Raising animals strains the environment not only because it contributes generously to greenhouse gas emissions, but because it additionally contaminates water sources and aquatic ecosystems, and requires a staggering amount of resources. The efforts of researchers to render the production process more efficient and the efforts of government to regulate it offer some hope, but a smaller-scale, consumer-based solution with more immediate effects is the reduction of animal product consumption, especially meat. In a world of rising temperatures and scarcity, the rapid enactment of any solution is urgent, especially when one considers the sheer number of farm animals being bred for our eventual enjoyment.

There are over 1.5 billion cows and 1 billion pigs in the world [3]. They excrete an astonishing 80 million metric tons of waste annually [3]. Livestock-related emissions from digestive processes and animal wastes account for 26% of total agricultural greenhouse gas emissions. How? While being transferred to waste lagoons, liquid and solid wastes undergo chemical reactions which release methane [1]. But the major culprits are processes which take place in the digestive tracts of ruminants such as cows, called enteric processes, which result in 70% of agricultural methane emissions [1]. This might seem less incredible upon learning that methane production in cows is roughly equivalent to food intake [1][A].

Hogs are even more detrimental to the environment. An animal unit[B] of beef cow results in 59.1 pounds of waste every day [5]. An animal unit of hogs results in 63.1 pounds of waste on a daily basis [5]. Although this outnumbers hogs, porcine waste contains nutrient levels typically seven times higher than cattle excretions [6]. Nutrients may have a benign connotation, but they can contaminate surrounding waters when they seep out of overflowing or inefficient waste lagoons. The nitrates and phosphorous not only taint drinking water, but create dead zones in aquatic ecosystems when the formation of algal blooms causes oxygen depletion in the water. Manure runoff occurs even after it is removed from the lagoons, because it is used unnecessarily copiously as fertilizer. It is, after all, best from a farmer’s point of view to not risk providing too few nutrients to the soil [6]. Furthermore, this runoff contains microorganisms that are capable of causing illness, such as diarrheal diseases, in humans [1, 3]. Due to the common practice of giving superfluous antibiotics to cattle, hogs, and poultry to ward off sickness, the runoff may also contain bacterial strains resistant to many drugs [1, 3].

Animal byproducts are not the only problem. The resource input necessary to produce them is absurdly high, especially when compared to the amount required for grains and vegetables. With clean water becoming an increasingly precious resource, 2500 gallons are estimated to go into the manufacture of a pound of beef [7]. Other estimates are even more astronomical: a recent Cornell study placed the number around 13 000 [8]. Compare this to the 60 gallons needed for a pound of potatoes, and the mere six for a head of lettuce. Grains are slightly more intensive[C]. Attentive readers might point out that chicken has presented few problems thus far[D]. Here comes the snag: a kilogram of chicken requires 3500 liters of water to produce. That still outstrips the 2000 liters for a kilogram of soybeans [3].

A diet of primarily grains and legumes would require less intensive production and go some way to alleviating world hunger. Why, then, do many of us believe in and live on diet based primarily on meat and other animal products instead? Meat is not technically vital to life, and consuming it infrequently is actually better for our health. Humans are animals, whether we like to admit it or not, and our own bodies produce saturated fat. Its continuous intake can lead to atherosclerosis and other kinds of heart disease. Other natural products of our bodies are beneficial: bodies with normal metabolic function can synthesize all of the necessary proteins from only eight out of the twenty amino acids [9]. All eight of these basic amino acids can be obtained from beans and corn. Yet slicing into a cut of pork or chicken or biting into a beef patty is an event that occurs at least once a day for most people. Perhaps it is due to the prevalent belief that it is natural for us to be meat-eaters. Perhaps it is because ‘meat tastes good’, which is not an objective or rational argument at all. But no matter what the contrary claims are, the truth is that our diets and agribusiness are in need of reform.

Some countries have recognized the urgency of this need and have responded with legislation, the goal of which is to reduce the amount of waste run-off which is greatly detrimental to human health and the environment. The Netherlands has imposed limits on the phosphorous content of manure and the methods of its application [11]. The European Union has enacted legislation enforcing a maximum number of manure-producing animals per hectare of land available for manure-spreading [11]. A non-legislative trend is the methane digestor. These recent inventions separate liquid and solid wastes and generate electricity from methane, but they are costly and most of the electricity powers the dairy farms themselves [12].

