I don't know how clean water comes out of the tap when I turn the handle. It just does. Every time.
That is why this financial crisis is so damaging. Our trust in those who made the financial system work has been decimated - no less than we would lose faith in the water company if the taps started dripping cyanide.
Companies don't have values or ethics or competence. People do. And the most important people in those companies have let us down on a world-changing scale.
We now see clearly enough the chain of failures reaching from mortgages to bonds to investments to swaps.
But we will be a long time figuring out how and why some of the most powerful business people and regulators of our time never saw those failures reaching critical mass.
As a psychologist, I am intrigued, but, like everyone else, also grasping for answers.
Greed? Certainly that is part of it. But "greed on Wall Street" is the normal way of things. It's too easy an answer, although an understandable one for those trying make sense of disrupted lives. Greed, after all, is something we can understand.
What we can't understand is why the people who knew better simply chose not to.
In a new book called Think Again, Dartmouth Tuck School of Business Professor Sydney Finkelstein looks to neuroscience for an explanation.
He believes that those who made the epically bad decisions over the past decade were victims of their own wiring: ignoring anything that doesn't match up with prejudgment (think the run up to the Iraq war); blind confidence that what worked in the past will continue to work; putting self-interest ahead of group interest; and becoming so attached to their creations that they drove them to failure rather than admitting their flaws.
Evidence says you can be all of that and still make a ton of money. From some, in fact, it's a career strategy.
Many who served the masters of finance report that they sounded internal warnings about the coming train wreck, but they were drowned out by the sound of money hitting the bottom line. Year after year, the alarm sounders were wrong and the full-throttle gamblers were promoted. In the end, only the gamblers were in control.
The frightening thing now is the absence of humility, which greatly complicates the search for the black box, which contains the lessons learned.
Lehman Brothers' Richard Fuld still says everything would have been OK if the government had stepped in to save the company he ran into ground. Citigroup's Robert Rubin says nobody could have seen this coming and, besides, his role was only advisory. Merrill-Lynch CEO John Thain tried and failed to get a $10 million bonus from the company that he guided to oblivion. SEC head Christopher Cox said that the destruction fell outside SEC's job description, neglecting to mention that just days before Bear Stearns fell he had enough interest in matters to express "a good deal of confidence" in the company's capital levels.
Alan Greenspan made an attempt at contrition; owning up to his flawed assumption about the "self-interest of lending institutions to protect shareholder's equity." But wait. What he's really saying is that it's not his fault that these institutions were so stupid. He simply expected too much of them.
So unabashedly un-chastened are the big banks that they are refusing to tell us how they are spending the bailout money that we will paying off for generations. The response from the very people who brought the world to the brink by their incompetence: Trust us.
We've seen the flaming spiral of the wizards before. It is always followed by day-late regulatory reaction and determined assurances that this will never, ever happen again. And yet it does. Maybe not in quite the same way, but it does.
Will the depth and breadth of the pain this time create a better generation of financial leaders; not just smarter, but essentially different from those who, blindfolds tied firmly in place, have driven us off a cliff?
Knowing that the past is almost always prologue at the junction of big power, big cash and big egos - I have big doubts.
Sure, the auto execs might not know what they're doing. But neither does Paulson. He and Bernacke are definitely "winging it" (in fact, they admitted as much). So what's the deal with the media? I've yet to hear anyone in the media ask some serious questions. There seems to still be such deference to these "Masters of the Universe." If the people in the news media don't understand anything about finance, then they should either do their homework or hire some people who do. Among other things, it would be helpful to be specific about the following -- mortgage loans, mortgage securities, and credit default swaps. The media tends to lump them together (as if they were the same thing). Well, I can tell you that AIG did NOT make mortgage loans. And they received a $150billion bailout. Would someone in the media like to explain that to Joe Public? There have been a few articles, but the media is largely silent.
The reality of it all is that INSANITY and GREED is LIFE. To fight this is futile. Embrace it. Love it. Live it.
I plan to retrain (I am currently unemployed) and move to Washington DC to start a new career in either government or as a lobbyist- both killer jobs where you can make tons of money as the world falls apart. I wish I would have thought of this sooner.
I read your article about derivitives. I have done a great deal of research on this subject. It is my belief that the "Big Secret" in all of this, the secret that made George Bush say when asked why he had agreed to all these bail outs..... "Paulsen and Bernake have been telling me for months that if we dont do something then we will end up with a problem WORSE than the great depression"..... the secret that threatens to destroy the entire world economy is.....derivitives.
The $500 trillion amount you quoted is only the "known" amount. Ive read estimates that the "unknown" amount may be as high as 1,300 trillion. Any time a large bank, investment house, large corporation, or any one of a neverending number large government entities goes bankrupt then it will start a chain reaction of defaults linked to derivitives simply because the sellers of these "financial instruments of mass destruction' never set any money aside [cash reserves] so they could honor their agreement-contract with the buyer...therfore making them bankrupt..........and on and on and on...............till every financial institution on earth is broke.
FDR was right.
It really should be obvious.
http://www.huffingtonpost.com/users/profile/research
How could we be so "incompetent"?
As Bush has shown us, incompetence is an excellent cover story.
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What saps we've been! America has been taken to the cleaners by the cleaners. It's no big mystery unless you still believe the capitalistic system works.
Please. Their own wiring does not make them victims. It makes them criminals.
Just review the past and such occures about 10 to 15 years apart and always at the great surprise of the so called experts.
Otherwise, they will just continue to be con men to the max and wanting to be bailed out by the government...
Like another poster said, these people are never taken to task,,, look at Kenny Lay and his fortune, nobody every got a cent back from the billions that the family still has and nobody went to jail....
One certainty is, wealth has no debts.
This one is closely related to "blind confidence that whatever we're trying to do -- even if it's something new, with no track record of success or failure -- will work. (Of course it will -- the theory on which it's based is central to our ideology, after all). So if it doesn't appear to work at first, that'll just mean we need to do more of it."
anyone wants to admit.
To regulate or deregulate, that is the question. Let's please learn that
changes need to be made moderatly, and taken out of the hands of ideologs.
"Do not arouse the wrath of the great and powerful Oz. I said come back tomorrow."
"Pay no attention to that man behind the curtain."
um ... get the idea?