Quote of the Week

A few months ago, I wrote a post about the Black-Scholes pricing model, its role in the financial crisis, and how economists continue to do themselves a terrible disservice by insisting that their discipline is a physical science like physics or biology, rather than the inexact social science that it is. I wrote:

We all use models in our daily lives, because they help us to make sense of what are often very complex problems. Models simplify, organize, and categorize the variables in an uncertain world so that we can better understand the impacts of our decisions. But they DO NOT, ever, have the power to tell us what to do. You don't even need to know a thing about Black-Scholes (and trust me, a lot of people who should know a lot about it... don't) in order to accept that assertion as fact. 

The intelligent person knows to use a model only as a guide to confirm (or refute) what our intuition tells us. Very often, our painfully simple heuristic models (which you can learn or hear more about from Gerd Gigerenzer's speech, if you're a nerd like me) actually outperform very elegant statistical models. How can this be? The answer lies in this brilliant polemic from economist Robert Wenzel (which is almost as great as a similar recent rant from Jim Grant).

In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed. 

There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.  

And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist.

Wenzel is dead on. We all know that models are useful, but they do not remove responsibility for rational risk management—only people have the power to do that. When callous risk managers at huge investment banks take another man's model on faith, and make huge bets with billions of dollars on the line without sanity-checking the model, that's nobody's fault but theirs.

While my points were correct, I took a little while to get the point across. For a more pithy take on things, we'll turn to Barry Ritholtz, for this week's Quote of the Week.

This week's QUOTE OF THE WEEK

"Economists are neither Engineers nor Scientists, as each of these fields has a significant degree of precision in what they do, and test their hypotheses in a lab. The better choice for Economists are 'Historian' or 'Sociologists.' The sooner the profession loses its 'physics penis-envy', the better off we all will be."
                                                  - Blogger Barry Ritholtz

I'll just let that "physics penis-envy" line stand on its own, because I think it's the single greatest takedown of modern economics that I've ever seen.

As our economy becomes more and more dependent on the fantasy-land models put together on Ben Bernanke's laptop, I sincerely hope that the damage done by these grand experiments isn't so grave that we all end up suffering for decades. But if we allow ourselves to entrust ever more of our lives to these "scientists", we're certainly running that risk.

"Inside Job" and bank criminality

A little over a year ago, I posted a Quote of the Week (and also this follow-up) from Charles Ferguson, the director of the Oscar-winning documentary "Inside Job". Ferguson was complaining about the lack of prosecutions of fraud committed by financial executives, a topic I've also discussed here more times than I can remember.

However, until this week, I hadn't actually watched the documentary—not until Barry Ritholtz tipped me off to the presence of the entire movie on Vimeo. I'd avoided "Inside Job" in part because I (arrogantly and incorrectly) thought that I had read and learned everything there was to know about the financial crisis already, and figured that the film probably didn't have much new to add to the discussion. How wrong I was.

The greatest compliment I can give to any non-fiction piece is that it's worth reading even if you think you already know everything about the topic in question—that certainly applies here. "Inside Job" provides incredible access to a who's who of characters in the mess that is our financial system, from economists to bankers to politicians and everyone in between. Ferguson pulls few punches, and he is particularly harsh with respect to the (role of the) academic world, including my alma mater.

Like many pieces on the topic, I think "Inside Job" is a little too forgiving of the borrowers who made the real estate bubble possible, but that's certainly nothing new here (and I've discussed that dynamic before as well). All in all, though, if you haven't yet watched the doc, I highly recommend it. It does a great job of showing just how ugly things have been behind closed doors at our banks, and also how this financial crisis is far from over—in fact, it may still be in its early stages.


Inside Job, Narrated by Matt Damon (Full Length HD) from jwrock on Vimeo.

But if you don't have the time to watch the film, and you somehow still doubt my assertions that banks continue to commit crimes that have systematically gone unpunished... just read this little post (also courtesy of Barry Ritholtz) and be done with it. In fact, I'll just go ahead and reproduce the whole thing right here.

Here are some recent improprieties by the big banks:

- Laundering money for drug cartels. See this, this, this and this (indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis)

- Laundering money for terrorists

- Engaging in mafia-style big-rigging fraud against local governments. See this, this and this

- Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, and here

- Charging “storage fees” to store gold bullion … without even buying or storing any gold. And raiding allocated gold accounts

- Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)

- Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car

- Cheating homeowners by gaming laws meant to protect people from unfair foreclosure

- Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing

- Engaging in insider trading of the most important financial information

- Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this

- Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this

- Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this

- Otherwise manipulating markets. And see this

- Participating in various Ponzi schemes. See this, this and this

- Charging veterans unlawful mortgage fees

- Cooking their books (and see this)

- Bribing and bullying ratings agencies to inflate ratings on their risky investments

The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees. But studies show that most of the fraud is committed by management.

Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud. See this, this and this.

But it's all okay, because Wall Street is our Main Street, love 'em or hate 'em, right? Bullshit.

That list should just about do it for the "banks never committed any crimes" line of argument, forever. So, watch "Inside Job" if you haven't already—and even if you have, watch it again. It's worth it.

[Barry Ritholtz]
[Max Keiser]

More on banks....

My prior post today referenced banks and their seeming arrogance in assuming that they're the only ones who can provide financing to small businesses and individuals. Maybe their arrogance stems simply from their ever-increasing size, which Barry Ritholtz was so kind to point out in this infographic originally posted by Mother Jones.

It shows an amazing accumulation of financial power in just the last 20 years, a consolidation that was completely unslowed (and in fact accelerated) by the financial crisis of 2007-08 and neverending cries of "Too Big To Fail".

Take that dynamic for what it's worth, but yes, we really do only have four American banks left of any real import. As Mother Jones points out, in 1990, the nation's 10 largest financial institutions held only 20% of our nation's total financial assets. They now hold 54%. The total number of banks has dropped precipitously in that period, from roughly 12,500 to fewer than 8,000. Too big to fail, indeed.

[Mother Jones]
(h/t Barry Ritholtz)

Blame the lenders (again)

Barry Ritholtz has an interesting piece regarding the noticeable differences between the public response to the housing-led financial crisis of 2007-2008 and that to the current (and developing) sovereign debt crisis in Greece and elsewhere. He writes (pardon the "colorful" language, he's got strong feelings on the matter):

I’ve noticed something intriguing about the debate regarding the Greek default/restructuring/bailout: There is a familiar odor to the “Blame the profligate Greeks” meme now circulating. It is little more than a brilliant marketing ploy. This distraction ignores the simple reality that lending to insolvent people, institutions and countries is first and foremost the fault of the lenders.

Let us start first with the Greeks, who lied their way into the EU (with the help of Goldman Sach’s financial engineers). The ridiculous pay and vacation structure, the absurdly generous pension plan, the excessive spending by Athens. They are a nation that can honestly be described as tax scofflaws. Yes, Greece is a mess.

Which begs the question: WHO THE FUCK WOULD LEND A DIME TO THESE PEOPLE?

None of these factors were well-hidden. Everything about Greece is well known to any casual visitor, from its Welfare state to its deficits. Even the shenanigans Greece went through to join the Union European were not unknown. Rather than confront their obvious lack of qualifications, the EU turned a blind eye to it, in order to form their more perfect union.

He raises a good point, and it's interesting how different our responses have been. In the housing crisis, there were some who blamed the borrowers (i.e. homeowners) for irresponsibly using debt to live beyond their means, but the vast majority felt that the real story of the crisis was one of overly greedy and predatory bankers taking advantage of borrowers, originating loans that were destined to fail. This "blame the lenders" dynamic ultimately became the "winning" narrative in the aftermath of the crisis, hence the incredible vitriol directed at banks today.

In today's budding crisis, though, that's far from the case. Instead, we direct our ire primarily at the irresponsible borrowers, blaming the nations in question (rather than the enabling lenders) for their predicament. Instead of blaming China for consistently purchasing our national debt time and time again over the past few decades, we blame our own government for its irresponsibility (which is probably fair, just noticeably different from how we viewed the housing crisis).

After watching the strange theater of the forced "austerity measures" in Greece this week, I tried to imagine the proper analogy in the housing crisis. What if, instead of foreclosing on a home, banks and mortgage companies came to an individual's house and demanded that they cancel their phone service, cut down on their food intake, and sell their cars in the name of "austerity" and improving the chance that they repaid their mortgage? That sounds completely ridiculous, right? And yet, that's exactly what we're seeing here.

