Monday, February 25, 2008

Robert Sapolsky Receives "Emperor Has No Clothes" Award
Belief and Biology

This is an excerpt of the "Emperor Has No Clothes Award" acceptance speech delivered at the 25th annual Freedom From Religion Foundation convention in San Diego on Nov. 23, 2003.

The Foundation's "Emperor Has No Clothes Award" is bestowed for "plain speaking" on religion by public figures.

Nobel Laureate Steven Weinberg, the first "Emperor" awardee, says that although few of his scientific colleagues believe in a god, they keep their atheistic/agnostic views to themselves. But not scientist and author Robert Sapolsky--he is not shy about identifying himself as an atheist, as evidenced by his books.

When the Foundation issued a statement about 9/11, calling it a "faith-based initiative," Sapolsky wrote to us: "You guys are great--wonderful statement. I just posted it in my lab's hallway." When he was invited to the convention, he wrote: "Sure--get the local Holiday Inn to put up a sign, 'Welcome hell-bound atheists.' "

By Robert Sapolsky
The challenge of trying to make sense of the biology of some of the really interesting things we do as humans, including invented belief systems, is recognizing us as just another off-the-rack mammal. Some of the time it's just another plain-old mammal using standard physiology in utterly unstandard ways, and some of the time it's built around us being unlike anything that's ever existed before on this planet.

Now, when you put together all these realms of knowledge--people studying the genetics of the brain, the early experience, the hormones and neurotransmitters--what you wind up seeing is, we're getting an amazing amount of insight about all sorts of outposts of our behavior. What one has to be left with is a certain awe at the mechanistic feel of all of it: how we are sort of products of the material bases of our brains.

Let me give you two examples, because they're really quite extraordinary, and both of them come from the realm of neurological disease.

Here's a scenario: 40-year-old guy, 20-year happy marriage, white-collar job, living in the suburbs, utterly colorless, stable life. One day, from out of nowhere, he punches somebody in the face at work, in his office, some guy at the water cooler who had made some comment about a sports team. This guy hasn't had a fight since junior high school. Utterly bizarre, unprecedented. Three months later, his wife of this 20-year marriage discovers he's been having an affair with a 17-year-old kid at the checkout down at the supermarket. Totally bizarre. Three months later, he's arrested for drunken brawling in a bar--and he never even used to drink. Three months later, he embezzles the funds from his workplace, disappears, and is never seen again.

How can we explain this guy?

Explanation number one: the guy is no damned good. [laughter]

Explanation number two: he's having the world's most dramatic and childish midlife crisis.

Explanation number three: it's a neurological disease; he has a single-gene defect that makes him do this.

This, amazingly, is what a particular neurological disease looks like, a disease called Huntington's Disease, Huntington's chorea. Huntington's chorea is most famous for a neuro-muscular disorder: it starts with a tremoring, and by the time it's done with, you have your entire body writhing--absolutely horrendous. It kills you within a decade or so. It gets you in your mid-40s, Woody Guthrie being the most famous Huntington's Disease case. Three or four years before it's a neurological disease, it's a psychiatric disorder. You see precisely the profile that was just described: people become disinhibited. You find Huntington's patients are famed for always showing up in the dayroom in the hospital having forgotten to wear half of their pajamas, and things of that sort. It causes a massive disinhibition of the personality, and initially, it's a psychiatric disorder. It's not a mid-life crisis--it's a single-gene defect.

Here's another realm of neurological disorder, lest you think I'm going in a direction of "it's all genetic, genetic determinism" here, an environmental component. There's a part of the brain which, when it gets injured, something very interesting happens to us. I'm willing to bet, every day, everyone of us in this room has some thought that is boastful or lustful or petulant, or something weird, and we would die if anybody knew we were thinking that. Get this part of the brain damaged, and every time you think one of those things, you say it! Or you do it! [laughter] This is the frontal cortex.

The frontal cortex, the most recently evolved part of our brain, the most distinctly human part of our brain, is not of trivial relevance. It's the last part of our brain to fully develop. Not until around age 30 is our frontal cortex completely online, which may explain a whole lot about what was going on about 20 years ago in your life. [laughter] The frontal cortex is the nearest thing we have to a superego. The frontal cortex keeps the rest of your limbic system, your emotional part of the brain, from going out of control.

This was first noted in one of the most famous neurological patients of all time, a man named Phineas Gage. In the 1840s, Phineas Gage worked the railroad lines. That's about where the folk song ends, because he didn't do anything interesting beyond that. He was a foreman, he showed up to work every day, totally reliable, sober.

One day there was a dynamite accident, and a metal rod was blown through his forehead and out the other end, and took his frontal cortex with it, and amazingly, this was such a concussive trauma that it cauterized all his blood vessels. He got knocked on his rear, and stood up again and kind of dusted himself off, and walked to the doctor who examined him. The guy in charge of the worksite said, "Gage, tell you what. Take the rest of the day off, see you tomorrow morning." [laughter]

Gage came back the next morning, literally and metaphorically transformed overnight. And this man was now a drunken, aggressive bully, hypersexual, completely disinhibited. He was never able to hold a stable job again. When the doctor examined him, the doctor looked in the hole there and said, "Geez. No frontal cortex," and thus concluded, "Ah! This part of the brain reins in our animal energies."

And 160 years later, that's as good a description as you can get about what this part of the brain does. Damage the frontal cortex and you disinhibit how the rest of you works. This is a part of the brain that keeps you from burping during the quiet part in the wedding ceremony [laughter], or it keeps you from telling a person exactly what you think of their new outfit, or keeps you from being a serial murderer. Aged individuals have strokes that often damage the frontal cortex, and you get these disinhibitory syndromes. Blow away that part of the brain, and there's a transformed person.

After looking at an extreme, look at the in-between zone and the fact that all of us differ as to how many brain cells we got in that part of the brain, and how well those brain cells work, and all that individual variability stuff. This is so well recognized by neuroscientists that they even use the term "frontal" in an everyday sense. You're in some conference and some poor quivering grad student gets up and gives their first professional talk, a five-minute talk. "Hooray, the kid pulled through it okay," and "Great topic." Then some total jerk big-shot in the field gets up in the back row and savages the kid over some sort of minutiae with the statistics, and chest thumps and attacks his enemy. At some point, somebody's gonna lean over to somebody else and say, "Geez! That guy's getting more frontal every day!" [laughter] That may not just be a metaphor or a figure of speech--we differ in how every part of our brains work, and the frontal cortex is spectacularly sensitive to experience as it develops. Once again, we are the products of this material basis of our brains.