There are, of course, other options that could ameliorate this problem: scientists could conduct more research about how to obtain greater amounts of milk, eggs, and meat from individual animals; ground meat manufacturers could begin to partially substitute plant-derived proteins for meat in their products; innovations in genetic engineering might result in organisms that produce less waste [1, 4, 11]. All of these approaches, however, would take time and involve some degree of uncertainty. The most evident solution begins with the consumer at the grocery store and the restaurant, and in a global situation where everyone watches one another enviously, making good choices is almost a responsibility for the privileged.

A worrisome global trend of increasing meat and dairy consumption can be observed in developing countries as per capita income rises. This trend is at least partly in emulation of the industrial world’s practices: countries like us. And it is the personal habits of United States residents which are the most dangerous: as a nation, we consumed 122 kilograms of meat per capita in the year 2000, more than any other nation in the world [11]. That number had not decreased in 2005, despite exceeding the USDA’s highly lenient Food Pyramid guidelines, and it sets a terrible example for other nations [13]. It is clear that our choices concerning food have wide-reaching impact, and currently they are destructive to animals, destructive to ourselves, and destructive to the world we inhabit.

Notes:
[A] To be fair, the cows themselves do not strictly produce the methane; microbes which live in their guts do. Methanogens produce methane by reducing carbon dioxide with hydrogen gathered in the gut. The longer a cow’s food takes to digest, the more methane the digestion process generates. [4] Nowadays, industrial farming completely ignores the natural grazing habits of cows and raises them on soybeans and corn, which digest more slowly [1].

[B] An animal unit is equivalent to one thousand pounds of that organism. One cow usually weighs around 1400 pounds, or 1.4 animal units. A hog typically weighs 200 to 300 pounds, or 0.2-0.3 animal units [5].

[C] Wheat requires 108 gallons of water per bushel, corn 168, rice 229, and soybeans 240 [7]. Nevertheless, 40% of total grain yields worldwide currently are destined to be animal feed, although direct consumption would be more efficient [3].

[D] For comparison, one animal unit (about 125 eight-pound chickens) of chicken means about 15 metric tons of annual waste [10].

References:

1. Paustian K, Antle JM, Sheehan J, Paul EA. Agriculture’s Role in Greenhouse Gas Mitigation. 2006; Prepared for the Pew Center on Global Climate Change[14-76].
2. Mui S, Alson J, Ellies B, Ganss D. A Wedge Analysis of the U. S. Transportation Sector. 2007; EPA 420-R-07-007: 6
3. Masson JM. The Face on Your Plate. Norton, New York. 2009; Ch. 1: 35-36, Ch. 2: 95, Ch. 5: 171.
4. Miller T.L., Wolin M.J., Methanogens in human and animal intestinal tracts. Syst. Appl. Micro- biol. 1986; 7: 223–229.
5. Natural Resources Conservation Services, Agricultural Waste Management Handbook, 1992. Available fromhttp://www.nrcs.usda.gov/technical/ECS/nutrient/animalmanure.html.
6. Wall, Keynen J. Knowing When to Say When to Hog Waste: Do State Lagoon Regulations Adequately Protect Ground Water in Kansas. Kansas Journal of Law and Public Policy. 2001-2002; 11: 113-140.
7. Pimentel D, Pimentel M. Sustainability of Meat-Based and Plant-Based Diets and the Environment. American Journal of Clinical Nutrition. 2003; 78(3): 660s-3S.
8. Goodland R, Pimentel D. Sustainability and Integrity in the Agricultural Sector. Ecological Integrity: Integrating Environment, Conservation, and Health. Washington, DC: Islland Press, 2000.
9. Campbell N, Reece R. Biology. Pearson, Benjamin Cummings, 2004; 7th ed.
10. Kellogg Robert L., et al. Manure Nutrients Relative to the Capacity of Cropland and Pastureland to Assimilate Nutrients: Spatial and Temporal Trends for the United States. USDA Natural Resources Conservation Service and Economic Research Service. December 2000; 2, 49.
11. Smail V. Worldwide transformation of diets, burdens of meat production and opportunities for novel food proteins. Enzyme and Microbial Technology. 2002; 30(3): 305-311.
12. Stokes JR, Rajagopalan RM, Stefanou SE. Investment in a Methane Digestor: An Application of Capital Budgeting and Real Options. Applied Economics Perspectives and Policy. 2008; 30(4): 664-676.
13. Wells HF, Buzby JC. Dietary Assessment of Major Trends in U.S. Food Consumption, 1970 – 2005. Economic Information Bulletin. March 2008; EIB -33: 27.
14. Herbst B. [photograph] 2009. Available at: http://www.flickr.com/photos/briherbst/3963820900/

