Chicago's Futures Economy

First published: Crain's Chicago Business, online edition, September 26, 2011

Leo Melamed, Chairman Emeritas of CME Group, once went to City Hall to ask the first Mayor Daley for a favor. Melamed had just invented financial futures, and 2 years later the CME needed to build a bigger trading floor. Melamed had brought his roll of architectural plans, but the Mayor didn’t want to see them. He said “Tell me what it will do for the city of Chicago.”

Melamed said “Mr. Mayor, if I am right about this, [financial futures] will shift the gravity of finance in the United States from New York toward Chicago.”

He was right. New York is still the nation’s banking center, but the derivatives markets have exploded. There were 22.3 billion contracts traded on derivatives exchanges in 2010; CME Group ranked second, in contract volume traded, after the Korea Exchange. But Chicago's futures talent pool still anchors its place at the hub of a global system of derivatives exchange.

That position has had a resounding impact on Chicago’s economy. In 1972, the year CME introduced the first financial derivatives, there were 11,500 workers employed in the industry in the state of Illinois. The number grew almost every year until 2002.

In the 2000s, Chicago’s 2 largest exchanges, the Chicago Board of Trade and the Chicago Mercantile Exchange, demutualized, merged, and switched to electronic trading. The open-outcry trading pits emptied out.

But by 2010, employment in the industry had dropped just 2% from 2000. And the people employed in the industry were earning more money.

In 2010 there were about 45,000 people employed in the industry that includes futures trading in the Chicago MSA – almost 4 times the number employed in 1972. Their average annual wage was $186,000, and collectively, they brought home $8.3 billion in consumer spending power.

Another 67,500 are employed in providing services to the industry, according to an economic multiplier published by World Business Chicago. They include lawyers, accountants, people working at public relations and technology firms.

The kind of jobs they are doing have changed.

Before, a young man could walk onto the trading floor as a runner or a clerk, work his way up to be a trader, and make a good living at it. John Lothian, Publisher of MarketsWiki, got his start as a runner at the Board of Trade in the 1980s.

“When I entered the industry, there were always a huge number of entry level people that came in as runners on the trading floor. From there you might become a phone clerk, to a deck handler, to an assistant to a pit broker.”

But those entry level jobs were related to the manual nature of trading. Someone had to watch the phones on the floor, take the call if a client rang, bring the handwritten order to where it would be executed, and reconcile the mismatches at the end of the day.

Electronic trading has changed every sector of the industry.

Individual traders don’t need staff to execute their trades. Big firms don’t need traders. Now, Lothian says, the actual trading desk resembled the cockpit of a plane on autopilot. “They have a trader in a chair watching the screens. He has a ‘get me out’ button.” The firms are mostly hiring staff who can program computers and write algorithms.

The balance of the culture has also changed. Pit floor trading fostered a locker room atmosphere and a gambling culture. “Former athletes did very well. It was a physical encounter,” says Michael Gorham, Director of the IIT Stuart Center for Financial Markets.

The traders were supported by a host of more sober professions – accountants and lawyers who kept them out of trouble.

Now, the traders are quants and computer programmers, and they are supported by a hopping industry of technology firms, investing millions in a scramble to reinvent the cutting edge.

Direct employment around the exchanges breaks into three main groups: the exchanges themselves, brokerage firms and proprietary traders.

Chicago’s two biggest exchanges merged in 2007 and combined their staff. CME Group says they employ about 2,000 people in Chicago, 45% fewer than the exchanges employed the year they merged.

Brokers fall into 2 distinct groups. The futures commission merchants (FCMs) are
institutions that handle clearing – managing the credit risk of the trades that pass through them. Introducing brokers manage relationships between retail customers and the FCMs.

The ranks of introducing brokers has been relatively static through 2000s, according to Melinda Schramm, Chairman of the National Introducing Brokers Association.

Schramm says independent brokers were never concentrated in Chicago to begin with. Some locate near the farmers who want to hedge their crops, others concentrate in states like Florida and California, with large populations of retirement savings to invest.

The FCMs used to be dominated by privately owned Chicago based firms. Market upheavals and new interest in the industry have subjected them to waves of consolidation and acquisition in the last 15 years.

Now most FCMS are big public corporations headquartered in other cities. Leslie Sutphen managed electronic trading for French firms Calyon Financial and Newedge before joining a Chicago proprietary trading firm. She says even FCMs headquartered in other cities still keep operations offices in Chicago, to do the back office work of settling trades. “Futures are a Chicago kind of instrument,” Sutphen says. “This is where the talent pool is.”

Proprietary trading firms have diverged too. On the one hand, electronic exchanges make more markets more widely available to individual traders everywhere. You don’t need a membership to trade. It’s hard to tell how many individual traders there are. Bureau of Labor Statistics wouldn’t capture them unless they’re paying unemployment tax.

On the other hand, large firms invest in trading platforms that take time and significant capital to build. Ben Van Vliet is a Lecturer at IIT’s Stuart Center for Financial Markets who consults with high frequency trading firms. He says that calls for a more institutional approach. “They can easily have teams of dozens of programmers, each making 6 figures a year, just to build out and maintain a superfast platform that enables trading,” and aside from developing the trading strategy itself.

Technology has changed the playing field for all of them, but they use technology in different ways.

