Category: Society

What Really Happened?

It is difficult to get a clear or consistent account of what went wrong between banks and their regulators in the run-up to the crisis. So many accounts in the press are evasive and muddled – if you stop to look more closely.

According to a story in The New York Times, for example, the problem was lack of time: “At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late.” But was it really a matter of being too late? “At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action.” If the banks were warned in 2002, how could that be seen as “too late” for them to act? (See, “Post-Mortems Reveal Obvious Risk at Banks.”)

The article goes on: “Given the past lapses, some wonder whether examiners will spot new troubles in time.” But again, is time really the problem? Did they really speak up loudly and forcefully enough to be heard, or to compel action? How would more time have helped?

The article does go on to suggest additional reasons: “Many bank examiners acknowledge they were lulled into believing the good times for banks would last.” That sounds more plausible, but isn’t that just what regulators are supposed to do, pointing out that banks can’t just believe what they want. Bankers may be lulled into ignoring risk, but regulators are there to point out the problems they have neglected or ignored, to blow the whistle.
“They also concede that they were sometimes reluctant to act when troubles surfaced, for fear of unsettling the housing market and the economy.” But shouldn’t the buyers and sellers of housing be “unsettled” if the market is dangerous? Don’t they need protection, at least warning? Perhaps, though, they were not the only ones who might be unsettled?

A hasty reading of this account might lull the reader into accepting this tissue of mystifications and banalities. A closer look suggests a form of collusion between the banks and their regulators. Did the regulators identify too strongly with the bankers, blurring the distinction between their roles as they rooted for more and more returns in the industry? If regulators hoped for jobs in banking, did they soft peddle their comments so as not to antagonize potential employers? Were they demoralized and understaffed, unwilling to go out on a limb and risk complaints and criticism for taking unpopular stands?

We seem to need some more aggressive digging into the subject. It would be really useful to have clear answers – but that might take too much time.

The Roots of Killing in America

“Nearly 1 of every 200 children born today will be murdered,” writes Randolph Roth in his new book, American Homicide.  He adds that, ever since the early 19^th century, we have been the most homicidal country in the West.  The statistics are not in dispute, but what about the reasons?

A professor of criminology, Roth offers this answer: “What matters,” Roth writes, “is that [citizens] feel represented, respected, included, and empowered.” If an individual feels secure in his social standing, it’s easier to get over life’s disappointments. But for a person who feels alienated from the American Dream, the tiniest offense can provoke a murderous rage. (See Newsweek, “Why Politics Makes Us Kill”)

Envy, in short, is the culprit.  As a psychoanalyst, I am familiar with the powerfully destructive force of envy.  Jealousy drives those who suffer from it to idealize the other, relentlessly devaluing themselves.  That’s bad enough.  But envy drives them to destroy the other.  They have to maim and kill because the other serves as an intolerable reminder of their own failure and inadequacy.

The truly interesting suggestion here is that envy could operate so broadly and powerfully on a national level.  Unfortunately, it makes sense. In general, we believe that our competitive system encourages talent and rewards effort.  It spurs achievement and innovation.  But what about those who do not succeed?  If America is the quintessential land of opportunity, inevitably some must fail for others to succeed. Can it be that the dark side of our highly successful economic system is the vengeful hatreds and homicides that have plagued us for two hundred years?

Certainly, we do seem to punish those at the bottom of the scale.  The growing disproportion between the rich and poor, our frayed social safety nets and failing public school system, all suggest a lack of concern for those unable or unwilling to climb the ladder of success on their own.  Our tendency to reward or blame individuals contributes to this pattern. The palpable indifference and neglect we show towards those who do not succeed can only exacerbate their bitterness and despair.

Clearly it takes more than social conditions to drive someone to murder. Alone, that could not account for any one particular homicide.  But it certainly could be one of the underlying factors that wears away patience and restraint, adds frustration and anger, preparing some of us to give way to the surge of rage that leads us to the ultimate crime.

What we don’t know we know is the extent to which the invisible bonds of our social acceptance and belonging help to keep us in check.

Or the Obligation to Be Up-Beat

The Metropolitan Transportation Authority has announced that soon all New York City Metrocards will be stamped “OPTIMISM.”  Positive thinking, our unofficial national ideology, is becoming harder and harder to escape.

Happiness and cheerfulness are good things, to be sure, as are self-confidence and faith.  Nor is optimism bad, by any means.  But there are downsides.

Right now, for example, in the aftermath of our financial crisis, we have very good reasons to be wary of optimism.  Too many people rashly overestimated their ability to pay the mortgages they were encouraged to take out on their houses, while too many investors bought mortgage derivatives based on the false expectation that real estate values would spiral ever upwards.  Banks over-extended themselves, while regulatory agencies and ratings services stopped worrying just at the point when they should have been fearful and pessimistic, when they should have forcefully said “no.”

Barbara Ehrenreich’s new book, Bright-Sided, describes our national obsession with positive thinking at a critical moment when it looks as if we are trying very hard not to learn the lessons of our recent mistakes.  She chronicles how positive thinking has been touted as a cure for cancer, causing many suffering from it to blame themselves if they do not get better.  It is seen as the key to financial success and upward mobility, some writers going to far as to proclaim: “God wants you to be rich.”  Increasingly it is viewed as a management strategy, where the “right attitude” is viewed as essential to success.

She notes that this trend parallels the deepening of the problems we face in our society, our deteriorating ssafety net, the growing gap between rich and poor, and rising uncertainty and pressure in the workplace.  She cites a recent meta-analysis that found Americans ranking only twenty-third worldwide in self-reported happiness, adding that we account for two-thirds of the global market for anti-depressants.  This is similar to a point made by Carlin Flora in Psychology Today last January: “According to some measures, as a nation we’ve grown sadder and more anxious during the same years that the happiness movement has flourished.”  Maybe, she offers, “that’s why we’ve eagerly bought up its offerings.” (See, “The Pursuit of Happiness.”)

