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 Hari P. Krishnan & Ash Bennington

Quantifying Structural Risks in Modern Financial Markets

Market Tremors
 Hari P. Krishnan · Ash Bennington

Market Tremors
Quantifying Structural Risks in Modern
Financial Markets
Hari P. Krishnan Ash Bennington
SCT Capital Real Vision TV
New York, NY, USA New York, NY, USA

ISBN 978-3-030-79252-7 ISBN 978-3-030-79253-4 (eBook)

https://doi.org/10.1007/978-3-030-79253-4

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature
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 Acknowledgements

HPK and Ash Bennington would like to thank:

Stephan Sturm, for several insightful conversations in 2018 and 2019.

Stephan introduced us to recent work on Mean Field Games and the
application of dimensional analysis to price impact models.
Dan DiBartolomeo, for providing the crucial analogy between the price
impact of forced liquidations and corporate takeovers.
Michael Howell, for numerous conversations about the impact of liquidity
and positioning on market bubbles and crashes.
Jason Buck, Taylor Pearson and Jeff Malec, for their entrepreneurial spirit
and thought leadership in the long volatility space. They added context to
the more technical material in this book.
Randeep Gug, director of the CQF Institute, for providing a platform for
presenting the main case studies in the book.
Tula Weis and Balaji Varadharaju for their prompt and high-quality
editorial support.
Raoul Pal, Ed Harrison, Max Wiethe, Jack Farley, Tyler Neville, and the
production crew at Real Vision, for providing a vehicle for long format
interviews about various topics in the book.

v
vi Acknowledgements

Thanks also goes to (in alphabetical order): Stuart Barton, Ranjan Bhaduri,
Nicholas Brown, Diego von Buch, John Burke, Brian Casselman, Kevin
Coldiron, Christopher Cole, John Cummings, Nick Denbow, Vasant Dhar,
Bob Doherty, Mark Finn, Jonathan Gane, Mike Green, Dan Grombacher,
Jason Hill, Wayne Himelsein, Corey Hoffstein, Demetris Kofinas, Jon
Marcus, Marty Mazorra, Nick Mazorra, Avery More, Chris Morser, Jon
Marcus, Norbert Mitwollen, Stephen “SOG” O’Gallagher, R. M. Pathy, Joan
Plensa, Sri Prakash, Patchara Santawisook, Mark Serafini, Kris Sidial and Tim
Usher Jones for numerous interesting discussions regarding the book.
Ash Bennington would like to thank his family for their unwavering
support: Adrienne Carchia, Carl Carchia and his late father Enrico Benigno.
Finally, HPK would like to give a special thanks to his immediate
family: Kailash, Sudarshan, Lalitha, Rajee, Savitri, Raman and his late father
Padmanaban. All have been helpful in their own special way.
 Contents

1 Introduction 1
2 Financial Networks in the Presence of a Dominant Agent 25
3 Exchange-Traded Products as a Source of Network Risk 61
4 The VIX “Volmaggedon”, with Exchange-Traded Notes
Destabilizing the Market 83
5 Liquidity Fissures in the Corporate Bond Markets 121
6 Market Makers, Stabilizing or Disruptive? 159
7 The Elephants in the Room: Banks and the “Almighty”
Central Bank 201
8 Playing Defense and Attack in the Presence of a Dominant
Agent 233

References 241
Index 245

vii
 List of Figures

Fig. 1.1 30 year secular bear market for government yields (Source
Bloomberg) 6
Fig. 1.2 Historical time series of US corporate bond issuance (Source
SIFMA) 8
Fig. 1.3 Historical time series of US high yield debt issuance 8
Fig. 1.4 Slightly cartoonish representation of the global financial
network (Courtesy https://www.interaction-design.org) 10
Fig. 1.5 Normal distributions assign virtually 0 probability to moves
much larger than 3 standard deviations up or down (Courtesy
https://www.geyerinstructional.com) 16
Fig. 2.1 Histogram of daily returns for the INR/USD exchange rate
(Source Yahoo! Finance) 31
Fig. 2.2 Conditions where the Mean Field approximation makes
sense (Source https://www.interaction-design.org/) 35
Fig. 2.3 Representation of the financial network: dense core
with massive number of interconnections (Source https://
www.finexus.uzh.ch/en/events/past-events/bigdatafinance-
school.html) 37
Fig. 2.4 Simulated distribution based on feedback from a Dominant
Agent 45
Fig. 2.5 An intraday jump caused by concentrated STOP SELL
orders at a specific price 47
Fig. 2.6 Parabolic growth of ETF assets, leading to flow-driven
market dynamics (Source FRED [St. Louis Federal Reserve
Database]) 50

ix
x List of Figures

Fig. 2.7 Counterparty exposures within the Australian Banking

System (Source Mapping the Australian Banking System
Network | RBA, https://www.rba.gov.au/publications/bul
letin/2013/jun/6.html) 54
Fig. 2.8 Extraordinary balance sheet expansion among the leading
Central Banks (Source FRED [St. Louis Federal Reserve
Database]) 55
Fig. 2.9 Gold: an archetypal LJS bubble and crash in 1979 and 1980
(Source Bloomberg) 57
Fig. 2.10 Mexican Peso rate: violent jumps do not require parabolic
moves beforehand (Source Bloomberg) 58
Fig. 2.11 Short volatility strategies tend to grind up before collapsing
(Source Bloomberg) 59
Fig. 3.1 Rapid growth of ETFs, with equities leading the way (Source
Investment Company Institute) 62
Fig. 3.2 Ignoring the price impact of investor flows, ETFs offer
a cost advantage (Source Investment Company Institute) 64
Fig. 3.3 Largest levered Exchange-Traded Products, as of March
2021. Tech dominated products in CAPS (Source ETF
Database [etfdb.com]) 75
Fig. 3.4 Surprising divergence in performance between levered
and unlevered gold ETFs over longer horizons (Source
Yahoo! Finance) 77
Fig. 4.1 The Volpocalypse occurred nearly without warning
in February 2018 (Source Bloomberg) 84
Fig. 4.2 Intraday price moves for front month VIX futures
on February 5, 2018 (Source Bloomberg) 84
Fig. 4.3 Over daily intervals, front month VIX futures provide
reliable exposure to the spot VIX (Source Bloomberg) 86
Fig. 4.4 Remarkable impact of the spot VIX on a long equity
portfolio (Source Yahoo! Finance) 86
Fig. 4.5 In quiet markets, the VIX futures curve tends to be in severe
contango (Source Bloomberg) 88
Fig. 4.6 The front end of the VIX term structure is relatively
responsive to changes in the spot VIX (Source Bloomberg) 89
Fig. 4.7 Performance of rolling VIX futures benchmark in 2008
and early 2009 (Source Bloomberg) 91
Fig. 4.8 Contango in quiet markets, backwardation after a risk event
(Source Bloomberg) 93
Fig. 4.9 Historical steepness at the short end of the VIX futures
curve (Source Bloomberg) 94
Fig. 4.10 Long VIX futures: roll costs overwhelm protection offered,
when viewed over the long term (Source Bloomberg) 96
 List of Figures xi

