full belly and the stink of wood smoke and something feral. I wanted to attend formal gatherings dressed in thermal shirts and mukluks, knowing all the while that other men envied me. I planned to be a boxer—and not just a boxer, but the undisputed champion of the world—because Ultimate Fighting wasn’t an option at the time. And that picture of me as an adult didn’t include a musical sound track.

After registering me for school, my father returned home, carrying something that resembled a briefcase. It must be a tool kit for shop class, I thought, but no. My father handed it to me and said: “This is what you’ll be playing for your middle school band.”

At first I figured he was only kidding, but then I opened the case and there inside was a shiny brass trumpet. To this day I have no idea why he did it. Music wasn’t important to my folks and we rarely listened to it at home. If you were to ask my dad who the greatest musician of the twentieth century was, he’d probably shrug and say: Hank Williams? Patsy Cline? I can only suppose my father was motivated by the kind of inspiration to which loving parents are entitled.

But for the first week of band I didn’t play a note—only sat and fumed. The second week began in much the same way, except that I began to listen and critique the kids around me. (Johnny keeps missing that F#, I’d think, and Mary can’t count to four). Then at home I’d take the trumpet out and play it when nobody was listening. By the third week I was an unapologetic band geek.

I couldn’t get enough of music, so in high school I joined the choir. Oh, I still played sports and went camping, but music became a passion. My best friend then was 6’6”, 220 pounds and as strong as an ox. He would eventually play college basketball, but he was first and foremost a choir nerd. We would go moose hunting each fall and, while traipsing through the woods, we’d sing from Mozart’s Requiem Mass. We especially liked the bass line from Dies Ire, which is a movement about the Judgment Day. We would sing it like we were Pavarotti and Domingo. Unfortunately, the music’s effect on moose was to put the fear of the Judgment in them and cause them to flee.

Then on Easter morning in 1975 I had the opportunity to sing at the Vatican with a wonderful choir and my life changed completely. We were ushered into an alcove off the main dome of St. Peter’s Basilica, were we began to sing Karl Heinrich Graun’s motet: Surely, He hath Borne Our Griefs. The piece begins with the word “surely” sung in a pensive minor chord, followed by a rest. It was after we gave voice to that first chord and we were waiting for the director’s next cue that two disarming things happened. First, we heard our own voices whispering through the catacombs in the back of the basilica, repeating with quiet assurance: surely, surely, surely, surely. Then the second thing happened: My eyes filled with tears, my voice choked up, and I couldn’t sing another word.

I was completely unprepared for what happened. At home my parents didn’t talk about spiritual matters. My mother had been raised a Buddhist and my father was a self-proclaimed “Jack Mormon”, who would roll his eyes at any reference to religion. As a kid, one of my few experiences with the church occurred a few months after we moved to Alaska and two men dropped by and knocked on our door. I suppose my father’s membership records had finally made their way to the local branch, but Dad wasn’t ready for any welcome committees. He glanced out the living room window and said quietly, “Don’t nobody move.”

That’s when one of the men—the one whom I would later know as Brother Carlson—rapped a knuckle on the window and said: “We’re your home teachers and we can see you in there breathing.”

Dad told us to ignore them and eventually they went away, but they continued to rap on our window every few months, only to be ignored again or told to go away. My father was dismissive about them and wouldn’t explain who they were, aside from telling us they were nuts. The whole affair was quite bizarre to me. What were the men hoping to teach us—some Tony Soprano-styled lesson? And why were they spying on us? My brothers and I wondered if we’d moved to Alaska under the auspices of some witness protection program.

I tell you this to describe just how unprepared I was when the spirit touched me that day in 1975. As I stood there in St. Peter’s Basilica, I wondered what could inspire someone to compose such a beautiful motet, but that only led me to ask other similar questions. Where had Michelangelo obtained the inspiration to paint the ceiling of the Sistine Chapel and sculpt the Pieta, both of which I’d seen that day? And what had caused so many people to sacrifice so much to build the edifice in which I stood?

In the end I could only conclude that it had something to do with the man, Jesus, of whom I knew so little and must know more. Within days after I returned home, Brother Carlson’s son, Dave, invited me to attend church with him and I couldn’t refuse.

