Friday, October 31, 2008

Christopher Hitchens Finds God

Have you noticed how many self-proclaimed atheists are having a religious experience when they hear Barack Obama?

Often they do not support his policies or defend his candidacy on the basis of experience and accomplishments. Yet, they find themselves carried away, in ecstasy or rapture, over the thought that he is going to redeem the nation and save our souls.

If you ask them why they are supporting Obama, they will often reply that they despise Sarah Palin for belonging to an extremist religious cult.

In some case this support looks like an all-out conversion experiences. Take Christopher Hitchens, a writer who has led the culture war against Islamic fascism, but who also, as a full-throated defender of atheism, hates all things holy.

Perhaps Hitchens conversion does not rate with the moment when St. Paul was struck blind on the road to Damascus, but it must have taken every ounce of his intellectual fortitude to throw his inconsiderable support behind Barack Obama, a candidate whose supporters have often taken the other side of the war on terror, and whose appeal is based on the trinity of faith, hope, and charity.

Among the intelligentsia Hitchens has counted as one of the staunchest defenders of the war in Iraq. The man who was most responsible for the policy change that has brought us to the verge of a positive outcome in Iraq was John McCain. Were it not for John McCain, Hitchens' intellectual reputation would have gone down to ignominious defeat in the Iraqi quagmire.

And what honor does John McCain receive for having stood up to the masses of people calling for withdrawal from Iraq? In his column supporting Obama, Hitchens portrays McCain as a doddering, wheezing fool, a man without character or substance, a tired old lion breathing his last pathetic breath on the public stage.

Not too long ago John McCain was practically the only public figure who insisted on victory in Iraq. Does this show a lack of character? Why would it take less character for McCain to promote the surge than it did for Obama to vote to cut off funding for the troops?

Does Hitchens know what character is or has he been blinded by the light emanating from the One? One can only hope and pray that his recent spa treatments did not turn his brain into New Age mush.

If character is the issue, then how do you defend a man who pledged to accept public financing of his campaign and then went back on his word because he could get away with it? Is a man who does not keep his word trustworthy? Does he evince integrity and honor?

And how do you maintain your atheist bona fides when you are supporting a candidate who says that he has a "righteous wind" at his back.

As many have already noted, how do you defend a candidate who worshipped at the Church of Jeremiah, marched to Washington behind Lewis Farrakhan, and is supported by Hamas, Hugo Chavez, and the Iranian theocrats?

Hitchens explains it all in his own inimitable way. The reason he is going to align himself with Jeremiah Wright's parishioner is simple: John McCain is an old fool and Sarah Palin once attended a Pentacostal church.

I would not call Hitchens a pious hypocrite. I would not even call him an impious hypocrite. I will not suggest that he is being opportunistic or that he has simply tired of being the lone intellectual voice arguing for the fight against Islamic fascism. I would not even say that he has been swept away on the great emotional tide of Obama-ism.

No, I would never accuse so fine and productive a writer of crass, undignified motives. After all, that would suggest that he was a man without character.

I prefer to think that he has undergone a religious conversion. He has joined those non-Christians who have been drawn to a master of messianic Christianity, a man whose appeal is based on faith that he will not do what he says, on hope that it will all work out for the best, and on charity for 40% of the American people.

Wednesday, October 29, 2008

The Mind of Cramer, 2

In a previous post on "The Mind of Cramer," dated October 9, I suggested that the recent market crash might show that the market was discounting President Obama.

This post elicited numerous derisive emails. The gist was: I had mistaken correlation for causation. For all the cold reason that my post contained, I might as well have been evoking astrology.

Of course, the same deeply rational thinkers believe that the market crash is casting a judgment on the Bush administration. They have bought the political spin, and have forgotten that markets anticipate the future.

Besides, how can the market not be loving the prospect of an Obama presidency when most citizens tell pollsters that Obama would do a better job of managing the economy.

To which one is tempted to reply that presidents do not manage the economy. And besides, while the citizenry votes at the ballot box, investors and investment managers vote in the marketplace. The two do not necessarily coincide.

Mine was something of a bare bones argument, so I am happy to provide a link to a Wall Street Journal op-ed by one George Newman. Newman, an economist and retired executive, fleshes out my arguments, noting cogently that it would be irresponsible for a money manager to ignore the fiscal policies that would be promulgated by an Obama presidency and a ruling Democratic Congressional majority.

Admittedly, since I made my suggestion, other publications have shown the correlation between McCain's poll numbers and the Dow. But I think that Newman's piece is the best. Link here.

Tuesday, October 28, 2008

Forced into Virtue

Perhaps you have to be an incurable optimist, but good does sometimes come out of bad. Look at the old fashioned virtues that are arising from the ashes of the current financial debacle.

Prudent lending is replacing unlimited credit; thrift is replacing profligacy; self-restraint is replacing self-expression; hard work is replacing gambling; humility is replacing self-esteem.

Add modesty, discipline, decorum, and respect and an ethic emerges, one that can hopefully replace the current cult to self-actualization.

Tom Friedman called it a Puritan ethic, and he more aptly regretted that it was more prevalent in China than in the United States.

Perhaps, the current crisis will provide an impetus in that direction. At the least, we can hope.

Friedman's use of the word Puritan, in place of Protestant, is provocative.

It is one thing to suggest that the crisis is going to impose more ethical ways of dealing with money, but must it also wring all the fun out of life?

The burning question is: can you practice these Puritan virtues at work and still go out and hook up?

Can you be thrifty and prudent in one area of your life and profligate in another? What does it say about your character if you husband your monetary resources and dissipate your sexual assets.

How you answer this depends on your definition of fun. Benjamin Franklin famously said that a penny saved is a penny earned, but his life was certainly not devoid of sensual delights.

But then again, he was not going out to hook up every weekend.

The lesson is simple: the judicious deployment of your sexual resources might actually improve your sex life. Why anyone would think that modesty and discretion are the enemy of pleasure is beyond me.

Ethics says that you should not be a repressed scold, but it also says that you should not be giving it away for free. Life should not be a sex-free zone, obviously enough, but it should also not be a sexual shopping spree.

What the financial crisis will do to sexual mores remains to be seen. As for the spending habits of New Yorkers, the crisis is having an immediate and dramatic effect.

Thrift is being forced on people. Against their will. And they do not like it.

People are being forced to cut back, to eliminate non-essential expenses, and to think twice about the car service or the extra bottle of Kristal.

Forget the summer in Nantucket; forget the bespoke tailor; forget the private schools. A sea change is taking place; people are being forced into virtue.

Many of them resent it. They deny that it is happening. They feel that they are being forced to adopt habits that do not feel normal or natural, that feel like repression.

Here is the way the scenario sometimes plays itself out in a marriage. Say that the male spouse is a Wall Street Warrior who has just learned that he is not going to get a bonus this year. Assume that his wife stays home and cares for the children.