Ultimately, I think that the differing responses to otherwise similar stories derives from our pre-existing notions of who is the more sympathetic party, rather than the facts of the matter. In the housing crisis, it was far easier (and incredibly satisfying) to blame the big, evil banking institutions than it would have been to accept the blame ourselves, as homeowners.

In the sovereign debt case, it is far easier to blame one or two basket-case governments (especially when it is so fashionable right now to blame governments--in this case, THEY are the big, evil corporation relative to the smaller banks) than it would be to place the blame on the lenders, who span everyone from the European Central Bank to nearly every American who places money in a money market fund.

It's hard to trust ourselves when we try to analyze complex situations like these, simply because our reactions are so utterly inconsistent with regard to the actual facts of the case. We all approach situations in life with inherent, trained biases, and it's exceptionally difficult to get past these and assess problems at face value. However, if we are ever to get to the heart of any matter, it's an essential exercise.

[The Big Picture]

Pretty cool

This short video comes courtesy of Barry Ritholtz, and it provides a very well-edited short history of the art of movie title pages. It's pretty cool to see the evolution from static pages to complex animated designs with high relevance to the story to follow. Barry was nice enough to list out all of the included movies, a list which I've copied below. Enjoy.



Intolerance
Phantom of the Opera
King Kong
Modern Times
My Man Godfrey
Make Way For Tomorrow
Citizen Kane
The Maltese Falcon
Gun Crazy
The Treasure of the Sierra Madre
Lady in the Lake
Fallen Angel
The Thing
Singing in the Rain
The Man with the Golden Arm
Anatomy of a Murder
Psycho
North by Northwest
Vertigo
Grand Prix
To Kill A Mockingbird
Dr. No
The Pink Panther
Goldfinger
Dr. Strangelove
Bullitt
Barbarella
Soylent Green
Mean Streets
Star Wars
Saturday Night Fever
Superman
Alien
Raging Bull
The Terminator
Brazil
The Untouchables
Do The Right Thing
Forrest Gump
The Naked Gun
Cape Fear
Reservoir Dogs
Delicatessen
Natural Born Killers
Freaked
Se7en
The Island of Dr. Moreau
Mimic
Donnie Brasco
Mission Impossible
Dawn of the Dead
Fight Club
Catch Me If You Can
Lemony Snicket’s A Series of Unfortunate Events
The Fall
Casino Royale
Six Feet Under
Carnivale
Dexter
Mad Men
Iron Man
Juno
The Kingdom
Wall•E
Sherlock Holmes
Up In The Air
Zombieland
Scott Pilgrim vs the World
Buried
Robin Hood
Machete
The Social Network
Enter The Void

Misinformation and the reliance on "experts"

The events of this week at the Fukushima Daiichi nuclear power plant in Japan--and the resultant panic in world financial markets--reminded me just how fickle and easily frightened people can be when they are dealing with things they don't understand. Along those same lines, it is amazing how powerful the voice of an "expert" can be in times like these, and how careful people in those positions must be with their words.

The first example of this "expert" dynamic comes courtesy of Barry Ritholtz, who passes along the curious case of MIT "research scientist" Josef Oehmen.

The tragedy in Japan is still unfolding. To those of you who are curious as to how your own brains operate, and what various reactions mean to your investments, this is what we might call a teachable moment.

Back on March 13th, Ron Dodson sent me a Tweet touting an “MIT scientist’s take on Japan.”

I clicked over to read this blog post — titled “Why I am not worried about Japan’s nuclear reactors” — and was immediately suspicious. It was the FIRST and ONLY blog post from this individual. It had 100+ comments in a few hours (so much for taking years to develop a following).

Given it was only a few hours old post, I was surprised to see that Google showed it been reposted over 30,000 times elsewhere on the web...

My curiosity sent me to MIT’s site, to look up their faculty list. The author of the post was  Josef  Oehmen “LAI Research Scientist.” The first paragraph made clear what his Nuclear Physics bonafides:  He had none. “The main research interest of Dr. Josef Oehmen is risk management in the value chain.”

WTF?  Value Chain?

That was where my search ended. There was no expertise in either Nuclear energy, Physics, or anything else even remotely relevant, and I tweeted as much (here).