Niloufar Hafizi is a first-year economics major at the University of Chicago. Please join The Triple Helix Online on Facebook. Follow The Triple Helix Online on Twitter

Eagle Island, a remote safari camp in Botswana

Ecotourism is a growing industry in many developing countries.  As an alternative to mining, hunting or farming, it seems more sustainable.  It preserves the rainforests, the rivers, and the savannas, but what does ecotourism mean for economic development in these countries?  In many countries that formerly relied on colonial plantations for income, ecotourism is an industry that makes a lot of sense.  It preserves natural ecosystems, making it more sustainable than agricultural expansion, and it provides a venue for unskilled laborers to work without the input of capital necessary for industrialization.  It seems like a perfect solution.

In my travels, the people I spoke to often praised their governments’ support of ecotourism and nature preservation. In Botswana, the alternative had been hunting reserves as a supplement to the mining industry. Photographic safari reserves provide a sustainable and more fashionable alternative.  Costa Rica, the poster-child for ecotourism, have made a name for themselves as the adventurous, grittier alternative to Mexico for American tourists. It leads me to wonder what will happen if the success of this product is based on its novelty?

The underlying framework of this argument lies in the theory behind the position of developing nations vis-à-vis globalization.  Developing nations enter the global market at a distinct disadvantage. They lack the capital for heavy industry and large-scale agriculture, mining, and tourism are often funded by foreign multi-nationals.  Tourism creates jobs, but it does not necessarily lead to development. Most jobs in tourism are menial and provide little upward mobility, creating a conundrum.  On one hand, ecotourism creates jobs and provides a growing and sustainable industry relative to farming, hunting, or mining in countries with growing populations and shrinking wild lands.  On the other hand, relying on tourism traps these countries in a cycle of dependency on the countries that provide the tourists. This leaves them vulnerable to the whims of those people and the fluctuations in their markets.  Obviously, recessions in developed countries can wreak havoc on developing countries if they become reliant on something as transient as tourism.

The problem with ecotourism is that while it is sustainable, it is also exclusive. It excludes mining and agricultural expansion and precludes the development of industry by putting high demands on land conservation and pollution control.   I don’t know the answer to this problem, but it seems to be the dilemma of all “latecomers” to the global economy: how to overcome dependency without isolating themselves.  Further, in ecotourism, like many other industries often run remotely by foreign companies, how do you ensure that the country making the product reaps the benefits?  The second question is easier to remedy than the first, but in either case economic diversification remains a difficult issue, especially in developing nations. I just wonder if the move toward ecotourism is sustainable in the economic sense rather than just the environmental sense.

Obviously the counterexample would be a fast-growing, developing economy such as India or China that has taken to heart internationally decided pollution exemptions for industrial expansion in developing countries. While this leads to a larger, more diversified economy, and faster growth, some countries that have followed this model, most notably China, are beginning to see the repercussions of fast economic growth without regard for the environment.  Many of China’s rivers and natural places are hopelessly polluted, and its cities are plagued by thick smog from burning coal, which is the cheapest fossil fuel, to meet the giant populations ever-increasing energy demands. All of this environmental destruction is finally affecting their ability to grow food as well as people’s health.  In contrast to ecotourism, this model does better people’s quality of life much faster, the economy becomes more diversified, and there is more upward mobility. However, it leads to health, food and sustainability problems in the long run.  I am not sure which model is better because you don’t see the China/India model in places with small populations, and you don’t see the ecotourism model in densely populated countries because that would imply that the natural areas were already encroached upon.  I wonder if there is a way to reconcile both economic and environmental interests in developing countries when they seem so far in opposition under most definitions of development.