The small proprietary trader is using technology off the shelf. John Person started as a floor trader in the 1970s. Today he trades for his own account from an office in Glencoe. He says electronic trading has made the futures markets more accessible, along with access to information and a wider variety of trades. “Now, anyone with a computer and some risk capital can enter the markets.”

Large proprietary traders spend millions to shave microseconds off the speed of their trades. Van Vliet says they’ll absorb the expense of building proprietary systems because they don’t want to enter the race “driving the same car” as everyone else.

They pay to co-locate their servers as close as possible to the exchange’s matching engine. CME Group currently offers access to its matching engine through a datacenter at 350 E. Cermak, a building owned by Digital Realty Trust. But it plans to offer its own co-location site by its matching engine in Aurora, setting off a scramble among firms that can afford its fees.

Steffen Gemunden is co-founder of RTS RealTime Systems, a software and connectivity provider. Gemunden says the big firms “all want their electronic equipment very close to the exchange’s matching engine,” but that doesn’t affect where their staff go to work.

The move will create new business for firms like RTS, and like 7Ticks, a Chicago infrastructure firm acquired by Interactive Data last year. “Change generally means more business for a service firm,” says Steve Claudell, 7Ticks’ founder.

Brokerage firms are not in the race for the fastest possible trade. “They’re trying to help their large traditional investment customer counteract the proprietary traders,” Sutphen says. They do it using algorithms to slice large orders into tiny pieces that will not move the market.

All these technologies employ high paid workers, in fact it employs more of them during times of change.

There are still 10s of thousands employed by Chicago’s futures industry. But the fact those workers don’t converge on the same two buildings anymore has had an impact on the street.

Some grand old industrial buildings have been pressed into use as data centers. 350 East Cermak was once the RR Donnelley printing plant. It is 1.1 million square feet of cavernous, industrial gothic space that would have been hard to adapt for most other contemporary uses.

Closer to the exchanges though, some bars and restaurants have gone out of business. Others have a clientele that more closely resembles that of other storefronts in the Loop.

Frank Martello bought Alcock’s, a bar on Wells Street just behind the Board of Trade, in 1983. He says the bar boomed with traders, and all the staff who helped them trade.

“I had a full crew on at 1:20pm,” the time of the first closing bell at the CBOT, he says. “Back then, a good day or a bad day, it didn’t matter. They were drinking if they had a good day, or drinking to drown their sorrows if they lost.”

He says about 6 years ago, the clientele changed. “We get ‘suits’ instead of ‘jackets,’” he says, referring to the jackets traders once wore on the trading floor.
Some of his neighbors weren’t so lucky. “We had a McDonald’s and a Kentucky Fried Chicken a couple doors down from me. They both went out of business,” he says. “I’ve never seen a McDonald’s go out of business.”

Lothian says it wasn’t just camaraderie that was lost. “It used to be you could call down to the floor, ask how something was done. If that person didn’t know how to do it, there was someone on the floor who could help. There was a lot of collaboration.” He launched MarketsWiki to help fill that gap. “I wanted to create a knowledge base” to replace the one that has been dispersed.

Chinatown's Staying Power

First Published: Chicago Journal, March 16, 2006

Tourists flock to Chinatown in the thousands each year, but on any given afternoon on South Wentworth Avenue, they are visibly outnumbered by ethnic Chinese. In fact, Chinatown is one of the densest ethnic enclaves in Chicago, and also one of the most persistent. And Chinatown’s stability is attracting attention.

A recent Loyola University study of gentrification in Chicago neighborhoods suggests that Chinatown’s vibrant retail district, and especially its success at drawing tourists and destination dollars, many have helped fortify the community against ethnic displacement.

Yet restaurants and tourists alone do not stabilize neighborhoods. The Greek community left Greektown decades ago. Koreans whose businesses line West Lawrence Avenue, like many of the Indian Business owners on Devon Avenue, tend to live in the suburbs, while the Vietnamese struggle to keep a toehold on Argyle Street.

By contrast, Chinatown remains almost 80 percent Chinese. Observers cite a variety
of reasons, including the continuous arrival of new immigrants, and cultural factors that cause them to keep strong ties to the Chinese community for generations after they’ve arrived.

They point out that the community is hemmed in by expressways and rail lines, and until recently hasn’t been attractive to outside investors. But they also point to the network of civic institutions, which have built a circuit of reinvestment that has maintained Chinatown’s vitality through decades when neighboring communities declined.

“There’s the geographic isolation of the community,” observes Payton Chung, a researcher for the Congress of New Urbanism. “But also the peculiar social ties that bind it.”

Those ties have helped to keep generations of Chinese close. They have also, in effect, worked to keep non-Chinese out – though that may be starting to change.

“People are realizing ‘I can move to Chinatown for $100,000 less than it would cost in the South Loop,” says Kensen Lam of the Chinatown Chamber of Commerce. “We love it.”

Chinatown’s civic network grew partly as a necessary adaptation in an unfriendly society. Chinese moving to Chicago in the 1870s sought to leave behind the prejudice and violence that hounded them on the Pacific Coast. They settled on Van Buren and Wells Street. A 1905 boycott of American trade in China – a protest against abuse of Chinese in California – inspires Chicago landlords to retaliate with dramatic rent increases against their Chinese tenants, pricing much of the community out of the South Loop. In response, one of Chinatown’s two dominant tongs, or benevolent associations, the On Leong Ton, orchestrated a mass relocation. They negotiated fifty 10-year leases on buildings around Cermak and Wentworth Avenues – a transaction they had to make through a non-Asian intermediary, the H. O. Stone Company.

