Saturday, April 30, 2011

Phase and State Coherence - Part 1 of 3


Note: Regular readers will note that I did not post on April 24. My lovely bride surprised me with a birthday trip to St. Martin and I connected to abundant nature rather than the net. I trust this post was worth the wait. If not, take a vacation to St. Martin and it will make more sense.

Should you wish to have your cognitive boundaries stretched, read Joseph Jaworski’s Synchronicity, Karl Popper’s The Open Society and Its Enemies, and Jared Diamond’s Collapse in the space of a month on the shores of three different oceans separated by at least one transit of the dateline. Immersed, as you would be, in consciousness and nature, the works take on dimensions that remain illusive if absorbed in an armchair sipping a beverage. In each of these works, you see the effort of diplomats – emissaries from both the prophetic and the prosaic – who passionately seek to awaken humanity from narratives of obsolescence, self-destruction, and shared epochal tragedy to illumine a possibility for a more suitable humanity. Along with my most recommended of authors – Gregory Bateson – they attempt to navigate dimensions of inquiry with words which belie the vision they seek to describe. Each one seeks the elixir of essence through the coarseness of language constrained by archetypal metaphor.

I am embarking on an expedition of sorts in this, the first of a series of three posts. Unlike the Homeric tomes referenced above, I will, in brevity, seek to convey essence which I have come to understand as an imperative in the understanding of our economic frameworks but, which through careless neglect, is passed over unconsidered. It is not accidental that most deist traditions include in scripture the prohibition of graven images. Divinity instructed that essence, not artifact, should be the object of veneration. It is also without puzzle that the epic of spiritual traditions involved journeys – not stasis. For it is in the physical and temporal transience that revelation can evoke clarity of purpose unimpeded by monochromatic redundancy. So too, we need to understand that in economies (remember the etymology of the Greek word meaning “management of the household”), it is in the journey through exchanges that value is manifest. In our insular view of post-Modern consumerism, we have lost the recognition that hording – an artifact of fear and mistrust – shares no association with wealth. Wealth, in its ideal form, is the capacity to engage fully without limitation, not the capacity to survive an uncertain (and feared) future.

Upon this canvas I would like to explore the concepts of Phase and State Coherence and Dissonance and the role these dynamics play in the understanding of value exchange. Notwithstanding the limitations of language mentioned above, I have chosen these terms as I see them representing a dynamism which is lacking from many of our economic nomenclature. Let me simply introduce what I mean by each of these and, in the weeks to come, I will attend to a deeper explanation of both in a variety of contextual frameworks.

Phase – the period or pulse (measured in time, magnitude, or field effect) in which essence and value are manifest, recognized, transacted, utilized, exchanged, and retired or unseated. This concept incorporates principles such as invention, innovation, incrementalism, obsolescence, duration, maturity, and life-cycle but transcends them in that Phase is perceived through cycles and consequence in totality – not in punctuated episodes.

State – the form (measured in commodity, custom & culture, knowledge, money, technology, well-being) in which community consensus coalesces to denominate a manifestation of matter, energy, surrogation or experience. This concept includes science, mathematics, social order and convention but transcends them in that State incorporates the unconstrained completeness of matter, energy, or experience.

Coherence – expressions in which amplification, propagation, transfer and transcendence are complimentary, promote efficiency, and optimize common access.

Dissonance – expressions in which interference and friction impede or restrict propagation, promote discord or obfuscation, and thwart transfer.

To understand these concepts in a practical application, let me explore a few examples and remind you of some earlier references to these principles.

When one prepares an umu in Samoa (a cooking method in which food is prepared on the ground with heated stones covered by leaves), one of the dishes which may be included is palusami (a dish that puts creamed spinach to shame). This mix of taro greens, coconut milk and salt is prepared in large waxy leaves and placed in the umu. The cooking stones are heated with a fire made from the coconut husk and leaves from previous umus. The State condition is that the whole of the coconut and the taro are used – in an unaltered state – to supply nutrition. The “waste” – in an unaltered state – is used for fuel to heat the cooking stones. The Phase involves a complete first use (food), second use (fuel), third use (ash to the garden) engagement of every State (coconut and taro). In this example, we find Phase / State Coherence as there is no point in the process where the State of a thing requires alteration and, save the caloric input of manual labor to collect, prepare and consume the food, the system achieves its utility without significant alteration. A State change occurs to the coconut husk at its burning, but is harvested for a Phase utility – the heating of stones. This example serves as a representation of an efficient value exchange with high coherence.

