I grew up in Belfast, N. Ireland and many of my grandfather's generation worked on the construction of the Titanic and its sister ships.
Shipbuilding and the linen industry, both now gone, were the industries that gave most of my ancestors their livelihoods in the smoke-laden streets of what was then a gloomy city.
The 100th anniversary of the sinking of the Titanic on April 15, 1912 brings much discussion about the physical facts surrounding the disaster. But the director of the movie of the same name, James Cameron, goes further and believes we should look upon the Titanic disaster as a metphor for the hubris of mankind. Cameron states:
Titanic is a metaphor. It's about the hubris of the ship owners; it's about society at that time. It was a very optimistic time: technology was advancing; everything looked like there would be a great future. The Titanic stood for that. And then, suddenly, the unthinkable happened, as if all of this went down with the Titanic.
There was the first class, second class, third class and the crew. You had the rich and mighty, the middle class, the lower class and the government. And the government was influenced by the wealthy -- And they were driving this ship way too fast, quite deliberately playing with the lives and the future of the other people. And when they saw the iceberg, it was too late.
This metaphorical theme permeates The New Yorker magazine's article 'Unsinkable - Why We Can't Let Go Of The Titanic' as it discusses a headline in the satirical newspaper The Onion:
"WORLD’S LARGEST METAPHOR HITS ICEBERG - TITANIC, REPRESENTATION OF MAN’S HUBRIS, SINKS IN NORTH ATLANTIC”
The New Yorker goes on to say: The Onion’s spoof gets to the heart of the matter: unlike other disasters, the Titanic seems to be about something. But what? For some, it’s a parable about the scope, and limits, of technology. For others, it’s a morality tale about class and the end of an innocent era.
They didn't believe the Titanic could sink but there was an iceberg straight ahead and when they finally took notice it was too late.
One hundred years later in 2012 we are still in recovery after hitting an iceberg of mortgage derivatives.
It was really a simple idea. Banks and financial firms took mortgages that were loaned out to home buyers, they would chop them up into little pieces, and they would combine mortgages with different risk levels, and then sell them to investors. And many times, investors could earn a little bit more rate of return - a quarter percentage point, maybe a half percentage point - because they felt like, well, yea, there's some risky subprime mortgages in that derivative, but they're counter balanced by the really safe mortgages. And so the attitude was, hey, you're getting a higher rate of return with very little additional risk.
And this actually worked for a time but it all fell apart when the housing market collapsed. And when those buyers of derivatives realized the housing market is not a sure thing, it can indeed sink - with it sank many of the USA's biggest financial institutions.
Mortgage Derivatives are a metaphor. They are about the hubris of bankers; about society at that time. It was a very optimistic time: technology was advancing; everything looked like there would be a great future. And the Mortgage Derivative stood for that. And then, suddenly, the unthinkable happened, as if all of this went down with the derivatives .
There was the rich class, the middle class, the poor and the stockbrokers. And the stock market was influenced by the wealthy -- And they were driving the stock market way too fast, quite deliberately playing with the lives and the future of the other people. And when they saw the collapsing house market it was too late.
Mortgage Derivatives seem to be about something. But what? For some, it’s a parable about the scope, and limits, of financial markets. For others, it’s a morality tale about class and the end of an innocent era.
The five largest U.S. investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch), or were bailed-out by the U.S. government (Goldman Sachs and Morgan Stanley) during 2008. Fannie Mae and Freddie Mac either directly owed or guaranteed nearly $5 trillion in mortgage obligations, with a similarly weak capital base, when they were placed into receivership in September 2008. For scale, this $9 trillion in obligations concentrated in seven highly leveraged institutions can be compared to the $14 trillion size of the U.S. economy (GDP) or to the total national debt of $10 trillion in September 2008.
They didn't believe the stock market could sink but there was an iceberg straight ahead and when they finally took notice it was too late.
Jack Thayer, a teen-age passenger on the Titanic and heir to a railroad fortune, who was one of only a handful of people picked out of the water by lifeboats, later recalled that the sound made by the many hundreds of people flailing in the twenty-eight-degree water, drowning or freezing to death, was like the noise of locusts buzzing in the Pennsylvania countryside on a summer night.
Joseph Bruce Ismay, chairman of the Titanic's owner, White Star Line, and a survivor of the sinking, lived through the 'noise of the locusts' that night.
During the congressional investigations, some passengers testified that during the voyage they heard Ismay pressuring Captain Smith to go faster, in order to arrive in New York ahead of schedule and generate some free press about the new liner. One passenger claimed to have seen Ismay flaunting one of the iceberg warnings at dinner time, waving it around, then placing it back in his pocket.
Lloyd Blankfein, CEO of Goldman Sachs, and a survivor of the sinking of the stock market, lived through the 'noise of the locusts' as millions of people flailed in a frozen economy, drowning in an ocean of mortgage debt.
On January 13, 2010, Blankfein, who earned a total of $54.4 million in 2006 as one of the highest paid executives on Wall Street testified before the Financial Crisis Inquiry Commission, that he considered Goldman Sachs's role as primarily a market maker, not a creator of the product (subprime mortgage-related securities). At a further hearing before Congress in April 2010 he said that Goldman Sachs had no moral or legal obligation to inform its clients it was betting against the products which they were buying from Goldman Sachs because it was not acting in a "fiduciary" role.
The Titanic and the Mortgage Derivatives remind me of the question:
To stop, right?
To stop. That’s one answer. Is there another answer?
Cars have brakes so they can go fast. It’s the ability to stop quickly that allows us to travel at speeds much faster than if we didn’t have brakes. Without brakes, we would all drive very, very slowly. Brakes give us flexibility in stopping when you want, where you want, and how you want.
But if we drive above the speed limit or ignore hazardous road conditions there is usually an 'iceberg' waiting in the distance.
As individuals we too have a metaphorical 'brake' on the speed with which we pass through this life - it is known as our conscience. Conscience is the brake that allows us to live life both hard and fast while warning us not to flaunt dangers we may chose to ignore over our 'Ismayian' dinners or moral obligations we choose not to see when acting in our 'Blankfeinian' roles.
There is always an iceberg dead ahead - our conscience warns our hubris not to ignore it!