In the 20 years after China’s community revolution in 1949, Chicago’s Chinese population doubled, even as the construction of the Dan Ryan and Stevenson expressways cut Chinatown's housing stock in half. Throughout the 1980s and 90s, the housing pressure has been kept up by a steady influx of new arrivals. Today, immigrants comprise as much as 70 percent of Chinatown’s population, according to the Chinese American Service League.

Over the decades, Chinese Chicagoans have begun to spill over into neighboring Bridgeport and McKinley Park. But Lam says even when Chinese families move, they maintain close ties to Chinatown.

“My parents always made a special effort to bring me to Chinatown,” he recalls, “and we continue to meet there” now that he lives a mile and half away in Brighton Park. Even Chinses who move out to the suburbs come back to Chinatown to shop, to eat at restaurants, and to socialize. And, as the Loyola displacement study observes, a growing number of their children move back to Chinatown to buy homes.

One result of this cohesion was that Chinatown remained a vibrant commercial district. Today, Wentworth Avenue and the Chinatown Extension north of Cermak are both crammed with groceries and food importers, herbalists and gift stores – and especially with restaurants. There are about 40 restaurants in an 11-block area, including some serving Thai, Vietnamese and Malaysian cuisine. The Chinatown Chamber of Commerce boasts that collectively they draw tens of thousands of diners each year.
Lam says Chinatown’s restaurants and groceries are split between those tha tare more likely to appeal to tourists, and those that cater to the Chinese – “the places where my grandmother would go.”

He says the businesses that are “for the community” predominate, and while some visitors are intimidated, Lam says visitors are always asking him for an authentic restaurant experience.

Their interest marks a telling contrast between south Chinatown and the row of Asian restaurants on Argyle Street. In the 1970sth surviving remnant of the old Chinatown on Van Buren Street was uprooted for construction of the Metropolitan Correction Center. According to the Chinese American Service League, a group of Chinese businessmen, led by entrepreneur Jimmy Wong, bought property on both sides of Argyle Street in Uptown, and offered financing for entrepreneurs willing to locate there. Today, Chinatown is still a hub for mainland Chinese, while Argyle Street has been settled by Southeast Asians.

Freedom Nguyen of the Asian Health Coalition in Uptown says that while Southeast Asians come from all over the Midwest to shop on Argyle Street, longtime residents are struggling to stay there, as more rental housing is converted to condominiums. He says the prices for the new condominiums are not necessarily high by city standards, but they are too high for many for the Southeast Asian renters, some of whom are being forced to leave Uptown after living there for 15 to 20 years. “A lot of the new buyers don’t even plan to stay,” he says. “They buy at pre-construction prices, and plan to resell in the next five to 10 years.”

Even the restaurants are a source of contention on Argyle Street. Kensen Lam says visitors to the original Chinatown ask for directions to the authentic restaurants they might hesitate to enter on their own. Meanwhile, Nguyen says he sits in community meetings and listens to new homeowners complain about the Vietnamese restaurants on Argyle Street because “they all serve the same food.”

So why does the original Chinatown continue to flourish as both a restaurant mecca and home for new immigrants? Payton Chung agrees that tourist revenues play a role in building the community’s economic muscle. But he also suggests Chinatown’s civic networks create unique channels for raising capital, and reinvesting it, channels that can be “completely opaque” to outsiders.

He points to a handful of Chinatown-based banks, the associations of businessmen who have orchestrated Chinatown’s major redevelopment projects, and the handful of Chinese language real estate agents who handle the community’s property sales, usually without advertising in mainstream channels. “Anyone can go to MLS to look for a property,” Chung says, adding “calling up a Chinese language realtor is something else.”

In neighborhoods like Humboldt Park or Uptown, outside speculators can drive prices up. In Chinatown, Chung observes, “outsiders provide commercial revenue, but they’re locked out of the residential market.”

Often, cultural barriers are enough to make it difficult for outside residents to buy property in Chinatown. Erica Chianelli, a former executive director of the Chinatown Chamber of Commerce, recalls getting calls from non-Asians who wanted to live in Chinatown because of its proximity to the Loop, and because it was relatively inexpensive. “But they couldn’t read the listings in the Chinese papers,” she says. “They would come into the office, we had the Chinese papers there, and we would read the listings for them.”

See Wong, president and owner of Richland Realty, says 90 percent of his customers are Chinese immigrants – many of whom are ready to buy property within two or three kind of arriving in Chicago.

“They work 280 hours a month, they have no time to spend money,” Wong says. Wong adds that when they’re rady to buy, they come in with down payments of 30 to 50 percent of the purchase price. “You never have to worry that at the last minute the buyer won’t qualify.”

Wong himself virtually personifies Chinatown’s full investment circuit. Wong emigrated from Hong Kong in 1975, opened his real estate brokerage firm in 1988, and began dabbling in development about 15 years ago.

“The real estate need was so great in Chinatown, and there were only two or three real estate brokers in the community,” he says. “I saw an opportunity.” He began buying up vacant lots as they became available and building bungalows, and eventually even started up a bank – American Metro Bank – in 1995.

As it turns out, Chinatown is one of the most competitive banking markets in the city, with at least 10 banks in Chinatown proper. But it hasn’t always been that way.