When, incentivized by Federal tax policy reinforcing the centrality of home (real estate) indebtedness as a means of serving innumerable purposes, the U.S. government encouraged patriotic consumption in the wake of the September 11, 2001 events, by inducing re-financing of home mortgages allowing them to serve as the ATM for stimulating consumer spending. Our economy didn’t grow. The illusion of perpetual asset value increase grew. The State of real estate did not alter. The Phase of indebtedness – that wonderful, insurance-driven actuarial 30-year intransigent fixture of Occidental finance – didn’t alter. But what did alter is the decoupling of actuarial assets – homes and real estate – to purchases of consumer goods and services. The Phase dissonance made the 2008 financial collapse perfectly predictable (as evidenced in my speeches in 2006) as the Phase of consumer credit operates in 3-5 year oscillation periods where, on the second attempt to prop up the illusion, the absence of assets becomes visible and, voila, the market fails. In short, the economic policy of the G-7 was to seek to create State dissonance (use real estate to prop up consumer spending) by forcing – albeit unconsidered by most economists due to professional courtesy and wholesale irresponsibility – Phase dissonance (attempting to blend 3-5 year duration risk with uncorrelated 30 year duration risk). In this instance, the combined Phase / State dissonance led to collapse and, to this day, no substantive policy or regulatory change has been possible as, to date, no one still is paying attention to the systemic dissonance.

CNN recoiled with the breaking news today that gasoline prices were crossing a $5.00 per gallon price. Economists quoted in the Wall Street Journal and Financial Times all talked about the effect of high energy prices on slowing consumer spending. Somehow missing from all these conversations is the Phase / State coherence of what’s driving gasoline prices. We know that states are all suffering economic shortfalls and we know that approving taxes has become taboo in Washington courtesy of the pro-limited government conservativism of tea party elephants (the same ones who spent like drunken sailors the last time they controlled the purse). The collusion between the oil industry and the government is a wonderful example of Phase / State coherence. States derive significant benefit from taxes levied on fuel. Many states collect revenue as a percentage of the price of fuel. Not surprisingly, states with the most bleak economic conditions represent a disproportionate number of those who also tax gasoline at high percentages. So, using State Coherence, the gasoline price is encouraged to spike in Phase with the revenue benefit to the state. While we may find this Phase / State coherence reprehensible (or, God-forbid, collusive), one thing is certain. We are having taxation incented energy price spikes where NO external Phase or State condition warrants the spike. And the reason why we won’t have anti-trust oversight on this (notwithstanding President Obama’s Facebook appearance where he wanted to ‘connect’ with real people), is that the State Attorneys General who would need to launch such an inquiry draw their salaries from – you guessed it – the racketeers.

We will explore, in the coming two weeks, a deeper discussion of Phase and State coherence. We will look at how, by viewing economic and social systems through these lenses, we can unravel inefficiencies and willful incumbent power systems which, when exposed, allow us to consider alternative forms of engagement.

Sunday, April 17, 2011

CSI: US Senate – Autopsy on the Wrong Body

NOTE: This blog post preceded S&P's April 18, 2011 'negative' outlook on the U.S. economy in which they warned of a loss of AAA rating but, as this post reveals, failed to have the independence to tell investors the true risks facing the illusion of investment grade.

Let me begin by saying that Senators Carl Levin and Tom Coburn had a thankless job. Together with their staff, they were asked to investigate the Wall Street and Financial Crisis of 2008 and following. To their credit, they did an amazing job of wading through documents and testimony and came up with copious evidence of theft, fraud, greed, and most of the customary Deadly Sins. And, if I had CEOs lying under oath in front of me, I would probably have to appeal to my higher angels not to want to submit a one page report – in lieu of the 639 pages – with a simple conclusion…

“They lied, we paid, our economy is toast. But, the real perpetrator is running amok and ready to strike again.”

Instead, in the hundreds of pages, they detail the breakdown of a system that was engineered to serve the interests of the likes of Goldman Sachs at the expense of the people but they conveniently ignored the real beneficiaries. Before I get to that, however, I thought it might be nice to comment on their ‘recommendations’ which, in the main, are agreeable. So, at the end of this post, I’ve copied their recommendations and added my commentary on what I see.

