It is 2AM and I'm just getting home from a Curbside Chat in Mason City, IA. Lots to talk about with that -- all good -- but for now the sleep fairy is calling me. This is especially true since Daughter #2 is now the ill one and in a few hours she is going to need one-on-one daddy time and my full, awake attention.
So here's the deal....below is the sausage making of the Friday News Digest. When someone mails me an article during the week or when I come across something that interests me, I paste it into this post. Thursday night into Friday morning, I go through and provide excerpts and my own comments.
This Friday, I'm going to turn that over to you. Pick an article, give me a quote and a Strong Towns take. When I get time to put the News Digest together sometime on Friday, if your stuff is good, I'll put it in the post and give you the attribution. We'll call this crowd sourcing the news. And if you have a news article out there that I've not included, do the same thing but also provide the link.
Last October I had a run of good timing. The video of my TEDx talk on the important difference between a road and a street was released and, a week later, we released the companion booklet to the Curbside Chat. Both of these efforts brought us and the Strong Towns movement a lot of attention and, through it all, we caught the gaze of one of the people I admire greatly, James Howard Kunstler.
I've met Jim before at the Congress for the New Urbanism. I blog during CNU and so I sit in the front and, when Jim sat down beside me, I made it a point to shake his hand and greet him. Like a giddy school kid, I even blogged about the experience. I'm sure he would find that amusing.
Last October I got an email from Jim giving me some praise about the TEDx video and the Curbside Chat booklet. He kind of casually threw out the idea that we could someday do a podcast together. I may be a giddy school kid at heart sometimes, but I'm also an opportunist. A chance to have an extended conversation with one of my favorite social commentators was one of those experiences I had to pounce on. I emailed him back and said I'd come to his place -- or Duncan Crary's -- and we could make that happen.
Now I was going to be in New York on business, and I've always wanted to see upstate, so this was something I could have fit into my schedule. Unfortunately, I think I came across as a little over eager, especially since when I said I would "drive up" Jim apparently assumed I meant from Minnesota. He thought that was ridiculous -- told me so in the way you would imagine him doing -- and that's kind of where things ended.
Fast forward to 2012 and I'm sitting here with a copy of the KunstlerCast book written by the host of the program, Duncan Crary. The two of us are Facebook friends and, in chatting with him about the book, he agreed to come on the Strong Towns podcast.
We were able to pull that off this week. I want to take the blog post today and make sure that those of you that don't subscribe to the podcast know that the interview is there. I thought it was fun and it turned out really well. Duncan is a good subject for an interview. He made many thoughtful and insightful points that you don't often get a chance to hear from him on the KunstlerCast.
Although we've never met in person, I feel a little bit of a kindred spirit with him. We are both of Generation X and, while he laughed at my use of the term "slacktivism", we've both chosen to live in small towns and to, in our own non-traditional, Gen X way, push for change in those places. While my parents (and his parents probably too) would scratch their heads at the idea of spending significant time on a river barge this summer to write about the experience, I totally got where we was coming from when he said that was one of his upcoming projects. Hopefully we'll do another interview when that book is out.
A few things about Duncan. Not only is he the host of the KunstlerCast, but he runs Duncan Crary Communications where he does P.R., publishing and all-around assisting with communication projects. He comes across as a very down to earth guy; someone who believes in what he is doing but doesn't take himself too seriously. If Jim Kunstler is the court jester -- a title he has given himself that has far deeper significance than simply "clown" -- then Duncan is the town crier. These two are a great team.
Finally, I have to recommend the book Duncan has written. I'll admit that I was skeptical when I heard he wrote a book about conversations from the podcast -- how interesting could that be? Having read it now, I can say that it is very good. I'm immersed in this stuff and I learned new things from it.
For those of you wanting a good overview of Kunstler's thinking and for those of you that want to share JHK with others but may fear being embarrassed by the sometimes "salty" language he can use, this book is a great tool. The format is, by design, conversational. You can digest it in small bites or in large pieces. And the Kunstler world through Duncan's eyes is not necessarily sanitized, but it is communicated in a way that I think will reach a broader audience.
If you would like to know more about how to apply Strong Towns thinking to your community, join us at the Strong Towns Network, a social enterprise for those working to implement a Strong Towns approach.
This week I had planned to finish up the traditional neighborhood versus suburban development discussion we've been hashing over here all month. I spent an inordinate amount of time last week tending to my primary obligation -- my family -- and had to spend the weekend getting caught up on everything I'd missed. I don't want to short change this topic so I'm putting it off slightly. Check back later in the week.