Fig. 4.11 VIX futures erode any risk premium that the S&P 500 may
offer (Source Bloomberg) 96
Fig. 4.12 Performance chasing leads to dangerously strong asset
growth for inverse VIX ETNs in 2017 99
Fig. 4.13 Re-emphasizing intraday dynamics for VIX futures
on February 5, 2018 (Source Bloomberg) 103
Fig. 4.14 Cost of executing a trade accounting for 20% of daily
volume, based on constant of proportionality in square root
impact function 110
Fig. 4.15 Curve fitting through historical trades in the order book is
fraught with danger (simulated graph) 111
Fig. 4.16 Reasonable stability in the average takeover premium
from one year to the next (Source FactSet) 113
Fig. 4.17 Inverse VIX ETN performance to February 2, 2018 (Source
Bloomberg) 116
Fig. 4.18 If one sheep jumps off a cliff, others may follow (Source
Bloomberg) 116
Fig. 4.19 Fragility of VIX ETN complex is actually higher
when market volatility is low (parameterization based
on FactSet data) 117
Fig. 4.20 Shorting VIX futures: disguised risk prior
to the Volmageddon (Source Bloomberg) 118
Fig. 5.1 Comparison of premium/discount levels for a large
cap equity and corporate bond ETF over time (Source
Bloomberg) 125
Fig. 5.2 Realized volatility for the HYG ETF bounded below 12%
from 2017 to 2019 (Source Bloomberg) 129
Fig. 5.3 HYG exhibited far less risk than the S&P 500 from 2017
to 2019. Realized risk giving the green light (Source
Bloomberg) 129
Fig. 5.4 Large $$$ required to push the price of an equity or ETF
by only a few percent 135
Fig. 5.5 Dealers focused on reducing balance sheet risk post-GFC
(Source Federal Reserve Bank of New York) 137
Fig. 5.6 Dealer high yield exposure also on the downtrend (Source
Federal Reserve Bank of New York) 138
Fig. 5.7 While dealers step out of the market, high yield supply
increases (Source SIFMA) 139
Fig. 5.8 Typical flow-performance curve for equity mutual funds,
based on historical data 143
Fig. 5.9 Convexity flipped for bond mutual funds 144
Fig. 5.10 The benchmark BND ETF largely consists of US
government and highly rated corporate bonds (Source
Vanguard) 151
xii List of Figures

Fig. 5.11 In quiet regimes, HYG has a modest beta to equities (Source
Bloomberg) 151
Fig. 5.12 Jump in high yield spreads during the Covid-19 crisis
(Source Bloomberg) 153
Fig. 5.13 Rolling 10 day average of high yield ETF flows, early 2020
(Source Bloomberg) 155
Fig. 5.14 As the VIX rises, HYG’s link to the cash bond market
becomes increasingly unstable (Source Bloomberg) 156
Fig. 5.15 Money flows back into HYG and JNK once Fed’s intentions
are digested by the market (Source Bloomberg) 156
Fig. 5.16 The alchemy of liquidity fails when investors require
liquidity the most (Source Bloomberg) 157
Fig. 5.17 High yield mutual fund outflow expectations, based
on the GJN paper methodology (Source Bloomberg) 157
Fig. 6.1 The S&P 500: positive trend interrupted by a sudden drop
in 2020 (Source Yahoo! Finance) 160
Fig. 6.2 Cross-asset class volatility depressed in advance
of the COVID-19 crisis (Source Bloomberg) 160
Fig. 6.3 Violent two-way action in S&P 500 during the February
and March 2020 sell off (Source Yahoo! Finance) 161
Fig. 6.4 Nowcasts do not explain sharp reversals during the sell
off (Source Federal Reserve Bank of Atlanta) 161
Fig. 6.5 Fairly smooth increase in spread of virus (Source
ourworldindata.org) 163
Fig. 6.6 Payout of a collared position at maturity, beloved by many
allocators 164
Fig. 6.7 Options market maker exposure given institutional demand
for collars 166
Fig. 6.8 Conditional impact of market maker hedging, based
on index level 169
Fig. 6.9 Using options open interest to infer where the various
regions might be (Source CQG) 170
Fig. 6.10 Characterizing the forward distribution based on current
index level relative to options open interest 172
Fig. 6.11 Near call strikes with high open interest, market makers act
as a volatility dampener 173
Fig. 6.12 Historical time series for the GEX (Source
squeezemetrics.com) 175
Fig. 6.13 Dealer exposure is not only level but volatility dependent 176
Fig. 6.14 High dispersion of 1 day forward returns when GEX is
relatively low (Source squeezemetrics.com, Yahoo! Finance) 177
Fig. 6.15 Outsized returns tend to occur in sequence when the GEX
is low (Source squeezemetrics.com, Yahoo! Finance) 178
 List of Figures xiii

Fig. 6.16 The scatter plot becomes noisier as we extend the forecast
horizon (Source squeezemetrics.com, Yahoo! Finance) 178
Fig. 6.17 Over 15 day forward horizons, more structure is lost (Source
squeezemetrics.com, Yahoo! Finance) 179
Fig. 6.18 When the GEX is low, the distribution of 1 day
forward returns exhibits severe negative skewness (Source
squeezemetrics.com, Yahoo! Finance) 181
Fig. 6.19 15 day forward distribution of S&P returns, scaled by VIX,
when GEX is low (Source squeezemetrics.com, Yahoo!
Finance) 182
Fig. 6.20 US 10 year constant maturity Treasury yield, December
2019 to March 2020 (Source FRED [St. Louis Federal
Reserve Database]) 184
Fig. 6.21 Smoothed version of the GEX, January to June 2020 (Source
squeezemetrics.com) 185
Fig. 6.22 Low GEX, high dispersion of 1 day returns (Source Yahoo!
Finance) 186
Fig. 6.23 Payout profile of a short options straddle, close to maturity 187
Fig. 6.24 Payout profile of a LONG straddle, close to maturity 189
Fig. 6.25 Simulated distance between a stock and a nearby options
strike as maturity approaches (Source https://citeseerx.
ist.psu.edu/viewdoc/download?doi=10.1.1.146.143&rep=
rep1&type=pdf, https://papers.ssrn.com/sol3/papers.cfm?abs
tract_id=458020) 192
Fig. 6.26 Call strikes attract a path that originally rises, put strikes
create instability for paths that drift far below the initial price 195
Fig. 6.27 Simulation of lowest percentile 1 day return as maturity
approaches 196
Fig. 6.28 Highest percentile 1 day return as maturity approaches,
using the same set of simulated paths 197
Fig. 6.29 Dispersion of 1 day returns across simulations, as maturity
approaches 197
Fig. 7.1 Fed assets since inception, using a log scale (Source Center
for Financial Stability, FRED [St. Louis Federal Reserve
Database]) 203
Fig. 7.2 Jumps occur in similar locations for commercial bank assets
since 2000 (Source FRED) 204
Fig. 7.3 The discount rate lever is not particularly operational
with rates near 0 (Source FRED) 206
Fig. 7.4 The Fed is always large, but becomes a Dominant Agent
based on how it acts relative to the recent past (Source
Center for Financial Stability) 208
Fig. 7.5 Times when the Fed has acted fairly strongly at the margins
(Source Center for Financial Stability) 208
xiv List of Figures