However, given that some of you might not get to the end, let me observe that the committee focused on the a) WRONG BODY; and, b) WRONG PERPETRATOR. And, no, I’m not going to rehash my now vindicated assessment from 2006 that this was never a ‘housing’ or ‘real estate’ crisis but rather a profligate consumer credit orgy that led to a persistent vegetative state of brain damage. Regrettably, that would sound like an, “I told you so.” No, rather we need to understand that the BODY that needed the autopsy was the Congress and its use of tax and monetary policy to incentivized mindless behavior. And the PERPETRATOR was and remains the Reserve Corporation and its progeny – the unholy alliance of life insurers and Fed banks – who led the monetary coup d'├ętat in 1913 and who continue to staff both sides of the feeding trough.

Congress’ tax and monetary policy has been used to dictate unconsidered social policy for a long time. It is no surprise that it was in 1913, the same year that the Federal Reserve was established by, and for, fixed income investors in the life insurance industry, that the U.S. ratified the Sixteenth Amendment allowing Congress to levy income tax. By collecting income tax and apportioning it “without regard to any census or enumeration,” Congress solidified its capacity to use income tax (and deductions thereto) as a primary means of influencing public behavior. By allowing interest to be deducted from income tax in the same year the Fed was established, Congress introduced a statutory bribe to the American people to co-opt them into the belief that duration matched investments would be good for them and that the best way to insure systemic adoption would be to link mortgages, life insurance premiums, and federal bonds in actuarial, perpetual wedded bliss.

Oh, and anecdotally, is it any wonder that the fixed income terminal horizon of the past century – the much venerated 30-year duration (life insurance, bonds, and pensions) – matches the productive life expectancy of an adult male in 1913?

Linking home ownership – backed by the creation of the Federal Housing Administration in 1934 – to the hegemonic monetary returns for life insurers at the creation of the Federal Reserve; and by combining mortgage and life insurance as necessary public financial utilities, the Congress incented (and the public acquiesced to) the mindless embrace of debt-based citizenship. Our collective indebtedness on a personal and national level is NOT a surprise – it exists by statute. Wall Street is not the problem, it’s merely the utility used by the perpetrators. If Levin and Coburn really did their job, they’d realize that it is the tax and monetary policy of 1913 that created the Crisis and NONE OF THEIR RECOMMENDATIONS change that one bit.

As long as we have “fixed income” requirements in banking, insurance, and other regulated finance (including pensions) where independent rating of risk (including the ability to call U.S. Treasuries the junk that they truly are), we will have done NOTHING to treat the present contagion or spare us from future shocks. As long as we have a debt-based monetary system architected by and for life insurers and reserve bank members which continues to enslave every productive citizen to transfer wealth to the incumbent coup leaders (for the moment, Goldman Sachs), we will have done NOTHING to build a stable future.

The U.S. bankruptcy has little to do with mortgages. They were merely a symptom in the massive immunosuppressant-induced lethargy observed in the deceased prior to expiration. No, this virus was introduced by Presbyterians (in their corrupt invention of life insurance), was mutated by the likes of Metropolitan Life, Aetna and others (despite the valiant, albeit futile vaccination injected by the Clayton Act of 1914), and became contagious through the combined vectors of tax deductions, pensions, and life insurance. Our reincarnation – should it appear – will only be possible when we realize that 639 pages of evidence on the wrong body will neither solve the crime nor prevent the serial felon from striking again.

From the Senate Report
Recommendations on High Risk Lending

1. Ensure “Qualified Mortgages” Are Low Risk. Federal regulators should use their regulatory authority to ensure that all mortgages deemed to be “qualified residential mortgages” have a low risk of delinquency or default.

2. Require Meaningful Risk Retention. Federal regulators should issue a strong risk retention requirement under Section 941 by requiring the retention of not less than a
5% credit risk in each, or a representative sample of, an asset backed securitization’s tranches, and by barring a hedging offset for a reasonable but limited period of time.

3. Safeguard Against High Risk Products. Federal banking regulators should safeguard taxpayer dollars by requiring banks with high risk structured finance products, including complex products with little or no reliable performance data, to meet conservative loss reserve, liquidity, and capital requirements.

4. Require Greater Reserves for Negative Amortization Loans. Federal banking regulators should use their regulatory authority to require banks issuing negatively amortizing loans that allow borrowers to defer payments of interest and principal, to maintain more conservative loss, liquidity, and capital reserves.

5. Safeguard Bank Investment Portfolios. Federal banking regulators should use the
Section 620 banking activities study to identify high risk structured finance products and impose a reasonable limit on the amount of such high risk products that can be included in a bank’s investment portfolio.

InvertedAlchemy: The real problem here is the separation of Origination and Retention. When incentives are in place to induce the public to indebt, the ‘bank’ to loan, and the ‘fixed income market’ (as evidenced in statutory investment policies for ‘stable investment products’) to compulsively purchase bundled instruments, the demand for inventory of financial products to satiate the asset allocations mandated under statutory and pension policy will always favor origination at all cost. As a result, until we limit the appetite for ‘fixed income’ we will, unfortunately, persist in careless origination. The worse the U.S. dollar and economy get, the more illusory inventory will be required so we’re going to get worse – not better. Note that Goldman Sachs has upped its municipal exposures well out-pacing market wisdom not because these represent good investments but rather, because statutory rating bumps are valued when risk isn’t correctly measured.

Recommendations on Regulatory Failures

1. Complete OTS Dismantling. The Office of the Comptroller of the Currency (OCC) should complete the dismantling of the Office of Thrift Supervision (OTS), despite attempts by some OTS officials to preserve the agency’s identity and influence within the OCC.

2. Strengthen Enforcement. Federal banking regulators should conduct a review of their major financial institutions to identify those with ongoing, serious deficiencies, and review their enforcement approach to those institutions to eliminate any policy of deference to bank management, inflated CAMELS ratings, or use of short term profits to excuse high risk activities.

3. Strengthen CAMELS Ratings. Federal banking regulators should undertake a comprehensive review of the CAMELS ratings system to produce ratings that signal whether an institution is expected operate in a safe and sound manner over a specified period of time, asset quality ratings that reflect embedded risks rather than short term profits, management ratings that reflect any ongoing failure to correct identified deficiencies, and composite ratings that discourage systemic risks.

4. Evaluate Impacts of High Risk Lending. The Financial Stability Oversight Council should undertake a study to identify high risk lending practices at financial institutions, and evaluate the nature and significance of the impacts that these practices may have on U.S. financial systems as a whole.

InvertedAlchemy: CAMELS doesn’t work. The notion that we somehow play in a world where we can ‘call our own fouls’ doesn’t work in lacrosse and it doesn’t work in an economy. I completely agree with the OTS recommendation but I would encourage the OCC to actually amplify its own enforcement to take a more central role than it has in the past.

Recommendations on Inflated Credit Ratings

1. Rank Credit Rating Agencies by Accuracy. The SEC should use its regulatory authority to rank the Nationally Recognized Statistical Rating Organizations in terms of performance, in particular the accuracy of their ratings.

2. Help Investors Hold CRAs Accountable. The SEC should use its regulatory authority to facilitate the ability of investors to hold credit rating agencies accountable in civil lawsuits for inflated credit ratings, when a credit rating agency knowingly or recklessly fails to conduct a reasonable investigation of the rated security.

3. Strengthen CRA Operations. The SEC should use its inspection, examination, and regulatory authority to ensure credit rating agencies institute internal controls, credit rating methodologies, and employee conflict of interest safeguards that advance rating accuracy.

4. Ensure CRAs Recognize Risk. The SEC should use its inspection, examination, and regulatory authority to ensure credit rating agencies assign higher risk to financial instruments whose performance cannot be reliably predicted due to their novelty or complexity, or that rely on assets from parties with a record for issuing poor quality assets.

5. Strengthen Disclosure. The SEC should exercise its authority under the new Section
78o-7(s) of Title 15 to ensure that the credit rating agencies complete the required new ratings forms by the end of the year and that the new forms provide comprehensible, consistent, and useful ratings information to investors, including by testing the proposed forms with actual investors.

6. Reduce Ratings Reliance. Federal regulators should reduce the federal government’s reliance on privately issued credit ratings.