So you then begin to ask, "What do modern neuroscience and psychiatry begin to tell us about how we as a species invent these systems of belief, these systems of organized, shared, ritualized, culture-bound beliefs?" What does this tell us about religion?

It turns out there's a whole bunch of outposts where neuropsychiatry tells us something about the stuff we keep creating in culture after culture. Let me tell you about two very interesting examples of this, amid many.

One of them has to do with one of the great puzzles when people think about the evolution of psychiatric disorders. Ever deal with anybody with one of the most horrendous of all psychiatric diseases, schizophrenia, and you come away just appalled at how a life can be demolished by some biological storm in the brain. Schizophrenia: a disease of disordered thought, disconnected socialization, hallucinations, paranoia, delusions, a 50% rate of attempted suicide. This is a totally disastrous disease, and it's one that we're very, very slowly beginning to understand the neurochemistry of.

One of the keys about schizophrenia is that it's a disorder with a genetic component. That doesn't mean it is genetically guaranteed. It is not genetically determined. There is a genetic risk for this disease, as is the case with most psychiatric disorders.

The minute you see there's any genetics on the scene, you've got to ask an evolutionary question, which is: "Where did these genes evolve from?" Why do we have schizophrenia in every culture on this planet? From an evolutionary perspective, schizophrenia is not a cool thing to have.

What's evolution about? Evolution is the process by which adaptive traits become more common. Schizophrenia is not an adaptive trait. You can show this formally: schizophrenics have a lower rate of leaving copies of their genes in the next generation than unaffected siblings. By the rules, by the economics of evolution, this is a maladaptive trait. Yet, it chugs along at a one to two percent rate in every culture on this planet.

So what's the adaptive advantage of schizophrenia? It has to do with a classic truism--this business that sometimes you have a genetic trait which in the full-blown version is a disaster, but the partial version is good news.

What's the example we all learned in the textbook case? Sickle-cell anemia: full-blown version, fatal hematological disorder; partial version, you don't get malaria. Tay Sachs disease: full-blown version, your nervous system is destroyed within a couple of months of life; partial version, you're resistant to tuberculosis. Cystic fibrosis: full-blown version, you're typically dead by 20; partial version, you're resistant to cholera. This turns out to be a theme with a lot of human genetics. As long as there's enough folks with the advantageous partial version, you can afford the occasional cousin with the full-blown version.

Evidence suggests this is what the genetics of schizophrenia is about. What's the partial version? It's the disease that got identified about 30 years ago. The first study that found genetic evidence for schizophrenics looked at about 20,000 people adopted in Denmark, looking at patterns of inheritability of schizophrenia; were you likely to share schizophrenic traits with your adopted parents, or your biological parents?

This was a massive multi-year study. Psychiatrists talked to more relatives of schizophrenics than any psychiatrists had ever done before in a career. What they noticed was, there's something kind of weird about relatives of schizophrenics--not every single one of them, but at higher than expected rates. This "kinda weirdness" is now called "schizotypal personality."

What is schizotypal? It's a more subtle version of schizophrenia. This is not somebody who's completely socially crippled; they're just solitary, detached: these are the lighthouse keepers, the projectionists in the movie theaters. These are not people who are thought-disordered to the point of being completely nonfunctional; these are people who just believe in kinda strange stuff. They are into their Star Trek conventions. They're into their astrology, they're into their telepathy and their paranormal beliefs, they're into--and you can see now where I'm heading [laughter]--very, very literal, concrete interpretations of religious events.

Schizophrenics have a whole lot of trouble telling the level of abstraction of a story. They're always biased in the direction of interpreting things more concretely than is actually the case. You would take a schizopohrenic and say, "Okay, what do apples, bananas and oranges have in common?" and they would say, "They all are multi-syllabic words." [laughter] You say "Well, that's true. Do they have anything else in common?" and they say, "Yes, they actually all contain letters that form closed loops." [laughter] This is not seeing the trees instead of the forest, this is seeing the bark on the trees, this very concreteness.

What you find with schizotypals is what is called metamagical thinking, a very strong interest in new-age beliefs, science fiction, fantasy, religion, but in a very concrete, literal form, a very fundamentalist style. Somebody walking on water is not a metaphor. Somebody rising from the dead is not a metaphor; this is reported, literal fact.

Now we have to ask our evolutionary question: "Who are the schizotypals throughout 99% of human history?" And in the 1930s, decades before the word "schizotypal" even existed, anthropologists already had the answer.

It's the shamans. It's the medicine men. It's the medicine women. It's the witch doctors. In the 1930s an anthropologist named Paul Radin first described it as "shamans being half mad," shamans being "healed madmen." This fits exactly. It's the shamans who are moving separate from everyone else, living alone, who talk with the dead, who speak in tongues, who go out with the full moon and turn into a hyena overnight, and that sort of stuff. It's the shamans who have all this metamagical thinking. When you look at traditional human society, they all have shamans. What's very clear, though, is they all have a limit on the number of shamans. That is this classic sort of balanced selection of evolution. There is a need for this subtype--but not too many.

The critical thing with schizotypal shamanism is, it is not uncontrolled the way it is in the schizophrenic. This is not somebody babbling in tongues all the time in the middle of the hunt. This is someone babbling during the right ceremony. This is not somebody hearing voices all the time, this is somebody hearing voices only at the right point. It's a milder, more controlled version.

Shamans are not evolutionarily unfit. Shamans are not leaving fewer copies of their genes. These are some of the most powerful, honored members of society. This is where the selection is coming from. What this shamanistic theory says is, it's not schizophrenia that's evolved, it's schizotypal shamanism that's evolved. In order to have a couple of shamans on hand in your group, you're willing to put up with the occasional third cousin who's schizophrenic. That's the argument; and it's a very convincing one.