Taped to a wall inside the middle school band room where my kids once played is a list of rules the students are expected to follow. The first rule is my favorite. It reads, quite simply: We all play together.

The ideal of playing together is one reason why music is so compelling. No matter the geography or culture of origin, all musical forms share an oddly familiar beginning. You can hear it in the melodic chants uttered during a bar mitzvah, or a Buddhist funeral, or a Native-American powwow, or the Islamic call to prayer. In every case, they are meant to join communities of people in a spiritual communion. When all our voices blend together—expressing longing and joy, angst and perfect love—the nature of that communion puts us as close to heaven as nearly any other earthly experience. But what if we don’t sing in tune or in perfect rhythm? If getting there is half the fun, the road to perfect harmony can still be exhilarating, despite the occasional need for a tune-up.

I had a dear friend once who happened to be a dog. Jesse loved music and had impeccable taste in it, preferring the masterworks of the Late Baroque composers. It didn’t matter where he was, whenever Lori played a movement from Handel’s Messiah, or some other similar piece, Jesse would come running. He’d flop down beneath the piano’s soundboard and roll onto his back with legs in the air and ears outstretched to capture every note. The grin on his face suggested a kind of spiritual ecstasy. A year before he passed, Jesse was diagnosed with a tumor in his hip that required one of his hind legs to be amputated. Afterward he couldn’t balance on his back anymore, but he still loved to lie beneath the piano. I don’t want to be maudlin here, but Jesse seemed to take refuge in music, as if it transported him to a dog-version of heaven, like the long walks through the woods we eventually had to curtail. Is there any wonder why David tells us to, “Sing to the Lord a marvelous song?”

Justice and the Higher Law

I grew up in a fishing village called Kenai in Southcentral Alaska. It’s an idyllic place with a history rich in interesting anecdotes and colorful people. One of the town’s more fascinating stories dates back to 1778 when the British sea captain, James Cook, discovered the rocky bluffs and the quiet bay at the mouth of the Kenai River.

At the time of his visit, a tribe of Athabascan Indians were living there. When they saw Captain Cook’s ships, Resolution and Discovery, the natives thought the vessels were whales of some large breed they’d never seen before. So, a few of them approached in seal-skin canoes to investigate. When they got close, they were met by an awful stench. Shipbuilders at the time sealed the hulls of large ships with tar to protect the timbers against the caustic effects of salt water. The Indians had never smelled anything like it before and the scent made many of them sick. A few brave souls, however, ventured onto the ships and were immediately amazed by the things they saw.

In particular, two observations had a lasting influence on them. First, the Athabascans had never seen people smoke tobacco before and they found the habit fascinating. Second, they were amazed by the unusual clothing that Cook's men wore and they were especially impressed with the rows of brass buttons sewed onto the men's sleeves. Later that day, the natives returned to their village with an astonishing, but perfectly understandable, story. They had met a fire-eating and smoke-breathing breed of men, who had arms like octopi and lived on the dead and decaying carcasses whales.

I tell you this story to illustrate a point: It’s quite easy to create and perpetuate a myth. And I hope you forgive me when I say there are many myths surrounding our views of justice. In particular, the way it intersects with our concept of the atonement is contrived in such a way that it causes Christ’s followers to live a lesser Mosaic Law. Consider the following question:

What’s the purpose of justice?

A. To protect the innocent?
B. To rehabilitate the guilty?
C. To prevent crime?
D. To restore a cosmic order to the universe?

I’m certain most people will say the right answer is some combination of A through C, but now consider another question: What does our concept of the atonement say about the purpose of justice? Follow that line of thought and see why it makes me want to pull out my hair.

Most descriptions of the atonement follow a logical argument similar to that which Anselm of Canterbury proposed in his treatise Why God Became Man. His reasoning is as follows.

• The existence of sin wounds God's honor, a condition that demands justice
• Because God is infinite, any acts to satisfy the demands of justice must also be infinite
• Since humans are not infinite, they are unable to satisfy such demands
• Satisfaction is only possible through the sacrifice of Jesus, who is sinless and exempt from punishment due to sin
• Since Christ’s sacrifice is voluntary, the merit of the act is therefore infinite and God's justice is thus appeased, allowing mercy to be extended to humankind.