Stan Bochnowski, executive vice president at Lakeside Bank, says when Lakeside opened its first branch in Chinatown in 1982, other bankers were hesitant to do business there. “A lot of them didn’t understand the dynamics of the Asian market. You have people with a very strong work ethic, but they’re extremely debt averse. They have no borrowing history, no credit score,” and in the case of new immigrants, no employment history. “If you were trying to underwrite a loan there by traditional measures, you wouldn’t make the loan.”

By the late 1980s, Chinatown investors began forming their own institutions to meet their community’s banking needs. New Asia Bank opened in 1987; International Bank opened in 1992; Pacific Global opened in 1995. Betty Chow, Pacific Global’s president and CEO, says new immigrants in particular feel most comfortable with Chinese language banks, and that locally owned banks are particularly attentive to the community’s needs. Customers can go to Pacific Global to pay their utility bills, for instance. “American banks have lots of checking,” Chow explains. “In Chinatown, many people are not comfortable with writing checks.”

Locally owned banks have created a short chain between customer deposits and local reinvestment. “Money comes in from the community and we lend it back into the community,” Chow says. “We lend it out to other parties who want to start businesses, purchase a home, buy an automobile.”

She says the results have been visible. “Ten years ago, most of the buildings in Chinatown were all pretty old.” Access to capital has helped refurbish storefronts and build new housing, making the community more attractive to visitors as well as a new generation of young families.

In fact, it was concern that the age and limitations of the local buildings would force Chinatown into decline that spurred Chinatown’s business community to form the Chinese American Development Corporation in 1984. It purchased 32 acres of former railway land for a new residential and commercial expansion of Chinatown. The corporation’s first bond issue raised $1.3 million in $1 shares, according to Raymond Lee, onetime chairman and CEO of the Chinese American Development Corporaiton. He adds that unforeseen problems, including an expensive environmental clean-up of the old rail site, caused the project to drag on into a second bond issue, and a third.

“We had a lot of problems, believe me,” Lee chuckles now. Total projects would exceed $100 million, with Lakeside Bank taking the lead on the end mortgages and a significant part of the construction financing.

Ultimately though, the project has effectively doubled Chinatown’s geographic area, adding 110 new storefronts, and, when complete, about 500 new homes. Richland Realty is currently completing the final phase of the Santa Fe Garden project on land purchased from the Chinese American Development Corporation.

And the explosion of new housing options have simultaneously exposed the neighborhood to interest from outside while offering longtime residents a chance to stay.
Michael Chin, vice president of Commercial Real Estate at Harris Bank, which is financing the final phase of the Santa Fe Garden project, says that at $250 to $275 per square foot, the new units are just a bit cheaper than homes in the South Loop. Still, buyers are snatching them up.

“They’re sold on spec,” he says. “You don’t even have to build a model.”
And the buyers are not only Asians, according to Chin.

“The project is on the outskirts [of Chinatown], close to Dearborn Park. So we do have some mix of neighbors,” Chin says. “You like to see neighborhoods diversify.”
But for Kensen Lam and his wife, the new housing development, with its strong connections to the neighborhoods business community, offered a chance to stay in the neighborhood.

The Lams recently bought a new house in Chinatown – purchasing it two years before the builder even broke ground. “We put 10 grand down right away,” Lam recalls. “That’s where your network comes in – you hear about it through friends of friends, your relationships with the realtor.”

Rough Riding

An adapted version of this story appeared in Metropolis Magazine, August/September 2000

It’s 2 a.m. and T.C.’s urban assault route has wound to an end on top of a mountain of slag in the Union Pacific car yard by California Boulevard. The bikers gambol on the moonscape surface, a little giddy in their lowest gears. Below us to the north, a thousand cars glitter like a lake in the lights of the city impoundment lot; to the east, the bravest buildings in the Chicago skyline look fuzzy in the haze.

“I see these places from the train,” T.C. is saying – industrial lots and rail yards, half deserted, filled in with crushed pavements and heaps of metal scrap – “and I wonder ‘What’s it like to be there?’”

Urban assault is a glorified name for a late night bike tour through the city’s wasted spaces. We are scouting out a new route tonight, because more and more of the old ones are blocked off. Some of the best urban assault routes used to be down around Fulton Market, running beside the rail tracks to pass among the dozing trains under Canal Street, through that vast no man’s land where Wells Street peters out just below the Loop.

Then one night after no one had ridden them for awhile, the guys returned to find fences sprung up, the ground churned up for new development. They’re building the city back in and there’s just not as much wasted space anymore. “They’ll never seal off the rate holes though,” the veterans say.

T.C.’s tried most of this route during the day, losing a few tubes to odd metal trash – says he lost one to a rusted windshield wiper of all things – and getting himself kicked off by the railroad men at least once. But it’s dark now, there shouldn’t be any authorities out.

We meet in front of the Rapid Transit bike shop, where the guys take turns sipping from a bottle in a paper bag. For awhile we wait for stragglers, then we’re off.

The bikes sing through the alleys all the way to the trestle over Armitage, where we heave them over our heads and scramble through the shrubs, up the collapsing concrete of the embankment, and then we’re up by the tracks in the dark. We can’t see at first, but we’re riding fast before we can see, to get our hearts to pound a little, laboring through that heavy gravel with its invisible obstructions – railroad ties and manhole covers and weird broken trash.

