Monday, July 14, 2008

Psychobabble for $600 a session, Part 2

The story of $600 a session therapy certainly struck a nerve. Therapists wrote in to the NY Times to defend their profession. Ordinary citizens concluded that therapy was just a racket. Many thought that the therapists were notably indiscreet. Finally, a smaller group was asking how these new tycoons could consult with a group of therapists I would describe as: the gang that couldn't think straight.

Weren't these therapists exhibiting the kind of narcissism that they are supposed to be treating. If you are in the business of labeling people as narcissistic you should keep a tighter handle on your own.

The problem with the high fee structure is not really the number. Rather, it is the value offered. Are these pseudo-philosophical insights really worth their weight in gold or are they fool's gold?

If the service you provide is worth what you are charging, well then, most people will not begrudge you the high fee. Movie stars have immense salaries because their presence translates into box office success. Fashion models can make thousands of dollars for a thirty-minute show because they help to sell clothes.

The reason people were amazed at the high fees therapists are charging was simply that they seemed out of proportion to the insight provided.

The Times was correct to present the story as a sign of the times, a sign of the excess that characterizes a gilded age. But there is another side to the story, implied, not explicit.

It is not an accident that this has been taking place in New York. The business of New York is finance. New York is the financial capital of the world and the people who are spending large sums on therapy are its masters-- whether hedge fund operators, investment bankers, or mortgage traders.

The real issue right now is not whether these masters of the financial universe have gained some insight into why they are so competitive, but, how well are they managing the world financial system? Today, the answer is: not very well.

Shouldn't this provoke a wave of humility in the therapists who are supposed be curing these tycoons of their hubris?

The issue is hubris, not narcissism. As the Greeks understood well, reality (or the gods) has a way of dealing with people who suffer hubris. Not everyone who is rich, or hyper-rich, is overwhelmingly arrogant. Some are modest and humble; some even deserve the money they are making.

Some people have worked hard to earn their fortunes. They have a right to do as they please with it. Others, however, have simply gotten lucky. Having been at the right place at the right time, they have cashed in.

The latter risk hubris more than the former. Many people who get lucky are like the man who walks into a casino for the first time and wins the jackpot. If he never again walks into a casino, he is smart. If he keeps coming back because he believes that he cannot lose, his hubris will surely do him in.

The problem is: when you make a lot of money, how do you know whether you are really that smart or are just plain lucky? Masters of the financial universe are often anxious because they simply do not know. They do know that what the markets give, the markets can very easily take away.

Others continue to make money, but their hubris destroys them in a different way. They believe that since they are brilliant at banking, they will also be great at running a retail operation or a mining company. Often they learn the hard way that different businesses require different skills.

Other men whose success convinces them that their judgment is infallible believe that they are also masters of dating, romance, and marriage. Many have been justly humbled by women.

If justice rules the world only those who suffered hubris would be brought down. But, as you might know, justice does not rule the world.

Some people whose banks have lost obscene amounts of money have walked away with excessively generous pay packages. Think Stanley O'Neill of Merrill Lynch or Charles Prince of Citigroup.

The worst injustice concerns those people who worked hard and long for Bear Stearns, but who, out of loyalty, held on to their company stock, only to see their life savings wiped out in the company's collapse.

Our own sense of justice leads us to want to tax some of these tycoons into oblivion. The problem is, they have so much money that, short of confiscating it all, you cannot tax them enough to make a difference. For all intents and purposes, their wealth is infinite.

This is one of the strange characteristics of today's billionaires. Warren Buffett likes to advocate raising the taxes of people like him. And yet, he has managed to shelter most of his vast fortune from taxes by giving it away to a foundation. To the best of my knowledge, he has not made any extra contributions to the Treasury.

The problem he and his fellow billionaires face is that there is no consumer good that they cannot buy. Worst yet, when they buy it, the expense makes no real difference in their ability to buy something else. They do not have to choose, because they can effectively buy everything. And they do not have to sacrifice the purchase of one item in favor of another. The loss of that experience, call it one's economical self, is no small psychological matter.

If you can't spend it, and if spending some of it makes no difference in your ability to keep on spending, what do you do? One thing you can do is to make foolish, risky trades. That is what seems to have happened to Bear Stearns.

It is like getting into a Ponzi scheme and imagining that you will be able to get out before it all falls down. If that is the only way the masters of the financial universe can participate in the consumer economy, then we all have a problem.

No comments: