Interlude XXXII. Foucault - part 12

Madness and Civilization + Derivatives

Intro & Preface & Contents

Previous: Interlude XXXI. Foucault - part 11

From The Passion of Michel Foucault by James Miller...

Chapter 4 - The Castle of Murders cont...

Madness and Civilization: History of Madness in the Classical Age.

p97

...Large stretches of the book recount developments in the treatment of the mentally ill between 1650 and 1789, the classical “Age of Reason.” According to Foucault, the movement to segregate the mentally ill by placing them in special institutions first took place in these decades...

... Every one of his great themes -- death, prison, sexuality, the truth value of fantasy, the “terrorism” of modern doctrines of moral responsibility -- is somewhere broached...

p 98

“Madness only exists in society,” Foucault declared in 1961 to a reporter from Le Monde, usefully summing up what he took to be his book’s central argument. “It does not exist outside the forms of sensibility that isolate it, and the forms of repulsion that expel it or capture it. Thus one can say that from the Middle Ages up to the Renaissance, madness was present within the social horizon as an aesthetic and mundane fact; then in the seventeenth century -- starting with the confinement {of the mad}[new convention, curly brackets belong to the author, strait brackets belong to me] -- madness underwent a period of silence, of exclusion. It lost its function of manifestation, of revelation, that it had had in the age of Shakespeare and Cervantes (for example, Lady Macbeth begins to speak the truth when she becomes mad). it becomes laughable, delusory. Finally the twentieth century collars madness, reduces it to a natural phenomenon, linked to the truth of the world. From the positivist expropriation derive both the condescending philanthropy that all psychiatry exhibits towards the mad, and the lyrical protest that one finds in poetry from Nerval to Artaud, and which is an effort to restore to the experience of madness the profundity and power of revelation that was extinguished by confinement.”

p99

...In the sixteenth century, according to Foucault, such figures appeared [to replace the vanished lepers previously confined on the edges of Medieval civilization]... Taking up the leper’s old social role of the outcast, those deemed mad by Renaissance society renewed the old magical rites, becoming “hieratic witnesses of evil,” their deranged existence testifying anew to the nearness of death.

Foucault goes out of his way to stress the link between madness and death. Here, as elsewhere in the work, a connection that seems forced historically, and arbitrary philosophically, makes sense as an esoteric, essentially autobiographical allegory. According to Foucault, the madman takes the “absolute limit of death” and turns it inward “in a continuous irony,” disarming its moral sting, “making it an object of derision by giving it an everyday, tamed form.” It is as if the person who is mad must repeat incessantly the drama of dying -- in fantasy, in delirium, in the absence of reason. “The head that will become a skull is already empty. Madness is the déjà-là  [“already there”] of death.

This death-haunted delirium, which later ages would punish or seek to cure, the Renaissance mind invested with a certain prestige, Foucault contends. In farces and tragic dramas, in paintings and etchings and fictional narratives, the madman appears as “the guardian of truth.” In a “simpleton’s language, which makes no show of reason.” he reveals “the nothingness of existence,” as this is “experienced from within.”

I have to say this reminds me of the Emperor Norton, a local celebrity of the nineteenth century.

p 100

Implicity [sic -- I assume this should be “Implicitly”] recognizing the peculiar domain of truth limned by the madman, towns in the Renaissance drove the insane “outside their limits.” There they were left to wander “in the open countryside,” the death-haunted landscape left vacant by [the disappearance of] leprosy, the symbolic space of what Foucault elsewhere calls “an untamed exteriority.”

So today we drive them out also, but onto the streets since there is no convenient “vacant” landscape for them to enjoy. They people the very streets of the civilization they exist outside of. Releasing (and restricting) the mad to "the edges of... civilization" -- a space where the two realities do not overlap -- strikes me as an approach that would be appreciated, for the most part, by both the mad and the sane. It's a pity "civilization" lacks many convenient edges these days.

I'm going to take a break here as the next topic is long and I don't want to break it up.

Derivatives.

And now for something completely different.