Her social life revolves around charity balls and galas, private clubs and ladies' lunches. She summers in the Hamptons and takes a long winter vacation in Vail.

Her social life is costly, but it is hers, and she enjoys it. She, her husband, and their children profit from it, in ways great and small.

But, this couple has two mortgages, one maintenance, the upkeep of their summer home, three private school tuitions, to say nothing of the cost of being properly outfitted for all of the galas, balls, lunches, and club dates.

For now, please hold the Schadenfreude. The lost bonus does not just deprive her-- and her family-- of a bunch of consumer goods. It threatens her social existence. Correctly, she does not want her and her children to become social pariahs.

So, now the Wall Street Warrior has just learned that he will not be getting a bonus this year. He knows that the gilded life he provided for his family will no longer be possible. He feels that he is letting them down; he dreads telling his wife that he cannot afford to buy a table at the Winter Ball, that they will have to rent the place in the Hamptons this summer, and that he can no longer afford season tickets to the Mets.

This much thriftiness he could well have lived without. He cannot bring himself to tell his wife.

So, she continues her life as though nothing had happened. Until the day when a credit card is refused or when he has to tell her that her plans for their child's birthday party will have to be scaled back. Let's do it at home; why don't you bake a cake...

It's one thing to lose your bonus; quite another to mismanage the situation and to undermine your marriage.

For failing to explain the situation to his wife, he has told her that he does not consider her to be a partner, but an adversary. She can only conclude from his silence that he does not trust her to understand information that is vital to her life plans.

Crisis management requires him to communicate the information clearly and directly. And to communicate as much of it as she needs to know in order to understand what is going on. He must treat his wife as a partner, someone who will be in it with him, not someone whose disappointment will cause her to turn against him.

If he refuses to tell her what is going on, he is assuming that she will turn on him, and, as we know, people often fulfill what is expected of them, for better or for worse. Otherwise, she would disappoint his expectations.

But, this Wall Street Warrior might resent the fact that he is being forced to be thrifty. If he is sufficiently humble to know that he bears some responsibility for his fate, it will be easier to adapt.

And his wife might also resent their new circumstances, especially for the effect that it will have on their children.

What should they do? Or better, what should they not do? One course of action is to pretend that nothing has happened, that this man is still a great Warrior and that they should not change their spending habits. Evidently, this involves the kind of self-puffery that often passes as high self-esteem.

Or else, resenting being forced into thrift, they may decide to hunker down and to hoard whatever wealth they have left. Just as some banks stopped lending, this couple may well decide to stop spending. They may choose to replace profligacy with avarice.

Thrift, of course, is somewhere between profligacy and avarice. The question is: can you choose a virtue that is being imposed on you? If you can reject thrift, you can surely accept it, voluntarily, as an act of your own free will.

Given the alternatives, it is probably better that you do.

Sunday, October 26, 2008

Who Do You Trust?

It all comes down to trust. Banks have money to lend; if they don't lend it they don't make a profit. Yet, they refuse to lend, or they impose such onerous conditions that very few people can qualify.

Wise people have explained it thusly: banks no longer trust anyone. In the good old days they would dole out money to just about anyone. Now they trust almost no one.

This swing between two extremes was the byproduct of a specific culture, the culture of Wall Street. Not a Wall Street made up of Ivy League Republican males sipping martinis, smoking Cuban cigars, and reminiscing about the good old days at Hotchkiss. Not at all.

Nowadays, Wall Street is a model of socio-cultural diversity. It is perfectly heterogeneous. Its denizens come from all over the nation and the world. They represent every religion, race, ethnic group, nationality.. you name it. Wall Street has Democrats, Republicans, and Independents, in roughly equal numbers. For every Henry Paulson you can easily find a Robert Rubin or Jon Corzine.

Since we live in a flat world, a world that has become a great financial bazaar, it is not surprising that financial institutions that lend and borrow everywhere should look like the world. They are necessarily diverse, for better or for worse.

Diversity is not a flaw; it is a challenge. A firm that fails to meet that challenge will get mired in the problems diversity creates without being able to profit from the advantages it offers.

Reflecting on these issues, I recalled the recent research of Harvard political scientist, Robert Putnam. You may have heard of Putnam, author of the best selling, "Bowling Alone."

Last year Putnam published the results of a multi-year study on cultural and social diversity. Link here.

He concludes: "In the short run... immigration and ethnic diversity tend to reduce social solidarity and social capital. New evidence from the US suggests that in ethnically diverse neighborhoods residents tend to 'hunker down.' Trust (even of one's own race) is lower; altruism and community cooperation rarer; friends fewer."

So, more diversity leads to less trust. We tend to trust people we know. And we trust people within whom we have the most in common. Absent that, we suffer anomie. We lose our cultural moorings and feel less secure, more threatened.

Adrift we swing between offering too much trust to too many people and not enough trust to too few people.

The challenge is: how do you manufacture trust... within a neighborhood or within a corporation. Putnam's answer: by creating a strong, unified, inclusive culture.

The institutions that have been most successful at it, from the military to the football team to the marching band, impose their values, their rituals, their ceremonies, and their customs on everyone equally.

Let's call this the uni-cultural solution. Dov Seidman's LRN is a consulting group that facilitates this uni-cultural approach. It has much in common with what an executive coach does on the micro level.

The alternative is the multicultural morass. This approach pretends that no one needs to conform to the customs and values of the strong culture; everyone should be able to bring his own habits into the institution, and be respected for as much.

Rather than promote conformity and group loyalty, this kind of workplace makes a fetish of non-conformity and ancestor worship.

Instead of fostering group solidarity through training exercises, a multiculti group sends everyone off to therapy, through one of the bastard children of the therapy culture: sensitivity training.

There a group of people gets together to share feelings, to vent, and, ultimately, to humiliate themselves and each other. If you want to undermine trust, if you want to create a culture of individualism and anomie, where everyone really is out only for him or her self, then sensitivity training is the way to go.

Its message is simple: we may come from different cultures, but that does not matter. Nor does it matter if we conform to our new firm's culture. No, we are all human beings, we all have feelings, we all have the same feelings, we all feel pain, and we have all been humiliated.

It is not just the emperor who has no clothes; we are all naked before our colleagues. Systematically stripped of our dignity and self-respect we are either going to hunker down or take care of Number 1.

If you are an executive in a company ask yourself whether you are working to create a strong culture, one where all of your employees share the same customs, participate in the same ceremonies, trust each other, feel an abiding loyalty to the group, and gain social capital from being part of it.

Because, rest assured, this takes work. And it takes time. The least I can say is that it begins with the example the chief executive sets. It is top-down cultural management.