InvertedAlchemy: The Rating Agency industry is a Sherman Act violation and should not be exempt from racketeering and related civil and criminal penalties. The monopolistic nature of the industry is problem number 1. The compensation structure for incentivizing rated customer rather than public investor interest is problem number 2. These problems will be unaddressed until Rating Agency executives are jailed for their complicity in the theft of assets from municipal, academic and other pensions across the country. The Attorneys General from the 50 states should lead where no federal regulator will have the courage to go. Indictments, lawsuits, and recoveries are the only path to reform and waiting for the SEC to get there is a fantasy.

Recommendations on Investment Bank Abuses

1. Review Structured Finance Transactions. Federal regulators should review the RMBS, CDO, CDS, and ABX activities described in this Report to identify any violations of law and to examine ways to strengthen existing regulatory prohibitions against abusive practices involving structured finance products.

2. Narrow Proprietary Trading Exceptions. To ensure a meaningful ban on proprietary trading under Section 619, any exceptions to that ban, such as for marketmaking or risk-mitigating hedging activities, should be strictly limited in the implementing regulations to activities that serve clients or reduce risk.

3. Design Strong Conflict of Interest Prohibitions. Regulators implementing the conflict of interest prohibitions in Sections 619 and 621 should consider the types of conflicts of interest in the Goldman Sachs case study, as identified in Chapter VI(C)(6) of this Report.

4. Study Bank Use of Structured Finance. Regulators conducting the banking activities study under Section 620 should consider the role of federally insured banks in designing, marketing, and investing in structured finance products with risks that cannot be reliably measured and naked credit default swaps or synthetic financial instruments.

InvertedAlchemy: I would love to agree with this recommendation but for my knowledge of both regulators and policy makers and their collective illiteracy surrounding financial products, their use and abuse. The report is correct as far as it goes but Congress needs some serious IQ enhancement so that it can adequately understand what it thinks it’s regulating. And the Tea Party is NOT helping this at the moment. By appealing to sound-bites, they are diluting their message of accountability and making it come out sounding like pandering.

Sunday, April 10, 2011

A Cinderella Story – If the shoe fits

Long ago in the Ancient land of Egypt were the green water of the Nile River flows into the blue water of the Mediterranean Sea lived a young maiden named Rhodopis, she born in Greece but was kidnapped by pirates and carried down into Egypt where she was sold into slavery. Her owner turned out to be a kind old man who spent most of his time under a tree sleeping. Because of this he never saw how the other girls in the house, all servant girls, taunted and teased her because she looked differently from them. Their hair was straight and black while hers was golden and curly. They had brown eyes and she had green. Their skin had the glow of Copper, but she had pale skin that burned easily in the sun causing them to call her Rosy Rhodopis. They also made her work hard shouting at her all day, "Go to the river and wash the clothes," "Mend my robe," "Chase the geese from the garden, "Bake the bread."

Now she had no friends only the animals. She had trained the birds to eat from her hand, a monkey to sit on her shoulder, and the old hippopotamus would slide up on the bank out of the mud to be closer to her. At the end of the day if she wasn't too tired she would go down to the river to be with her animal friends and if she had any energy left from the hard day's work she would dance and sing for them.

One evening as she was dancing, twirling around lighter than air with her feet barely touching the ground, the old man woke from his sleep and watched as she danced. He admired her dancing and felt that one so talented should not be without shoes. He ordered her a special pair of slippers. The shoes were gilded with rose-red gold and the soles were leather. Now the servant girls really disliked her for they were jealous of her beautiful slippers.

Word arrived that the Pharaoh was holding court in Memphis and all in the kingdom were invited. Oh how she wanted to go with the servant girls. For she knew there would be dancing, singing, and lots of wonderful food. As the servant girls prepared to leave in their finest clothes they turned to her and gave her more chores to do before they returned. They poled their raft away leaving a sad girl on the bank.

As she began to wash the clothes in the river she sang a sad little song--"wash the linen, weed the garden, grind the grain." The hippopotamus grew tired of this little song and splashed back into the river. The splashing of the water wet her slippers. She quickly grabbed them up, wiped it off and placed them in the sun to dry. As she was continuing with her chores the sky darkened and as she looked up she saw a falcon sweep down, snatch one of her slippers, and fly away. Rhodopis was in awe for she knew it was Horus who had taken her shoe. Rhodopis now with only one slipper put it away in her tunic.