If that seems contrived and confusing, it is, at least for me. It’s an example of apologetic thinking, which first assumes a set of axioms as factual and only then seeks a way to explain them logically. I’ll let you decide whether the argument accomplishes the latter, but consider a similar analogy proposed by a general authority of my church. Though it seems to clarify the argument, its implicit conclusions remain troubling.

There once was a man who wanted something very much. It seemed more important than anything else in his life. In order for him to have his desire, he incurred a great debt. He had been warned about going into that much debt, and particularly about his creditor. But it seemed so important for him to do what he wanted to do and to have what he wanted right now. He was sure he could pay for it later. So he signed a contract. He would pay it off some time along the way. He didn't worry too much about it, for the due date seemed such a long time away. He had what he wanted now, and that was what seemed important.

The creditor was always somewhere in the back of his mind, and he made token payments now and again, thinking somehow that the day of reckoning really would never come. But as it always does, the day came, and the contract fell due. The debt had not been fully paid. His creditor appeared and demanded payment in full. Only then did he realize that his creditor not only had the power to repossess all that he owned, but the power to cast him into prison as well.

"I cannot pay you, for I have not the power to do so," he confessed.

"Then," said the creditor," we will exercise the contract, take your possessions, and you shall go to prison. You agreed to that. It was your choice. You signed the contract, and now it must be enforced."

"Can you not extend the time or forgive the debt?" the debtor begged. "Arrange some way for me to keep what I have and not go to prison. Surely you believe in mercy? Will you not show mercy?"

The creditor replied, "Mercy is always so one-sided. It would serve only you. If I show mercy to you, it will leave me unpaid. It is justice I demand. Do you believe in justice?"

"I believed in justice when I signed the contract," the debtor said. "It was on my side then, for I thought it would protect me. I did not need mercy then, nor think I should need it ever. Justice, I thought, would serve both of us equally as well."

"It is justice that demands that you pay the contract or suffer the penalty," the creditor replied.

"That is the law. You have agreed to it and that is the way it must be. Mercy cannot rob justice."

There they were: One meting out justice, the other pleading for mercy. Neither could prevail except at the expense of the other.

"If you do not forgive the debt there will be no mercy," the debtor pleaded.

"If I do, there will be no justice," was the reply.

Both laws, it seemed, could not be served. They are two eternal ideals that appear to contradict one another. Is there no way for justice to be fully served, and mercy also? There is a way! The law of justice can be fully satisfied and mercy can be fully extended—but it takes someone else. And so it happened this time. The debtor had a friend. He came to help. He knew the debtor well. He knew him to be shortsighted. He thought him foolish to have gotten himself into such a predicament. Nevertheless, he wanted to help because he loved him. He stepped between them, faced the creditor, and made this offer.

"I will pay the debt if you will free the debtor from his contract so that he may keep his possessions and not go to prison."

As the creditor was pondering the offer, the mediator added, "You demanded justice. Though he cannot pay you, I will do so. You will have been justly dealt with and can ask no more. It would not be just."

The mediator turned then to the debtor. "If I pay your debt, will you accept me as your creditor?"

"Oh yes, yes," cried the debtor. "You save me from prison and show mercy to me."

"Then," said the benefactor, "you will pay the debt to me and I will set the terms. It will not be easy, but it will be possible. I will provide a way. You need not go to prison."

And so it was that the creditor was paid in full. He had been justly dealt with. No contract had been broken. The debtor, in turn, had been extended mercy. Both laws stood fulfilled. Because there was a mediator, justice had claimed its full share, and mercy was fully satisfied.

What is it about Anselm’s argument and the preceeding analogy that bothers me? Here are my reasons, in reverse order of their significance—the first I see as mere logical inconsistencies, the last is more problematic.