The dark is punctuated with occasional spills of light from the alleys on either side, and we’re not entirely alone up here. We pass a huddle of kids sitting on the tracks. They watch with wry smiles as one by one we crash out from the dark and back into it again. There are usually at least a couple of kids smoking secretively in these places, just like there is generally a couple copulating in a car, and there is always the doleful camp of a homeless man. He’s usually not there but the dank blankets piled in some weedy hollow, the charcoal from a cold fire, betray him. People use these places a lot like they use remoter wilds – they use it as an escape, a refuge, a place to conduct whatever secret human business sends men scrambling for distant places in general. It’s different, but it’s the same, the darkness here lends that quality remoteness supplies elsewhere.

We cross the tracks and plunge into a field of tall weeds. There’s a narrow trail crushed through the Queen Anne’s lace, and we call back over our shoulders to one another when there’s a pit to avoid on the right, or a log on the left. Our lungs ache in our chests, and everyone breaks something. A bungee cord on Michael’s rack gets loose in the weeds and tangles up in his drive train; Josh started out with a borrowed bike whose chain was already a little arthritic. It cramps on the jolting terrain and we stop several times so he can coax it back into place. Jim hits a manhole cover raised 6 inches above the ground and flats both tires at once. While he’s changing them we hear a squeal, a crash, the sound of crumbling glass – there’s another world running parallel to the rail tracks, neighborhoods that people are busy in. We look down the abrupt edge of the trestle where the guard rail is gone and we watch guys jump out each door of a sedan, oblivious to us on top of them, and apparently unconcerned about whatever just broke. They’re rushing a case of beer in someone’s back door.

Then when T.C.’s derailleur cable snaps, we have to descend to the street for a more delicate repair, and it seems like an even more altered world than the one we just left. We’re half-way deep in the west side by now, somewhere out past Kedzie. There are cars on the broad avenue but no one on the sidewalks, and we sit in the shelter of a blank wall under an orange light, smoking and staring while Adrian and T.C. figure out how to tie the wire somehow so T.C. can change gears. Then we head on our way.

We take the streets back, traveling fast over pavements like spreading rock formations – here it’s cracked, shattered, broken open by the force of ice and heat and the shudder of heavy traffic. When we reach Lake Street it’s smooth like something freshly washed, ready to receive the new development that’s spreading street by street north from Madison, Washington, Randolph. Only Fulton hasn’t been repaved yet, it’s surface looks soft and lumpy, it’s been patched and filled in so many times. And it’s clean. They wholesalers hose it down everyday with water and bleach to mask the stink of the meat because the people moving into the new loft condominiums complain. It’s like geology, that landscape invented from the trash of urban life, but it’s different, you’re reminded by every sign of renewal, as the people move in to reclaim it.

We stop at an unmarked door in a blank brick factory – it’s the Goose Island brewery where Josh works as a brewer. We drag our bikes inside. It’s scrubbed spotless and it’s hot. We step over hoses and climb the steel stairs to the employee lounge, which is just a cluster of broken chairs behind which every beer Goose Island makes waits on tap.

The polished steel machines below us hum loudly, so we sit quietly in the heat and sip our beer and reflect. It’s like the wilderness but it’s not of course. In the real wilderness the emptiness expands around you, drawing your imagination outward to marvel at the laws of nature, the scope of the cosmos, the will of God. This place always brings you back to the busy purpose of man. The emptiness reminds you of the people that were once there, then left for their own reasons. Now they’re coming back again, up Madison, Washington, Randolph and Lake, they’re bringing hip restaurants, bars and loft conversions, all rebuilt in block glass and stainless, rusted iron and other industrial elements. They repeat the textures of what they’ll replace.

We met the homeless man himself out there, trudging tired and nearly invisible in his gray, felted clothing. He was dragging a clattering shopping cart heaped with trash. Where is he going, for what unguessable purpose, what scrap dealer is open now? Maybe having lost everything else, his instinct for movement and labor are all that’s left. He paces through streets that are transfigured around him.

Everyone’s tired, a little discouraged even, but T.C. wants to go on to that slag heap he’s seen from the train, see what it’s like to be on top, see what that sand like substance feels like beneath the tires, and so we drag the bikes outside and backtrack westward through the empty streets. Our tires sing on the road, our heads sing a little beery harmony. We turn north and find the opening to the Union Pacific car yard, we rush in, and scramble to the top.

It’s lovely. Reflected lights lid the sky, but the city spreads out below us, it’s wonderful even if it’s finite, it’s shadowy crannies call you anyway – come and see what it’s like to be here.

The Bounce-Back Effect

First Published: Chicago Reader, September 1, 2000

Adolescence is difficult everywhere but nowhere more so than on Cayo Santiago. A thousand rhesus monkeys share this tiny island paradise just off the coast of Puerto Rico, virtually unbothered by humans. But when they reach adolescence, young males are subject to a treacherous social test. Leaving the troupes of their mothers, they go out to seek their fortunes, make new friends, find their way into a new troupe – and a quarter of them die trying to do it.

“We don’t know why,” says Dr. Ned Kalin, who’s been studying the monkeys on yearly visits since 1992, but he expects it has to do with their emotional dispositions, their affective style. In this circumscribed habitat, Kalin and his fellow researchers can follow the progress of individuals. They make detailed social observations – they know who is related to whom, who gets groomed, and who has lots of friends – and every year they take a battery of physiological measures. They’re expecting they’ll find that monkeys with outgoing personalities share certain biological features, features that will also connect with their ability to deal with the stress of leaving home. “We’re trying to predict who’s going to be able to make that transition in a very effective way and who’s going to be vulnerable to not do it so well, and maybe even die in the process.”