Fig. 7.6 The amount of physical currency in circulation increases

quite predictably over time (Source FRED) 209
Fig. 7.7 Times when the Fed has acted very strongly at the margins 210
Fig. 7.8 The Fed’s historical response to widening BAA credit spreads
(Source FRED) 212
Fig. 7.9 6 month forward impact of Fed policy on BAA credit
spreads (Source FRED) 213
Fig. 7.10 Quality of 3-factor forecasting model (Source FRED) 215
Fig. 7.11 Impact of Fed policy is cloudy in advance of the GFC
(Source FRED) 216
Fig. 7.12 Components of the investment problem in a Strategic Asset
Allocation framework 218
Fig. 7.13 The dollar quantity of equities has not been very sensitive
to new issuance (Source FRED) 221
Fig. 7.14 The US credit supercycle since 1951 (Source FRED) 222
Fig. 7.15 The historical dollar supply of equities relative to (equities
+ bonds + cash) (Source FRED) 226
Fig. 7.16 Equity supply forecasting results, 10 year forward horizon
(Source FRED) 227
Fig. 7.17 Shiller CAPE forecasting results, 10 year forward horizon
(Source Online Data, Robert Shiller [http://www.econ.yale.
edu/~shiller/data.htm]) 228
Fig. 7.18 Equity supply forecasting results, 5 year forward horizon
(Source FRED) 228
Fig. 7.19 Relative deterioration in the power of Shiller CAPE, 5 year
forecast horizon (Source Online Data, Robert Shiller [http://
www.econ.yale.edu/~shiller/data.htm]) 229
Fig. 7.20 Equity supply indicator results, 2 year forecast horizon
(Source FRED) 229
Fig. 7.21 Shiller CAPE forecasting results, 2 year forward horizon
(Source Online Data, Robert Shiller [http://www.econ.yale.
edu/~shiller/data.htm]) 230
Fig. 7.22 Summary of results (Source FRED, Robert Shiller [http://
www.econ.yale.edu/~shiller/data.htm]) 230
Fig. 7.23 Historical time series for each indicator (Source FRED,
Robert Shiller [http://www.econ.yale.edu/~shiller/data.htm]) 231
 List of Tables

Table 4.1 Number of front month futures contracts needed to replicate

a −1X levered ETN per $1 billion of equity. Previous
closing value: 15.62 102
Table 4.2 Number of front month futures contracts needed
to replicate a 2X levered ETN. Previous closing value:
15.62. (REDUNDANT) 102
Table 5.1 Possible states for a given fund in a given risk regime 148
Table 6.1 Sample inputs for Eq. 6.1, given S&P options market maker
positioning 193
Table 7.1 Multivariate regression results 214
Table 7.2 Regression results before the great financial crisis 215

xv
 1
Introduction

People who count their chickens before they are hatched act very wisely because
chickens run about so absurdly that it’s impossible to count them accurately.
—Oscar Wilde

As we look out across the spectrum of global markets in the middle of 2021,
there are no visible signs of overt distress. In fact, we see the opposite: many
markets appear “Zombified”—saddled with astronomical levels of public and
private debt as yields remain pinned to the zero bound. Meanwhile, many
veteran investors are bewildered by asset prices that no longer seem linked
to traditional valuation metrics, such as price to book value. On a recurring
basis, the high priests of finance try to justify the most recent rally on financial
news networks to a growing legion of benumbed investors.
Against this surreal but seemingly benign financial backdrop, the authors
of this book find themselves wrestling with several thorny questions: Are there
circumstances where market volatility is persistently low, while a rising danger
lurks beneath the surface? Can we identify structurally weak asset classes
where a small price shock will spiral into a major sell off? If so, how can we
defend against price meltdowns and liquidations before they actually occur?
As we will discover in the chapters that follow, the answer is a qualified
“Yes!” There are many important situations where we can improve upon
standard risk estimates, based on our knowledge of the major players in a
given market and how they are likely to act. In service of that goal, this book
is intended for readers who wish to understand and profit from situations

© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2021
H. P. Krishnan and A. Bennington, Market Tremors,
https://doi.org/10.1007/978-3-030-79253-4_1
2 H. P. Krishnan and A. Bennington

where risk is rising in the financial network while credit spreads and realized
volatility remain low.
To begin this journey, it is worth reflecting upon how the availability of
credit affects asset prices over time. It is widely understood that leverage and
volatility tend to move in opposite directions in the later stages of the credit
cycle. Leverage is high, yet equity prices are grinding up and credit spreads
are stable or declining. Credit is cheap and can be readily deployed into the
equity and corporate bond markets. This means that investors have the fire-
power to “buy the dips”, which dampens downside volatility until the cycle
breaks.
Historically, the US credit cycle tended to last six to eight years, measured
from peak to peak. We could say with some degree of certainty where we
were in the cycle. Asset booms and busts were somewhat predictable, as they
corresponded to peaks and troughs in the quantity of credit available. Since
2008, however, this template has been altered by Central Banks, who now
seem to equate economic stability with low asset price volatility. The expan-
sionary phase of the current credit cycle has become extremely long in the
tooth, given the ever increasing presence of the Fed.
While credit expansion usually has a stabilizing impact on asset prices,
even that stability has a limit. If a large enough price shock occurs, leveraged
agents will be forced to liquidate their positions as they get hit by margin calls
and breach their risk limits. In recent years, banks and prime brokers have
become increasingly risk averse, partly as a function of regulations enacted
after the Global Financial Crisis. Brokerage houses set tighter position limits
for their clients than before. This has important implications. An initial wave
of selling can easily cause a cascade of forced liquidations, as other investors
have to cut their positions after plunging through their loss limits. Within
a Zombified market, prices can fall very rapidly, at least in the short term.
Notably, the COVID-19 induced sell off in February and March 2020 started
from a recent high in the S&P 500 and a very low volatility base.