http://www.jstor.org/stable/20643839

First, the direct correlation that skeptics draw between the swine flu outbreak and Kellogg’s immunity health claims needs to be examined and questioned. In fact, Kellogg states that the company began developing cereals with higher vitamin contents more than a year ago, long before most people even became aware of swine flu. Moreover, cereals with special health labels were in stores last May, months before the start of the flu season.[2] This begs the question of why people are making strong associations between two events that may be entirely unrelated. One possible explanation is that in times of distress, individuals are more prone to cynicism, or “a disposition to disbelieve in the sincerity or goodness of human motives and actions.”[3] With the exaggeration of the severity of swine flu, it is no wonder that many people develop irrational fears and as a result become unnecessarily tense and anxious, inducing paranoia.

In addition to average consumers, health advocates are also wasting their time in criticizing Kellogg’s new cereals and their labels. For instance, Kelly Brownell of Yale University’s Rudd Center for Food Policy and Obesity, explained to Kelly Wallace of CBS News that “It simply defies logic to think that spraying on some vitamins and minerals to a cereal…makes a healthy product.”[4] True, boosting immunity takes much more than increasing vitamin and mineral contents; however, health advocates need to ask if the new cereals are at least as healthy as the old ones. That is to say, aren’t the new high vitamin content cereals still an improvement from the old ones regardless of how much vitamins actually play a role in increasing immunity? Therefore, health advocates who are determined to prove the invalidity of Kellogg’s claim are taking it too literally, not to mention investing too much energy and effort that would be better spent on more important issues.

Perhaps the aspect of the attacks against Kellogg that is most worthy of note is the fact that regardless of how inaccurate Kellogg’s claim is, it is simply a marketing technique that is used by many other companies and cannot be stopped. Even when considering only advertisements for cereals, statistics show that many cereals, including Lucky Charms, Reese’s Puffs, and Cookie Crisp, which are all manufactured by General Mills, average three to four unsupported health claims per box.[5] Even if all such false advertisements are eliminated in the future, parents and health advocates alike have many more battles ahead. According to a study from the Rudd Center for Food Policy and Obesity at Yale University, cereal companies spend more than $156 million per year marketing to children, and the average preschooler sees 642 cereal ads per year on television, almost all for cereals with little nutritional value.[6] Above all else, cereal companies and any other for that matter, are businesses, which cannot help but exaggerate the benefits of products in order to lure consumers and make profits. From a legal perspective, private parties including consumers and competitors can file a complaint for false advertising under the Lanham Act. However, merely proving the advertiser falsely advertised is not sufficient. In fact, the plaintiff must also prove that he “was injured as a result of the deception.”[7] Thus, the law tries to protect not only consumers, but also businesses, making the former’s battle even more difficult. Truthfully, it is idealistic and naïve of anyone to believe that advertising strategies, especially those targeted towards young children, can be changed to be more truthful in the near future. After all, the primary goal for companies is to ensure their own survival. Therefore, rather than attacking Kellogg, it is wiser to realize that we need to put greater trust in our own judgments, which sadly are often undervalued despite their reliability.

References
1 Keri Glassman. 2009. “Kellogg’s Immunity Claims Draw Fire.” The Early Show. http://www.cbsnews.com/stories/2009/11/03/earlyshow/health/main5508662.shtml?tag=contentMain;contentBody
2 Ibid.
3 Daily Mind, The. 2009. “How You Can Defeat Cynicism and Become a Positive Thinker.” The Daily Mind. http://www.thedailymind.com/how-to/how-you-can-defeat-cynicism-and-become-a-positive-thinker/
4 Keri Glassman. 2009. “Kellogg’s Immunity Claims Draw Fire.” The Early Show. http://www.cbsnews.com/stories/2009/11/03/earlyshow/health/main5508662.shtml?tag=contentMain;contentBody
5 Deardoff, Julie. 2009. “Study: Sugary Cereal Ads Target Children.” The Chicago Tribune. http://featuresblogs.chicagotribune.com/features_julieshealthclub/2009/11/sugary-cereal-ads-target-childrenimmunity-claims-from-itsboxes-of-cocoa-krispies-and-rice-krispies-and-the-smart-choice-logo-.html
6 Ibid.
7 Frank D. Edens. 2008. “False Advertising Law & Legal Definition.” US Legal. http://definitions.uslegal.com/f/false-advertising/

Excuse me–did national health just get compared to a stock market index, like the Dow Jones?