Now the Pharaoh, Ahmose 1, Pharaoh of upper and lower Egypt was sitting on his throne looking out over the people and feeling very bored. He much preferred to be riding across the desert in his chariot. Suddenly the falcon swooped down and dropped the rose-red golden slipper in his lap. Surprised but knowing this was a sign from Horus he sent out a decree that all maidens in Egypt must try on the slipper, and the owner of the slipper would be his queen. By the time the servant girls arrived the celebrations had ended and the Pharaoh had left by chariot in search of the owner of the golden slipper.

After searching on land and not finding the owner he called for his barge and began to travel the Nile pulling into every landing so maidens could try on the slipper. As the barge rounded the bend in front of the home of Rhodopis all heard the sounds of the gong, the trumpets blaring, and saw the purple silk sails. The servant girls ran to the landing to try on the shoe while she hid in the rushes. When the servant girls saw the shoe they recognized it as Rhodopis's slipper but they said nothing and still tried to force their feet into the slipper. The Pharaoh spied her hiding in the rushes and asked her to try on the slipper. She slid her tiny foot into the slipper and then pulled the other from her tunic. The Pharaoh pronounced that she would be his queen. The servant girls cried out that she was a slave and not even Egyptian. The Pharaoh responded with "She is the most Egyptian of all...for her eyes are as green as the Nile, her hair as feathery as papyrus, and her skin the pink of a lotus flower."

From Strabo 64 BCE – 24 CE

I was intrigued in the past few weeks by three encounters with ‘due diligence’. In one instance, the examination was directed at me; in one, the diligence was directed at a particular transaction upon which our team is working; and, yet a third where diligence was directed at the organization I lead. In each of these cases, I found myself amazed at the degree to which we’ve grown accustomed, as a society, to the assumption of mistrust. However, I’m equally perplexed by how we’ll ‘trust’ unknown ‘independent’ parties with whom we have no connection to confirm or deny the veracity of a fact or opinion giving no regard to their character.

In the personal due diligence, a firm was hired to inquire about my character and my background – academic, professional, and personal. The contracted firm was filled with former law enforcement and intelligence types who are accustomed to background checks. Not surprisingly, given their penchant for intrigue, they found artifacts of information on websites – many of which I monitor – and then sought to contact people with whom I interacted at events across the world. What I found most fascinating was the degree to which the artifacts collected and the persons solicited for opinions reflected a very narrow spectrum of my life – a life which, had I been asked, would have been more completely understood by asking me directly for a list of friend and foe – fan and detractor. Ignoring the subject of diligence and following a standard operating procedure for background checks, the contracted firm touched an insignificant amount of my life and, as a result, drew conclusions on an anemic set of observations. And somebody paid good money for that.

In the case of the transaction, a group elected to send some of their team to visit to explore a potential business relationship. The team was assembled in haste with limited knowledge of what we do as an organization and with even less knowledge about the environment in which the contemplated transaction existed. As I observed the delegates confront the unusual nature of our operation and the opportunity, I mused about what precise value was being served by having strangers in a strange context observe phenomenon for which they had no context. Could they really provide discernment or insight into anything that went on? Would anyone conclude that they ‘understood’ the opportunity based on the experience?

And in the third instance, a government entity with several decades of experience in being abused and mislead by countless business, NGO, and multi-lateral entities, decided to do ‘due diligence’ on our firm. Having worked for months with this entity and having performed countless services for them in business practices which they report never having experienced before, they elected to demand a ‘due diligence’ checklist prior to consummating a business for which they stand to benefit greatly. Ironically, the questions that they asked are questions that are drawn from convention. Ironically, the questions that they wanted answered have NO bearing whatsoever on the transaction. Yet, as if compelled by some unseen hand, they needed their diligence questions answered before they could move forward. In this instance, the true tragedy is that there is no person associated with the entity who would actually have the business or financial experience to understand the materials requested but, somehow, the knowledge that documents were exchanged would comfort those who have already experienced a transformative engagement – one that they simple can’t believe is possible.