Otherwise you will find yourself with a culture where everyone wants to get his and get out. Doesn't this resemble what was happening in the high-flying risk-taking financial firms. Some of them even tried to emphasize loyalty to tradition... at the same time that they allowed rogue traders to go off and do as they pleased... judging them on how much they produced?

These everyman-for-himself cultures seem to have been transformed into cultures where no one trust anyone. In reality, these are simply two sides of the same coin, the coin where loyalty has been erased in favor of the new virtue of getting out in time.

Thursday, October 23, 2008

Why Do They Hate Her?

Here I go again. Back with a topic that no one wants to hear about. The Manolo-clad governor of Alaska.

Normally, people feel constrained by decorum and civility. They control their emotional outbursts, express respect for their friends and neighbors, and try to contribute to social harmony.

When it comes to Sarah Palin, thee constraints have been tossed aside. It is as though the true emotion of raw hatred was so strong that it burst through these civilizing constraints. Heaping abuse on Sarah Palin has become a positive value.

Obviously, there is no saving virtue here. Democratic government and civil society requires active respect for one's fellow citizens. the preternatural frenzy of hatred that has been thrown at Palin has clearly set back this cause.

Of course, Sarah Palin can take it. The larger problem is that when rhetorical excess becomes acceptable in political debate, then it becomes acceptable in other areas too. If it's acceptable to call Sarah Palin a dumb @$#%, then it would be equally acceptable for the guy next door to abuse his wife verbally.

Why do they hate her? Is it because she is not qualified? If so, that would surely have been a good discussion to have. Is it because she is wrong on the issues? Again, that would have been well within the bounds of civil debate.

Clearly, these are not the problem. Sarah Palin is being vilified because she is an affront to everything that certain people hold to be sacred. She is being treated like a witch, and the only way of dealing with witches is to destroy them before they destroy you.

Just be careful you do not destroy yourself in the process. Witch hunts do no honor to inquisitors.

As it happens, Palinophobia is not limited to the political left. Many conservatives have been trying to keep pace by attacking their party's vice presidential candidate. It is almost as though the pundits are competing with each other to see who can be the most vitriolic.

As though the strength of one's hatred was a badge of honor, a proof of one's own rightness. And, as though the best way to demonstrate superior intelligence were to become completely irrational.

Many writers seem to have channeled the spirit of that master of political and social invective, Jeremiah Wright. They have called Sarah Palin: "a fatal cancer to the Republican party," a "dope," a "blow-up doll," "Caribou Barbie," an "idiot," and a "national disgrace."

Vile epithets do not advance deliberative democracy. They do not show that you are strong, only that you are fanatical. They announce to the world that you are impervious to reason.

Winning the race to the bottom of a moral sewer will never do you or anyone else any good.

Besides, this full frontal assault on Palin is setting an awful example for young people.

First, it is sexist. As Kirsten Powers wrote yesterday, Joe Biden is not held to the same standards as Sarah Palin. Not by a long shot. Link here.

Second, it is misogynist. To hate a woman for being a woman, to show her no respect, to treat her as a subhuman force that must be annihilated... that puts us well within the bounds of misogyny.

Third, it is abusive. Now we know that if a person stands in the way of your will to power you have the right to heap abuse on that person. It is naive to think that people will not be trying this at home.

Whence this sexism, misogyny, and abuse? In my view it is not an accident that Sarah Palin is one of the first women on the national political scene to flaunt her sexuality. Clearly, this has made her a hero to Camille Paglia, but many other women have been horrified and affronted.

Their motto has been: gender, yes; sexuality, no.

Palinophobia is not merely political rhetoric. It sends a message to young women. Actually, it is more a threat than a simple caution.

Palinophobia tells young women that if they have a full life, a life that is happy in public and private, they are a fraud. They are denying the truth of the myth that says that they are oppressed victims. And for that they will be punished.

Hating Sarah Palin tells women that if they want to be powerful in the world, they need to put their sexuality on ice and dress in pants suits and sensible pumps.

Once they strap on the Manolos, once they try to make themselves attractive to men, they must stay out of the board room.

How many women, watching the attacks on Sarah Palin, will get the message that they have to choose between between being feminine and being politically successful? How many of them will simply decide that entering public life is simply not worth suffering the abuse.

Tuesday, October 21, 2008

Let the Mea Culpas Begin

Is apology the answer to our current financial turmoil? Would it at least be a step in the right direction?

Yesterday on Reuters Golnar Motevalli suggested that we can begin to restore trust in our financial system if those who are responsible set forth and apologize. Link here.

In one sense this is true. Recognizing that one has been at fault is the first step toward rectifying an error.

The trouble is, we have a legal system that makes apology dangerous. When clients are facing possible legal action, lawyers always advise strongly against public professions of responsibility.

Of course, apology does not just mean saying you're sorry. A man who is sincerely sorry, who feels shame for what he has done, needs to do more than utter a couple of magic words.

A sincere apology would involve making amends. That is where it all becomes sticky. Should the apologetic banker retire to his farm, thus refusing to help fix the problems that he was instrumental in creating? Should he make amends by giving back some of his gains? If he does not, would his apology count as sincere?

And then, there is this question: Who should apologize? In principle, the people running the world financial system, but that is a very large number of people.

We know who is in charge of the government, of the army, of a company. In these cases responsibility inheres in the title, be it president, commander, or CEO.

When it comes to the global financial system, who is in charge? We know that Henry Paulson and Ben Bernanke are in charge of the bailout and the cleanup, but that does not mean that they are responsible for having made the mess.

And if someone is going to apologize, we still want an answer to an old question: What did they know and when did they know it?

Was it an accident that the financial system imploded? Or was it something worse? Did the people in charge simply ignore the risks because they were making too much money? If that is the case they bear greater responsibility and greater liability.

Interestingly enough, on the same day that Reuters was calling for apologies from the bankers, New York Magazine published a story by Vanessa Grigoriadis where she drew a portrait of a man who had run the subprime mortgage trading desk at a major bank. Link here.

He, for one, does feel remorse for what he helped to perpetrate. To correct his errors he has gone to work at the Treasury Department: "It sounds corny, but it's my chance to right a lot of wrongs and clean up the mess I helped to create."

But then, what did he know and when did he know it? It happens that he understood very well what he was doing. He knew that he was trading mortgages that had been taken out by people who could not afford them.

And yet, as he put it: "Washington had issued a mandate to increase home ownership." He was merely one of the instruments who would make it happen. As for the home buyers: "I didn't know who any of the people were, and I didn't want to know."

So, he bore some responsibility, but less than the people who had set the train in motion in the first place.

In a startling admission, he added that he was not exactly proud of what he had been doing: "I would've stopped if I had the power to stop it, but the firm wanted to be in it. Maybe the guys on the board didn't know what was going on but everyone else did. We're making millions of dollars and my position is supposed to be: 'I'm out'."