If you look at all these 1930s and 1940s anthropologists, there's a certain dead-white-male racism that runs through all of this stuff that anthropology still has not recovered from. If you read their writings, what was between the lines--and often not between the lines--was, this is about "them." This is about the folks with the bones in their noses and no clothes who wind up in the National Geographic nudie pictures. These are them and their subjective paranormal beliefs; thank God we live in objective modern societies. [laughter]

What is perfectly obvious here is that this entire picture applies just as readily to our western cultures. Western religions, all the leading religions, have this schizotypalism shot through them from top to bottom. It's that same exact principle: it's great having one of these guys, but we sure wouldn't want to have three of them in our tribe. Overdo it, and our schizotypalism in the Western religious setting is what we call a "cult," and there you are in the realm of a Charles Manson or a David Koresh or a Jim Jones. You can only do post-hoc forensic psychiatry on Koresh and Jones, but Charles Manson is a diagnosed paranoid schizophrenic. But get it just right, and people are gonna get the day off from work on your birthday for millennia to come. [laughter]

This is great! I think this is the first time I've ever said that line without somebody getting up and leaving in a huff from the audience. [laughter] It's very nice being here. Thank you! [applause]

What I've just been considering is the superstructure of religion--the big building blocks: there are multiple deities, there is but one god and he is Allah, "I am who I am," any version of this--is an awful lot like schizotypalism. Who is it that invented the notion that virgins can give birth? Who is it who first came in with the extremely psychiatrically suspect report about hearing a voice in a burning bush? In most of the cases we don't know much about the psychiatric status of these folks. In the more recent historical cases, we certainly do, and schizotypalism is at the heart of non-Western and Westernized large theological systems.

Now the second chunk of neuropsychiatry and religion I want to talk about is one that shifts to a different scale of what religion is about. Certainly a big chunk of religion is these big theological bits of superstructure that you build your whole belief system on. But what religion very often really is about is the daily behaviors. The daily rituals. Insofar as the devil is in the details, god is in the details too. It's in that realm where we can get insight into the roots of this aspect of religiosity: another neuropsychiatric disorder.

Now I will guarantee that just as all of us have those frontal thoughts, fortunately inhibited, probably all of us find ourselves, during some stressful period, not being able to stop from counting the number of steps as you go up a flight of stairs. Or you get some incredibly irritating TV jingle stuck in your head for half the day.

Or: you've got some really important letter that you need to mail off, so you go to the mailbox, you put it in the mailbox, and you make sure it goes down, because this letter's really important. Then you check again, just to make sure [laughter], and you just want to make really sure, and there's nobody else around, so you look underneath. We all do this . . . actually, maybe we don't all do this so I'm embarrassing myself horribly [laughter]--but my guess is, this sort of ritualism is what we do during times of anxiety. It's creating solid ground when the most fundamental ground is like quicksand underneath us.

In the last 30 years we've seen a whole new psychiatric disorder, of people whose rituals take over and destroy their lives. OCD: Obsessive Compulsive Disorder. These are people who don't merely find themselves counting when they go up a flight of stairs--these are people whose lives are destroyed by this disorder. They wash their hands eight hours a day. They stop eating most foods because of the conviction of contamination, germs. They get very ritualistic and phobic about entering spaces, leaving spaces. They can't enter a building until they've walked a number of steps that's a prime number. Very mathematical numerology comes through this, and it is an utterly paralyzing disease. This is one of these biological disorders that destroyed people's lives back when, up until 30 or 40 years ago, there wasn't even a word that described this. We can describe it now, and we know a lot about the genetics of this disorder, and the neurochemistry.

Where does this one fit in with religion? There's a remarkable parallelism between religious ritualism and the ritualism of OCD. In OCD, the most common rituals are the rituals of self-cleansing, of food preparation, of entering and leaving holy places of emotional significance, and rituals of numerology. You look in every major religion, and those are the four most common ritual forms that you see.

You could look at any of these organized religions--though we're very accustomed by now that, when we think of religion, it's often interspersed with good works or a sense of community--and see that religion in its orthodoxy is about rules: how you do every single thing all throughout the day. You look at orthodox versions of any of these religions, and there are rules for which direction you face after you defecate, which hand you wash, how many swallowings of water, which nostril you breathe in with, which nostril you breathe out--these are all rules that Brahmans have in order to get into heaven. Numerological rules: how many times you have to say a certain prayer in a lifetime. Orthodox Judaism has this amazing set of rules: everyday there's a bunch of strictures of things you're supposed to do, a bunch you're not supposed to do, and the number you're supposed to do is the same number as the number of bones in the body. The number that you're not supposed to do is the same number as the number of days in the year. The amazing thing is, nobody knows what the rules are! [laughter] Talmudic rabbis have been scratching each others' eyes out for centuries arguing over which rules go into the 613. The numbers are more important than the content. It is sheer numerology.

Then, obviously getting closer to home for most people here, there is the realm of the number of rosaries and the number of Hail Mary's. Religious ritualism is shot through with the exact same obsessive qualities.

Now, when you look at this, what you immediately have to begin to ask is, "Why the similarity?" Outside of the realm of organized religion, shamanism, schizotypalism, is a little bit of a peripheralizing bunch of traits. Outside of the realm of religion, OCD destroys people's lives. It is incompatible with functioning. Not only can you function with those rituals in the religious context: you can make a living doing it. [laughter] People make a living doing rituals ritualistically in the context of religion.

If you are an aged Brahman, and you feel the shadow lengthening, and you haven't done the 2,400,000 versions of a certain mantra you need to do in your lifetime, you can hire a whole bunch of other Brahmans who will come and have this whole big numerology blowout for you [laughter], and they will come and count for you, and you pay them.

Or you can be an orthodox rabbi who spends your time in a slaughterhouse. You don't ritualistically slaughter the animals. Your job is to make sure everybody else is doing it. Your job is to ritualistically make sure they follow the rituals. And you get paid, and you get your health insurance. In the crudest sort of anthopological terms of economics, while the peasants are sweating to produce the bread that they need to consume, they're sweating to produce the bread that the clergy is consuming as well. We are paying, thoughout history, for people who are the best, most avid, psychiatrically-driven performers of ritual.

To get a real insight into this, we have to come back to that question, "Why is there this similarity between religious ritualism and OCD rituals?"

You could say, "It's just by chance."

Or you could say, "There's a biological convergence going on there." It's not random that we're most concerned with rituals about keeping our bodies healthy, our food clean, that sort of stuff.

But another answer in there has got to be, "People with OCD invented a lot of these religious rituals."