In each of these three cases, I was entertained, in a Greek tragic sense of theater, in the delusion which is passed off as diligence. And central to the failings of each of the three exercises is a fundamental human assumption which is patently false. You see, when you ask a question, you are already making the assumption that: a) you know what you should ask; and b) you’d recognize the substantive answer or data when you saw it. These two assumptions are the height of hubris and are the proximate cause for most flawed decisions. If you want to know about a person, the only way you can truly understand or gain confidence in them is to actually interact with them and observe their behavior in a representative set of circumstances. By assuming that the right people to ask about me are people that show up in media, for example, the diligence firm gained no insight into how I interact with interns who build houses with me in Honduras or Mexico. By assuming that they knew how to judge a business opportunity, the transaction team relied on inferential projections of legal and business conditions familiar in their ecosystem but entirely foreign to the opportunity at hand. And by assuming that an enterprise is merely the sum of its shareholder communication, a government failed to trust its own experience of performance.

Every business and social undertaking in which I engage is done using insight and methodology which is unconventional. Whether it was establishing intangible asset collateral enhancement in the 90s or whether it’s optimizing international trade imbalances to realign national economic engagement, if you are working with me or with the organizations I lead, you’re not experiencing convention. That’s a given. So why in the world would you seek to understand something which you know defies convention with conventional questions? The reason you can’t find what motivates me is not because I’m not motivated. It’s because I’m motivated by values which you may not recognize. The reason why we find untraditional opportunities for business creation is because we look at the world through intangible asset lenses – lenses we’ve yet to meet any other organization who can use or even comprehend. The reason why we’ll work with governments for years without monetary consideration is because we believe in building ecosystems in which business can develop – not in taking resources from those who we know to be deficient in the capacity to fully and transparently engage.

“How can we make sure that our leadership can speak to the right people in the government?” I was asked by a diligent assistant of a business executive.

At once I felt compassion and grief. My impulse was to answer the only way I know how. In truth, the answer would be, “Have your leadership sit down with us for a few days and learn how we build trust. Then, have them go on a trip with us and experience our engagement methodologies as apprentices so that they can have mastery of skills built on experience.” However, what was being sought was a short answer. “Talk to this person.” “Address this topic”. And, yes, in expediency, you may get an outcome that you recognize as satisfactory but you’ll never get the full taste of what would be possible if you don’t change You – the questioner – to recognize that life’s answers are lived and experienced – they’re not on a two dimensional piece of paper.

Which leads me to the fascination of the story at the beginning of this post – in its modern incarnation – Cinderella. What I find fascinating about this story is the fact that, in truth, the story is more about the epistemology of inquiry than it is about a rags-to-riches transformation. You see, in every incarnation, the protagonist is beautiful. She was not made beautiful by looking like the others. In every version, she is a hard worker who overcomes adversity in ways that build envy and derision. And in every version, convention loses as there’s only one foot that fits the shoe. Anyone who has shopped for shoes with a woman knows that the idea that there’s only one shoe for one woman’s foot knows the delusion in the story. Women, of all people, can muster the illusion of things fitting better than men can ever do (O.J. Simpson notwithstanding). No, the point is that true transformation can only be achieved when the mode of inquiry opens up to an unconsidered possibility. And that, my friends, is a fairy tale that needs to be retold again.

Saturday, April 2, 2011

The Bismarck Conspiracy


29 March 2011, 0500 GMT

Heading: 5.22˚; Distance: 45 Miles; Winds: 8 knots NNW; Barometer: Falling

Some days just deserve remembering. So it is that I depart from my intended post to share with you an account of my crossing of Straits at the eastern edge of the Bismarck Sea between Tokua, East New Britain and Namatani, New Ireland in the Independent State of Papua New Guinea.

Courtesy of unpaid royalties to the customary landowners in Kavieng, the airport was closed. One charter company could fly us into Namatani but couldn’t manage a plane in the morning to get us back. One charter company had all its planes in service or being serviced in Brisbane. And no helicopters were available out of Rabaul. If we were going to make it to take part in Custom in Konos, we were going by boat. The boat was the Fire Fly – a 22’ open fiberglass boat with a 45hp outboard.

We landed in Rabaul and went across to the Ropopo Beach Resort to meet the Fire Fly. No boat. I walked down to the beach to make my habitual visit to the coral snakes which frequent the shallows off the coast of East New Britain and, instead of snakes I saw thousands of small fish feeding in the tepid water, darting en masse at once in one direction and then the next. Twenty feet off-shore, the glassy surface was punctuated by the occasional flying fish learning how to flout destiny but for a moment.