• The basis of the argument—which John Calvin first referred to as penal-substitution—indicates that justice can be accomplished through an injustice. I can think of nothing more inherently unjust than punishing someone who is innocent, but that’s exactly what is said about the atonement. Christ, according to common thinking, volunteered to be punished—I understand that—but such punishment could not have been a requirement of justice. Not only is it improper to punish an innocent person, it is also improper to forgive a guilty person based on the suffering of someone else. If the existence of sin causes justice to be satisfied, the penal-substitution theory has an odd approach, since its solution runs counter to the basic premise of what is just.
• At first glance, the analogy explains why God cannot forgive the sinner by introducing a creditor, who would not receive money that he was rightly owed. We take comfort in the argument, because in a financial transaction there is no injustice in someone paying the debt of another. But the analogy contains a subtle sleight-of-hand that breaks down when we map it to the real world. The debt—which represents the punishment required for sin—can be paid justly by another, but punishment should not. Why? Because there are real world debits and credits associated with financial transactions. To assume the same about the transferability of punishment is problematic. How would you like a court of law to incarcerate your mother, for example, because you broke a law?
• There seems to be no real-life analog to the creditor. Is it Satan? To assume so would indicate that Satan has a vested interest in our repentance. Is God the creditor? To believe He is wounded by our sins (aside from the sadness a parent feels) is to believe He isn’t much of a God. The alternative—to claim there are cosmic debits or credits that we rack up by our actions—leads to a similar conclusion, since it points to a construct that even God must obey. Furthermore, saying God only forgives the debt after it is fully paid is tantamount to saying God does not forgive, which runs counter to Christ’s higher law (see below). Finally, is justice the creditor? That seems to make no sense, because the conclusion brings us back to the idea that justice demands an injustice and that there are demands that supersede God’s will.
• Finally and most importantly, our notion of justice is an Old Testament, rather than a gospel, requirement that stands apart from what Christ teaches about the nature of God.

Since the last point is critical, let me develop the argument further. The idea of justice was born out of a different time and comes from the Mosaic requirement that can best be described as an “eye for an eye.” Recall the history of the Jews prior to the time Moses received the Ten Commandments. They were a people who were first slaves to the Egyptians, then led through the wilderness as vagabonds. As slaves, they'd lived a hand-to-mouth existence. Their only laws, enforced by the whips of bondage, were based upon survival of the fittest. Punishments, at the time, far exceeded their attendant infractions—steal a crust of bread, for instance, and off came your hand. Under such conditions, an eye for an eye was less a requirement than a restriction meant to insure punishments were reasonable.

Christ, however, wanted his followers to exercise a higher standard. Jesus expressed this idea in the Sermon on the Mount by saying:

Ye have heard that it hath been said, An eye for an eye, and a tooth for a tooth: But I say unto you, That ye resist not evil: but whosoever shall smite thee on thy right cheek, turn to him the other also.

This is consistent with other utterances He made. For example, when Peter asked how often we should forgive a brother’s sins, Jesus answered, “Until seventy times seven,” a euphemism that meant always.

It would be easy to wonder, therefore, why God would demand one standard for His children (forgive all) but employ another for Himself (justice without exception). The answer is, quite simply: He doesn’t. To understand why this is the case, go back to the Sermon on the Mount and chapter 5 of Matthew. Christ ends His discourse regarding lesser and higher laws with an interesting admonition that sheds light on the true (not the Mosaic) nature of God:

Be ye therefore perfect, even as your Father which is in heaven is perfect.

By this directive, Christ says His description of the higher law—the gospel that includes forgiveness—is the same variety of perfection that God practices. Accordingly, I believe He forgives in all instances and does not demand any cosmic rebalancing of sin’s debits and sacrificial credits aside from our truly repentant hearts. Though repentance may require restitution when it’s feasible, I cannot believe God requires a justice that is based upon an apparent injustice. Yet, even while I write this and understand what it implies about the atonement, I remain in complete awe and reverence for what Christ did for us. It does not diminish my love for Him.

A final note: Human society is imperfect. Earthly justice, therefore, continues to be necessary in order to protect the innocent, rehabilitate the guilty and discourage criminal acts. Anything more than this, however, is inconsistent with Christ’s teachings. In particular, to demand justice only as payback for crime is little more than revenge.

The Power of Hope

A few miles from the town where I grew up, there’s a boulder—cup shaped and tilted on its side—near a place that has been turned into a campground. God must have made it for bait fishing because it’s high in the back, sloped to the river and covered with soft moss. It juts off the bank and causes the water to eddy downstream, so silver salmon rest at its foot before moving on. As a kid, I used to cast into the swirl, lie on the rock and wait for a strike. It was as cozy as a favorite chair and I suppose that I caught my share of fish from it.