Let me give you one example of this. A 16th-century Augustinian monk named Luder for some reason left a very detailed diary. This is a man who grew up with an extremely brutal father, had a very anxious relationship with him, was very psychosomatic-illness-oriented. One day he was out walking in the field. There was a thunderstorm, and he got a panic attack, and vowed, "If I'm allowed to survive this, I will become a monk and devote the rest of my life to God." He survives, becomes a monk, and throws himself into this ritualism with a frenzy. This was an order of monks that was silent 20-some hours a day. Nonetheless, he had four hours worth of confessions to make every day: "I didn't say this prayer as devoutly as I should have. My mind wandered when I was doing this, doing that." The first time he ran a mass, he had to do it over and over because he got the details wrong. He would drive his Father Superior crazy with his hours and hours of confession every day: "God is going to be angry at me for doing this, because I said this, and I didn't think this much, and I didn't do this the right way, and I . . ." until the Father Superior got exasperated with him and came up with a statement that is shockingly modern in its insight. He said, "The problem isn't that God is angry with you. The problem is that you're angry with God." The most telling detail about this monk was, he washed and washed and washed. As he put it in his diary: "The more you wash, the dirtier you get." Classic OCD.

The reason why we know about this man Luder is because we know him by the Anglicized version of his name: Martin Luther. [laughter]

Schizotypalism and OCD are but two examples. There are aspects of brain damage you can get with a certain type of epilepsy, making you fascinated with religious subjects. There's another part of the brain which, when damaged, creates trouble seeing the connections between cause and effect. The formal behaviorist term for it is, you are more subject to superstitious conditioning.

What is it that one winds up concluding from this? Am I saying you gotta be crazy to be religious? No. [laughter]

Am I saying most people who are religious have to be neuropsychiatrically suspect? Not even saying that, either.

It is absolutely fascinating if these hiccups of biological abnormality explain even one single person in all of history who has reached their religious beliefs for those reasons.

Am I saying that the undercurrent of this is trying to pathologize how to think about religion? On a certain level. But as a scientist, what one should find absolutely equally fascinating is how it works in the opposite direction.

I was raised in an Orthodox household, and I was raised devoutly religious up until around age 13 or so. In my adolescent years, one of the defining actions in my life was breaking away from all religious belief whatsoever. What does it say if, in all of history, there was even one religious person whose religiosity was due to some neurotransmitter hiccup, and in all of history there was even one person whose atheism was due to a different type of neurotransmitter hiccup?

What I find, when teaching about this stuff, is it's right around this point that people start getting really nervous and uncomfortable. [laughter] Obviously there are scary political implications. The good side of all that might be if this kind of science teaches us to be more compassionate and recognize neurochemical kinship in ways that we wouldn't otherwise.

What people often get most unnerved about at this point is what this means personally. There's a zillion of these subtle disorders, and none of them existed 30 years ago. None of them had names then, and they all have names now, and we're just going to keep discovering more and more of them. Eventually, every single one of us will have two or three of those labels. [laughter] At some point, that's going to stop being the biology of "them and their diseases," and it's going to be the biology of "what makes us us."

People get nervous because it taps into one of our greatest human pretenses; this notion that lots of us of cherish, which is: every one of us is an individual, and has a vibrant flame of individuality that's never existed before and we're untrappable, indescribable, and "no hunter can trap us, no scholar can map us." Suddenly, as those scientists learn more and more, we turn into a bunch of equations, or a bunch of chemical formulas, and all of the magic will be gone.

There's a wonderful Arthur C. Clarke story that perfectly captures this fear that people have of what scientific knowledge can bring, called "The Nine Billion Names of God" (the traditional Tibetan belief that there are nine billion names of God, which is meant metaphorically to be an unattainable number). A bunch of Tibetan monks have teamed up with the greatest computer scientists, and thanks to the power of this computer, the computer is now doing the impossible--it is going to spit out all nine billion names of God. As the story goes, as each new name comes out, one of the stars in the sky is extinguished. This is the metaphor for what people fear when science is going to describe what makes us human. They're going to learn more and more about less and less and with each new factoid yet another light of our individuality and uniqueness is going to be extinguished.

I don't think anybody needs to worry about that. As a scientist, I don't fear that. I am a reasonably emotional person, and I see no reason why that's incompatible with being a scientist. Even if we learn about how everything works, that doesn't mean anything at all. You can reduce how an impala leaps to a bunch of biomechanical equations. You can turn Bach into contrapuntal equations, and that doesn't reduce in the slightest our capacity to be moved by a gazelle leaping or Bach thundering. There is no reason to be less moved by nature around us simply because it's revealed to have more layers of complexity than we first observed.

The more important reason why people shouldn't be afraid is, we're never going to inadvertently go and explain everything. We may learn everything about something, and we may learn something about everything, but we're never going to learn everything about everything. When you study science, and especially these realms of the biology of what makes us human, what's clear is that every time you find out something, that brings up ten new questions, and half of those are better questions than you started with.

It is perfectly summed by a quote by a geneticist of the 1930s, John Haldane, who once tried to describe this notion: "Life is not only stranger than we imagine; life is stranger than we can imagine."

That's really the most important thing to emphasize. The purpose of science in understanding who we are as humans is not to rob us of our sense of mystery, not to cure us of our sense of mystery. The purpose of science is to constantly reinvent and reinvigorate that mystery. To always use it in a context where we are helping people in trying to resist the forces of ideology that we are all familiar with.

So on that note, thank you very much for this award; it is a tremendous honor.

Robert Sapolsky is a professor of neurology at Stanford University. He received an A.B. in Biological Anthropology from Harvard (Phi Beta Kappa) in 1978 and his Ph.D. in Neuroendocrinology from Rockefeller University in 1984. He did postdoctoral work at the Salk Institute and was a research associate at the Institute of Primate Research, National Museums of Kenya (1985). He is a MacArthur Fellow (1987) and has won many awards for teaching, science investigation and writing. His four books include the bestselling A Primate's Memoir (2001), The Trouble with Testosterone and Other Essays on the Biology of the Human Predicament (1998), and Why Zebras Don't Get Ulcers (1994).

Wednesday, February 20, 2008

The REAL American Dream : It’s NOT Owning A House!

I did the math, and I think our society has been sold a pile of crap that we’ve bitten on hook, line, and sinker. I’m not going to mince words or try to make this sound nice, because we’ve been duped, and we have every right to be upset about it. Let’s rewind a bit and figure out where this particular dupe came from.