The Fire Fly came late, fully laden with locals seeking transport across to the St. Georges, a small collection of islands in the Straits. Our host sternly clarified that ours was to be a charter and sent them skipping across the eight miles to deposit their fares and return for us. As I watched the wake of the boat disappear on the water line, I could see massive afternoon cumulus clouds darkening over the distant New Ireland mountains. Still waiting, the deluge began its afternoon deposit long before the Fire Fly re-emerged speeding towards our impatient lot.

“You may need these,” Theresa said as she handed out recently acquired rain coats.

Securing our overnight cargo under well worn tarps and heavy plastic, we climbed aboard and slowed across the luxuriant coral in reverse until we were well beyond risking propeller and reef. Turning north, the engine snarled to life and we lit out across the water.

The Bismarck Sea holds the bluest water I’ve seen on Earth. Even with the sky shrouded in afternoon storm clouds, to look into the Bismarck is to look into a Utopian past long before seas were choked by the despoiling of humankind. These waters once embraced humanity’s oldest persistent cultures; entombed many Japanese, Australian, and American combatants (and their death machines) during the Second World War; and, now, once again were resplendent in deep azure. The white spray from the outboard launched hundreds of flying fish – now quite a bit larger as we left the shoreline – for their mature flights lasting from seven to ten seconds and transiting thirty to forty meters at an altitude of half a meter above the water. Life, in small scale was awake.

I have not seen marlin feeding in a pack before. On the occasional fishing show that I watch with Zach, I’ve seen an angler straining against a lone magnificent fish who, in panic launches from the sea in desperate defiance. But, in a flash, about twenty minutes into our crossing, a school of the mighty hunters were dancing – their great spears presaging the majestic fish as they pierced the surface in a feeding frenzy evidenced at times with smaller prey visible in their hungry mouths. Enchanting. This was worth the wait.

The seas roughened as we neared the St. Georges with the hull of the boat slapping the surface sending a hot sea spray across the boat and its occupants. And then, as soon as it roughened, in the tidal shadow of the Islands, it once again pacified into a pond.

Beyond the St. Georges, the inevitability of the burgeoning storm was apparent. Trying to circumnavigate the wall of rain would add hours to the lateness of our journey and would take a toll in fuel that, alas, exceeded our provisioning. So, steady at the tiller, we made for the wall.

And then They came. First, about fifty yards to port, three dolphins broke the surface. Soon another five and then several off starboard. We were in the middle of a multitude of the playful mammals as they darted and leapt all around the boat. The driver started a staccato foot stomp at the back of the boat and, with the stomps several dolphins would launch themselves into the air. He, in some communication beyond my grasp, was encouraging them to join us on our transit and they, filled with exuberance obliged. And then, cresting the water once again on the port side were massive porpoises, their giant dorsal fins slicing the water in advance of their graceful arc punctuated by tail splashes.

“We don’t see porpoises often – certainly not like this,” Byron commented.

All around us – abundant life – all racing for the storm.

They knew that intelligence dictated going underwater when confronted with airborne tempests. We didn’t have the option. The heavens opened and were most generous. The best of Chinese waterproofing did little but slow the ingress of water and, in a moment, water resistant utility was substituted for portable sauna as precipitation and perspiration locked in mortal combat inside of a plastic suit. There is a moment when resistance is futile and you surrender to forces well beyond any semblance of control. Being in an open boat in torrential rain happens to be precisely one of those moments. I reflected on how deeply I cherished my life and the richness of experience that has graced my days. I found myself celebrating the absence of flight without which the sky and sea’s bounty could not have been apprehended on this day. I found myself lost in the scale of the present where my pulse of life was merely one beat in the orchestra of All. The storm, the sea, the wildness all drenched me through.

Thirty minutes from our destination, the storm relented and gave way to late afternoon blue patches and broken clouds. A frigate bird drifted in the currents coming off the land. A freshly washed New Ireland materialized all around us and we raced the coming dark.

Three more hours of driving to Konos to share Custom with over 200 people from Simberi, Tabar, and Tatau Islands… but that’s another story for another day. For today, my celebration of sensing life is sufficient and we’re all wealthier for it.