I thought that would be the end of it, but smart people who should know better (Cramer, Tom Keene) kept on Retweeting it.

Last last night Rob Bullerwell gave me [a] heads up that Oehmen’s post was a sham: Posted on the site Genius Now was The Strange Case of Josef Oehmen.

It's somewhat disturbing how much traction this piece got, simply because this guy seemed to be an expert. "MIT research scientist" sounds impressive, so we're all tempted to take his word on the matter because he's probably smart. 

But the man knows absolutely nothing about nuclear power plants or nuclear reactors in general (he's trained in mechanical engineering), and even less about this plant in particular. He is privy to zero information about breaking news or events in Japan, and everything he writes is thus basically a hunch. It's irresponsible journalism at its best, and yet "real" journalists who should know better went about re-tweeting it and sending it along as though it was concrete news. Journalistic responsibility does not cease just because you're dealing in the land of Twitter--you need to check and re-check your sources, just as you would in any other journalistic setting.

Then, the very next day, Guenther Oettinger, the European Union's commissioner for energy, drove home the point of the dangers of misinformed "expert analysis".

U.S. stocks sank deeper into the red on Wednesday after the European Union's energy chief warned of "possible catastrophic events" at Japan's nuclear plants...

Stocks deepened modest losses on Wednesday after Guenther Oettinger, the European Union's commissioner for energy, told a European Parliament committee that a nuclear power plant in Japan is "effectively out of control," and that the situation could continue to deteriorate.

"In the coming hours there could be further catastrophic events which could pose a threat to the lives of people on the island," he said.

Traders said the remarks fanned anxieties simmering in the market.

"I think it's this word of a catastrophic nuclear event--we're still sniffing out," said Joseph Saluzzi at Themis Trading LLC. "In this type of market this news moves quickly--flash crash type stuff."

The market gradually pared its losses as traders digested the remarks as analysis, rather than breaking news.

Spokespeople for the commissioner quickly scrambled to clarify that he had no specific knowledge of any breaking news at the Japanese plant, and that he was essentially speaking of the cuff in generalities. It certainly didn't sound that way, and the damage to markets and psyches was already done.

There are really two lessons to be learned here. First, be very careful about jumping to conclusions and having knee-jerk reactions to what seems to be "expert" analysis. Experts often do not possess nearly as much information as they profess to have, and their reports and analysis must always be vetted for accuracy and thoroughness. Nothing, from anyone, no matter how much of an "expert" they are, can be taken at face value.

And as for all you "experts" out there, be careful. Know that people look to you for information about things that they do not understand during times of crisis. Understand that any off-hand remark could be misconstrued, blown out of proportion, or simply spread rapidly in ways you might not have expected. With great power comes great responsibility.

My best wishes go out to all those affected in Japan.

[The Big Picture]
[Wall Street Journal]

A follow-up on Quote of the Week

Given Charles Ferguson and Matt Taibbi's complaints about the lack of prosecution of bank fraud in the wake of the financial crisis, I don't think either of them will be too pleased to read this item from the Big Picture blog (emphasis mine).

If you can’t stop the legislation, you can defund it.

That is what our Chart of the Day shows, the net impact of defunding regulation. As we previously discussed 1 year ago (SEC: Defective by Design?), there has been a concerted effort at keeping regulators under-funded. The SEC has lacked sufficient staff, thus holding enforcement efforts to a minimum.

This is not an accident. Imagine being allowed to have an army and guns, but no bullets are allowed. The banks and big Wall Street firms are very comfortable with this arrangement. And as Matt Taibbi made clear, the revolving door between the SEC and Wall Street has prevented any criminal prosecutions.

And its not a bi-partisan issue this go around, its the crazy wing of the Republican Party:

“Congressional Republicans intent on big spending cuts are on a collision course with Wall Street’s top regulators over a plan to slash millions from agency budgets.

Lawmakers are targeting the Commodity Futures Trading Commission and the Securities and Exchange Commission. The work of both agencies is set to balloon as the Dodd-Frank financial reform law is implemented...

The most recent comprehensive spending bill produced by House Republicans would chop the CFTC’s funding by $56.8 million — almost a third of the agency’s entire budget — over the next seven months. Funding at the SEC would be cut by $25 million over the same time period.”

