Month: October 2015

Go Set a Watchman

Should I re-read “To Kill a Mockingbird”? I have the thought having just finished “Go, Set a Watchman”, Harper Lee’s sequel. I read Mockingbird almost thirty-five years’ ago as my O-level set text for English Lit. I hugely enjoyed it. It was a coming of age story. It was a fascinating window on the American South. And it was a happy story. Childhood innocence is challenged by adult wickedness but adult truth and justice defeat it. Atticus stands against racism in defending Tom, and Boo Radley unexpectedly defends Scout and Jem.

What follows contains many plot spoilers. Beware!

Go Set a Watchman sees Scout, aged 26, return to Maycomb from New York for her annual pilgrimage home and this is the year she finally grows up. By the end of the novel, she comes to see Atticus as a flawed adult, who loves her as she is, and only asks the same of her. She sees that he is neither saint, as at the start of the story, nor devil, as midway. Scout, in turn, finishes the novel more adult and less child.

If Tom’s trial is the central thread of her first novel, it is the collision between the Civil Rights’ Movement and the White Supremacy of the South in the second. The story is her witness of how this touches her family and friends, how it has changed them, how it changes her and her relationships with them.

The main event is when Scout surreptitiously attends a meeting of Maycomb’s Citizen’s Council, a white response to the NAACP, and Federal Government and Supreme Court interference in the South in support of Civil Rights. She sees Atticus, and possible husband Hank Clinton, calmly listening to an inflammatory racist demanding that African Americans be put back in their place. She suddenly sees the Council and Maycomb’s white folk, above all Atticus, as no better than Supremacists. She is horrified and feels rejected by her father and home town. How can the people and places she loves be so alien to her?

The whole incident, creeping in, looking down from the gallery and eavesdropping is a metaphor for a child listening in on an adult conversation and being disturbed and confused by content. Scout’s naivete shows itself in her both resenting, as a Southern girl, the relentless interference of the Yankees in other people’s business but also, colour blind as she is, railing against the injustice that African Americans can only be accepted if they don’t ask for too much. In short, she hankers after the past, her childhood, when all seemed OK. Everyone got on in their respective stations. If Atticus and Hank disappoint her, she is also heartbroken when she goes to see Calpurnia and is treated, not as a returning daughter, but another white oppressor.

Three characters from the first novel are unchanged by the second. Her brother Jem has died several years before of a heart attack, heart disease having killed their mother. Neighbour Dill remained in Europe after the war. Aunt Alexandra Finch now lives with Atticus but is unchanged; an irritating snob nonetheless trying to do the right thing for Scout, to help her fit in.

The novel ends happily at a personal level although disturbingly at a moral one. While Scout rejects Hank Clinton as a lover, condemned ever to be a friend, she comes to a peace of sorts with Maycomb and, above, she is reconciled to Atticus. He is humane and gentle. But he is a Southerner and is not ready for full emancipation of African Americans. Atticus tells Scout that he believes that desegregation and reform should happen steadily giving time for African Americans to civilise themselves. His guiding principle, it turns out, is not fairness and justice, as we had thought, but legality and due process. Atticus the moral being is compromised. His defence of electoral restrictions for African Americans leaves him on the wrong side. He would be a baddie in Selma.

I did find some bits clumsy. Some of the dialogue was more vehicle for rather formal expositions on the political evolution of the South than conversation between adults. I found it hard to believe that Jack would hit his niece.

But, overall, I loved the story and re-meeting the characters. I felt the trust and comfort of re-meeting, as an adult, a childhood friend now grown up. Atticus, at the end of the second novel, is a more plausible human being. The second novel feels much more about segregation than my memory of the first novel recalls.It is perhaps uncanny that the novel is published as there is, to my British eye, renewed debate about the reality of African American life decades after desegregation. It turns out I read, pretty much simultaneously, an article by Ta-Nehisi Coates in the Atlantic describing America’s penal system as a continuation of segregation and oppression of African Americans. Indeed, I started Go Set a Watchman thinking about Scout and Atticus but ended up mostly thinking about the tragedy of slavery, segregation and racism.

So, should I re-read Mockingbird? I am keen to see whether there were hints of Atticus’s position. I would like to be reminded about Hank Clinton. How much of what is in the second novel is prefigured in the first? But I probably won’t. I am happy with the innocent memory of the first.

Bank or Capital Market Stability

Since 2008, policy-makers in the OECD have consciously decided that they prefer to have bank stability even if this means instability in capital markets. They have concentrated regulation on stabilising financial institutions by curtailing their participation in capital markets whether as long-term owner or trader. They have not explicitly said that they are willing to accept greater instability in capital markets. Instead, their message is that they want capital market participants really to bear the risks implicit in the returns they hope to make and not to lay those off, via the banks, to the public purse the moment the risk looks like serious downside, rather than upside, risk. But the result is that capital markets will be less stable at moments of stress.

You might argue that 2008 showed that you could have both unstable banks and unstable capital markets, which is true enough. The damage endured by capital markets would, however, have been worse had the banks not absorbed significant losses, which were, through state guarantees, transferred to taxpayers. Defenders of the bank bailouts will point out that, overall, realised losses on the rescue were modest and even negative. Regulators retort that this was true ex post but was not evident ex ante and makes no allowance for the reputational damage of bailing out capitalists. And, anyway, if it ended so well and was such a good trade, why don’t you, the capital markets, next time carry the temporary losses.

They want banks to avoid risk of loss in the first place – less involvement in capital markets. And, in the event of loss, they want shareholders and creditors of financial institutions – capitals markets – to take as much loss as they can. They have tried to make sure that taxpayers only have to intervene at the very last resort when the reserves of the capitalists have been seriously depleted or exhausted. It is just harder for institutions to trade or and hold some types of securities, particularly those with greater risk of loss.

Capital markets participants are warning regulators that the diminished liquidity seen in markets is a result of the re-regulation of financial institutions, which implies that regulators are unaware of the consequences of their actions. They are aware. Prior to 2008, regulators and policy makers did not think there was a trade-off between the stability of capital markets and the stability of institutions. Now that they know there is, they have opted to ensure bank and insurance company stability by curbing their activity in capital markets. The other option available to policy-makers was to withdraw or water down the state guarantee. They did not do this. Indeed, they have rather reinforced it by their evident pre-occupation with the consequences of it.

Policy-makers are telling us they care about retail financial services. They do not want the payment system, retail and corporate credit or private and business insurance damaged by capital market losses. They also care about their own sovereign credit markets although, given the central banks have had such practice with QE, they should find it easy to maintain liquidity in those markets. Spot fx and commodity trading may also fall into activities that can be defended as necessary for the “real” economy. But, thereafter, I wonder. Futures, corporate bonds and structured credit, equities, derivatives: would policy-makers be able to make a case to save such speculators?

This is probably right from a first principles public policy point of view. Capital markets are there to underwrite risk. Why should state guaranteed financial intermediaries reinsure the risks of the risk underwriters? There are those who disagree and feel that the price of stable financial markets – periodic losses to the taxpayer and unequal income distributions – are worth paying for the broader economic benefit. But, regardless, to me, it is clearly politically necessary. One of the many causes of the apparently global current of anti-establishment sentiment (along with social media, less hierarchical culture and and) is the sense that the establishment is an accomplished player of heads I win, tails you lose.

So what? There is a trade-off between the stability of financial institutions and the stability of financial markets. Regulators know this and have made their choice. In the event of crisis, investors should be prepared to expect little intervention except in areas that relate directly to the real economy.