Kalin is the Director of the HealthEmotions Research Institute, which has assembled what is probably the largest concentration of emotions researchers anywhere, in Madison Wisconsin. Affiliated with the University of Wisconsin, the Institute has recently received an $11 million grant from National Institute of Health, and lots of media attention, for its all-fronts approach to figuring out the biology of positive and negative emotions and how they impact health. Their efforts coordinate the most basic cell biology with lab rat and primate research, human brain imaging and long term population studies.

The Institute’s researchers have identified a constellation of qualities that make for what they call a positive affective style. Generally the monkey with the positive affective style is the one who tends to move forward in the world where others are uncertain. It’s not that he’s shallow – he still suffers the kind of fear, anxiety and sadness that afflicts most mortal primates, but he gets over it faster.

Kalin’s colleague, Dr. Richard Davidson describes the positive affective style as the “ability to feel emotions deeply but appropriately, then rapidly recover.” Director of the university’s W.M. Keck Laboratory for Functional Brian Imaging and Behavior, Davidson sees no reason happiness should be limited to the lucky few born with good brain chemistry or the right neural wiring. As they learn how affect is determined by genes and shaped by life experience, researchers at the HealthEmotions Research Institute are also asking how we might improve it, by medication, behavioral therapy, or age old meditation techniques. “There’s no reason to think of emotional reactivity as a skill any different from other skills,” Dr. Davidson told the audience at the Institute’s Symposium on Positive Emotion this spring. He urged them to imagine the day when we could be emotional athletes, pressing the limits of emotional resilience.

For years, neuroscientists have avoided the emotions – they’d study sense perception, cognition, even try to put their fingers on the seat of consciousness itself before they’d muddle into the tangled circuits of affect. Partly they didn’t have the tools to place their theories in the live human brain. They could take pictures of its structure, or they could mark its electric pulse with electrodes taped to the scalp, but they couldn’t take a good picture of it that showed which parts were activated until the advent of functional Magnetic Resonance Imaging – a process for imaging changes in blood flow, the fMRI requires a phenomenally expensive piece of machinery that didn’t come online for brain research until 1991.

Animal brains are more accessible. They can be sliced into sections and treated to mark the presence of particular hormone or neurotransmitter systems; you can grind them up and separate out specific receptors, or penetrate them with surgically implanted electrodes to see which part a rat will self-stimulate and which parts he won’t. Neuroscientists have learned their way around the brain of a rat so well they can implant tiny instruments to measure the firing of particular neurons in a live animal. Yet even with all this, it’s hard to know exactly what the rat is feeling.

Beyond the practical considerations there may be some lingering fear that emotions research isn’t quite decent. Neuroscience textbooks still include cautionary reference to the phrenologists, that school of 19th century scientists who thought they could read a person’s character from the topography of his skull. Now, as the field ventures into emotions and personality, they say they’re teasing apart the intricate exchanges among the brain’s structures, they’re learning the many roles of its neurotransmitter and hormonal systems, but they never point to any one lump or region and say “fear occurs here.”

When Edmund Rolls came to Madison this spring to speak at the HealthEmotions Institute’s symposium, which is an annual event, he brought out the cover of his most recent book, The Brain and Emotion, with its illustration of Pandora and her awful box. Pandora wasn’t sure if she should look in the box, he reminded his audience – are we? Then he launched into a sober discussion of whether the neurons in the orbito-frontal cortex of a rat can differentiate between the promise of a glucose or a saline reward.

It doesn’t sound very emotional, but then “emotions are states elicited by reinforcing stimuli,” he says; he challenges his audience to think of an emotion that can’t be traced back to reward or punishment. Our genetic codes are relatively rigid he muses. Emotions may have evolved as a sort of interface that gives an organism the flexibility to react to the vagaries of the external world.

Not everyone at the Symposium would describe emotions so operationally as Edmund Rolls, but emotions research is still built on the most basic cell biology and a strong sense of evolutionary function. So the scientists haven’t come to Madison to delve into the nuances of their messier sentiments. They talk about pleasure and pain, reward and reinforcement, the tendency to approach or withdraw in response to a stimulus.

After all, how do you know when a rat is feeling anxious? The researchers at the HealthEmotions Research Institute use a maze for the purpose, some of its corridors are dark and enclosed, some are open to the light. It’s designed to bring out conflicting impulses in a rat. On the one hand, the bright parts are so interesting he wants to rush out there and see what’s going on; on the other hand, they’re novel, a little scary, he’ll feel more secure in the darker parts of the maze.

Say you expose the rat to the scent of a predator, they you drop him in the maze to see what he does. If he retreats to the dark corners he’s withdrawing in response to the stimulus; if he shuns the dark and makes his way out into the bright exposed parts anyway, he might be feeling brave, giddy, curious or defiant. But he has apparently overcome his impulse to withdraw in response to a threatening stimulus and let his desire to approach win out. And at a distance, he looks like a rat with a positive affective style.