“Zombification” of Modern Markets

In the past decade, the tendency for volatility and leverage to move in oppo-
site directions has become even more extreme—as leverage rises, volatility
declines in markets awash in liquidity. (Note that this stylized fact did not
rigidly apply to global equity markets in 2020, but was largely the case in the
previous decade.) Before the Global Financial Crisis, the Fed’s balance sheet
was just under $900 billion; at the time of this writing, in early 2021, it has
 1 Introduction 3

ballooned to over $8 trillion. The quantity of corporate debt is now larger

than ever, suggesting greater default risk—and yet the volatility of most asset
classes has been persistently low.
This low level of volatility may seem puzzling since leverage is risk, in a
certain sense. By definition, without the existence of leverage, there could be
no defaults, with no need for margin calls. To repeat, we now find ourselves
in an environment of structurally low volatility across asset classes, bloated
balance sheets and negative yields. Bank deposits provide what is essentially
a 0% return to savers, forcing investors to consider other riskier invest-
ments in the search for yield. Long positioning in risky strategies has become
over-extended because of the lack of suitable investment alternatives. This
“volatility paradox”, where market fragility is high, but overall volatility is low,
has become a stubborn feature of modern markets. Historically, the volatility
paradox has been restricted to the later stages of a real economic cycle, where
it creates a toxic blend of plentiful credit and investor complacency.
As an example, we can think about some of the forces at play in a simpli-
fied version of a housing bubble. Within the bubble, homeowners often
borrow an increasing amount of money per dollar of equity, causing aggre-
gate loan-to-value (LTV) ratios to rise. This type of borrowing is a function
of market sentiment: investors and lenders are both convinced that prices
will continue to go up, so they borrow and lend more. This is based on the
dangerous assumption that higher housing prices in the future will push LTV
ratios back down to more reasonable levels. Everyone seems to make solvency
assumptions based on extrapolations from recent historical returns—and
seem dangerously unaware of the risks inherent in the broader debt cycle.
We can think of this problem a bit more mechanistically. Easy credit
generally increases the aggregate demand for assets. As a consequence, a
fresh supply of new money enters the market and bids up asset prices, as
investors fear missing out on the rally. This liquidity, partially provided by late
entrants to the market, dampens downside volatility. As the rally continues,
it becomes possible to borrow even more, given the rising value of the under-
lying collateral. It is worth observing that we live in a world where lending
has become increasingly collateralized. The process becomes an archetypal,
positive feedback loop.
A model describing precisely this phenomenon has been developed by
Thurner (2012) and others. Minsky (2021) was one of the earliest academics
to identify the problem. The volatility paradox arises as a function of the
feedback between prices, risk appetite and access to credit. While “average”
returns are compressed into a relatively narrow range, extreme event risk
4 H. P. Krishnan and A. Bennington

grows ever larger. With enough leverage in the system, even a moderate-
sized sell off can wash a large number of over-leveraged investors out of the
market. Ultimately, the sell off can cause a nasty chain of further selling—and
a potential crash.

The Challenge to Investors

No cycle lasts forever, even a distorted one, and this cycle will need to end
at some point as well. But until the end of this cycle arrives, the volatility
paradox can persist for a surprisingly long time. If pressures on balance
sheets are high enough, the risk is that the cycle will end in a spectac-
ular collapse. This brings us to an important point. Market Zombification
presents a serious challenge to active managers. Intermittent mega-spikes in
the VIX and other volatility indices increasingly occur from a low volatility
base—often without much warning. This forces investors to make a difficult
choice: if they stay out of the market, they collect no return; however, if they
buy and hold equities or risky bonds, they may collect a small premium, but
have to accept the risk of a large and sudden drawdown in return.
Taking on an over-extended market by selling futures against it is a
dangerous alternative. Frothy markets have a tendency to become even
frothier in the near term. Moreover, the timing of a market reversal is nearly
impossible to predict in advance, which is why shorting bubbles can lead
to catastrophic losses. Finally, buying insurance through the options market
might seem to be a theoretically sound idea and actually is, given enough skill
and over a long enough horizon. However, options strategies that decay over
time require immense patience from investors in an environment when many
other investors are piling on risk and Central Banks are standing guard. While
it is true that active managers can blend long and short volatility strategies in
their portfolios, the core problem remains an intractable one.

An Analogy with Waiting Times

At some point, the credit cycle will turn, dragging equities and other risky
assets into a bear market. Prices may drop quickly without recovering. If
yields normalize somewhat, bonds may also sell off. This will be doubly toxic
if we see a wave of defaults, as institutions are no longer able to finance
their debt. Institutions that target a fixed return without too much regard
for risk (think pensions and insurance companies) will take large losses in
 1 Introduction 5

this scenario. It may turn out that options-based hedging is the only truly
diversifying strategy left to investors if the stock and bond bubbles burst
simultaneously.
The trouble is that we don’t know when the cycle will turn. Many observers
with a bearish disposition argue that every passing day makes the risk of
an imminent liquidation more likely. This may well be true, but a simple
analogy shows the dangers in this assumption. Imagine that you are waiting
for a friend. If someone issued a guarantee that your friend would be no
more than an hour late, the odds that he or she will arrive in the next 5 min
would increase rapidly over time. After 55 min, the probability of arrival in
the next 5 would be 100%. However, this doesn’t correspond with experi-
ence. The longer you are kept waiting, the less likely that your friend will be
coming anytime soon. Something material may have happened, which has
qualitatively changed the distribution of arrival times.

Qualitative Features of Zombification

In this new era of increased systemic risk, it appears that the economic cycle
has been damaged—perhaps permanently. As we have suggested above, the
price action we see across markets reflects this new reality. Equity sell offs,
such as the events we observed in February 2010 and December of 2018, now
occur spontaneously and often materialize out of nowhere during periods of
low volatility. While these sell offs are quick to arise, they also seem to be
quickly forgotten by the financial media and even market participants.
Historically, this was not always the case. The VIX and other implied
volatility indicators tended to decay quite slowly after a spike. The market
at large had a longer memory. Slow decay was reflected in the various econo-
metric models that were developed by practitioners and academics alike. In
the current market, however, “melt ups” are almost as violent as the melt-
downs and V-shaped recoveries are increasingly common. Volatility tends to
collapse quickly as investors jump back into “risk-on” mode, in an attempt to
recover profits and make up for lost time in the markets.
Viewed through a wider lens, equities and fixed income have both been
trending upward for an unusually long time. As of this writing, the S&P
500 has increased by a factor of 5X since 2009, while US bond prices have
enjoyed nearly 30 years of steady positive performance. Credit markets have
been underpinned by several rounds of Central Bank monetary easing in each
of the major economies. Since corporate credit and equity are linked, Central
6 H. P. Krishnan and A. Bennington