Several decades ago, the “norm” was to work for one company for most of your adult life, with the assurance that they would provide for you for the rest of your life. My grandfather, in fact, still lives comfortably in a retirement community on pensions from the government and a university where he worked, as well as Social Security. He will be 87 years old next month.

My parents’ generation (my father will be 65 this year) was raised on those ideals, but it didn’t often work out for them that way. My father will grumpily point out that some of his friends who worked for corporations their entire careers have pensions, but he has “nothing”. My parents are both self-employed and are somewhat miffed that they didn’t get to partake in that.

This myth has slowly unwound all the way down to our generation. People in the 21-35 age range, including me, don’t have any illusions about working for any specific company and having that company pay for their retirement. The younger people you talk to don’t believe we will have Social Security to help us, either.

In the span of 2-3 generations, then, we have gone from working for one company as the ideal, to switching jobs every 3-4 years and not really having any idea of how to save for retirement past a 401(k) or similar plan.

What does this have to do with housing?

Housing has had a similar change, but I don’t think we’re aware of it. In fact, housing has shifted so radically in the past 9 years that we’re still trying to unravel the mess. Just 9 years ago, it was possible to buy a house right here in San Jose, CA for about $325,000.

Remember, this was in the middle of the dot-com boom. I lived here in San Jose in 1999. I remember the crazy traffic, the 6-8 week waiting lists just to get a crappy apartment, and the scary projections in the San Jose Mercury News that we would never be able to build enough freeways to sustain the crazy population growth we had here.

It seemed that every week there would be another story of a young dot-com millionaire. I watched several of them get made — I worked for Cobalt Networks, and our stock price rose 618% in its first day of trading on NASDAQ. Everyone who was middle management or higher got their “golden ticket”. I watched multi-millionaires get created before my eyes. (No, I was not one of them!)

Yet houses still only sold for half of what they do now. It is now so much cheaper to rent than to buy — not only here in the Bay Area, but in most high-cost locations in the country. I’m going to do the math and break down why it’s better to rent than to buy. Then I’m going to show you exactly why you won’t listen to the math…and what should sway you to seriously consider not buying a house instead.

The math

I live in a 3BR, 900sq.ft. duplex in the 95118 zip code. I’m going to pick a similar house in the area and estimate what my rent payments would be vs. mortgage payments, property tax, and maintenance on the house. Keep in mind that I won’t use “peak” housing prices here, but the prices as they stand today — about 15% down from the peak. My rent: $1650/month — recently raised by $50/month so the landlord could install central heat and A/C. (Previously, we just had a gas heater on the wall.) My landlord lives in the other half of the duplex.

We’re going to use MLS #770964 as the comparison house. It’s a single family home in my zip code. It appears from the listing to have central heat and A/C. It is also 960 square feet…slightly larger than my current rental. It appears from the pictures to be in fairly good condition. It’s currently priced at $522,200, making it one of the lowest-priced houses in my zip code, and has been on the market for 40 days. To make a completely fair comparison, we’ll stipulate that the house buyer has agreed to accept $510,000 on our “offer”. We need to come up with a 10% down payment to buy this house.

Down payment: $51,000

Closing costs: (We’ll be generous and assume the seller has offered to pick up the tab.)

Mortgage payment: $2,570/month (10% down; 6% interest)

PMI: $100/month (since we put less than 20% down)

Property taxes: $5100/year

Maintenance: $5100/year (estimated at 1% of the value of the house, per year)

Total cost to own the house: $3520/month.

However, there’s another number that most people forget to add in. That is the opportunity cost of having your down payment sitting in an illiquid asset that will most likely decline over the next few years, as opposed to having it in an interest-bearing account. But, again, I’ll be generous, and give you 2% appreciation per year on the house — as opposed to a modest 6% return in the stock market. (Returns of 10% or more are still achievable with a bit of footwork, but that’s another blog entry.) The difference between 2% appreciation and 6% appreciation is $2000/year, or $166.67/month. Adding that in to the house payment, we arrive at $3686.67/month.

UPDATE: I forgot to add in the mortgage tax deduction. Basing this house purchase on a $150,000/year income, which is in the 28% tax bracket, you would save $800-$900/month as a deduction. Let’s take $900/month to be safe, and deduct that. Keep in mind that the mortgage tax deduction will get a bit lower every year. I’m taking the best-case scenario — by the time you’re 20 years in to owning the house, you will only pay about 1/3 as much in interest as you do the first year, so your costs of owning the house over time do go up.

REAL cost to own the house: $2786.67.

The difference between owning and renting, then, comes out to a shocking $1136.67/month.

Most people see those numbers, though, and it doesn’t sink in. To find out why, you have to look no further than Why You Don’t Save Money, Even Though You Know It’s The Right Thing To Do . Much like me buying the new car instead of a less-expensive used one, buying a house makes you feel good. It makes you proud.

So, instead of beating you over the head with numbers, I am going to give you an emotional reason to not buy a house.

What you SHOULD take to heart: Not buying a house means complete freedom!

Imagine if, instead of buying a house, you lived in a rental. Instead of taking that $51,000 and putting it in a down payment, you invested it. For this calculation, I’m going to assume you can earn 10% — with a bit of know-how and the right mutual funds, you can achieve that. Furthermore, since I assume you can afford the full house payment, I will also assume that you set up an automatic deduction of $2000/month into that same mix of mutual funds.

I will assume you start doing this when you are 26 years old, which is the average age of “Generation Y” homebuyers. (Coincidentally, it’s also how old I am.) You might balk at putting that much away, but I assure you — if you think you can afford the house, this is an essential first step. Also, if you find out you can’t do it, it’s much easier to fail now than have a foreclosure on your hands later.

Let’s take our $51,000 down payment and $2000 a month addition and hand it to the compound interest calculator. Using 10% as the interest rate, we find that 20 years is the magic number to get us to over $1,000,000 in principal. 10% interest means we can pull just under $100,000 a year out at that point without lowering our principal.

That means, just when those around us are paying off their mortgages and celebrating, you can celebrate complete financial freedom. That means never having to complain about the boss again, never having to work a job you don’t love again, and basically…retiring. Believe me, as someone who “temporarily retired” after selling my business several months ago, it’s incredibly liberating to know that you can do absolutely whatever the heck you want, and still have the money rolling in every month no matter what. It is an amazing feeling.