The scientists at the HealthEmotions Research Institute aren’t the first to point to the approach/withdraw response as a substrate of emotion, but they are doing important work tracking the systems that regulate it. In fact, they argue there are 2 distinct pathways, one that activates the emotion, and one that effectively decides when to shut it off. Kalin and Davidson have split the pursuit between them.

Kalin directs the labs that are unraveling fear, anxiety, negative emotions as they’re activated in the primitive regions of the brain’s limbic system. Much of his work centers on the corticotropin releasing hormone, or CRH. Starting in the amygdala, a small emotional powerhouse deep in the brian, CRH triggers the production of adrenocorticotropic hormone, which triggers the release of cortisol, a stress hormone so caustic it may virtually scorch the brain during particularly stressful events, especially young brains, leaving permanent impairments in the emotional circuits. Labs at the HealthEmotions Research Institute are stressing rats, slicing their brains, looking for where the CRH system is expressed; they’re unraveling the genetic code that determines it, and studying how strong, steady pulses of CRH might cause the proteins that receive it into the cell to permanently retract, which might be the mechanism by which traumatic stress can affect permanent disorders.

Meanwhile, they’re injecting drugs that block CRH from working into different parts of the limbic system of rats, to see if treated rats are less likely to cower in the dark parts of the maze. Is this really a rat with a positive affective style? “You could think of people who are emotionally resilient as having a CRH system that more rapidly comes back into control, and we’re sort of artificially doing that by giving rats a drug that blocks a receptor…,” Kalin supposes, though technically the experiment is set up to study the activation of anxiety. They may even be blocking the anxiety before it occurs. The positive affective style is the ability to turn negative emotions off after they’ve started, and that’s associated with the other end of the system.

The prefrontal cortex is the skin of the front part of the brain’s more sophisticated frontal lobe – the lobe associated with cognition and intelligence. Davidson first suspected the prefrontal cortex had some role in regulating emotion when he learned that patients with lesions on the left side tended to be melancholy and depressed, while those with damage on the right were cheerier, even manic.

To check it out, he assembled 90 right handed subjects and covered their scalps with a net of electrodes to compare patterns of electrical activity underneath. He tested them to see which side of their prefrontal cortex seemed to be more active. Then he had each take a questionnaire designed to test their tendency to be active or inhibited in their behavior, and he compared the results. Sure enough, people who answered yes to statements like “When I want something, I go all out,” were more left lateral than those who saw themselves in statements like “When I want something, I worry I’ll make a mistake.”

To figure out whether the people with more left dominant prefrontal cortices were just oblivious to the darker possibilities in the world, Davidson devised a clever experiment based on the fact that most people (with the exception of some sociopaths) blink when they are startled. If they are upset when they’re startled, they blink longer.

To get an emotional reaction in the limited environment of the lab, they used a set of photographs developed by University of Florida researcher Peter Lang. Some of the pictures are meant to evoke positive reactions – babies, puppies, nude people – others provoke negative ones – violent car wrecks and the like. The pictures have been tested across hundreds of subjects whose reactionsare averaged, and the pictures have been ranked for their evocative power.

Davidson showed his subjects negative pictures, startling them with a loud noise beforehand, and then again while they were looking at each picture. Then he startled them several times immediately afterwards to see how quickly they recovered. Right laterals continued to show strong startles after the picture was gone, in fact they seemed to get more upset in the moments after their first impression. Left laterals showed strong startles when the picture was shown, in some cases they had stronger reactions than the right laterals, but their startled blinking diminished more rapidly.

At the Symposium, Davidson lists a host of other positive qualities his left lateral subjects enjoy – everything from positive affect while they’re dreaming to greater ability to anticipate positive incentives. When he’s through, there’s a question from the audience – someone wants to know if there isn’t some point at which all this positive affect is maladaptive? A little later, someone else asks the same thing, citing studies that link right lateral activity to empathy, for instance. Maybe these people were wondering if they would want to be surrounded by people who jump out of bed in the morning and go all out, or maybe they’re not sure they like the idea there could be an absolute standard of emotional health.

Davidson isn’t claiming to have discovered the absolute standard, but he reminds them again, it’s not that his left lateral subjects don’t feel negative emotion – in some cases they feel it more deeply, but “appropriately.” Then they rapidly recover.

Of course, we could all stand to feel emotions more appropriately, to recover more quickly. Identifying the basis of healthy emotion opens up the possibility that we can move toward it. In fact, we adjust our emotional behavior to what’s appropriate every day – a capacity that Davidson has confirmed in another experiment with disturbing pictures and startling sounds. This time, the lab instructed each subject to either enhance, or suppress, or maintain the emotion inspired by the card – and it turned out people really can suppress their emotional blinking, just by deciding to. Though of course the left lateral people did it better.

But to what extent can we change the balance of the circuits themselves? Doctors at medical centers scattered across the world, including the Harvard Medical School, have already begun treating depressed patients with magnets to see if they can stimulate their left cortices, and at Northwestern University in Evanston, Dr. Peter Rosenfeld has development a system that may help train you to swing your prefrontal activity toward the left with neurofeedback. He says most of his patients have been successful, though he cautions the method needs to be studied with a control group.

Davidson has been exploring the powers of mediation. In a study with Jon Kabat Zinn at University of Massachusetts Medical Center in Worchester, executives of fast paced biotech companies were trained in mediation techniques. Other experiments have involved Tibetan monks. Davidson isn’t talking about the results though, since he’s just submitted a paper for publication.

