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Our secret is out as the magazine Cabinet dedicates its latest issue to the theme ‘testing’. Cabinet has a tendency to exploit (or, rather, explode) interesting topics without covering them in any substantial way. This issue is no exception.


An excellent article on the discourses of intervention in Afghanistan by Rory Stewart, from the July 9th issue of the London Review of Books.

The collapse of Bernard (Bernie to his friends) Madoff’s Ponzi scheme is exposing some interesting networks in the world of investment and philanthropy. Not only did the scam spread through word of mouth and country club contacts, but apparently a large part of the appeal of the scheme was in its apparent exclusivity. “Dealing with him was all about getting behind the velvet rope to get into a downmarket bar… His entire fund was structured around a cult of access,” in the words of Fabio Salvoldelli, global strategist of Optimal Fund Management (article here).

The extension of the fraud in Spain, where the financial elite has been hit hard, provides an interesting illustration of the personal networks through which ‘investment decisions’ and ‘trust’ flow. Especially, and this might well be a Spanish idyosincrasy, of the pivotal role of the son-in-law. Madoff’s funds were marketed to wealthy Spaniards by M&B Capital Advisers, which is run by Javier Botin-Sanz and Guillermo Morenes (respectively son and son-in-law of Banco Santander’s Chairman Emilio Botin). Another key agent of contagion in the spreading of the pyramidal scheme was Andres Piedrahita, fund manager at Santander’s Banif and a fixture of Spanish high society, who also happens to be the son-in-law of Fairfield Greenwhich owner Walter Noel. As a result of these ‘connections’, Santander has reported the largest exposure to Madoff’s plot so far: €2.33 billion, mostly invested by its clients.

Back in New York, Madoff seems to have been at the epicenter of the city’s network of Jewish charities, many of which are now on the brink of collapse due to their involvement (or the involvement of their benefactors) in Madoff’s funds. Dr Gary Tobin, President of the Institute for Jewish & Community Research offers some insight in an interview in today’s Wall Street Journal:

“Specifically, Jewish philanthropy is built on social and personal networks. High-end solicitations are person to person and built in the social culture of philanthropy. It’s like finding out your brother is a murderer, it’s really bad for the family, it’s bad for the family of Jewish philanthropy.” (‘Madoff: The Atomic Bomb for Jewish Charities’, Wall Street Journal. See also this Bloomberg article, this one in Haaretz, and this one in the New York Times)

This philantrophic angle might prevent Madoff from adopting the ‘Jerome Kerviel Defense’: namely, to claim he was only robbing the richest of the rich and become in the process a popular hero. ‘Free Bernie’ t-shirts on sale in Times Square? Unlikely, given that the institutions suffering the brunt of the scheme include the likes of the Gift of Life Bone Marrow Foundation, or the Philoctetes Center for the Multidisciplinary Study of the Imagination.

Brief and amazing obituary of market research pioneer Harry Henry in this week’s Financial Times. Here are some of Mr Henry’s multiple achievements:

“In 1949, he was the first to use a punch-card system to work out how the country was covered by the press…”

“Mr Henry invented methods of calculating the time people spent looking at advertisements…”

“He used punch card systems for a variety of military purposes, including collecting data on the spread of venereal disease in soldiers that allowed him to draw conclusions about incubation periods several decades before doctors did.”

“Mr Henry returned to his employers after demobilisation, where he devised a methodology called “motivation research” to find out how consumers behaved without using direct questions about their habits.”

“Mr Henry worked with the Thomson Organisation from 1961 to 1970 as director of marketing and later deputy managing director, introducing “yellow pages” directories to the UK.” (from “Pioneer dragged newspapers into the modern era”)

See another obituary of this amazing man in The Guardian.

Doing Science in TV Format

With the rise of ethical regulations for research involving ‘human subjects’, the tradition of social scientific inquiry that relied on deception and the ‘psychologically exploitive’ manipulation of participants came to an end. Or, rather, it was transplated into reality television. Stanley Milgram would have a hard time today getting his experimental protocols past his university’s ethics committee, but he could be making a fortune writing ideas and scripts for TV.

Now finally the format of reality TV shows is being integrated back into real science. UK scientists have announced a study that will use the setting and social dynamics of ‘Big Brother’ to study the impact of co-habitation on flu transmission (“Scientists plan ‘Big Brother’ flu experiment”):

“British researchers plan to recruit 200 volunteers to be infected with flu while living together during week-long experiments, in order to deepen understanding of how to tackle a pandemic. In a groundbreaking Big Brother -style trial, recruits will be divided into groups of half a dozen. They will spend their time sleeping, eating and socialising in specially adapted hotels under constant camera observation and medical supervision.”

Hmmm, “socialising”… it sounds like fun. Hopefully the tapes of the experiment will find their way to general public. Science is too interesting to be watched only by scientists.

One traditional way of occupying the time between Election Day and the Inauguration of a new American President is to discuss the books the President-Elect might be reading in preparation for the New Job. Reports of books Obama is said to be reading abound. Doris Goodwin’s Team of Rivals: The Political Genius of Abraham Lincoln is maybe the best known one (lesson: keep your enemies close by appointing them to the cabinet). Obama himself is fond of pointing out how much time he is currently spending reading Lincoln’s own writings. Another two books often mentioned on Obama’s reading list are Jonathan Alter’s The Defining Moment: FDR’s Hundred Days and the Triumph of Hope (the symbiosis between text and politician is so perfect here that one suspects Alter wrote his book in anticipation of Obama’s victory), and Fareed Zakaria’s The Post-American World.

Yet one book that is less often mentioned but that could perhaps provide a better insight into Obama’s presidency is Richard Thaler and Cass Sunstein’s Nudge: Improving Decisions About Health, Wealth, and Happiness. Thaler is a famous behavioral economist (other readers of this blog could probably comment on his intellectual Weltanschauung), and Cass Sunstein is a well-known American legal scholar. A couple of decades ago Sunstein developed the concept of the “incompletely theorized agreement,” as a way of addressing the conflict of incommensurable political positions (In his 1988 book Legal Reasoning and Political Judgment, one of the intellectual sources of what came to be knownas new “legal pragmatism”).

Perhaps Obama will adopt a version of the legal minimalism that Susstain and others have advocated? How would this relate to a claim that is often heard, and that has been most philosophically formulated by Simon Critchley: namely, that at the center of Obama’s thought and self-definition there is nothing more (and nothing less!) than a fathomless Void?

P.S. What books was George W. Bush reading in the winter of 2000-2001, while he was preparing to transmutate from barely elected President-Elect to Commander in Chief (also known as “The Decider”)?

Soaking Up

We thought we were witnessing the nationalization of financial institutions, when in fact what is actually taking place is the financialization of the state. Last week George Osborne, Tory politician and still the likeliest candidate for Chancellor of the Exchequer in 2010, called for the state to act as a bank, directly offering loans and guarantees to businesses. Using three adjectives not often heard on the lips of British conservatives, he demanded that the state take “big, radical, activist steps”. “I’m a monetary policy radical in the circumstances we are in at the moment,” he argued.

This idea of “radicalizing” the state and its role in the economy, by turning it into a de facto financial institution, seems to be one of the key themes in the politicians’ response to the crisis. It resonates with Ernesto Zedillo‘s saying, that when the markets overreact, policy-makers must overreact too (Zedillo was President of Mexico from 1994 to 2000, and knows a little bit about overreactions).

Adding another fine term to this bizarre dictionary of politico-financial terms, today’s New York Times announces that the US government is about to bail-out Citigroup, and will in the process “soak up” billions of dollars in losses. The verb conjures a truly Sloterdijkian image: the state as a sponge.

A key sign of the relationship between academia and wisdom (at least in the United States) has been the above-average returns earned by university and college endowments. In August last year Harvard reported a 23.0 per cent return on its $34.9-billion pot of money. In wealthy colleges across the country, the yearly report of the chief investment officer is often the only occasion when professors, tenured and untenured alike, leave aside their personal and philosophical quarrels and join each other in enthusiastic applause. Not out of selfish material interest, mind you, but because in the success of their investment strategies they find vicarious confirmation of their institutions’ ineffable wisdom. What better way of proving one’s excellence? Yes, they are smarter than everybody else and, more importantly, smarter than the market. (Max Weber should have added an appendix on academics to The Protestant Ethic and the Spirit of Capitalism).

Oh well, the era of differential smartness is over. Reports of heavy losses by university endowments are multiplying (see here, here, and especially here). Amherst College announced a drop of 25 per cent in its endowment ($1.6 billion) last year, and other top universities are expected to suffer large losses. Their investment strategies suddenly look mundane. The upshot: the financial crisis is likely to stall efforts, currently underway in Congress, to force wealthy universities to spend a minimun percentage of their endowments on their students.

John K. Galbraith famously argued that in the United States the only respectable form of socialism is socialism for the rich. In today’s Washington Post, über-conservative George Will finds the latest series of “bail-outs” insufferable (“‘Socialism’? It’s Already Here”) and calls conservatives to confess their complicity and repent:

“In America, socialism is un-American. Instead, Americans merely do rent-seeking — bending government for the benefit of private factions. The difference is in degree, including the degree of candor. The rehabilitation of conservatism cannot begin until conservatives are candid about their complicity in what government has become.”

Here maybe the traditional Trotskyte notion of a “degenerated workers’ state” would be more appropriate — this was how Trotsky described the Soviet Union under Stalin: a country where the means of production have been nationalized but the working class has not managed to hold on to political power.

(OK, let’s not talk about that other thing today…) Count the West Nile virus among the few beneficiaries of the downturn in the housing market. According to a recent article in the journal Emerging Infectious Diseases (“Delinquent Mortgages, Neglected Swimming Pools, and West Nile Virus, California”, by William K. Reisen, Richard M. Takahashi, Brian D. Carroll and Rob Quiring), the burst of the housing bubble is behind the recent upsurge in the numbers of of virus-carrying mosquitoes detected in California: the pools and jacuzzies of foreclosed houses are providing the perfect breeding ground for the Culex tarsalis mosquito, the vector-of-choice of the virus. In Barksdale, near Los Angeles, the 300% increase in the number of delinquent mortgages correlates nicely with a 276% increase in the number of human West Nile virus cases detected in 2007. (Thanks to AK for this amazing piece of news)

The entomologists responsible for the study draw an important conclusion: the growing population of the mosquito-borne virus is linked to the rise in the number of adjustable rate mortgages. Here one begins to feel a certain interdisciplinary vertigo: a symbiotic relationship between Alan Greenspan and the West Nile virus? Suspiciously, the first case of WNV in the United States was reported in New York in 1999, soon after the end of the bubble…

It must be difficult enough to incorporate entomological predictions in the financial models that shape monetary policy or banking behavior, but what about the poor entomologists now forced to calculate the policy of the Federal Reserve, the rate of florecosures and the water behavior of suburbanites in their studies of insect behavior?