Redefining the “American Dream”

You see, up until I did the numbers, I thought I wanted to own a house, too. If prices came down enough, it made sense. And surely, if prices come down significantly, to where a house plus property taxes, insurance, and maintenance is cheaper or the same cost as renting, then I may consider it. There are places in this country where that is the case now. In that case, I say “buy” if you plan to stay in that area for a while. For most areas of the country, though, I can’t recommend buying for quite a while. Do the math. In most urban areas, you’ll find numbers similar to the ones I quoted above.

Rebutting the naysayers

Somehow, homeownership has become entangled with the words “American dream” and even “freedom.” I want you to have the courage to think differently. My goal is actually to be completely financially free by age 30, so I have my work cut out for me. Owning a house, unless it’s cheaper than renting with taxes, maintenance, and opportunity costs factored in, is not a feasible option.

If people ask me why I don’t own a home, I can simply say “My goal is to be completely financially free by age 30. Owning a home at current prices is not congruent with that goal.” I feel good with renting, because I know that by renting, I can sock away money for my future. That future can include spending years abroad, traveling the world, or taking time off to learn foreign languages or learning how to fly a plane. In other words, I can spend my life doing the things I love, instead of being tied to doing something specific for any length of time.

If you asked me how I define the “American dream”, I’d say: My American dream is to have the freedom to do what I want, when I want to do it, with no worries about my finances . That statement resonates more strongly with my heart than owning a home ever will. I encourage you to step up and define your “American dream”, too. Dare to go head-to-head to those who say that signing up for debt has anything to do with an “American dream.” Become a powerful voice for change in this country’s way of thinking. You, too, can be free just by changing the way you think about freedom.

Tuesday, February 19, 2008

Rise of the Bezzle
Jeff Sanford
Canadian Business Online, February 18, 2008

We’ve still got several weeks of winter yet. But at least we’re past January 24th, the day one scientist has calculated to be the “worst day of the year.” Oddly enough, it’s a day that fell square in the middle of the recent market meltdown.

Are we humans really so objectively predictable that big market movements like those of the past month can be explained by simple cause and effect? Aren’t markets supposed to be products of rational decision-making on the part of the individuals who participate in them? And isn’t that kind of rational decision making supposed to preclude irrational, herd behaviour on the part of market participants? You would think so. But the Great Housing Bubble of this decade — now fading rapidly into history — is a perfect reminder of just how irrational and unthinking markets can be.

The root of the current market volatility can be traced to any number of incidents. But let’s go right back to the beginning, back to the ’90s when Republican party dissatisfaction with the big government-sponsored mortgage firms like Freddie Mac and Fannie Mae (created in the ’60s to extend credit to lower income U.S. home buyers) saw those businesses reigned in somewhat in terms of their lending ability. “When accounting problems showed up at those institutions they were put in the doghouse and the Republicans said, ‘Let’s see what the banks can do,’” says Stephen Jarislowsky, the moral voice of Canadian capital markets. “It was like letting the 47 thieves of Ali baba out.”

What followed was an orgy of mortgage lending by the banks that resulted in the evolution of ever-looser credit standards, a temporary home price bubble and now a corresponding revision to the mean (a bust) that is threatening to take down the North American economy.

This latest crisis is just one in a long history of periodic speculative bubbles and resulting panics: The tech bubble of 2000; the Asian Crisis in ’97; the market crash of ’87, and the S&L crisis of the ’80s. All have come and gone with remarkable consistency. “They come every five or seven years like clockwork,” says Jarislowsky. Is there some kind of collective programming in the human species that trumps our individual capacity for reason? “I’m always amazed at how fast people forget the last bust,” says Jarislowsky.

One of the great minds of economic thinking, John Kenneth Galbraith, long ago pointed out an interesting bit of herd behaviour that seems to reoccur in every bubble. According to Galbraith, whenever we got to the end of a bubble, the Bezzle — a term for, basically, corruption — will always rise. You can set your watch to it. As a bubble inflates the early euphoria of “new money” begins to fall away and as the end comes into sight the players closest to the action get agitated and begin doing whatever they can to grab whatever they can off the table before it all falls apart. And so it was with the recent U.S. housing bubble.

The housing boom rose on the back of securitization: the idea that banks would write mortgages and then bundle them up into securities they sold to other financial firms, to get the loans off their own books. This was different than in cycles past when banks held on to those loans, which created an interest in making sure the loan was viable. In this round, with the loans off of the books of the originating institutions, the accent was on writing the loan and taking out the one-time signing fee. The interests of the mortgage brokers changed. The long-term viability of the loan was no longer as important as the sign-up fee. Those writing the loans didn’t care whether they could be paid off since they were being packaged into securities too complex for almost anyone to understand.

As one bank and then another realized how well this model was working (at least in the short term), every other bank had to jump in or else they would fall behind the competition. The quarterly focus of the banks pulled more players into the game and the whole cycle began to spin faster. As more people poured in, more people became desperate to make a buck, and the Bezzle began to rise.

By 2006 the terms on mortgages had loosened to the point that fee-grabbing mortgage brokers were signing people up to mortgages that didn’t require documentation or even much in the way of I.D. Who loans money for 20 years to people they don’t know and who can’t prove they can pay you back? Reprehensible people who just want to make a buck.

Stephen Jarislowsky has nothing but contempt for the people who took part in the feeding frenzy. “It’s greedy compensation schemes and short-term thinking. I asked a bank president, ‘Who thought this was a good idea?’ They never thought about it. Everyone around them was doing it. Not many understood it and so when one guy seemed to understand it, everyone else thought it must be OK,” says Jarislowsky. Of course the regulators could have stepped in at any time. “They could have said, ‘No, you can’t lend to people with no money,’” says Jarislowsky. But they didn’t, and the devolution in lending terms increased as fee-grabbers began to take whatever they could off the table as the Bezzle began its march to the peak.

If there is one person more responsible for this mess than any other, it’s Angelo Mozilo, the CEO of Countrywide Financial, and one of America’s best-paid executives. His company emerged as the leading practitioner of the kind of sub-prime lending that led to these problems. U.S. Senator Charles Schumer recently singled out Countrywide as most representative of the “greed … motivated widespread, irresponsible lending that contributed to what could have been the largest home foreclosure crisis in our country.”

Schumer went on to accuse Countrywide of giving sales staff incentives to market the most expensive mortgage loans for the company “and its partners.” According to Schumer, “We have learned that Countrywide’s promise to get borrowers the ‘best possible loan’ have been nothing more than a commitment to squeeze every dollar possible from homeowners. In fact, Countrywide’s lending business model prioritizes fees and commissions over the financial viability of the loans.”