There is tentative evidence that some anti-depressants make patients more left lateral, though it’s unclear how long the effects last. In the past, Kalin has suggested behavioral training could teach extremely inhibited people to regulate mood altering neurotransmitter systems without being medicated. Now he says “Exposing people to what scares them has been shown to be effective for treating lots of anxiety problems. One of the best ways to get over a fear is to get that person to be in a scary situation so their bodies get used to it, and they realize that what’s really scaring them is their physical response.” If such exposure tones down the CRH system, this might be the mechanism by which such de-conditioning occurs – “but that’s a big might,” he adds with the caution of his field.

Davidson’s left lateral subjects, with their positive affective style, sound a little like the patients taking selective serotonin reuptake inhibitors, or SSRIs, in Peter Kramer’s Listening to Prozac. At least Kramer argues his patients haven’t become terminally cheerful, or oblivious to pain, they’ve just acquired a new ability to bounce back from adverse circumstance, they’ve acquired a new emotional resilience – and apparently without the discouraging side effects that have limited the use of other anti-depressants.

Davidson is skeptical that they’re talking about the same thing. “I don’t know of a single study that has rigorously examined the effects of SSRIs on the rapidity of recovery following a negative event.” Though serotonin does reduce CRH levels, “we’re thinking that’s one of the ways it works actually,” Kalin says. And together, he and Davidson have found that left lateral monkeys have lower levels of CRH than their less resilient, right lateral peers. Someday, the HealthEmotions Research Institute’s work on CRH blockers might translate into drugs that bypass the serotonin system, reducing anxiety and maybe avoiding the sexual dysfunction, which is the one really discouraging side effect the SSRIs turned out to have.

Kramer was so impressed with the glorious effects of Prozac that it made him uneasy. There are some ethical questions raised by a drug that doesn’t just make people more peppy, or more relaxed – those scales hit limits where they're not advantages anymore – but one that makes people more lucid in their thinking, quicker to make decisions, more resilient. He describes a patient who found Prozac made her more effective in her role as a representative of corporate interests in labor negotiations – leaving him wondering if labor should have been offered Prozac too.

Having moved past vague definitions of happiness and set their sights on the more practical goal of emotional resilience, emotions researchers are describing a set of fairly competitive behaviors. And why shouldn’t they be competitive if emotional health is adaptive, if neural circuits contribute to individual survival, and evolutionary advantage?

Is the positive affective style, with its roots in approach oriented behavior, just a
competitive personality? Kalin is thoughtful, “Positive affective style, or a resilient personality and so on, these terms are relatively new. So the idea that that kind of a person might be very outgoing, or very approach oriented, or very competitive, is an interesting idea.

“My thought is that they don’t necessarily go hand in hand. You can have a person who is very positive, adaptive, healthy emotionally, who is not necessarily terribly competitive. You could also submit that if it’s very competitive, it’s not very healthy emotionally,” or very adaptive. Very competitive people might have trouble getting along with others if they’re not considered empathic, for instance.

Ultimately, he says, “the healthiest emotion style is to be able to experience a full range of emotions appropriately, but also to be able to turn them off when it’s not appropriate.” You can’t argue with a standard defined as what’s appropriate, but if we learn to recover more rapidly, what is appropriate will probably also change.

When Kalin, who is Chair of the University of Wisconsin, Madison’s Department of Psychiatry, writes about anxiety among monkeys, he frames his research in the context of what science might do for an anxious child. Biologically based anxieties won’t necessarily lead to physical illness, or death, but they will make his whole life more difficult, and may start “a vicious circle leading to isolation, low self esteem, under achievement, and anxiety and depression.” Kalin’s research on Cayo Santiago, where as many as a quarter of the males really do die from the pains of adolescence, illustrates the gravity of emotional pain. On the other hand, if so many monkeys already die because they can’t find a place for themselves in the world, how would they fare in a colony of emotional athletes?

Is positive affective style just very competitive behavior? “There are certainly some important areas of overlap,” Davidson says. For instance, some scientists have found that anger, particularly anger directed to remove some obstacle to an individual’s goal (“an important function of anger,” Davidson adds), is associated with a similar pattern of brain activity as the positive affective style. “Undoubtedly, as we begin to look more closely at these emotional states and characteristics we will discover other differences between an approach oriented style that is tinged with anger and one that is more unequivocally positive.”

This doesn’t mean that as we develop emotional prowess, we will be angrier, any more than cultivating our recovery times will mean we’ll all become cut-throat competitors in a spinning global economy, or that we’ll toss out our brooding novels for the faster fare of MTV. Whatever the evolutionary purpose that gave us emotions in the first place, it’s our emotions that make us cling to things that aren’t practical, that don’t move the race forward, that aren’t always advantageous to us as individuals. It’s because of them that we don’t want the monkeys with poor affective styles to perish, and maybe we don’t even want to be people who jump out of bed in the morning, impatient to go all out. But if everyone else is going to be like that, we might consider medication.

Or we might turn to other methods. In a one-time experiment, Davidson flew a Buddhist monk in from Dharmasala India to give him his EEG test for left or right laterality. When he placed the result on a scale with 175 of his regular subjects to see who had the most left lateral prefrontal cortex, it was the gentle man from Dharmasala who came out on the furthest extreme of the scale.

Photo: Aleksandar Todorovic / Shutterstock.com