We have someone who knew that it was wrong, who liked the money, and did not feel very good about what he was doing. After a while the only way he could sleep was by taking pills. And he was not at the top of the chain of command.

Here ethics meets and greets psychology. when you are engaged in a corrupt enterprise, no matter how profitable it is, you are sacrificing your self-respect. You are not acting honorably, you are not being a judicious steward of the financial system, and you are not making money the old fashioned way-- you are not earning it.

You are making money at someone else's expense, whether by running a Ponzi scheme or by churning an account to generate commissions.

If you make money when your client makes money, well and good. If you make money when your client has refused to take your advice and loses money, this too is honorable. But if you are making a fortune at your client's expense you will live in dread of the moment when it all catches up with you.

The problem you will face, as you are sitting at the trading desk, is how can you respect yourself? How can you enhance your self-esteem when it cannot be grounded in objective achievement and honorable work?

That is the problem.

One solution is medication. Prozac will make you feel great about yourself, no matter what you are doing. Were it not for the artificial highs that Prozac and other controlled substances were producing, more people would probably have been more careful in the way they were managing the financial system.

By using medication to stifle the messages that their emotions were trying to communicate they were able to continue to run an ignoble scheme until it completely collapsed.

If you cannot take pride in your work, you will have to work hard to inflate your false pride. Remember, false pride is better than none at all.

One way to do it is by creating a culture where people are constantly puffing themselves and their colleagues up. You can have company outings where everyone congratulates everyone else on their brilliance, skill, and talent.

Grigoriadis reports that people who worked for Goldman Sachs were constantly told that they were the most intelligent people on the planet. They deserved what they earned and could do no wrong. No matter how bad it looked they were smart enough to make it right and to make a profit from it. It sounds like Long Term Capital Management on steroids.

Next on the list must be: conspicuous and wasteful consumption.

I am assuming that people who have genuine self-respect do not need to advertise their wealth by burning it on the public square. After all, ostentation is an effort to show the rest of the world that you have more than them, that you are smarter than them... because you have so much that you can simply throw it away.

But if you are simply throwing it away you are also admitting in public that your did not earn what you have, thus that you do not deserve to keep it. After a time people will catch on and someone will come along and take it away.

Sunday, October 19, 2008

Of Two Minds

Why does a person who is otherwise prudent sometimes let go and indulge bad habits?

Why does a person who practices moderation lose control one day, suffer the consequences of his failure, and then go back to moderate behavior?

These are questions that Brett Steenbarger addresses in a recent post. He takes the example of a woman who decides to go on a diet. She follows the diet until her weight is normal. Then, as though normal weight were a trigger permitting self-indulgence, she goes off her diet and starts putting the weight back on.

Or, take the trader who buys a call option, sees the option increase in value, and becomes so thrilled with his brilliance that he cannot imagine that the market would ever turn against him. When it does, he is paralyzed into inaction, refuses to take a loss, and watches the option decline until it becomes worthless.

Steenberger's analysis: the trader who placed the trade and the trader who is managing the trade are two different people: "Quite literally, another self has taken over... another mind."

I agree entirely. The person who can do the right thing for a time but who then enters such a different mindset that he cannot but do the wrong thing has simply become someone else. His friends will say: I don't recognize you any more; you have become someone else. This is not a figure of speech.

Steenbarger's approach is ethical, not psychoanalytic. He does not mistake self-control for repression and does not value intoxication as an inevitable expression of a repressed impulse.

So, he wants people to learn to deal with the mental triggers that throw them off the wagon.

And that involves understanding how thought can lead to action.

The recovering alcoholic might start having thoughts about how much he misses his favorite pub or his favorite drink. He might dismiss them as trivial, until the time when they walk him into the pub and lead him to get drunk.

His twelve step program will be telling him that one way to control such thoughts is to avoid the venues that trigger them. If this is possible, it is surely helpful. When it is impossible, he must learn how to deal with this siren song before it deprives him of his free will, makes him into someone else, and leads him to drink.

Here a person swings between factitious self-control and complete self-indulgence, and back again to the same factitious self-control.

I would add here that we should also look at how much the culture contributes to this. After all, isn't Steenbarger describing a person who is living the Freudian mythology that places the human mind in an eternal struggle between repression and expression?

Or else, we can say that the dieter sees dieting as a form of punishment. After she has done her "time," she feels liberated... to go out and indulge again.

As I mentioned in my book "Saving Face," Freudian theory is a guilt/punishment narrative.

The culture has certainly induced people to make this mythology a way of life. We are commonly told to go for the gusto,to live life to the fullest, to follow our bliss, and to explore our sexuality. This precludes temperance and self-control.

We are induced to be uninhibited, to let go, to let it all hang out, to worship at the altars of Dionysus, god of wine and revelry, and Aphrodite, goddess of sexual pleasure.

More than that, the therapy culture has lately been telling people to recreate themselves, not to become a better, more ethical version of whom we really are, but to become whomever we want to be.

It is a demented notion. It involves living a myth. And once you start living a myth is is very difficult to get yourself out of it. If you are two different people, how can you tell which one is the real you.

The woman who swears that she will never again get involved with Mr. X is not the same one who agrees to see him when he calls up at 1:00 a.m. and cries that he misses her. But, which one is really she? And, how can she tell?

Freudian theory says that the one who is letting loose is truly she. Steenbarger is recommending that the one who resolves never to see the abusive boyfriend is really she. Here, I agree with Steenbarger.

To tell the difference you need an ethical standard. If you dispense with ethical standards you default to the Freudian position.

Is it possible to heal the split? Surely, you can set out to do so. You can learn to identify the triggers that cause you to lose control and to counter them before them before they take you over. that is Steenbarger's approach, and it is surely a good one.

I would add that you can become one person by acting as though you are one. You can best start on that arduous journey is by keeping your word. Then, you should make it a habit, until it becomes your signature.

Make your word your bond, make it that when you say you will be there at that time, you are there at that time. Make it that when you say you are going to do something for a friend, the friend considers that your having said it means that it is done.

Surely, this requires some discipline. But it is surely better than veering between the person who makes commitments and the person who does not honor them... therefore, who does no honor to himself.

The goal is simple. The judicious mind that placed that trade should be the same judicious mind that is managing it. That mind will not morph into an exuberant ecstatic mind that becomes entranced with its gains and just lets fly. And that mind will nor morph into the befuddled, fearful mind that cannot sell out a losing position.

Thursday, October 16, 2008

How Matters

Tom Friedman did not have to work too hard to convince me that How matters. See his op-ed column: "Why How Matters."

After all, when I described the difference between therapy and coaching on my website I said that therapy was about the Why while coaching was about the How.

Therapists want to know Why you get things wrong; coaches want to show you How to get them right.

My approach there, and throughout this blog, has had a strong ethical component. What matters in life is how we treat other people, how we conduct our relationships, whether we are loyal, trustworthy, and responsible.