To give you an idea of what this looks like, consider the chart [below] — it shows how the SEC caseload has risen, while its budget remains flat.

Good stuff. If you read me often, you know that I'm all about balancing the budget and reducing our deficit and debt. But this isn't where to start with the cuts, as I made clear in this post. The core job of the federal government by any definition is to set the rules by which the rest of the country plays. Therefore, "balancing the budget" by defunding regulatory agencies is akin to balancing a police department budget by firing officers and no longer responding to criminal complaints, or balancing a fire department budget by letting fires burn themselves out--what's the point?

[Big Picture]

Yikes

Charts often lie, but these ones seem to speak for themselves. Thanks to Barry Ritholtz for the links.

Health Care Costs, 1960-2010

 

 Health Care Costs as Percent of GDP by Year

Health Care Costs as Percent of GDP by Year, with Presidential Terms

[The Big Picture]

Clip of the Week

Even though I haven't been around this week, I've still got a Clip of the Week to give you, thanks to Barry Ritholtz. It's old, but it's amusing. Barry goes into some more detail on his post, which is worth reading.

Perfect

Hat tip to Barry Ritholtz...

 

Nothing to see here... trust the Fed.

An interesting alternative view of Congress

I go out of my way to avoid overtly political (i.e., "Democrat" vs. "Republican") discussions on this site, but if you read closely enough you should be able to determine that I have no party affiliation. In fact, this post by Barry Ritholtz does a fairly decent job of summarizing my feelings.

In essence, I believe that political party affiliations have become more a red herring than anything else, and that the truly important ties--in terms of actual daily government action--are the corporate interests that finance politicians' campaigns. To the degree that those ties may break along party lines, I see importance in party affiliation, but I think "party" is less important than most voters believe, and that they should therefore focus their attention elsewhere.

To that end, I was particularly drawn to this item from Mother Jones. It at least gives some decent visuals, and an alternative way of viewing things. Whether or not you buy into it is up to you, but it's certainly interesting.

The full article goes into further detail, breaking down donations to individual politicians, if you're interested. Personally, I think the visual representation is the most striking part of the article, which is why I included it here.

[Mother Jones]

No accepted medical use

Courtesy of Barry Ritholtz (again) comes this video on medical marijuana. If you have some time, it's worth a watch. As Barry writes,

The U.S. government classifies marijuana—along with heroin and LSD—as a Schedule I drug, the most tightly restricted category of drugs in the United States. According to the federal government, Schedule I drugs are unsafe and have “no currently accepted medical use in treatment in the United States.”

Really?

As medical marijuana proponents have pointed out since the Controlled Substances Act was passed by Congress in 1970, cannabis has been used medicinally for thousands of years, and there has never been a reported case of a marijuana overdose. Moreover, in recent years clinical researchers around the world have demonstrated the medicinal value of cannabis.

As pointed out in the video, most of the medical benefits of marijuana are what would be deemed "pain management" benefits. Marijuana doesn't cure or attempt to cure any ailments, but neither do many prescription drugs being peddled today. It would be hard to argue that marijuana has any less "medical use" than any legal opiate-based pain medication, such as codeine, morphine, or oxycodone. The pain-alleviating effects are extremely similar, without the dependency/withdrawal issues that are commonly associated with the opiate-based drugs.

The primary reasons behind marijuana's declaration as a Schedule I drug are unclear, though many claim that racist and cultural motivations were a significant factor. Either way, its continued treatment as a dangerous drug has cost federal and local governments untold millions in law enforcement and legal costs, with little effect on actual use.

At a time when balancing budgets is a primary concern, I would not be surprised to see marijuana legalization movements gain traction. By legalizing and taxing marijuana sales, we could actually turn a large government expenditure into a source of revenue. Ultimately, the need to balance government budgets may trump all other arguments in favor of criminalization, whatever they originally may have been. I'll certainly be keeping my eye on California.

[The Big Picture]

Hysterical

Thanks to Barry Ritholtz...

"Productivity gains" in a recession, revisited

Barry Ritholtz (of The Big Picture blog, linked to at right) linked this morning to an interesting report (the full PDF can be downloaded from that link) on CEO pay in the recession. Its conclusions dovetailed nicely with my previous post on layoffs and productivity gains, so I figured it would be good to share here. The most eye-opening conclusion?

