Do We Trust Ben Bernanke?

What if there was a crisis and you didn’t get what was happening? As Americans have been trying to get a grip on the continuing financial crisis many have discovered that they are poorly equipped to understand what is happening.

Had you been reading the facial expressions of the principals in late 2008 you probably figured out that we were in serious trouble. But then, once anyone tried to explain what was going on, most of our minds went blank. The information did not register.

Feeling lost, we were being attacked by a special kind of anxiety. We knew that we did not know. We hoped and prayed that the people in charge did know something about what was going on and did know how to fix it.

More anguishing still was the fact that we didn’t even know if they were getting it right. As of today, we still don’t know.

Many of us went to college and bought the idea that we should always exercise our independent judgment. We were not going to be led around by old authority figures; we would thrill to our own mistakes.

But, there comes a time when we recognize, as many people are seeing now, that if your studies have not given you the intellectual tools required to analyze the state of the financial markets, then, talking about independence and autonomy is just blowing smoke.

The less you understand the more you have to rely on the expertise of the elites. You do not have a real choice.

Unfortunately, the people we call on to fix the system are the same people who got us into the mess in the first place. But now we have to trust them, because the system they built and drove into ground is so complicated that no one else understands what is going on. And no one else knows how to run it.

As I said, the country is not awash in confidence. If we are entering a new age of anxiety, this reliance on experts must rank high on the list of reasons why.

Sometimes we understand crises. We can picture them. It’s easy to picture the action of war or to watch swarms of illegal immigrants streaming across the Arizona border.

When a hurricane or an oil spill or a snowstorm or a flood attacks the nation we can sit back, turn on the 24 hour news channel, and find image after image of the calamity at hand.

If we can picture it, we get it.

But what happens when we don’t know how to picture it? What does it mean when a credit market freezes?  How many of us understand the interplay between the housing market, the mortgage market, the Federal Reserve, Fannie Mae, Freddie Mac and government regulatory bodies?

Even today, I would venture that most people could not define a Credit Default Swap and cannot explain to you what collateralized debt obligations are. How many of us believe that we could navigate the markets where these and other exotic instruments grow and metastasize?

If we don’t know what is really going on, how can we feel confident that we know which policies are right and which are wrong? Or which leader will do the best job of implementing the policies.

So, in the financial crisis, as rarely in the past, we feel like we are at the mercy of a governing intellectual elite. And this elite does not even come to us from the Humanities or the legal profession. This makes it much more difficult to ridicule them. They are mostly economists, and even investment bankers.

Most of us do not understand the financial world. Thus, we base our opinion on more obvious observations: bankers are making out like bandits in the crisis.  Does this make us more or less likely to trust them?

Many people have now figured out that the Obama White House is full of pinheaded intellectuals who do not know what they are doing. Most of them have never run a business or even met a payroll.

Fewer people are aware of the fact that the Chairman of the Federal Reserve is also an Ivy League intellectual, a Princeton professor who has no experience in the real world of business and banking but who has complete confidence in his ability to manage the crisis. Do you feel less or more anxious?

If you are looking for a silver lining in the current crisis, it’s this: more and more people who knew nothing about the financial system have started learning about it. They are fighting their own private wars against financial illiteracy.

It’s cool to be cultured. It’s cooler still to be a connoisseur of the arts. Yet, if all you know remains within the realm of the aesthetic you will find yourself disarmed when it comes to making major life decisions… about your own finances and your vote.

I can attest that people who would have gone to holiday parties to discuss culture and the arts, that is, the latest movies and plays, are now sitting around discussing the Fed’s latest round of quantitative easing.

When it comes to trying to get a handle on what it means for the Federal Reserve to adopt a policy of quantitative easing, many of us have regaled ourselves with a cartoon produced by the crowd over at Xtranormal.  Link here.

Admittedly, I am late to this party, but on the off chance that some of you might have missed it, this cartoon explains a great deal and provides more than a few good laughs.