The rock gets traffic from the campground these days, so I don’t think of it as mine anymore and since I fish differently these days—with a method requiring floating line and a lot of walking—I haven’t been back in a long time. Yet, I still think about the boulder and love it for the way it was.

I learned things while sitting there, things about human nature and me. One summer I pulled two grown men from the river after their canoe tipped. Once safe on the rock, they watched their camping gear float away and the first words either of them could say was: “Hell, there goes my cigarettes.” I laughed until I recognized a sad side to wanting.

Yet, that didn’t stop me from doing the same thing, too: wish for things that seemed to be drifting away. At one time or another, I wanted to be a dozen different things, including a baseball player and a writer. Those dreams seemed within my grasp, until I would step away from the rock and strike out on curve balls or flunk a spelling test. Still, I could go back to the rock and plan and hope. (That’s when I decided to step up in the batter’s box to get a crack at curve balls before they broke away). Though I was never much of an athlete, the planning seemed to raise my batting average a few points.

Since I’ve gotten older, my dreams have changed. I’m not sure if they’re any more mature than my childhood wishes. At times they haunt me, as a good chunk of my life has already passed without accomplishment. But I know this much: when our wishes are right, they make our lives worthwhile. Hope is what whispers that when life is trying, the best we can do is try. Success isn’t what makes life joyful. It’s hoping and dreaming a better world into existence.

His Name Was Emil

When I was a kid, my family lived on a road that ran through thick woods. A mile behind our house, in an area we referred to as our backyard, a narrow creek flowed at the bottom of a gully. One day I was on my way to fish the creek and happened across a small shack made of old logs and roofing material. Judging from its signs of wear, the structure had stood there a long time. I walked towards it until movement showed through a tiny, curtain-less window.

"Who’s that?" I heard an old man's voice say, but more than a little frightened, I walked away without replying.

The thought of an old man living alone in our backyard was disconcerting. Perhaps he was an escaped convict or a deranged lunatic. Yet, after relating the meeting to my parents, my mother made a strange request. She asked me to take food to the man and check to see if he needed our help. Despite my feelings of apprehension, Mom couldn’t be dissuaded. In that gentle, but firm, way mothers come to master, she encouraged me to take an extra plate of dinner to our neighbor.

Within seconds of meeting him, I could tell my concerns had been overblown. He had one of those ambiguous, part-Russian, but mostly-Alaskan native, faces that sported a week's worth of sparse stubble, deep wrinkles and an almost toothless grin. He told me his name was Emil Dolchuk and when he saw the food I carried, his cloudy eyes opened wide. Emil invited me into his one-room home where the smell of urine and mildew jolted me as I entered. Inside, the shack's meager decor included a cot along one wall, a fold-up table opposite from it and two unmatched chairs. There was no electricity and no running water. His source of warmth was a wood-burning stove constructed out of tin tubing and a 50-gallon drum.

As he ate, Emil talked without pause. He seemed compelled to share stories of his life, but I can remember none of them, because I could only think of leaving—to be gone from the sight of the old man's poverty. During the following months, checking up on Emil became a family project, but after moving form the area, we lost track of him. Then several years later, we were reminded of our former neighbor in a startling way: an obituary notice in the local newspaper marked his passing.

Now, the story would end there except that after the passing of a few more years, I went to the city library to research the area's early history. There I found a shelf full of old journals written by Orthodox priests, commercial fishermen and homesteaders. As I read the sour-smelling and forgotten pages, I was impressed by several references to a man—a former city father. He’d been first to suggest the need for a new school (which he'd helped build and, thirty-years later, I attended). He had been a member of Kenai’s first volunteer fire department and for many years, as the village post master, he had braved winter toil by delivering mail to the town via dog sled.

The man's life took on shape and substance as I read. I could imagine him preparing to pick up the mail at Moose Pass 200 miles away. I could see him take a cautious step onto the crust of old-fallen snow and grimace as he fell through. He would grumble as his breath formed a lazy vapor that disappeared slowly into empty winter air.