Banks have effectively acted as a backstop on the S&P 500 and other large-
cap equity indices. In the meantime, US government bonds have received
a nearly continuous bid from institutions. In the post-2008 regime, where
loans are increasingly collateralized, the demand for sovereign debt has been
remarkably high (Fig. 1.1).
Moreover, the zero interest rate policies implemented by Central Banks
have incentivized excessive risk-taking in other areas. Rather than main-
taining their strategic asset allocation weightings and simply accepting the
lower forward returns that the current environment offers, investors have
piled in en masse into riskier corporate bonds, illiquid assets and various short
volatility strategies. Consequently, excess demand has reduced the amount of
compensation they now receive for bearing risk. For example, many pensions
with an annual return target of 6% to 7% have simply ramped up the credit
and liquidity risk exposure in their portfolios, with something of a cavalier
attitude toward extreme event risk.
Many observers, including the authors of this book, do not believe that
these dynamics are sustainable indefinitely. In general, Central Banks can
control either their domestic yield curves or their currency valuations, but
not both at the same time. Lowering benchmark interest rates can encourage
banks to increase their balance sheets, assuming that sentiment is not too bad.
However, that increased velocity tends to come at a cost. Easy money policies
have historically tended to weaken currency values, sometimes to disastrous
effect.

3 Decades of Yield Compression

14

12
10 year benchmark yield (in % points)

10

8 Japan
Germany
6 Switzerland
U.K.
4
U.S.A.

0
May-90

May-94

May-98

May-02

May-06

May-10

May-14

May-18
Jan-89

Jan-93

Jan-97

Jan-01

Jan-05

Jan-09

Jan-13

Jan-17
Sep-91

Sep-95

Sep-99

Sep-03

Sep-07

Sep-11

Sep-15

Sep-19

-2

Fig. 1.1 30 year secular bear market for government yields (Source Bloomberg)
Another random document with
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 CHAPTER XIII
FRIENDS OF RUSSIAN FREEDOM

If spiritual force implies the power to lift the individual out of the
contemplation of his own interests into something great and of
ultimate value to the men and women of this and the generations to
come, and if, so lifted, sacrifices are freely offered on the altar of the
cause, it may truly be said that the Russian Revolution is a spiritual
force on the East Side of New York.
People who all through the day are immersed in mundane affairs,
the earning of money to provide food and shelter, are transfigured at
its appeal. Back of the Russian Jew’s ardor for the liberation of a
people from the absolutism that provoked terrorism lies also the
memory of pogroms and massacres.
Though I had agonized with my neighbors over the tales that
crossed the water and the pitiful human drift that came to our shores,
I did not know how far I was from realizing the depths of horror until I
saw at Ellis Island little children with saber-cuts on their heads and
bodies, mutilated and orphaned at the Kishineff massacre. Rescued
by compassionate people, they had been sent here to be taken into
American homes.
 The procession of mourners marching with black-draped flags
after the news of the Bialystok massacre, the mass-meetings called
to give expression to sorrow at the failure of Father Gapon’s attempt
to obtain a hearing for the workingmen on that “Bloody Sunday”[10]
when, it will be remembered, the priest led hosts of men, women,
and children carrying icons and the Emperor’s picture to his palace,
only to be fired upon by his order, are some of the events that keep
the Russian revolutionary movement a stirring propaganda in our
quarter of New York, at least.
Our contact with the members of the Russian revolutionary
committee in New York is close enough to enable us to be of
occasional service to them, and some report of our trustworthiness
must have penetrated into the prisons, as the letters we receive and
the exiles who come to us indicate.
A volume might be written of these visitors. The share they have
taken in the revolutionary movement is known, and their coming is
often merely an assurance that hope still lives. The young women,
intrepid figures, are significant not only of the long-continued struggle
for political deliverance, but of the historical progress of womenkind
toward intellectual and social freedom.
When Dr. W⸺ called upon me he was on his way to Sakhalin to
join his wife after nearly twenty years’ separation. For participation in
an act of violence against an official notorious for his brutality and
disregard even of Russian justice she had been sentenced to death,
but the sentence had been commuted to imprisonment in the
Schlüsselburg fortress, whither she was conducted in heavy chains,
and where she remained thirteen years. Later she was rearrested
and sentenced to exile for life. She had been for five years in the
frozen Siberian village of Sakhalin, when, in 1898, her husband,
having seen their only son established in life and settled his own
affairs, obtained permission from the government to join his wife in
her exile.
In imagination I followed this cultured, impressive-looking man on
his long journey with a hope that was almost a prayer that the
reunited husband and wife would find recompense in their
comradeship for all that had been given up and that the woman’s
fine spirit would make up for whatever she might have lost through
deprivation of stimulating contact with her own circle in the world.
My interest caused me to follow their subsequent history. A few
years after Dr. W⸺ had joined his wife they were permitted to
remove to Vladivostok. In 1906, after the October manifesto, there
was a military revolutionary movement in Vladivostok. The governor
gave the order to fire and Madame W⸺, who, with her husband,
was watching the crowd, was killed by a stray bullet. Her son is now
a lawyer in Petrograd. Although separated from his mother nearly all
his life he shows his devotion to her memory and his sympathy with
the cause by defending the “politicals” who come to him.

The settlement from time to time affords occasions for conference

on Russian affairs between influential Americans and visiting
Russians who entertain hopes of reform by other than active
revolutionary methods and it has also given a hearing and found
sympathetic friends for other unhappy subjects of the Czar.
Echoes came to us of the persecution of the Doukhobors, a
Russian religious communistic sect, whose creed bears
resemblance to that of the Friends. Like the active revolutionists,
these people had suffered flogging, imprisonment, and exile, but in
their case for espousing the doctrine of non-resistance.
In 1897, upon their refusal to take up arms, persecution again
became active. The Russian press was forbidden to allude to the
subject, but a petition was said to have been thrown into the carriage
of the Empress when she was traveling in the Caucasus, where the
Doukhobors had been banished, and her interest was aroused. By
1900 Tolstoi had succeeded in fixing attention upon their plight, and
arrangements were finally made, chiefly through the efforts of
Friends in England and America and the devotion of Aylmer Maude,
for their settlement in Canada.
In order to raise funds for the emigration of these peasants to
Canada, Tolstoi was persuaded to depart from his established
principle and accept copyright for “Resurrection,” but the
Doukhobors refused to benefit by the sale of a book which they did
not consider “good.”
During the first years of their life in Manitoba things did not go well
with them, and the House on Henry Street became the headquarters
for some of their friends as they came and went from England. A
young man who, under the influence of Tolstoi, had given up his
commission in the army spent a winter in Canada helping them to lay
out their farm lands.
When he visited us he paid full tribute to the sincerity of their
religious convictions, but somewhat ruefully lamented the fanatical
extremes to which they carried them. The Doukhobors, who believed
that all work should be shared, voted against one person milking
their single cow. “But the cow,” said the young ex-captain, “was not a
communist, and went dry.”
 Fraternal Greetings P Kropotkin