Thank you, Mr. Schumer, for the confirmation. Fully one-quarter of Countrywide’s mortgages have now gone under, which should be considered criminal. Any respectable loan office can tell you there are commonly accepted business practices that can be easily applied to a loan portfolio that would allow you to avoid a default rate like that.

Of course, Mozilo says it’s not his fault. He’s been quoted as saying the real causes of the mortgage crisis are interest rate hikes, lower real estate prices, and the disturbingly brazen notion that “tightened regulations around interest-only mortgages” caused the collapse. If that doesn’t make you want to push a man under a bus, what does?

But let’s not forget those who Schumer called “the partners,” the mainstream institutions who got in bed with Countrywide to package up these increasingly dodgy sub-prime loans into the now infamous bundled mortgage securities that were sold to pension funds around the world and stuffed into the retirement funds of many a retail investor.

A suit filed by the New York State comptroller Thomas DiNapoli and city comptroller William Thompson Jr. (the individuals responsible for overseeing government pension funds that invested in Countrywide securities), names RBC Capital Markets Corp., RBC Dominion Securities Inc., RBC Dain Rauscher Inc., Scotia Capital Inc. and TD Securities Inc. as just some of the companies that partnered with Countrywide in the alleged fleecing of America’s poor. “Countrywide’s underwriters had a duty to investigate whether Countrywide was acting honestly,” DiNapoli was quoted as saying about the suit.

How bad was it? There are all kinds of heartbreaking stories emerging about financially unsophisticated people who were doing just fine in the mortgage they were in but were convinced by mortgage originators to sign a Countrywide mortgage with a low “introductory” interest rate. These poor and financially illiterate people signed on thinking their mortgage payments would drop, which they did, for a few months. When the introductory rate ran out, or the adjustable rate mortgage started adjusting (a feature many people signing up were not made aware of), these people found themselves paying far more than what they otherwise would have. Real people lost their homes, while the mortgage broker grabbed the fee and ran.

I’ve always argued free-market capitalism is the best way to run a society. Granting people economic freedom allows distributed economic processing to take place among the entire population. This is a better economic architecture than a centrally planned (communist) system where economic decision making is concentrated at one point, and the processing of economic decision making slows to a crawl. But the freedom that has translated into our current wealth comes with a cost, as we’ve just seen. I’ll continue to argue that capitalism is the least worst system. It’s all we’ve got. But incidents like these where capitalism goes out of its way to give itself a bad name, make you wonder. “No one is accountable. No one takes responsibility,” says Jarislowsky. “You can follow the trail but you can’t get to anyone. They just say, ‘Oh, didn’t you read the footnote on page 42?’”

Former employees of Countrywide have filed a class action lawsuit against Countrywide accusing it of being, basically, a financial “sweat shop.” But the kicker on this story is that Mozilo could ride off with a compensation package said to be close to $115 million (and would include free use of the company jet and paid-up country club fees until 2011). Apparently, this is the price of a free market. As for the rest of us, let’s note a couple of lessons here before we let this sordid event pass into history. Lesson one: Altering time-tested institutional-interest structures (such as holding a loan over its life, as opposed to moving it off the books through securitization) always has unintended consequences that are likely going to come back and haunt you. And lesson two: if you want to know when the bubble is reaching a peak, keep your eye on the Bezzle — it always rises.

Wednesday, February 13, 2008

Dour/Sour Days Ahead: What we might inadvertently be doing to our world with the mass release of Carbon Dioxide

The implications are chilling....

Bugs poisoned Earth with rotten egg gas
By Roger Highfield, Science Editor, London Telegraph
Last Updated: 6:01pm GMT 06/02/2008

Evidence that the biggest extinction of life in the Earth's history was caused by microscopic life has been found by scientists.

Some 251 million years ago, at the end of what is called the Permian period, up to 95 per cent of marine species and 85 per cent of those on land went extinct.

Few remark on how the oldest and most successful life forms on Earth - the bacteria and primitive singled-celled creatures called archaea - sailed through virtually unharmed. Now it appears that they played a starring role in the extinctions.

advertisementThis new view comes from studies of biochemicals that have been trapped inside rocks for billions of years, "molecular fossils" which mean that ancient organisms that otherwise left no trace in the fossil record can now be identified, reports New Scientist.

In 2005 Roger Summons, now at the Massachusetts Institute of Technology, teamed up with geochemist Kliti Grice of Curtin University of Technology in Perth, Western Australia. Working with cores of sedimentary rock from China and Western Australia, they identified an interesting organic chemical, a "biomarker", known as isorenieratene.

Today, the precursors of this molecule are found only in the pigments of a very specific group of microbes - the green sulphur bacteria. These peculiar microbes make a living by photosynthesis but cannot tolerate oxygen and depend on hydrogen sulphide, the "rotten egg" gas which is highly toxic to plants and animals.

The team realised that the presence of these microbes indicated an ocean environment that was shallow enough for light to penetrate and photosynthesis to occur, yet was lacking in oxygen. Instead, it was saturated with hydrogen sulphide: the seas of the late Permian were awash with poison.

The team has since found the sulphur bacteria biomarker at a dozen late-Permian sites around the world, good evidence that the hydrogen sulphide oceans were a global phenomenon.

Three years ago, Summons, Grice and others combined their biomarker evidence in an influential paper that eliminated asteroids as a suspect for the Permian extinction and pointed the finger at a mass poisoning.

A team led by geochemist Lee Kump of Pennsylvania State University in University Park suggested that so much hydrogen sulphide was produced in an ocean devoid of oxygen that it escaped into the atmosphere and poisoned plants and animals, as well as depleting the ozone layer that protects Earth from the sun's harmful UV radiation.

"Subsequent work has reduced the predicted severity of these consequences, but release of this toxic gas from the oceans still provides a compelling link between the terrestrial and marine extinctions," says Kump

The ultimate culprit was intense global warming triggered by massive emissions of greenhouse gases from one of the largest and most sustained volcanic eruptions ever known, the Siberian Traps. In the hothouse of the late Permian, temperatures at the high latitudes were barely different from those at the equator, currents ground to a halt and the oceans changed, ultimately causing a lethal build-up of hydrogen sulphide produced by bacteria.