In those days, unbroken and thinly-crusted snow was his greatest nightmare. It required him to "break trail" by running ahead of the dogs. With snowshoes lashed to his feet, he would land spread-legged and heavy on the snow's frozen crust to create a pathway for his huskies. While inching across wind-swept and frozen tundra, the sled would shimmy and shudder along the jagged edges of the scarcely broken trail.

After traveling only a short distance, but already wet with his own sweat, he would tell himself that Soldotna Creek was only twelve miles away and that he could rest his aching lungs there. By the time he would reach the cache, winter’s fleeting light would already have left the sky and he would still have much to do. He would need to build a fire and dry his drenched clothes before the night settled fully and sought to freeze him in his own perspiration. He would go to the cache and bring out dried chum—dog salmon they called it because the fish filled local rivers like maggots on a carcass and gave homesteaders the chance to catch a year's worth of dog food during a few summer weeks of gill netting. With coarse tools and nature's gifts, this remarkable man helped carve a community out of the wilderness. And his name was Emil Dolchuk.

If Emil were alive today, his stories would be worth gold to me. Unfortunately, all that reminds me of his good works and wisdom are a few scattered entries in hand-written journals. Yet I am fortunate to have them, for they are testimonies to the contributions of a man I've learned to appreciate and long to see again.

The Gospel In Practice

Think not that I am come to destroy the law, or the prophets: I am not come to destroy, but to fulfill.

Christ made the declaration just before introducing His gospel as a requirement of greater standing than the prevailing Mosaic Law. What did He mean by the assertion? In particular, what does the reference to “fulfilling” the law and prophets suggest? Here are my thoughts.

Since His followers were required to obey the Mosaic Law—albeit by adherence to the higher standards of the gospel—Jesus didn’t destroy the lesser law. Obedience to the Ten Commandments, in fact, remains a necessary condition to living a Christian life, but while it may be a necessary condition, it’s also insufficient. We’re asked, in short, to be better than the demands of the Old Testament (see my first blog on the topic). Consequently, Christ fulfills the Mosaic Law in two important ways. First, He represents the culmination of the Messianic prophecies and associated promises of spiritual freedom contained in the Old Testament. Second, He asks us to fulfill the lesser law (in the way graduation from high school is a requirement to enter college) on the road to greater levels of spiritual advancement.

But why is this important? Consider the following.

Case 1—Geoff walked up to an ATM, intending to take money out of his account. The screen, however, asked if he wanted another transaction and he quickly realized that the previous user hadn’t logged out. He had access to someone else’s funds! Geoff looked around and saw that no one was watching. At first he considered making a withdrawal from the account, but decided it wasn’t the Christian thing to do.

Did Geoff do the right thing? Certainly he did by not stealing. However, a helpful construct to consider is contained in the following question: What standard was followed? While the Mosaic Law prohibits theft, Christ asks that we rise to a higher plateau. It’s not enough that we avoid acts that do harm to others. The gospel asks for clean hearts, as well. The fact that Geoff was tempted to steal runs counter to Christ’s directives against immoral thoughts and unbridled emotions such as lust, greed and anger. These are not only precursors to sinful acts, but they lead to spiritual decay even when the behaviors are avoided. Clearly, following Christ’s admonition in this way is easier said than done. We may never achieve complete purity of thought, but it’s the standard to which Christians are to aspire.

Case 2—Geoff agreed to perform landscaping work for a new client, but before he could draft and execute an agreement, a more lucrative opportunity fell into his lap that would take up all his spare time. Since he wasn’t contracted with the first client, he decided it was fine to walk away from the deal.

Though the Mosaic Law required the performance of oaths—and prescribed a hierarchy of their countless varieties—Christ would have a person’s word be his or her bond under all circumstances. However, in this way our culture is far more Judeo than it is Christian. For example, the requirement to swear on a Bible prior to giving legal testimony, smacks of Leviticus rather than the Sermon on the Mount. Christ wants our communications to be Yeah or Nay and our performances to be perfect regardless of whether an oath (or contract) was executed.

I have more to say on this topic as the idea of justice, in particular, is quite interesting and complex. Moreover, what Christ has to say on the topic runs counter to our usual practice, which again is more closely aligned to the Mosaic Law than the gospel.

Scribes and Pharisees, Hypocrites!