So I was also pleased to see Friedman directing our attention to the work of Dov Seidman, CEO of LRN, a man who is in the business of promoting ethical behavior in the workplace.

Seidman wants to improve how people behave. See link. He emphasizes the importance of connecting with other people, treating them with respect and courtesy, and making them feel valued. In Seidman's view, and in Friedman's and mine, behaving ethically is an essential element in any business transaction.

At one time we had it. We do not any more.

Many people in the financial services industry were so interested in pursuing their own self-interest that they forgot their duty to maintain the viability of the financial system. They forgot that they had a responsibility to the the business community and to the community at large.

Most of them did give gobs of money to charity. But that could hardly make up for the fact that they were running the financial system into the ground.

Certainly, this is not true of everyone in the financial world. Yet, if you play a perfect game and your teammate fumbles the ball you are still on a losing team.

Having discussed these points on this blog, I immediately found Friedman's argument persuasive: "You cannot tell tens of thousands of people that they can have the American dream-- a home for no money down and nothing to pay for two years-- without that eventually catching up with you. The Puritan ethic of hard work and saving still matters."

Indeed it does.

Friedman is also correct to offer this prescription: "We need to get back to collaborating the old fashioned way. That is, people making decisions based on business judgment, experience, prudence, clarity of communications, and thinking about how-- not just how much."

This is a radical prescription. For decades now the culture has been drumming it into everyone's head that the Puritan ethic leads to sexual repression, neurosis, and cancer. To say nothing of imperialism, colonialism, and oppression.

The therapy culture has contributed mightily to this effort, but its more important contemporary manifestation is the cult to celebrity.

Celebrities do not earn money the old fashioned way. They do not get rich by a lifetime of hard work and savings.

Their culture disconnects work from wealth; it tells us all that we can all be rich because we might all hit the jackpot or win the lottery.

Celebrities are rewarded because they do not work hard and do not save. They earn the most for doing the least. After all, didn't Alex Rodriguez earn $25,000,000 for playing Kabballah with Madonna? And how many of those who were going berserk over the pay received by executives batted an eye at the millions celebrities were making for being entertaining?

Today's celebrity is a model for profligate spending. Now, you might not have enough money to spend like a celebrity, but the banking system has been kind enough to give you enough credit to make a good go of it. You too can live beyond the value of your productive labor.

In a world that drools over celebrity notions like showing respect, being trustworthy, and tempering emotion feel retrograde.

Celebrities live out psychodramas. They are supposed to have conquered repression; in fact, they have merely numbed themselves to shame. They do not set an example of good behavior, respect for others, or even respect for themselves. Celebrities will never be pillars of the community.

Friedman asks the right question: How did we lose touch with the values that made for a functioning financial system and a functioning national community?

My answer is simple: we became postmodern. We learned in the best universities that everything was a social construct. Deep thinkers taught us that there was no such thing as intrinsic value. An object was said to be valuable when a lot people or a lot of influential and powerful people said that it was valuable, and acted accordingly.

Apply the same principle to creditworthiness. Wasn't it just another social construct? Your credit score, your income, your savings, the evidence of your responsible monetary behavior... these were merely what the power elite took to be measures of value. They had been constructed to discriminate against people who had no money. Clearly, the situation had to be rectified.

And it was, in subprime mortgages, liar loans, zero down payments, and so on.

Now, the number on the mortgage was also a social construct. Pieces of property did not have any intrinsic value. If the bankers said the house was worth a million dollars, it was worth a million dollars. Value was what these powerful people said it was.

And when the worthless mortgages that had been given to people who were-- by fiat-- declared creditworthy, and that were collateralized by properties that were declared to be worth as much as the mortgages, were repackaged into debt instruments... lo and behold, ratings agencies were so postmodern in their thinking that they declared these packages to be AAA. With that imprimatur investment banks could borrow against them, with 40-1 leverage.

So, the current crisis is simply a reality check. It does not mean that capitalism has failed. It should be the death knell of postmodernism and social constructivist theory.

Obviously, the people who hold to these ideas will not accept that the crisis is a reality check; they believe that reality is a social construct... especially when it contradicts their precious ideas.

Tuesday, October 14, 2008

John McCain's Maverickitis

Last week was a bad week for John McCain... and not just John McCain. The financial system was spinning out of control and McCain was attacking Bill Ayers.

It was the wrong message at the wrong time. The country was sizing up future leaders and McCain was carping.

Obama was proposing higher taxes, less free trade, more unions, and more litigation. Economists, CEOs, and investors seemed to know that these policies would be bad for the economy.

The problem was: even when McCain had interesting policies, he did not seem willing to step forward and defend them. So it looked like he had nothing to say.

As I said in my September 15 and 24 posts, among others, given the choice between the wrong policies and no policies, the nation will tend to go with something rather than nothing.

Today, McCain finally seems to have gotten the message. He proposed a series of policies that are starkly different from those of Obama, based as they are on stimulating economic growth rather than sharing the wealth.

McCain has a point: Obama's plan to reduce taxes is really welfare in disguise. McCain is offering economic growth and jobs, not a return to welfare.

In principle, it sounds like an argument McCain should relish. The problem is: it might well be too little, too late. It may be that McCain became too attached to his maverick persona, to the point that it drowned out his message.

Being a maverick is not the same as providing leadership. At the second debate McCain's proposal was: I am a maverick and I am going to shake up Washington.

In fact, things had already been very seriously shaken up. People are looking for stability and a calm temperament. At the second debate, Obama was more calm than McCain.

McCain's message has been: my persona is better than your persona, and my character is better than your character.

Surely, character counts; without it no one will be able to rely on a candidate's willingness to keep his word. And yet, neither maverick or character are policies, any more than hope and change are.

Maverick and character are assertions of self at a time when the country wants to know what politicians are going to do to restore the sinking economy. It was not a-- Hey, look at me!--moment.

Maverick is not a brand; it is not political high concept. It tells you nothing about what McCain might do as president. It merely suggests that he will be inconsistent and erratic.

By standard definition, a maverick is a stray, a loner, a lost soul, a motherless calf, someone who is not part of the herd or the group.

With a little positive spin you can make a maverick into a rebel or an independent spirit. Spin it as far as you wish and you will not make a maverick into a leader.

That is what the country saw when McCain decided to suspend his campaign and rush back to Washington to help broker a bailout deal between Congress and the White House.

You can say that it was a more responsible position than Obama's-- Call me if you need me-- approach. Unfortunately, it did not work.

McCain was claiming a leadership role. Unfortunately, he had not bothered to check on whether his troops were following him. They were not.

Obama seemed to know that no one would follow him, so he just kept quiet.

You would think that the first lesson they teach at leadership academy is: don't get too far out in front of your troops. If you do, you look like you are posturing, not leading. At worst you have made yourself an easy target.

