British scientists announced last Monday that they recovered the buried remains of Richard III in a parking lot in Leicester, England. DNA extracted from the bones was positively identified to the last direct descendent of Richard’s sister, Anne of York, and a distant relative who chose to remain anonymous. Little is known of Richard’s life and while it was recorded that his body was buried in Leicester after his death in the Battle of Bosworth, the exact location of the monastery that was to be his final resting place was lost to academic speculation.
Richard III’s reign was incredibly brief (it only lasted little more than two years); yet for its brevity, Richard made an indelible mark on the Western world’s historical conscience.
These are lines taken from Richard III, a well-known play by Shakespeare. It’s from Shakespeare that our image of Richard III is firmly rooted. In the play he’s conceived as a scheming, hunchback, brutal tyrant that in pursuit of his own kingly edification murdered countless members of royalty and decapitated his dissenters. What a brute! Or is it “what an amazing mischaracterization!”?
The Battle of Bosworth, which resulted in Richard’s death, was the tail end to the War of the Roses – a dynastic struggle for the English crown between the Houses of Lancaster and York. The House of Lancaster won, and so Henry VII (a Tudor) was installed on the Throne, upon which a Tudor would sit until the death of Elizabeth the First in 1603. It was during her reign that Shakespeare was born and rose to prominence. Instead of defaming her Majesty (and her descendants), he celebrated their legitimacy by playing into the developing myth of Richard III’s brutality and drawing on information from Tudor historians’ accounts. The result is a considerably biased account of Richard’s persona.
Shakespeare was the 17th century version of television. While being entertained, theater-goers learned about historical events flush with anachronisms and literary embellishments. That hasn’t changed with respect to theater or television. We still form opinions and reserve judgments for historical figures by the movies and mixed media we consume. Fast forward to today, and you’ll see that it’s not just historical information, but it’s a large number of salient issues that become colored with embellishment to form public opinion.
In 2008, we witnessed a huge shift in public sentiment as the public moved from buying houses and building new ones to a major sell-off. Housing prices nose-dived, delinquency rates skyrocketed, construction halted, and access to (cheap) credit disappeared. Simultaneously, AIG’s mark-to-market value on their housing investments (including credit default swaps) moved dramatically against them. They were downgraded in September of 2008 and obligated by the terms of their credit relationship with their derivative and securities counterparties to post margin against their positions’ large liability values. To avoid a dire liquidity crisis and to limit possible systemic risk, the Fed offered an $85 billion dollar credit facility that would enable AIG to meet its collateral payments and avoid default on its financial obligations.
It didn’t take quite as long for media and popular culture to construct a collective image of financial derivatives as it did Shakespeare’s play to mold history’s conception of Richard III. Derivatives, and the people who use them, are suspect to the same public hostility and misunderstanding. Take for instance this gem: do you remember the scene from the Dark Knight Rises when Bane, Batman’s antagonist, forcibly enters Gotham’s Stock Exchange? Take note of the language used by the police chief towards the panicked financier; it’s venomous and uncaring. Then note the strategy Bane employs to destroy all of Batman’s wealth. He sells (or buys, it’s really dubious here) options that expire at midnight in Batman’s name! It’s really incredible that the main villain in one of the top grossing films of 2012 used derivatives as a weapon.
There’s a kernel of truth in each mischaracterization. The Leicester scientists that examined Richard’s well-preserved bones note that he clearly had scoliosis, confirmation that his one shoulder was higher than the other. But he was by no means deformed or ugly – an exaggeration that fit the metaphorical needs of Shakespeare’s play. And it’s true that AIG unwisely made use of derivative’s inherent leverage and ended up selling far too much credit protection on underlying assets whose price were over-inflated. But the losses on derivatives (mostly AIG’s) during the financial crisis were only 3.6% of the total, and less than 1/10th the amount lost on loans during the period. When derivatives are used concurrently with legitimate business risk from financial uncertainty, then they’re by no means deserving of public derision.
That knowledge should prompt us to consider the holistic picture, not the partially investigated, pop culture assumptions we receive through mass media. Perhaps then we’d be delighted to discover that Richard III was concerned with social justice, affordable legal representation for the poor, and the introduction of bail prior to trail — statutes that remain in effect today.