CEOs at the 50 major firms that have laid off the most workers since the onset of the economic crisis took home nearly $12 million each on average in 2009, 42 percent more than the average compensation that went to S&P 500 CEOs.

Of course, an argument could be made that scale is a problem here--larger companies have more employees and higher profits by their nature, and they therefore should see more layoffs in a recession. CEOs, too, would expect higher compensation because of the company's size, regardless of layoffs. This seems to be a valid counter-argument, except when you consider the 50 companies in question.

Only 19 of the 50 companies cited by the CEO pay report were among the top 50 largest companies by employee (compiled by Fortune magazine) before the recession hit, and only two of the top 10 layoff leaders--Citigroup and Wal-Mart--were also previously among the 10 largest companies.

The lesson, then, seems to be that there are great rewards to be had in the short term for CEOs who lay off workers to pad profits. As I warned previously, though, when these profits come from short-lived "productivity gains", these companies are likely to find themselves in difficult positions if and when the economy turns around and hiring picks up. It's just one more example of companies and CEOs prioritizing short-term profit over long-term company health, and being rewarded for it.

How much does speech reveal about our beliefs?

I ran across an interesting blog post this morning from Barry Ritholtz, a market strategist whose blog (The Big Picture, which I link to on the right panel of this blog) is a consistently solid source for non-mainstream market insights. He noticed that there were significant differences in the way market action (specifically, the bond market) was being described within the investment community:

Consider the following overheard phrases, each of which come from traders, fund managers, and strategists:

The first two reflect a certain belief in the rationality of markets: “Bonds are pricing in a deflationary outcome” is how one strategist described it. Another...said that “the fixed income market is discounting a double dip.”

But a fund manager described it quite differently, relying on language of sentiment: “Traders fear an economic slowdown.”

The actual language used suggest clear theoretical underpinnings:  The first two speakers are likely adherents of the efficient market hypothesis. They consider market action to reflect the collective knowledge of all participants...The second is a behavioral economics approach.

Barry is dead on. The words we choose--not necessarily what we say, but how we say it--can be incredibly revealing as to the assumptions and beliefs that we operate under. His post reminded me of a Wall Street Journal article from last month, which examined the linkages between language and culture:

Take "Humpty Dumpty sat on a..." Even this snippet of a nursery rhyme reveals how much languages can differ from one another. In English, we have to mark the verb for tense; in this case, we say "sat" rather than "sit." In Indonesian you need not (in fact, you can't) change the verb to mark tense. 

In Russian, you would have to mark tense and also gender, changing the verb if Mrs. Dumpty did the sitting. You would also have to decide if the sitting event was completed or not. If our ovoid hero sat on the wall for the entire time he was meant to, it would be a different form of the verb than if, say, he had a great fall. 

In Turkish, you would have to include in the verb how you acquired this information. For example, if you saw the chubby fellow on the wall with your own eyes, you'd use one form of the verb, but if you had simply read or heard about it, you'd use a different form.

 The Journal article went further:

For example, in Pormpuraaw, a remote Aboriginal community in Australia, the indigenous languages don't use terms like "left" and "right." Instead, everything is talked about in terms of absolute cardinal directions (north, south, east, west), which means you say things like, "There's an ant on your southwest leg." To say hello in Pormpuraaw, one asks, "Where are you going?", and an appropriate response might be, "A long way to the south-southwest. How about you?" If you don't know which way is which, you literally can't get past hello.

I found this to be fascinating. The Pormpuraawans, it turns out, have an incredible gift for sense of direction. Without being told, they know at all times which direction they are facing, without need for a compass. This focus impacts much of the way they view the world, including such seemingly unrelated topics as the passage of time. (If you have time, read the whole Journal article, linked to below. It really is interesting.)

The lingering question is whether the language itself is to credit for the Pormpuraawans' sense of direction, or if the language evolved to reflect their lifestyle. Do we consciously decide the way we speak based on our beliefs? Or does our native language shape those beliefs without us even realizing it?

Either way, as any relocated northerner who's been mocked for using the word "wicked" in Virginia (who, me?) would know, we can give away a lot of information about ourselves without realizing it, simply by the words we choose. It can also help us to understand others, and where they might be coming from.


[The Big Picture] 
[Wall Street Journal]