Where a maverick can fashion his persona by separating himself from the group, a leader must bring the group together around a set of policy proposals. Today, McCain seems to have figured this out. The trouble is: it may be too little, too late.

Sunday, October 12, 2008


How are individual American investors dealing with the financial tsunami? Apparently, they are not. Financial advisers report that many of their clients are not calling. Investors seem to be hunkering down and waiting for it all to pass.

Some are introspecting; some are licking their wounds. Some are asking what is wrong with the world; some are asking what is wrong with them.

The problem is what they are not saying. As Brett Steenbarger wrote on Traderfeed (link at left) last Thursday: "What I'm not hearing is re-evaluation of portfolios, plans for hedging, or thoughts about what the decline 'means.'"

Call it psychological protectionism; it is the usual first reaction to trauma.

Sometimes the impulse passes; sometimes it becomes a way of life. The latter can foster a cult of rugged individualism.

That, unfortunately, would recreate the conditions that made it so difficult for most of us to deal with the problem. Many of us got into this by trying to do it ourselves; we are not going to get out of it by going it alone.

Rugged individuals refuse to admit to being wrong; they are chronically averse to taking advice. Even if they have had some experience of working with a financial adviser, they have not spent the time and the energy to develop a relationship and to make an investment plan. Thus, when they think of picking up the phone they think that doing so would be a sign of weakness.

Recently, Steenbarger wrote than many traders would rather be right than rich. I would add another quality that we often see in rugged individuals. They would rather make their own mistakes than follow someone else's advice and make money.

When they see that their strategy is not working, they think that the market is asking them to touch it out. That way, they will become real men.

Admittedly, many investment advisers and coaches are out to sea. Why talk to someone who is also having trouble getting a handle on things?

Mainly because the conversation will help you keep your bearings and to make your way. Even if your adviser or coach does not have all the answers, talking with him or her will mitigate the feeling of being alone and adrift, buffeted by forces that no one understands. The one thing you do not want to do in a crisis is to go it alone.

After all, aren't we all in this together? Despite what Harold Bloom suggested in an op-ed in today's New York Times, self-reliance is not the way to go. It is a counsel of despair.

The myth of self-reliance, or the myth of the rugged individual, is at serious odds with reality. Successful people are never too proud to take advice. They did not get where they are by thinking that they know it all.

They are willing to do with it takes to achieve their goals, even if that means admitting that they are wrong, and even if that means taking counsel from someone else. You do not reach the pinnacle of the financial or any other world by making empty assertions of self-reliance.

In economic as well as psychological terms, successful people prefer free trade to protectionism.

In my October 7 post, "Hard of Soft?" I discussed the coaching practice of one Stephen Josephson, a man who counsels many high-level executives in the financial services industry.

One salient point that I did not emphasize is that people who have reached the summit of their profession-- like partners at Goldman Sachs-- are the first to ask for help. They do not resort to do-it-yourself-ist behavior. They know that they need an objective outside person to help them to reorient to a new reality.

By now, do-it-yourself-ism is baked into our culture. It is one of the reasons we ar having difficulty dealing with the current crisis.

Many of us believe that we are so smart that we can manage our own investments thorugh a discount or online broker. As you watch your savings and investments get washed away, will you be consoling yourself with the thought of how much money you saved in commissions?

While some people do know enough to manage their own accounts, most people do not, and should not even try. Besides, people who do know enough to manage their own money are in constant contact with advisers, counselors, and coaches.

They understand tht managing money is a job. Even if you have a financial adviser, you have to work at it yourself. Just because you can't do it yourself, don't assume that your adviser can.

Working at it is not the same as buying and holding a diversified portfolio of stocks or mutual funds. How many of us were lulled into complacency by the mantra that if we buy and hold, the market will always take care of us.

As we have learned over the past few weeks, the market is not in the business of taking care of us.

This same approach is manifest in the way company-sponsored retirement accounts are marketed. Employees receive precious little advice about how to manage their accounts. They are told, and even precluded, from managing their account actively.

The conventional wisdom is: no one can time a market; it is best not to try.

And yet, assuming that the market will do our work for us is a bad idea. Great value investors like Warren Buffett and Mark Mobius are not market timers. They are not traders. And yet, they must choose entry and exit poits with the greatest care.

While they are not day-traders, they are timing their purchases and sales according to measures of sentiment and value.

Of course, they usually know what they are buying, know what it is worthy, and know when something is overpriced or underpriced. They know this because it is their mob to know it.

If you own a stock or a bond, it is your job, in conjuction with an adviser with whom you have a working relationship, to know it too.

The invisible hand that moves the market is not necessarily a just and benevolent spirit. It does not practice fairness. Over time it rewards hard work, not good feelings.

If you work with the market, it will work with you. If you get lazy and assume that you do not need to work hard, it will probably punish you. You will neve learn how to work hard and to be successful if you do not have the humility to ask for and to take advice.

Thursday, October 9, 2008

The Mind of Cramer

You know James Cramer, the hedge fund operator who hyperventilated his way to television stardom, and who eventually became a contrary indicator.

In one of his more compelling rants, Cramer declared in April, 2007 that the heads of New York investment banks, Lloyd Blankfein, Stanley O'Neal, Richard Fuld, and Jimmy Cayne were worth every last million of their compensation packages.

Better yet, Cramer advised his minions to go out and get rich by buying shares in these great companies. He favored Goldman Sachs because that was where he had started his career. Of the CEOs he touted in 2007 Blankfein seems to be the one who really did earn his compensation.

The trouble is: if you had followed Cramer's advice, you would have bought GS at $230 a share. As of yesterday, you would have lost more than half your investment.

Perhaps that is why Cramer gave up running a hedge fund.

Now, New York Magazine has given Cramer a platform from which he can regale us with his prescience. This week he penned an essay predicting where the markets will be a year from now, in Fall, 2009. Link here.

His bold prediction: if McCain is president we will have a depression; if Obama is elected we will have a recession.

His thinking goes like this. We need to restore trust in the financial system. Without trust banks refuse to loan money, markets seize up, no one can get credit, and business activity comes to a halt.

Cramer understands that trust is very difficult to manufacture, more so when it has been trashed. His proposal: we should elect a president we can trust to manage the crisis. If everyone trusts the man at the top, then trust will be restored throughout the financial system.

In his words: "One of the central causes of the financial crisis is the now epidemic lack of trust in the financial system.... Having a president who can restore faith in the system as soon as possible is critical to restoring the credit freeze."

Cramer ignores the fact that the two people who are manging the crisis are Henry Paulson and Ben Bernanke. Is there something about these two that does not inspire trust?

Anyway, Cramer offers that the Street largely prefers Obama to McCain, because he has a more subtle grasp of economic realities while McCain has been clumsy in his efforts to deal with the crisis.