"Warm water holds less gas (oxygen) that starts the buildup of hydrogen sulphide," explains Kump. "Further eutrophication (buildup of nutrients) intensifies the oxygen depletion and hydrogen sulphide buildup. The buildup of nutrients occurs because the warm, wet climate brings nutrients in from the land with increased river flow."

Published on Saturday, February 3, 2007 by the lndependent/UK
Global Warming: The Final Warning
Carbon Dioxide Rate is at Highest Level for 650,000 Years

by Steve Connor

Concentrations of carbon dioxide in the atmosphere are at their highest levels for at least 650,000 years and this rise began with the birth of the Industrial Revolution 250 years ago, according to the Intergovernmental Panel on Climate Change (IPCC).

This photo from the National Science Foundation shows the shear face of the massive B-15A iceberg stretches for 150 kms across McMurdo Sound after it broke off the Ross Ice Shelf in Antartica, 2001. UN scientists delivered their starkest warning yet about global warming, saying fossil fuel pollution would raise temperatures this century, worsen floods, droughts and hurricanes, melt polar sea ice and damage the climate system for a thousand years to come. (AFP/NSF-HO/File/Josh Landis)

Carbon dioxide is the principal greenhouse gas responsible for global warming and, in 2005, concentrations stood at 379 parts per million (ppm). This compares to a pre-industrial level of 278 ppm, and a range over the previous 650,000 years of between 180 and 300 ppm, the report says.

Present levels of carbon dioxide - which continue to rise inexorably each year - are unprecedented for the long period of geological history that scientists are able to analyse from gas samples trapped in the frozen bubbles of deep ice cores.

However, the IPCC points to a potentially more sinister development: the rate of increase of carbon dioxide in the atmosphere is beginning to accelerate. Between 1960 and 2005 the average rate at which carbon dioxide concentrations increased was 1.4 ppm per year. But when the figures are analysed more closely, it becomes apparent that there has been a recent rise in this rate of increase to 1.9 ppm per year between 1995 and 2005.

It is too early to explain this accelerating increase but one fear is that it may indicate a change in the way the Earth is responding to global warming. In other words, climate feedbacks that accelerate the rate of change may have kicked in.

The IPPC's report points out that, as the planet gets warmer, the natural ability of the land and the oceans to absorb carbon dioxide from the atmosphere begins to get weaker.

It is estimated that about half of all the man-made emissions of carbon dioxide have been taken out of the air and absorbed by natural carbon "sinks" on the land and in the sea. Many computer models of the climate predict that as the Earth continues to get warmer, these sinks will become less able to absorb carbon dioxide from the atmosphere.

This means that more carbon dioxide will be left in the air to exacerbate the greenhouse effect, so leading to further temperature rises and more global warming, which in turn will make the natural carbon sinks of the Earth even less efficient.

As the IPCC's summary says: "Warming tends to reduce land and ocean uptake of atmospheric carbon dioxide, increasing the fraction of anthropogenic [man-made] emissions that remain in the atmosphere."

This is just one of several "positive feedbacks" that could quickly accelerate the rate of global warming over the coming century. One isa warmer world is causing more evaporation from the oceans and a rise in water vapour - a powerful greenhouse gas - in the lower atmosphere. Another is sea ice and snow cover is shrinking at the poles and on mountains, leading to a further increase in local temperatures.

Global warming: the final warning
According to yesterday's UN report, the world will be a much hotter place by 2100. This will be the impact ...

+2.4°C: Coral reefs almost extinct

In North America, a new dust-bowl brings deserts to life in the high plains states, centred on Nebraska, but also wipes out agriculture and

cattle ranching as sand dunes appear across five US states, from Texas in the south to Montana in the north.

Rising sea levels accelerate as the Greenland ice sheet tips into irreversible melt, submerging atoll nations and low-lying deltas. In Peru, disappearing Andean glaciers mean 10 million people face water shortages. Warming seas wipe out the Great Barrier Reef and make coral reefs virtually extinct throughout the tropics. Worldwide, a third of all species on the planet face extinction

+3.4°C: Rainforest turns to desert

The Amazonian rainforest burns in a firestorm of catastrophic ferocity, covering South America with ash and smoke. Once the smoke clears, the interior of Brazil has become desert, and huge amounts of extra carbon have entered the atmosphere, further boosting global warming. The entire Arctic ice-cap disappears in the summer months, leaving the North Pole ice-free for the first time in 3 million years. Polar bears, walruses and ringed seals all go extinct. Water supplies run short in California as the Sierra Nevada snowpack melts away. Tens of millions are displaced as the Kalahari desert expands across southern Africa

+4.4°C: Melting ice caps displace millions

Rapidly-rising temperatures in the Arctic put Siberian permafrost in the melt zone, releasing vast quantities of methane and CO2. Global temperatures keep on rising rapidly in consequence. Melting ice-caps and sea level rises displace more than 100 million people, particularly in Bangladesh, the Nile Delta and Shanghai. Heatwaves and drought make much of the sub-tropics uninhabitable: large-scale migration even takes place within Europe, where deserts are growing in southern Spain, Italy and Greece. More than half of wild species are wiped out, in the worst mass extinction since the end of the dinosaurs. Agriculture collapses in Australia

+5.4°C: Sea levels rise by five metres

The West Antarctic ice sheet breaks up, eventually adding another five metres to global sea levels. If these temperatures are sustained, the entire planet will become ice-free, and sea levels will be 70 metres higher than today. South Asian society collapses due to the disappearance of glaciers in the Himalayas, drying up the Indus river, while in east India and Bangladesh, monsoon floods threaten millions. Super-El NiƱos spark global weather chaos. Most of humanity begins to seek refuge away from higher temperatures closer to the poles. Tens of millions of refugees force their way into Scandanavia and the British Isles. World food supplies run out

+6.4°C: Most of life is exterminated

Warming seas lead to the possible release of methane hydrates trapped in sub-oceanic sediments: methane fireballs tear across the sky, causing further warming. The oceans lose their oxygen and turn stagnant, releasing poisonous hydrogen sulphide gas and destroying the ozone layer. Deserts extend almost to the Arctic. "Hypercanes" (hurricanes of unimaginable ferocity) circumnavigate the globe, causing flash floods which strip the land of soil. Humanity reduced to a few survivors eking out a living in polar refuges. Most of life on Earth has been snuffed out, as temperatures rise higher than for hundreds of millions of years.

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