My association with the fortunes of the Doukhobors ended with a

slight incident some time later. A peasant, unable to speak any
language or dialect that we could command in the house or
neighborhood, presented a card at our door on which were written
these three words, “Kropotkin, Crosby, Wald.” When an interpreter
was secured from Ellis Island we learned that, hearing of the
pilgrimage of the Doukhobors to Canada, he had decided to follow
them, and for clews had only the remote connection of Kropotkin’s
sympathy with Russian peasants, Ernest Crosby’s devotion to
Tolstoi, and some rumor of his and my interest in these people. That
he should have succeeded in finding me seemed quite remarkable.
He was sent to Canada, and subsequent letters from him gave
evidence of his contentment with the odd sect to which he had been
attracted.
After rather serious conflict between their religious practices and
the Canadian regulations, the Doukhobors are reported to have
settled their differences and to have established flourishing
communistic colonies where thousands of acres have been brought
under cultivation.

The Friends of Russian Freedom, a national association with

headquarters in New York, is composed of well-known American
sympathizers, and, like the society of the same name in England,
recognizes the spirit that animates Russians engaged in the struggle
for political freedom, and is watchful to show sympathy and give aid.
An occasion for this arose about eight years ago, when the
Russian Government demanded the extradition of one Jan Pouren
as a common criminal. The Commissioner before whom the case
was brought acceded to Russia’s demands and Pouren was held in
the Tombs prison to await extradition. Then this insignificant Lettish
peasant became a center of protest. Pouren, it was known, had been
involved in the Baltic uprisings, and acquiescence in Russia’s
demands for his extradition would imperil thousands who, like him,
had sought a refuge here, and would take heart out of the people
who still clung to the party of protest throughout Russia. A great
mass-meeting held in Cooper Union bore testimony to the tenacity
with which high-minded Americans clung to the cherished traditions
of their country. Able counsel generously offered their services, and it
was hoped that this and other expressions of public protest would
induce the Secretary of State to order the case reopened.
My own participation came about because of a request from the
members of the Russian Revolutionary Committee in New York that I
present to President Roosevelt personally the arguments for the
reopening of the case. An hour preceding the weekly Cabinet
meeting was appointed for my visit. I took to the White House an
extraordinary letter sent by Lettish peasants, now hard-working and
law-abiding residents of Massachusetts and New Hampshire. It read:
“We hear Jan Pouren is in prison, that he is called a criminal. We
called him ‘brother’ and ‘comrade.’ Do not let him fall into the hands
of the bloodthirsty vampire.” To this letter were appended the
signatures and addresses of men who had been in the struggle in
Russia and who, by identifying themselves with Pouren, placed
themselves in equal jeopardy should the case go against him. They
offered to give sworn affidavits, or to come in person to testify for the
accused. With the letter had come a considerable sum of money
which the signers had collected from their scanty wages for Pouren’s
defense. I also had with me a translation of the report to the second
Duma on the Baltic uprisings wherein this testimony, in reference to
the attempt of the Government to locate those involved in the
disturbances, was recorded: “They beat the eight-year-old Anna
Pouren, demanding of her that she should tell the whereabouts of
her father.”
The President and the Secretaries concerned discussed the
matter, and I left with the assurance that the new evidence offered
would justify the reopening of the case. At the second hearing the
Commissioner’s decision was reversed and Russia’s demands
refused, on the ground that the alleged offenses were shown to be
political and “not in any one instance for personal grievance or for
personal gain.”[11]

George Kennan, who first focused the attention of Americans upon

the political exiles through his dramatic portrayal of their condition in
the Siberian prisons, is still the eager champion of their cause.
Prince Kropotkin, who thrilled the readers of the Atlantic Monthly with
his “Autobiography of a Revolutionist”;[12] Tschaikowsky, Gershuni,
Marie Sukloff[13]—a long procession of saints and martyrs,
sympathizers, and supporters—have crossed the threshold of the
House on Henry Street and stirred deep feeling there. Katharine
Breshkovsky (Babuschka, little grandmother)[14], most beloved of all
who have suffered for the great cause, is to many a symbol of the
Russian revolution.
Who of those that sat around the fire with her in the sitting-room of
the Henry Street house can ever forget the experience? We knew
vaguely the story of the young noblewoman’s attempt to teach the
newly freed serfs on her father’s estate in the early sixties; how her
religious zeal to give all that she had to the poor was regarded as
dangerous by the Czar’s government, and how one suppression and
persecution after another finally drove her into the circle of active
revolutionists. Her long incarceration in the Russian prison and final
sentence to the Kara mines and hard labor was known to us, and we
identified her as the woman whose exalted spirit had stirred Mr.
Kennan when he met her in the little Buriat hamlet on the frontier of
China so many years ago.
And then, after two decades of prison and Siberian exile, she sat
with us and thrilled us with glimpses of the courage of those who
answered the call. Lightly touching on her own share in the tragic
drama, she carried us with her on the long road to Siberia among the
politicals and the convicts who were their companions, through the
perils of an almost successful escape with three students to the
Pacific, a thousand miles away. She told of her recapture and return
to hard labor in the Kara mines; of the unspeakable outrages, and
the heroic measures her companions there took to draw attention to
the prisoners’ plight, and how, despite these things, she looked back
upon that time as wonderful because of the beautiful and valiant
souls who were her fellow-prisoners and companions, young women
who had given up more than life itself for the great cause of liberty.
 Her visit to America in 1905 was made at a time when the long-
cherished hopes of the revolutionists had some promise of
realization. It was deemed necessary to gain the utmost sympathy
and support from the comrades here, and she did indeed reawaken
in the hearts of our neighbors their most passionate desire for the
political emancipation of a country so well beloved from a
government so well hated.
I accompanied Madame Breshkovsky to a reception given in her
honor by her fellow-countrymen, and her approach was the signal for
a great demonstration. They lifted her from the floor and carried her,
high above the heads of the people, to her chair. They sang “The
Marseillaise,” and the men wept with the women. Love and
deference equally were accorded to her noble character and fine
perceptions. In addition to her clear and far-sighted vision, her gift of
quick and accurate decision and her extraordinary ability as an
organizer gave her, I was told, remarkable authority in the councils of
her party.
When I last saw her, at the close of her stay in this country, she
implored me never to forget Russia and the struggle there, and said,
as we separated after a lingering embrace: “Should you ever grow
cold, bring before your mind the procession of men and women who
for years have gone in the early dawn of their lives to execution, and
gladly, that others might be free.”
Upon returning to Russia she was arrested, and after almost three
years’ imprisonment in the Fortress of Peter and Paul, “that huge
stone coffin,” was sent to Siberia “na poselenie,” as a forced colonist.
The first letters that came to her friends from Siberia told of the
journey to the place of her exile in the Trans-Baikal, two or three
hundred miles northeast of Irkutsk. They traveled by train, on foot, in
primitive carts, or “crowded like herrings in a barrel” in boats that
floated with the current, having no other means of propulsion, and,
finally, after nearly three months spent on the way, reached the little
island town of Kirensk, surrounded by two rivers, “the immense and
cold Lena and the less majestic Kyrenga.”
 A letter from a fellow-exile, written in August, 1910, tells of her
passing through his village in a company of two hundred and fifty
political exiles and criminals, surrounded by a numerous guard.
“Among the crowd in gray coats, under gray skies and rain, her
imposing figure struck everyone.” He notes how her first thought,
after days of travel through the pouring rain in a miserable cart, and
nights spent in barracks or around a bonfire in the open air, was for
others, “our unfortunate comrades.” “Their sufferings,” he adds, “do a
terrible sore at her heart.... She formed the center of the party and
the object of general attention, not only of her political comrades, but
also of the criminals and the soldiers of the convoy. When I had
traveled under escort to our exile some months before everywhere
we heard ‘Babuschka is coming. God grant us to see her!’ The
prisoners and the exiles in Siberia waited with reverence to see the
miracle woman. She kissed us all and cheered us all.”
Her attempted escape from Kirensk, recapture, and sentence to
the Irkutsk prison in the winter of 1913 are known to all the world.
Her letters to American friends from her Siberian exile revealed the
heroic soul. Her physical sufferings were only incidentally alluded to,
as in one letter where, in the quaint English acquired in America and
by study during her last imprisonment, she said: “My gait is not yet
sure enough, and it will take some time before my forces and my
celerity rejoin me to the point as to let me exercise my feet without
the aid of anyone.” Nevertheless, she continues quite undaunted, “I
hope to restore my health and to live till the day I see you again.”
 “Babuschka, Little Grandmother”