While McCain stepped into the maelstrom, Obama's more subtle mind said: Call me if you need me.

Also, Cramer largely prefers Obama advisor Lawrence Summers to McCain adviser Carly Fiorina. While no sensible person would want to hand Treasury over to Carly Fiorina, Cramer seems to have forgotten that the banking deregulation bill that Democrats are blaming for the problem was crafted by Lawrence Summers and signed by Bill Clinton.

But, do we really have to wait a year to discover whether Cramer was right? Not at all. We cannot predict the future with certainty, but the market itself has provided us with a few signs, or, if you prefer, omens.

Isn't the market a discounting mechanism that projects the future. Who would you rather trust, the collective wisdom of Cramer's friends or the collective wisdom of the market?

Assume that the market cares about who becomes president. Cramer makes that presupposition, so I will accept it and test it.

We can test it by looking at market action in conjunction with presidential polls.

The Real Clear Politics average showed John McCain with a slim lead for the week of September 15. Over the weekend of September 20 and 21 the polls shifted and Obama took the lead. He has maintained it ever since.

So Monday September 22 would be the first day that the market could have offered an opinion about a future Obama presidency.

The last day that McCain led in the polls, September 19, the Dow closed at 11,388. On September 22 the market closed at 10,854. Not what I would call a rousing vote of confidence.

Yesterday, in the wake of a McCain debate performance that seemed to seal the deal for Obama, at a moment when Intrade was giving him a 75% chance of winning, the Dow closed at 9258.

Of course, there are many other factors that can impact markets. I would not bet the family fortune on this correlation.

I am merely following the logic of Cramer's argument. To take it a step further, we can conclude that Cramer should begin preparing himself for a new career as a political party hack.

Tuesday, October 7, 2008

Hard or Soft?

It wasn't easy finding someone who was working on Wall Street in October, 1929, but the Wall Street Journal found famed investor Seth Glickenhaus, chief investment officer of the firm that bears his name. Article link here.

At 94 Glickenhaus does not need to traffic in niceties. About the current crisis he concludes: "We've gotten soft in the United States, politically, economically, and in every way. We've had so much prosperity that we can't compete any more. Those days are gone, except in small companies."

How did we become so soft? Was it because we spent too much time wallowing in wealth or did we create a false sense of prosperity on borrowed money? Surely, it is the latter as much as the former.

Beyond the perils of prosperity, the culture also plays a role. How many children learn in school that competition is wrong because it divides the world into winners and losers. No competition, no losers.

And how many parents are told that video games will make their children into violent predators and that spelling bees and dodge ball must be banned lest someone's feelings be hurt.

When these same children go to college they learn that a competitive capitalist economy is really a way to oppress the masses. Is it surprising that some of the would-be tycoons who learned that capitalism is theft then went out and tried to cheat their way to great person fortunes. They were simply applying what they learned in school!

Of course, this is only part of our cultural milieu. From NASCAR to Friday Night Football the country still has a lusty appetite for competition. Americans play little league baseball, golf, and bridge in very large numbers.

So, the competitive spirit lives on... and hopefully, it will reassert itself in the business world without too much delay.

But think about this. When we vote in the upcoming election, should we vote for hard or soft?

Should we vote for fairness or competitiveness? Do we want a Nanny state that rains its bounty on us or do we want to get through the crisis with hard work and discipline? Is it time to dispense with sensitivity trainers and get about the business at hand? Should we worry about whether or not we are going to hurt someone's feelings or should we just strive to excel? Is it time to return to the dreaded Protestant work ethic?

Strange to say, and I am sure that this will cost me a few friends, but the most hard-assed candidate out there today is Sarah Palin. Being a woman, Palin does not have to make an extravagant show of being in touch with her feminine side. She gets a pass on sensitivity. The major male candidates seem to feel compelled to express their great depth of feeling.

This means that it is not impossible to be a woman and be tough. As though this is news. The problem is that it is becoming increasingly difficult to be a man and to be tough. That is the problem.

While we are on the subject, take a look at a post by psychologist Stephen Josephson on Tina Brown's new website, The Daily Beast. According to him, Josephson is the go-gut for Goldman Sachs partners and other masters of the universe.

Interestingly, he, as I, have noticed that these clients do not respond to the pabulum that traditional therapists have been offering up to them. Thus his work, whatever he calls it, really involves coaching.

As have I, Josephson saw that empathy, hand-holding, and deep insights are of little use to such people. And surely, this client population, to the extent that I too know it, has no real use for introspection.

So Josephson uses an old staple of coaching: insult. To shake these men out of their lethargy, to shock them into action, he looks them in the eye and tells them that they are acting like... girls.

There is nothing wrong with acting like a girl, if you are a girl. If not, you would be pretending to be someone you are not and this is the royal road to demoralization and depression.

Josephson's insults are a step in the right direction. He is not helping people to understand where they went wrong. He is embarrassing them, the better to push them to get things right.

But, as good coach, as he knows, does not just embarrass people. He prods them to take action, to recover the energy, toughness, and good character that helped them to make their first fortunes.

Shame is a powerful tool... when used judiciously. Parents use mild forms of shame all the time when they are trying to discipline children: Don't be a baby. You're acting like a child. Grow up.

When I say that shaming must be used judiciously, I mean that you do not want to go around attacking and criticizing people, especially if it makes them feel that they can never get anything right.

And you certainly do not want to humiliate anyone in public. Public humiliation provokes an almost unslakeable thirst for vengeance, and we all do better to stay away from that.

Sunday, October 5, 2008

Happy Thoughts

Many years ago a friend was explaining the effects of Prozac on brain chemistry. If you look at primate research, he said, you see that when a male primate gains an enhanced status in the group, his brain chemistry changes in ways that resemble what happens when people take Prozac.

He concluded that we were going to have a society where everyone thinks he is an alpha male, only he isn't.

Of course, it is not just Prozac that is fostering this modern illusion. Misguided educators, talk show hosts, the media, and the therapy culture has told people to think happy thoughts, the better to auto-generate enhanced self-esteem, regardless of the evidence.

This dovetails nicely with a point that Steve Salerno made in a Wall Street Journal op-ed last Friday. Link here.

Salerno asks this question: How many business people are so pumped up on happy talk, on positive thinking, on mindless optimism that they have no sense of their strengths and weaknesses and no sense of whether their business is good or bad?

It is not entirely fair to lay this entirely at the recently burgeoning field of happiness studies. Derived from cognitive-behavioral therapy, happiness studies have become increasingly important in today's psychology. In many ways it was a change for the better.

To counter Freud's unremitting pessimism, Aaron Beck invented cognitive therapy to train his patients to engage more balanced judgment.

Beck would tell his patients to take disparaging self-judgments-- "I never get anything right," "I am worthless"-- and to write down three facts that would validate the thought and three that would disprove it.