Yes, an abstract idea such as happiness is being quantitatively measured. These numbers come from a recently developed project called the Gallup-Healthways Well-Being Index. As the name suggests, the Index is a collaborative venture between Gallup, Inc.–the makers of the ubiquitous Gallup Polls–and Healthways, Inc., a provider of numerous health management programs. Their goal, though ambitious, has good intentions: compile the largest database of health research so that communities, employers, and legislators can create policies that will best improve people’s welfare.[2]

Gallup collects its data by conducting 1000 phone interviews nationwide at the end of each day. Respondents are asked questions relating to six categories: life evaluation, emotional health, physical health, healthy behavior, work environment, and basic access to healthcare.[3] Sample questions may include how the respondent expects life to be five years later or if the respondent felt healthy enough to go about the day. Responses are then sorted by demographic factors to help policy makers form programs tailored to a particular population or region.

Gallup-Healthways acknowledges the flaws in the procedure; the nature of a survey innately suffers from bias in the wording of questions, untruthful responses, and nonresponse. However, the sampling method controls for variables it can, such as using random digit dialing for both landline and cell phones, and conducting the survey in the language of the household.[4] Regardless of the factors affecting data collection, the final result is the same. After analyzing each day’s 1000 interviews, an average point value is calculated for each of the six categories, along with the amount of change from prior measurements. The entire average becomes the Gallup-Healthways Well-Being Index and is published monthly.

Despite its weaknesses, Gallup’s survey is the largest and most developed of its kind. Therefore, the results of the index scores are viable indications of trends in America’s view of its own welfare. Gallup-Healthways could not have chosen a more perfect time to begin a happiness tracking meter, especially in today’s difficult economy.

The United States officially declared a recession in December 2008–the worst since the Great Depression, claim economists.[5]As the number of unemployed Americans and foreclosed homes grows, it is difficult to see any reason for the index to display positive results of happiness and health.

How about that American Dream? Can Horatio Alger even bring up the idea of “rags to riches” in times like these when many are barely getting by?

Gustavo Arellano, an editor for the Los Angeles Times, represents one of the major attitudes regarding the Dream. He claims that his parents, two immigrants who began their quest for the Dream in the 1980s, are better equipped for success than the young adults of the current generation are. They bought a house when mortgage was affordable; they learned a diverse set of practical, vocational skills and thus possessed flexibility in the jobs they could hold. On the other hand, Arellano has a master’s degree under his belt and still struggles to pay rent for his one-bedroom apartment. But he is on the fortunate side. Arellano comments how his peers still live with their parents or friends.[6] At this time, it is difficult finding jobs to put university degrees to practice. Consequently, many students opt to stay in school and continue their education until the economy recovers.

Achieving the ideal Dream is not entirely out of the picture, but the recession has certainly pushed it farther from reach. Finding success in today’s circumstances may require extra time and more sacrifice to either develop more skills or conjure up an appealing, entrepreneurial idea.

Despite additional challenges, multiple poll results still point towards a common sentiment. The majority of respondents continue to believe the Dream can be achieved.[7] According to the Gallup-Healthways Well-Being Index, the scores since May 2009 have been higher than those of the corresponding months in 2008, when the nation’s economy had not yet taken a fall.[8] Another poll conducted by the New York Times and CBS News reported that 44% of respondents believed they had reached the American Dream this year.[9] Surprisingly, this percentage is greater than the 32% who thought they had succeeded four years ago.[10]

How do we explain an increase in reported happiness and well-being during times of trouble?