Did you happen to notice where our president had to go to rally his troups last night? After everything our illustrious elected officials have said to condemn lavish junkets made by bankers, what do you think our leaders did? Yup, you guessed it, they gathered at an exclusive resort. As CNN's Campbell Brown said:

Leave it to members of Congress to be completely daft, entirely clueless, and unbelievably out of touch. Seriously, only a member of Congress can make a Wall Street executive seem like a sympathetic figure these days. And boy, do they make my job easy. Yes, while our representatives have been jumping up and down screaming about the excesses of Wall Street, condemning those corporate boondoggle trips to luxurious resorts, what do they do? They all go away on retreat together to a luxurious resort. First it was Republicans, who last week decamped to the lovely Homestead Resort, famous for its golf, fly-fishing, and luxurious accommodations, with its own golf course and five star amenities. Now, in fairness, members do pay for lodging with personal funds or their campaign accounts. But yes, taxpayers do foot the bill for some of the expenses. For example, according to Politico.com, we all paid about $70,000 for Democrats to take the train down to last year's getaway. Then they racked up phone and Internet bills of more than $40,000 on our dime. Not to mention the enormous security costs, which are even higher this year with the president and vice president both stopping by. How exactly in this economic climate Congress could possibly see the need to all go on a spa retreat together is frankly beyond me. Their offices are next door to one another. They see each other every day. Yes, they have important businesses to do on behalf of all of us. But can't they do that in Washington?

Random Musings

On God’s First Commandment—Do you recall God’s first instruction to humanity? It was this: Be fruitful, and multiply, and replenish the earth. While human history suggests we’d rather leap over these initial directions on our way to subduing the earth and exercising dominion over its creatures, the priority of God’s commandment lands squarely on our responsibility to be good stewards. Shouldn’t Christians, therefore, be the greenest of all people?

On Levels of Heaven—Followers of my religious tradition believe heaven contains various degrees of glory and that those who attain the highest level become like God Himself. If the notion is true, I believe our Heavenly Father will allow us to select our various kingdoms. If we weren’t comfortable hobnobbing with the sanctimonious here, we won’t feel any different beyond the veil. As for me, I think perfection is overrated. Quirky is my preference. I’d rather associate with people who can fart and laugh about it than with the pious creatures who believe they deserve Godhood.

On Mercy and Justice—Who invented the need for justice? Justice by another name is payback and is little more than revenge when its sole purpose is to exact an eye for an eye. Does justice restore the eye? If not, what cosmic order does it maintain? To punish a child already bludgeoned by guilt is akin to piling on and demands more than any reasonable parent would ask. But to assume God—who knows the content of our hearts—does so is antithetical to the idea of a loving father.

On the Atonement—Why did Jesus have to die for my sins? Even an imperfect court of the land would balk against incarcerating my brother for a law I broke. Why would God require something so blatantly unfair? In the end, I’d rather burn—if that’s what justice truly demands—than allow someone I love to pay for my sins. Hopefully, I’ll have a choice in the matter.

On Praising the Lord—To assume God needs us to praise His name is to believe He has a self-esteem problem. Conversely, if we think He’s offended by what we say or think, we really don’t believe He’s much of a God. Worship, as a component of any other relationship, is unhealthy. Why must it come between us and the father of our souls? To me, it seems far better to approach God as one would a respected and trusted teacher. Worship is more akin to fear than love.

On Eternal Rest—What kind of a reward is eternal rest? The notion causes me to shudder. Death, without the gospel, gets us the same thing. As for me, I hope there will be plenty to do when this life is over. Even bowling would be a better option than rest.

What bothered me most about my church’s response to Prop 8—While so much zeal was applied to passing the proposition, there was nothing said about the people who would be most affected—no prayers were uttered on their behalf, no outreach of love and concern was ever offered. So many of our young gay members have gone on missions and tried to live the church’s directives, only to resign themselves to who they are and commit suicide with feelings of utter desolation. If you believe God condemns gay marriage, campaign against it, but also pray for gay men and women everywhere that they will find refuge and God’s love somewhere. Hopefully, we can be instruments of peace in that regard.

On Satan's Role—If we're to be tested here on earth, couldn't the devil defeat God's plan by withholding temptation?

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.