In the Michael Crichton novel Jurassic Park, a bunch of crazy scientists try to recreate dinosaurs for the purposes of populating a theme park, with all the predictably nasty consequences one would expect from an airplane novel. It represents mankind’s ongoing fascination with playing around with nature for purposes non-critical to our own survival – there is a distinction between scientific efforts to alter the gene pool of grain crops to create higher yields versus more random associations with fashion and entertainment.

Perhaps the biggest offenders of all, in my book, are the people who popularize toy and small dog breeds, which are apparently essential fashion items in Hollywood these days. How we went from the noble wolf to the travesty on four legs that is the modern small dog may well have been the subject of a sequel titled Jurassic Bark, were it not for the untimely passing away of the author.

While I can tolerate normal-sized dogs, and even more “utility dogs” that actually help in various areas of human occupation such as agriculture and hunting, in general it must be said that I hate small dogs.

Almost as a rule, they are noisy, dirty, ill-tempered and perhaps worst of all, megalomaniacal. With an aggressive attitude far in excess of their physical attributes, small dogs basically represent the worst thing about the modern city center anywhere in the world.

I respect nature and all the variations arising from the evolution process; and indeed find myself quietly admiring the details of processes that helped to push animal species on certain tracts versus other (related) species. The trouble with small dogs is that they were not developed by nature but exclusively by human beings.

Certain basic steps of evolution to develop survival characteristics have been skipped in favor of fashion requirements (for example, making the dogs shorter and smaller to fit in a standard-size jacket pocket or a purse.) Study the ability of these small dogs to fend for themselves in a “wild” environment – in other words find food and protect themselves – and it is immediately apparent that there isn’t a ghost of a chance that most (if any) of the domestic small dog species could survive.

Precisely for that reason, I find the notion of small dogs repulsive – they aren’t natural but rather mere products of fickle human fashion. When I did an Internet search of the phrase “I hate small dogs”, “hate small dogs” or “small dogs”, the following quote inevitably popped up from an article in the McGill Tribune – a campus newspaper for Canada’s McGill University – written by a Marco Avolio:

So if we breed small dogs in our own image, what are we saying about ourselves? Small dogs are helpless, dependent, annoying, pathetic and lack any self-respect whatsoever – they are useless and excessive accessories that, like all such things, seem to have become status symbols for the sickly opulent. That isn’t a particularly positive self-portrait. Adam and Eve may not have been perfect, but at least God tried to make Himself seem half respectable when He created them.

And perhaps even more disturbingly, the following quote:

Your dog is not cute. It’s not even a dog; it’s a sandwich. It’s a disgusting abomination … The consequences of inbreeding in dogs are devastating to their species. Chihuahua puppies have to be delivered through a cesarean section because their heads are too big to come out naturally. Dachshunds often develop ruptured spinal discs because of their long backs, which can lead to paralysis. Pekinese – perhaps the most abominable of all small dogs – are known to lose their eyeballs because they don’t have sockets big enough to contain them. That mutually beneficial relationship is starting to look a lot more one-sided; these degenerate descendants of the wolf couldn’t fend for themselves if they had to. But then again, what do we get out of exploiting a once noble and useful creature this way?

The trouble with mankind’s “too-clever-by-half” approach to messing about with nature isn’t so much the effect on the physical characteristics of small dogs, but on their mental makeup. Perhaps the most interesting thing about small dogs is their dependence on their human masters, which has made them essentially passive-aggressive.

The need to keep their owners in good spirits overwhelms natural instincts, and this leads to attacking bigger animals and human beings who aren’t their masters. The primary reason of course is the expectation of small dogs that human masters will come to their rescue, under all circumstances.

The classic example is the small dog that attacks you when approached in the park, but only so long as its owner is close at hand. Separate the small dog from its owner and it becomes a furry ball of trembling fear. In effect, it is not the dog itself that is the problem – rather it is the dog’s acute dependency on the owner, which has created a vicious cycle of destructive attention-seeking or simply unacceptable behavior.

For a number of reasons, my hatred for small dogs welled up when looking at the third quarter results for banks in the US and Europe. Results had the following things in common, broadly at least:

  • Profits were better than expectations
  • Core operations remained weak, with rising loan losses swamping the balance sheet; while new credit granted was lower than expected
  • Leverage remained relatively high, ie, the total size of balance sheet as a multiple of equity capital remained close to levels seen in 2007 (so much for learning from the crisis)
  • Banks with strong trading operations – notably JP Morgan and Goldman Sachs – benefited from strong results due mainly to an expansion of their risk positions (once again, so much for learning from the crisis)

Notice a pattern here?

Capitalism’s ‘small dogs’

More than any other industry, it is the financial sector that is the object of much loathing these days. It has become fashionable for politician to pillory banks and their management for making excessive profits, or worse, paying their employees “excessive” bonuses. And yet, the primary reason for such behavior of banks is actually the Keynesian policy of rescuing the banks thought too big to fail, and in effect underwriting their future bad behavior.

This is exactly the parallel of small dogs, in that despite their very survival being at the hands of their masters, banks have become overly aggressive: knowing full well that any misstep will simply lead to a rescue by the governments, in much the same way that small dogs expect their masters to bail them out of trouble at every juncture.

In a speech on Tuesday, Mervyn King, the governor of the Bank of England, set off a small storm in financial circles by calling for a break-up of large banks. This portion of his speech in particular attracted a lot of media attention and comments:

The sheer scale of support to the banking sector is breathtaking. In the United Kingdom, in the form of direct or guaranteed loans and equity investment, it is not far short of a trillion (that is, one thousand billion) pounds, close to two-thirds of the annual output of the entire economy. To paraphrase a great wartime leader, never in the field of financial endeavor has so much money been owed by so few to so many. And, one might add, so far with little real reform.

It is hard to see how the existence of institutions that are ‘too important to fail’ is consistent with their being in the private sector. Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don’t, distorts the allocation of resources and management of risk.

That is what economists mean by ‘moral hazard’. The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history. The ‘too important to fail’ problem is too important to ignore.

The New York Times reported, also on Tuesday, that former United States Federal Reserve chairman Paul Volcker has been calling for reforms to the financial system, apparently to no avail:

The aging Mr. Volcker (he is 82) has some advice, deeply felt. He has been offering it in speeches and congressional testimony, and repeating it to those around the president, most of them young enough to be his children.

He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.

‘I am not pounding the desk all the time, but I am making my point,’ Mr. Volcker said in one of his infrequent on-the-record interviews. “I have talked to some senators who asked me to talk to them, and if people want to talk to me, I talk to them. But I am not going around knocking on doors.

As I wrote in The New Brahmins (Asia Times Online, Mar 29, 2008) and Easy bets with other people’s money (Asia Times Online May 23, 2009) banks have assumed pole position on government balance sheets, in effect taking whatever they can; essentially at will. The blame for this does not lie with capitalism, but rather with the government’s intentions to play around with that system – and specifically with respect to the maintenance and mollycoddling of certain banks.

It is no wonder that the results have been perverted to suit the gilded cage of a few bankers; more than ever, they feel the need to “gamble” in the heads-I-win-tails-you-lose format. Remove the government guarantee and let a couple fail – like Lehman Brothers and Washington Mutual – and all of sudden bankers become a cowering, nervous wreck.

In the long run, markets are very much about survival of the fittest. Today’s banks, with anemic operations and weak management, have to resort to ever-increasing amounts of gambling in order to maintain their pseudo-profits from the boom years; even as many central bankers have come to realize that the sheer scale of unsustainable behavior that goes on in their corridors.

Much like small dogs, today’s banks are freaks of nature.