People are collectively changing their definition of the American Dream and lowering their standards during more meager times.[11] One of the questions in the New York Times and CBS News survey asked what the American Dream meant. No matter how many different types of answers people give, responses can usually be categorized into either financial and occupational security or patriotic values such as freedom and opportunity. Four years ago, 19% of respondents said the Dream was about the tangible rewards of financial security, while 20% chose the intangible ideals. This year, 11% chose money, as opposed to the 27% who valued American ideas.[12]

It is a rational phenomenon. Why hope to achieve something that is quickly disappearing and becoming harder to find? This curious relationship between increased ratings of happiness and tougher economic times highlights a potential blemish in the Gallup-Healthways Well-Being Index. The poll, like any other, completely depends on each respondent’s outlook on her health and happiness. Undoubtedly this is a highly subjective attempt to measure the nation’s overall quality of living.

Therefore, all that the well-being project does is reflect collective changes in attitude among Americans. The direction of change illustrated by index scores plotted over time is not always accurate either, or at least does not conform to what logic would dictate. For instance, the monthly index reports currently indicate that people are increasingly satisfied with their level of health and happiness, even though external conditions, such as the economy, do not support such a trend. It is far more probable and realistic that the true morale of Americans is in a downward spiral, contrary to what Gallup’s data suggest. The Well-Being Index may be publishing information that is excessively skewed with optimism because it is influenced by confounding factors that are subjectively determined. An example of such influences is the change in standards for people to feel content.

Or, perhaps it is true that Americans are gradually learning to remain happy with fewer commodities and luxuries. That would truly be an improvement for our commercialist tendencies.

References
1.    Jim Harter, Dan L. Witters, James E. Pope, and Amy Neftzger. Gallup-Healthways Well-Being Index. Gallup, Inc. and Healthways, Inc. November 1, 2009. http://www.well-beingindex.com (accessed November 17, 2009).
2.    Ibid.
3.    Ibid.
4.    Ibid.
5.    Katharine Q. Seelye. What Happens to the American Dream in a Recession? The New York Times. May 7, 2009. http://www.nytimes.com/2009/05/08/us/08dreampoll.html?_r=1 (accessed November 15, 2009).
6.    Gustavo Arellano. The Arellanos of Anaheim. The Los Angeles Times. March 11, 2009. http://www.latimes.com/news/opinion/la-oe-arellano11-2009mar11,0,417418.story (accessed November 16, 2009).
7.    John Zogby. The American Dream Is Still Strong. Forbes.com LLC. January 29, 2009. http://www.forbes.com/2009/01/28/american-dream-polling-opinions-columnists_0129_john_zogby.html (accessed November 14, 2009).
8.    Harter, Witters, Pope, and Neftzger, Gallup-Healthways Well-Being Index.
9.    The New York Times, CBS News. “American Dream Poll.” The New York Times. May 7, 2009. http://graphics8.nytimes.com/packages/pdf/national/20090507_american_dream_poll.pdf (accessed November 16, 2009).
10.    Seelye, What Happens to the American Dream in a Recession?.
11.    Ibid.
12.    The New York Times and CBS News, “American Dream Poll.”

You just turned 21 and your friends take you on an all-expense paid vacation to Vegas. They release you to the card sharks with a blank check to gamble away whatever your heart may desire. You’re feeling lucky. So how much do you put on the table? A hundred? A thousand, maybe? How about billions?

Hey, if you lose all of it, maybe the government can just bail you out of debt with taxpayer money. After all, they did bail out AIG after they reported a loss of $61 billion – the largest quarterly loss in American corporate history (Taibbi 2009). Do the math – that means that AIG lost $27 million every hour of the last three months of last year, which breaks down to $465,000 a minute, which equates to the average American family’s annual income every six seconds, and about $7,750 every second (Taibbi 2009).

Okay, let’s go back to you now. I guess it is kind of important to know how much your friend has in his bank account right? After all, you can’t write a check for an amount of money that you don’t even have, can you? Even though AIG did that too! They played with about $500 billion that they did not have to begin with, in a completely unregulated derivatives market. AA And let’s not forget that they also spent over ten years methodically plotting to dodge the bullets coming their way via regulators from not only the U.S., but all over the world (Taibbi 2009).