Thus, patients gained balance. They learned to see both the good and the bad, the positive and the negative.

Now, what began as a necessary corrective to Freudian thought has been transformed by the culture into bad advice. Working their rough magic, the media, the educational establishment, and the therapy culture have brought pie-in-the-sky optimism into the American workplace.

There, it has become, Salerno said, "a crusade for all-out positivity." Employees have completely bought it. Today, most of them "prefer celebrity-driven inspiration over skills-intensive training."

Call it an escape from reality; call it mindless idolatry; it is wishful or magical thinking. Lately the guru most associated with it is Rhonda Byrne, author of "The Secret."

As Salerno says: "It is intriguing that 'The Secret' came to prominence during the same year as the mortgage meltdown. For what was the subprime lending crisis if not a large scale conspiracy of wishful thinking."

I have not read "The Secret." Nor will I ever. I am opposed to self-abuse, especially when the self in question is mine.

I am persuaded, however, that Byrne is a genius ... at marketing. For having trans-substantiated a trite piece of childish reasoning into a major fortune she deserves some grudging praise.

Better yet, she has convinced people that learning a secret that is now known to countless millions of people puts them in the company of a privileged few.

Part of her genius is to have inoculated herself against criticism. So many people have taken leave of their senses to plunge into the abyss of Byrne's mind, that if I were to say that she is peddling cretinous blather they would immediately take offense... and rush to her defense.

Criticizing the book threatens their self-esteem. Since their self-esteem, thanks to Byrne, is now based on wishful thinking, it has no basis in reality. Thus it is now hanging by a thread, which makes people very sensitive indeed.

Happily, there is no need to read this book. Any review will tell you the secret: since like attracts like, thinking happy thoughts will attract other happy thoughts and will necessarily produce happy events.

Despite all evidence to the contrary, Byrne declared that if you imagine something, if you want it badly enough, it will necessarily happen. "The only reason a person does not have money is that they are blocking money from coming to them with their thoughts." She advises: "See yourself living in abundance and you will attract it. It works every time, with every person."

Byrne is saying that if you put your head in the sand, dream a happy (and rich) thought, you need merely camp out in front of your mailbox. The checks will start rolling in.

Or take it a step further. Byrne says that it is a good thing to pretend that you are really rich: "A shortcut to manifesting your desire is to see what you want as absolute fact."

This is wish fulfillment run amok. Worse yet, people who believe their wishes are real are properly considered to be delusional.

Let us say that you decide to live by these principles. You want to be rich. You know that hard work, diligent effort, education, and training are not going to do it for you. In fact, you have always known this. That is why you are a slacker. Now you are happy that your chronic lethargy has been vindicated as a path toward the secret.

You discover that in order to become rich you need merely work on visualizing yourself as rich, and on believing that you are really as rich as you think you are.

Fortified with this pseudo-delusional belief, you go out and buy whatever your rich self needs to possess. You charge it to your American Express card.

Then, the bill comes due. You cannot pay it. What do you do?

Of course, you open up your copy of "The Secret" and it tells you that you did not want it badly enough. Buying the book was insufficient; you need to buy some notebooks and the movie version and sign up for some seminars.

You have not given yourself over completely to magical thinking; you are worrying too much. Thus, as Byrne says: "the only reason people do not have what they want is that they are thinking more about what they don't want than what they do want."

Salerno is right that this mimics, on a micro level, what happened in the subprime mess. After all, at the root of the problem is the average American who believed, despite the evidence, that he was as rich as Croesus, and who went out and bought a house that fit his puffed-up self-esteem but not his budget.

The moral of the story: never underestimate the damage that cretinous blather can do to otherwise intelligent people.

Friday, October 3, 2008

The Dog That Didn't Bark

What do the denizens of the New York financial world have to say about the financial crisis? What is their take on the world that is crumbling around them?

Yesterday my friend AM was telling me about some conversations he had had with friends and acquaintances who were part of that world.

He had been struck by what he was hearing, but especially by what he had not been hearing.

What was he hearing? No one could have foreseen this. Only a perfect storm could have beaten our trades. No one could have done anything about it. It was completely out of our hands.

What was he not hearing? Any recognition that anyone was at fault, that anyone had made a mistake, that anyone had been wrong.

AM was not begrudging anyone his or her success, but noted that they were earning large bonuses for being stewards of the financial system. And there, they had completely fallen down on the job.

He attributed it to a simple failure to understand the reality of markets. As smart and as rich as they were, how could they not know that you do not make grossly outsized returns on capital year after year without their being a reckoning?

In the end they were simply shifting the blame... to God. So much for the new vogue of atheism.

Anyway, no one apologized because no one did anything wrong. Perhaps no one committed a crime, but surely people had failed. They had failed themselves, they had failed the financial system, they had failed the country, and so on. And no one, up to now, has stepped forward to apologize.

To use the trope from Arthur Conan Doyle's "Silver Blaze": apology was the dog that didn't bark.

Look at it mathematically: the cry of public outrage at the behavior of Wall Street bankers is inversely proportional to the willingness of these people to accept responsibility for their business.

It's all about balance. The outcry was so strong because the apologies are weak to non-existent.

Of course, no single person is totally responsible.

Among those who have failed are Richard Fuld of Lehman Brothers; James Cayne of Bear Stearns; and Stanley O'Neal of Merrill Lynch.

Surely, Franklin Raines and James Johnson of Fannie Mae bear a large portion of the blame, as do those members of Congress and the executive branch who mandated a trillion dollars worth of sub-prime loans and protected Fannie and Freddie from oversight and regulation.

Many will say that Alan Greenspan bears responsibility for flooding the monetary system with liquidity. And others would place blame on the policies of the Clinton and Bush administrations.

More recently, an offhand remark by Charles Schumer provoked a run on Indymac bank, and a more recent remark by Harry Reid caused collapse of insurance company stocks. Were either of them responsible for the consequences of their actions? Not at all... it would have happened anyway.

As for the larger point about whether anyone could have foreseen this, surely James Grant of "Grant's Interest Rate Observer" and Nouriel Roubini of NYU were surely prescient. No one may have been listening; no one may have had the character to do something to pre-empt the crisis, but the warnings were out there.

When we make it all an act of God we are saying that we want to wash out hands of the whole matter. If you think that human beings did nothing to get us into this, then you are also saying that they can do nothing to get us out of it. It is an ultimate counsel of despair.

Or else, they believe that since God got us into this, God will get us out of it. As for the humbled former masters of the universe: they are out playing golf.

Wednesday, October 1, 2008

Vox Populi 2

My friend Adam has discovered another exposition of the thought I expressed in the last post: roughly, that people will sometimes vote against interest in order to make a moral point. Written by Steven Dubner, it is in the Freakonomics blog at the New York Times. Link. It shows how professional economists have analyzed this phenomenon.