In the meantime, I wanted to share a video exchange between a reporter and an ECB official regarding Ireland and it's obligations to pay back bondholders. This needs a little bit of setup, and for that I'm going to turn to Michael Lewis, knowledge I picked up from his book Boomerang: Travels in the New Third World, and a piece he wrote on Ireland in Vanity Fair.
The first paragraph of the Vanity Fair piece sets the table perfectly:
When I flew to Dublin in early November, the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers decided to guarantee all the debts of the country’s biggest banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government had claimed was merely suffering from a “liquidity problem,” faced losses of up to 34 billion euros. To get some sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar it invested.
He describes in Boomerang exactly what happened. As the cheap credit was flowing, banks in Ireland took on enormous amounts of borrowed money to loan out, largely to Irish citizens who themselves were getting rich in housing and real estate development. When the artificial housing bubble burst and property values started to decline, these banks went from being illiquid (lacking cash to fund operations) to being insolvent (having more debt than assets) very quickly.
To understand what happened next, it is important to understand who these Irish banks owed money to. Much like our banks here in the United States, the money they were playing with was private money. Shareholders (of which the country of Ireland was a significant one), investors, pension funds, etc... In other words; private investors. Some were senior bondholders that would be paid first and some were subordinate, meaning they were the first to take losses.
And losses they should have taken. But they didn't. Unlike their neighbors in Iceland, which let their banks fail and re-established a reality-based banking system, the Irish government bailed out their banks. All of them. Nobody took losses, even those with subdominant (very risky) debt. All of these massive liabilities -- something like 35% of GDP -- became the government's.
And where did the government get the money? They are in the Euro and so, unlike the United States, they can't simply print the money to essentially tax everyone by diminishing the currency's purchasing power. The Irish government had to borrow the money from the banks. Not Irish banks -- that would have been absolutely ridiculous -- but from German banks, French banks, etc...
This shell game was done to "save" the financial system. Interesting thing happened though. After turnng the private debt into public debt by borrowing from the private sector, the financial system promptly turned on Ireland. Since the country now had such high debt levels, they were a higher risk for default. A higher risk for default means a higher interest rate and higher borrowing costs. Higher borrowing costs makes them a higher risk for default. And on and on and on.
To be protected from default, Ireland needed a bailout. They needed the International Monetary Fund (IMF) and the European Central Bank (ECB) to come in and buy their debt from the private sector, thus removing the private sector and making a high percentage of the resulting debt public. This stabilized interest rates.
Now that things are stable, the Irish people can go about the decades long process of austerity and stagnation necessary to service this enormous debt. What started with crazy lending by a handful of Irish banks has become the indentured servitude of the Irish people to German banks and the European Union, the latter an institution that was supposed to help create prosperity in Ireland.
I guess it is the kind of prosperity you get from a credit card binge at Walmart. The cheap junk all breaks before the bill is even paid off and the only ones truly richer are the Walmart execs and the Chinese.
Now here's the video I started with. What you are going to see is an Irish report named Vincent Browne ask ECB official Klaus Masuch (country of origin unknown to me, but the undertone of nationalism creeps in the conversation ever so slightly). His question: Explain to the average Irish citizen why this debt should be paid, why Ireland shouldn't just default.
Incidentally, this isn't a question just for taxi drivers and curmudgeon reporters but one that is being asked at the highest levels of finance.
And it isn't a question that is ultimately going to be asked only in Ireland either.
One other thing to point out here. The cheap money high started when Ireland began using the Euro in 2002. Check out the following graph of Irish GDP. Project out the pre-2002 growth trend and compare it to what actually happened. I'm not suggesting that is a rigorous economic analysis, but one has to ask how much of the underlying bubble has yet to burst. Who knows -- I certainly don't -- but it is clear that the system has been divorced from sound economics for some time.
The brilliance of Jared Diamond's incredible book Collapse: How societies Choose to Fail or Succeed, is how he studies complex systems by examining natural experiments in history to identify commonalities and trends. Michael Lewis has done for national finance what Jared Diamond did for anthropology. His verdict for larger systems that continue the present course is no less damning.
If you find this material interesting and would like to know more about how to apply this thinking to your community, join us at the Strong Towns Network, a social enterprise for those working to implement a Strong Towns approach.
Friday, January 27, 2012 | 