Yes, the economic crisis that we are recovering from was orchestrated. When people talk about this crisis, they are in denial. The majority consensus i s that it is just an unfortunate tragedy that happened to fall upon us; that it is just a once in a generation kind of thing. People wonder who could have possibly predicted such an incident, but someone did see this coming! Her name is Brooksley E. Born (Schmitt 2009).
Ms. Born, the head of the Commodity Futures Trading Commission, in 1998, warned the leaders of the financial world, including, the head of the federal reserve, Alan Greenspan, that government regulation of Wall Street was necessary. Not only did he choose to ignore her, he worked hard to thwart her efforts to regulate this industry (Johnson 2009). That one action has brought the country to where we are today – recovering from the biggest financial debacle since the Great Depression.

Born was a big supporter of restricting the market for financial derivatives. This idea was met with a lot of controversy. Let’s first define what a derivative is – a financial tool whose value is based on other things, such as assets. Credit derivatives are based on loans, bonds, or other forms of credit. The use of credit-default swap derivatives was initially for major corporations to manage their risk across a series of investments; but it is exactly this that ultimately became a key factor in the downfall of the economy. Swap derivatives work like insurance: the insured pays a certain amount (“premium”) in exchange for protection from the insurer in case he/she defaults on a loan (Duffie 2009). The credit-default swap market, valued at about $45 trillion, allowed bank lenders to loan out more when giving out mortgages. Eventually, lenders began lending out more and more, and a problem arose because the swaps were not regulated. Lenders were taking more and more risks that they should not have been taking, and due to lack of regulation, there was no security that the borrowers had the funds to pay back what they were lent. So, when the housing market went downhill, the loans also took a dive, and banks were unable to adhere to the guidelines they had committed to in the derivatives contracts and thus got pulled down as well (Schmitt 2009).

Moral of the story: a little regulation could have gone a long way. Born made several attempts at warning Greenspan and other regulators of the impending crisis. Greenspan even invited her to lunch in his private dining room at the stately headquarters of the Fed in Washington, D.C., but when she got there, the conversation quickly turned controversial. Greenspan acknowledged that he and Born would always have differing opinions on the way that fraud in the economy should be handled – he with a more hands-off policy, and she with a policy of being more involved and monitoring the market. Greenspan made it clear to Born that he did not believe that there is any reason for there to be laws against fraud, while Born believes the exact opposite. Born says that when Greenspan said that to her, “that underscored [her to] how absolutist Alan was in his opposition to any regulation” (Schmitt 2009). Greenspan, along with other regulators, convinced Congress to take measures of passing legislation that made it illegal for Born’s agency to take any action. As a result, she decided to leave the government and return to her private law practice.

There are many theories as to why no one on Wall Street wanted to listen to Born’s warnings. Some people say that it is because she did not hold an important enough role – she was “a little person from one of [those] agencies trying to assertively expand her jurisdiction” (Schmitt 2009). Others found her difficult to work with and did not approve of her personal style – they saw her as counterproductive in the work place and characterized her as being abrasive. Some even dare to admit that they believe sexism may have played a role in this situation as well. Could Alan Greenspan handle the fact that someone in a skirt was telling him what to do? Of course Greenspan strongly refuted such allegations, but no one really knows for sure (Schmitt 2009). But ultimately, the reason does not even matter. The only thing that really matters is that this financial crisis was predicted and could have been prevented. Many people associate the financial crisis solely with money, yet while money is a key factor in the situation, there is something else that is of greater importance. And that is that the crisis was caused by a group of scheming insiders who were more concerned with their own personal profit than the taxpayers (a.k.a involuntary shareholders) who were unwittingly being taken advantage of.

References

Duffie, Darrell. 2009. Derivatives, the Basics. Stanford Magazine.

http://www.stanfordalumni.org/news/magazine/2009/marapr/features/duffie.html.

Greenwald, Glenn. 2009. Larry Summers, Tim Geithner and Wall Street’s ownership of government. Salon. http://www.salon.com/opinion/greenwald/2009/04/04/summers/index.html.

Johnson, Simon. 2009. The Quiet Coup. The Atlantic. http://www.theatlantic.com/doc/200905/imf-advice.

Schmitt, Rick. 2009. Prophet and Loss. Stanford Magazine.

http://www.stanfordalumni.org/news/magazine/2009/marapr/features/born.html.

Taibbi, Matt. 2009. The Big Takeover. Rolling Stone. http://www.rollingstone.com/politics/story/26793903/the_big_takeover.