There are a few other problems with positive thinking.  A full and rich life includes other mental and emotional states.  Life inevitably includes frustration, disappointment, loss, illness, and ultimately death.  Without the capacity for sadness those experiences engender, life would be two-dimensional.  Without nostalgia, longing, wistfulness, regret, and even grief, how could we understand others and expect to be understood in turn?

Moreover, anxiety and fear are clues that something is amiss.  Sadness tells us something, often something we need to hear about our relationship to the world.

Far worse, though, is the danger of proscribing such feelings by refusing to meet each other in their presence.  Nothing is worse that the isolation and guilt we induce by being unwilling to recognize what others are experiencing.  That makes us ungenerous, sometimes even cruel and punitive.

What We Are Just Beginning To Know

Now that our faith in efficient and rational markets is largely discredited, new studies are sketching in the multiplicity of ways in which investors make decisions — irrational decisions.  This is all part of a new generation of behavioral economists and psychologists working together to replace the simplistic ideas of the economic orthodoxy that helped bring about our recent economic collapse.

The Wall Street Journal reported on Saturday that investors are prone to believe what they want to believe: “In short,” they conclude, “your own mind acts like a compulsive yes-man who echoes whatever you want to believe. Psychologists call this mental gremlin the ‘confirmation bias.’” (See, “How to Ignore the Yes-Man in Your Head.”) “We’ve made tons of errors like this,” says Staley Cates, president of Southeastern Asset Management, and, according to The Journal, other professional investors not only agree but actively seek strategies to combat this tendency.

In his book, Predictably Irrational, Dan Ariely has assembled an account of a slew of irrational factors that shape behavior.  He describes, for example, the force of what he calls “anchors,” the initial impressions of value that serve as a reference point for all future valuations. It turns out that coherence is more important to the brain than almost anything else.  It is a simple point, but it strikes at the heart of what economists have called “demand,” what people are willing to pay for what they like and want.  As Arieli explains, what people want turns out to be highly determined by accident and habit, the “anchors” they started with, and not only has little inherent meaning but inevitably differs in different situations.

In How We Decide, Jonah Lehrer stresses how recent research shows that emotions are often a more reliable guide in figuring out what to do than our conscious minds.  Emotions are often better able to process clues and discern key differences.  In fact, we often make mistakes in trying to be too rational and systematic.  Jesse Prinz in his book, Gut Reactions, makes a similar point.

Joseph Hallinan addressed a variety of factors that account for biased and distorted decision-making in Why We Make Mistakes.  He points out how often we wear rose-colored glasses without knowing it, and that, moreover, the grass we see on the other side of the fence really does look greener.  We all think we are above average in looks and intelligence – except when our personal tendencies towards distortion move us in the opposite direction.  And so forth.

All of these insights do not make for a coherent psychology of investing, but they certainly drive home the point that the simplistic assumptions about human motivation that guided economists in their thinking about markets just don’t work.

What we really need is a greater understanding of how the unconscious guides us in all our perceptions and responses to reality.  Economic decisions are only a part of that reality – but a big and vital part whose importance we are just beginning to grasp.

Justice and Therapy

Surely there are legitimate differences of opinion about using civilian courts or military tribunals to try the terrorists who planned 9/11, but it is hard to separate them out from the powerful underlying emotional issues.  In the reactions to the Attorney General announcement of his plan to try them in Federal Court in New York, it is easy to detect those who fear being re-traumatized and those who hope the trials will enable them to put their fears behind them.  (See, The New York Times, “Trial Venue Leaves 9/11 Families Angry or Satisfied.”)

“It’s absolutely disgusting,” said a woman whose son died in the attack. She said of Mr. Mohammed, “He’s going to be, what, two blocks from ground zero, where he can see his handiwork and mock those he murdered.”  She started crying. “Every day I get up and know I’ll never see my son again,” she said. “This is just a smack in his face.”

Another woman who lost her husband in Tower 2, was among scores of relatives who had signed a letter opposing regular criminal trials for them.  “It’s totally unfair,” she said. “Why do we have to constantly relive this? When do we get to be at peace? They should be hung.”

On the other hand, many hope the trials will offer closure:  “Let them come to New York,” said a retired deputy chief of the New York Fire Department, whose son died in the attack. “Let them get on trial. Let’s do it the right way, for all the world to see what they’re like.”

There is no neutral place in this story.  As someone who works downtown said:   “it’s going to be very rough on some people. I’m getting goose bumps just thinking about it.”

For those whose losses are less great, how much can the legal issues be separated from the political meaning of the event. There are those who see the trials as a means to repair the embarrassment and humiliation of Guantanamo, and restore our image as a nation of laws.  The New York Times editorialized that the decision was, “a bold and principled step … toward repairing the damage wrought by former President George W. Bush with his decision to discard the nation’s well-established systems of civilian and military justice.”  (See “A Return to American Justice.”)

Then, of course, there are those who emphasize that we locked in a mortal struggle with a virulent enemy.  Commentators in The Wall Street Journal derided the plan as “show trials,” and John Yoo, the Justice Department official who helped design and justify Bush’s policies on torturing detainees, refers to them as “an intelligence bonanza for al Qaeda.”  (See, “The KSM Trial.”)  In their view, we cannot afford to offer terrorists the advantages of fairness and due process.

As Justice, blindfolded, tries to pick her way across the rubble of our emotional landscape, can she even find a place to stand?