The sufferings and deprivations of the young political exiles

caused her the greatest sorrow. It was, indeed, the only suffering she
acknowledged, although she deplored that reasonable conversation
was impossible, with the spies always within sight and hearing, and
expressed her “disgust” that they accompanied her whenever she
went out.
In Kirensk there are over a thousand exiles forced to live on their
earnings and the small stipend received from the government. There
is little work to be had, and that little is rendered more uncertain by
the fact that the police shift the exiles about, seldom allowing them to
remain in one place for more than six months. Most of them are thus
kept in a state of semi-starvation. The magazines, books, and picture
post cards which Madame Breshkovsky received were used by her
to extraordinary advantage. Of some periodicals that I had caused to
be sent her she wrote: “They make a great parade in Siberia, going
as far as Irkutsk and Yakutsk, and some of them find resting-place in
the libraries and museums.” She taught English to the young
“politicals” and reading and writing to the illiterate native Siberians.
“You understand my situation,” she wrote: “an old mother who would
serve every one of them. I aid, I grumble, I sustain, I hear
confessions like a priest, I give counsel and admonition, but this is a
drop in the ocean of misery.” And of herself again: “How happy I am;
persecuted, banished, and yet beloved.”
From the letters that have come to America and are shared by the
circle of her friends here I select one, written in answer to a request
that she send a message of her philosophy to the students of a
women’s college who had asked me to tell the story of the Russian
revolution as personified in her:

“October 20, 1913, Kirensk.

“Very dear and well-beloved Lillian:—
“Your letter, as well as the postal cards which you were
good enough to send me, were received by me several days
ago, and perhaps it is with the last mail that I send you this
reply. Snow already covers the mountainous borders of the
superb Lena, and frost will soon fill the waters with masses of
ice, which will interrupt all communications for two or three
weeks, leaving us isolated on our little island, entirely
engulfed by cold, badly treated by the north wind. I hasten,
therefore, to thank you for your indefatigable attention
towards the old recluse who, habituated as she is to pass her
days now and again imprisoned or exiled, rejoices,
nevertheless, to find herself loved—to feel that the most noble
hearts beat in unison with hers.
“It is strange! Every time that I am asked to speak about
myself I am always confused and find nothing to say. It is very
likely that if I paid more attention to the exterior circumstances
of my life there would be enough to talk about that would fill
more than a book. But ever since my childhood I have had the
habit of creating a spiritual life, an interior world, which
responded better to my spiritual taste. This imaginary world
has had the upper hand over the real world in its details, over
all that is transient.
“The aim of our existence, the perfecting of human nature,
was always present to my vision, in my mind. The route, the
direction that we ought to take in order to approach our ideal,
was for me a problem, the solution of which absorbed the
efforts of my entire life. I was implacable for myself, for my
weaknesses, knowing that to serve a divine cause we must
sincerely love the object of our devotion, that is to say, in this
case, humanity.
“These meditations, and a vigorous imagination, which
always carried me far beyond the present, permitting me to
inhabit the most longed-for regions, combined to attract very
little of my attention to daily circumstances.
“Without doubt, I have had suffering in my life, as I have
had moments of joy, of happiness even. It is also true that the
struggle with my failings, with the habits engrafted by a
worldly education, have cost me more or less dearly. The
misery of those near to me tore my heart to the extreme. In a
word, life has passed in the same way as a bark thrown upon
the mercy of a sea often stormy. But as the ideal was always
there, present in my heart and in my mind, it guided me in my
course, it absorbed me to such a degree that I did not feel in
all their integrity the influences of passing events. The duty to
serve the divine cause of humanity in its entirety, that of my
people in particular, was the law of my life,—the supreme law,
whose voice stilled my passions, my desires, in short, my
weaknesses....
“Since I live in my thoughts more than by emotion, it is my
thoughts that I have to confess more than the facts of my life.
These facts, to tell the truth, are sufficiently confused in my
memory, and often I would not be able to relate them in all
their details. Also, in conversing with those who care to listen
to me, I feel that I am monotonous, for it is always my ideas
and my abstract observations that I want to communicate to
my listeners. I have studied a great deal in order to
understand even ever so little of the origin of the human soul,
in order to understand more or less its complexity of to-day.
There lies my only strength, so to speak, and I continue my
study, knowing how complex my object of study is, and what
an innumerable quantity of different combinations, of types, of
low types, have been formed during the long history of the
laboratory where is prepared the supreme fusion called the
human soul.
“The esteem for the individual of the human species, and
the adoration of the intellectual treasure of this individual,
ought to form the center of all religion, of all knowledge, of all
ideal. It is only in venerating the human being as the most
beautiful creation of the world, it is only in understanding the
beauty and the indestructible grandeur of an intelligence
illuminated by love and knowledge, that the education of the
young generations will bring the desired fruits....
“Lillian, my friend, I hope to be understood by you ... I
embrace you. I kiss your two hands and thank you for your
noble and dear existence. To your entire settlement I send
greetings.
“Your
“Katharine Breshkovsky.”
 Madame Breshkovsky’s friends are to be found in every civilized
nation, and her influence, from an exile’s hut in an isolated village in
the Arctic Circle, has radiated to remote quarters of the globe. From
her prison at Irkutsk this woman, nearing her seventieth birthday,
sends messages of hope and cheer, proclaiming her unquenchable
faith that the cause is just, and therefore must prevail.