To my surprise, I have been asked to help prep a friend's niece for a "Series 7 exam". In particular, I have been called on to help her with derivatives, also known as options. (And may I say that Wikipedia's entry on financial derivatives is especially good.) This puzzled me at first because my knowledge here is pretty superficial, if you have a question about the Delta, the Gamma, the Theta, the Vega and the Rho, or about constructing a straddle or a strangle, I am going to point you in the direction of the CBOT (Chicago Board Of Trade) website or a good book. After some reflection, I have come to the conclusion my friend thought of me for this task because I’m the only one she knows who likes to talk about derivatives. This is because, once you get your mind around the concept, derivatives are pretty neat tools.

Options are, actually, a form of insurance, and they even retain some of the language of insurance, for example, when you buy “puts” or “calls” you pay a “premium” for the safety of being able to sell (in the case of puts) or buy (in the case of calls) some asset (the underlying entity) at a set price for a set length of time. Say you’re an airline and you want to protect yourself from fuel costs going through the roof. You would buy a huge number of contracts on jet fuel at a price you could tolerate -- maybe a little above the current price, which would lower the premium, but below the price that would kill your bottom line. And you buy contracts for as far into the future as you could afford -- the premiums also go up the longer the term of the insurance. If jet fuel then remains at a reasonable price, you write off this hedge as a cost of doing business. But if the price does explode, you get your fuel at a reasonable price and look like a genius.

But how, I almost hear you wondering, does this affect the average person or investor? Well suppose you own a hundred shares of the latest, high visibility, SocialMediaCloudIPO sensation. The price has zoomed to $200 per share but you have doubts about this valuation. You think you ought to sell and protect your gains, but you also still have faith in the long term value of the company. Now puts are your best friends. Option contracts are sold with one contract representing 100 shares of the underlying entity, in this case the stock. You would buy one put contract giving you the right to sell your shares for a set price -- in this case a bit below the current price, to reduce the premium -- for, let’s say, a year. Now, you are safe for a year. The worst that can happen is that your stock retains its value or continues to rise which causes your options to expire worthless. In that case you have merely lost your premium. If, after eleven months, say, your stock has indeed dropped in price, you now have two options (and this is where we need another word for non-financial options): You can sell for your guaranteed price and walk away with all your theoretical gains minus the premium you paid; or, if you think the stock is going to come back and don’t want to give up on it, you can sell your puts back to the market maker for a gain that should be very similar to the sale price your puts guarantee minus the current actual price of the stock. So you make a bunch of money and still hold your stock.

So why do derivatives have such a dangerous reputation? So far I’ve only covered a couple of the very many ways options can be used. I also haven’t mentioned the other side to these trades. For every call and put there is someone out there on the other end of the trade agreeing to buy those stocks at the price set by the put, or sell shares of that stock at the price set by the call contract. For the most part these are probably institutional investors, but anyone can play this game. The person with the booming stock above can make some additional money (that premium) by agreeing to sell his shares at a price higher than he thinks the market will ever reach. But even this isn’t too dangerous since the worst that can happen is that he ends up selling his stock for a very high price (though it could be doing so well that under normal circumstances he would never agree to sell it), and he still gets that premium, too.

So, still not too bad, really. But now we go to the Dark Side of derivatives where traders do things they shouldn’t and occasionally really, really wish they hadn’t. Let’s take the case above but change it just a little. Our trader considers his options (in the other sense of the word) and decides there is no way his stock will go up another $20 so he might as well just sell it now, and he does. But he’s already run the numbers on selling those puts and that potential income -- money for nothing, really -- starts to nag at him. Why not just do it anyway even though he no longer owns the stock? This is called selling a naked put (or, more politely, writing an uncovered put) and the idea should come with a flash of lightning, a whiff of ozone, and the roar of thunder because it is such a dangerous thing to do. It really is money for nothing, and since the premium for trades way out of the money (which is what these are going to be, unless you are totally insane) is small, you are going to want to sell lots of them to make it worth your while. And as long as the market behaves reasonably, you really should be fine... but if the unthinkable happens, you will now have to buy all these shares on the open market and then turn around and sell them for a loss to the trader you have a contract with. If necessary, your brokerage house will liquidate all your other assets to come up with the cash to buy these stocks. This is the kind of action that destroys lives and brings down banks and entire markets. I’m sure there is also an adrenalin rush and some testosterone factors involved in this sort of thing as well.

Still, if you don’t attempt the trading equivalent of smearing honey all over your body and then climbing into a bear enclosure, you really should be better than fine with derivatives.

Next: Interlude XXXIII. Foucault - part 13.