I would not have our profound interest in the Russian revolution

entirely explained by the fellowship we have had with those who
have participated in it, by the literature which has stirred hearts and
minds everywhere, or by our actual experience with innocent victims
of outrages. The continuance of a policy of suppression of freedom
infiltrates the social order everywhere, destroys the germination of
new forms of social life, and he who has not sympathy with the
throbbing of the human heart, and who does not revolt against
injustice anywhere in the world, who does not see in the gigantic
struggle in Russia a world movement for freedom and progress that
is our struggle too, will not comprehend the significance of the
sympathy of the many Americans who are friends of Russian
freedom.
 CHAPTER XIV
SOCIAL FORCES

It would be impossible to give adequate presentation of those

forces termed social which have hold upon our neighborhood.
People with an ephemeral interest in the social order and some
who are only seeking new thrills are prone to look upon the East
Side as presenting a picturesque and alluring field for
experimentation, and they are, at times, responsible for the confused
conception of the neighborhood in the public mind.
The poor and the unemployed, the sick, the helpless, and the
bewildered, unable to articulate their woes, are with us in great
numbers. These, however, comprise only a part of our diverse,
cosmopolitan population. There are many men and women living on
the East Side who give keen scrutiny to measures for social
amelioration. They are likely to appreciate the sincerity of messages
whether these relate to living conditions, to the drama, or to music.
Not only the East Side “intellectuals,” but the alert proletariat, may
furnish propagandists of important social reforms.
The contrast between the character of the religious influences of
the remoter past, or even of twenty or thirty years ago, in our part of
the city, with those of the present day, is marked in the church
edifices themselves.
Across from the settlement’s main houses on Henry Street stands
All Saints’, with its slave gallery, calling up a picture of the rich and
fashionable congregation of long ago. For years after their removal
to other parts of the city, sentiment for the place, focusing on the
stately, young-minded, octogenarian clergyman who remained
behind, occasionally brought old members back, but now he too is
gone, and the services echo to empty pews. The Floating Church,
moored to its dock nearby, was removed but yesterday. Mariners’
Temple and the Church of the Sea and Land still stand, and suggest
an invitation to the seafaring man to worship in Henry Street.

“All Saints’,” on Henry Street.

Occasionally a zealot seeks to rekindle in the churches of our

neighborhood the fire that once brightened their altars, and social
workers hailed one as “comrade” who ventured to bring the infamy of
the red-light district to the knowledge of his bishop and the city. That
bishop, humane and socially minded, came down for a short time to
live among us, and in the evenings when he crossed the crowded
street to call or to dine with us he dwelt upon the pleasure he had in
learning to know the self-respect and dignity of his East Side
parishioners. He spoke with gratification of the fact that during his
stay downtown no begging letters had come to him from the
neighborhood, nor had anyone belonging to it taken advantage of his
presence to ask for personal favors. The neighborhood took his
presence quite simply, regretting, with him, the spectacular featuring
of his visit by the newspapers. Indeed, the only cynical comment that
came to my ears was from a young radical, who, hearing of the
bishop’s tribute, said: “That’s nothing new. It’s only new to a bishop.”
In the Roman Catholic churches the change is most marked by the
dwindling of the large Irish congregations and the coming of the
Italians. Patron saints’ days are celebrated with pomp and elaborate
decoration. Arches of light festoon the streets, altars are erected on
the sidewalk, and the image of the saint is enshrined on the church
facade high above the passer-by. Threading in and out of the
throngs are picturesquely shawled women with lovely babes in arms,
fakirs and beggars, venders offering for sale rosaries, candles, and
holy pictures. Mulberry, Elizabeth and even Goerck Streets’ sordid
ugliness is then transformed for the time, and a clew is given to the
old-world influence of the Church through drama.

The change from the Russian pale where the rabbi’s control is
both civil and spiritual to a new world of complex religious and
political authority, or lack of authority, accentuates the difficulties of
readjustment for the pious Jew. The Talmudic students, cherished in
the old country and held aloof from all questions of economic needs
because of their learning and piety, find themselves without anchor
in the new environment and precipitated into entirely new valuations
of worth and strength.
Freedom and opportunity for the young make costly demands
upon the bewildered elders, who cling tenaciously to their ancient
religious observances. The synagogues are everywhere—imposing
or shabby-looking buildings—and the chevras, sometimes occupying
only a small room where the prescribed number meet for daily
prayer. Often through the windows of a dilapidated house the
swaying figures of the devout may be seen with prayer-shawl and
phylactery and eyes turned to the East. At high festivals every pew
and bench are occupied and additional halls are rented where
services are held for those men, women, and young people who,
indifferent at other times, then meet and pray together.
But though the religious life is abundantly in evidence through the
synagogues and the Talmud-Torah schools[15] and the Chedorim,
where the boys, confined for many hours, study Hebrew and receive
religious instruction, and although the Barmitzvah, or confirmation of
the son at thirteen, is still an impressive ceremony and the occasion
of family rejoicing, there is lament on the part of the pious that the
house of worship and the ritualistic ceremonial of the Jewish faith
have lost their hold upon the spiritual life of the younger generation.
For them new appeals take the place of the old religious
commands. The modern public-spirited rabbi offers his pulpit for the
presentation of current social problems. Zionism with its appeal for a
spiritual nationalism, socialism with its call to economic salvation, the
extension of democracy through the enfranchisement of women, the
plea for service to humanity through social work, stir the younger
generation and give expression to a religious spirit.
The Synagogues Are Everywhere—Imposing or Shabby-Looking Buildings

Settlements suffer at times from the criticism of those who

sincerely believe that, without definite religious propaganda, their full