Plenty of Blame to Share: Few Takers

I am going to offer a suggestion which I think might help the U.S. work through the economic crisis which grips our country and the world today.  That I think I have an idea for the economy which I think can be part of the solution to the crisis will no doubt amaze the readers of this blog since I have confessed openly that I know nothing about economics, and I have done nothing but puzzle over what is happening and how it happens (a webpage where you can learn about economic terms and theory:  http://vimeo.com/2606496).

I am going to speak from the point of view of my strength – being an Orthodox Christian priest, so I am not going to entangle myself in economic theory.

Here goes:

We Orthodox are in the middle of Great Lent.  There is a prayer we say throughout Lent which I think could help all of the politicians, economists, bankers, lenders, financers, federal regulators, brokers, and capitalists deal with the crisis.  I’ll paraphrase the one line from the prayer which is essential here (and you don’t have to even believe in any kind of deity to say this part of the prayer):

“Grant me to see my own sins and not to judge the other.”

For though I have heard countless people say regarding the financial meltdown that there is plenty of blame to go around, I have not heard many (any?) of the players in the crisis accept that blame.  There have been incredibly few “mia culpas” for all of the blame that is being thrown around.  Plenty of blame, but no one courageous and honest enough to own it.

So my solution is this:

Republicans look only at the ways that Republicans have contributed to the mess we are in.  Then clean up your house.

Democrats look only at the ways that Democrats have contributed to the mess we are in.  Then clean up your house.

Congress do the same.  Federal agencies too.  Wall Street also. Bankers, lenders and brokers the same.  Economists and borrowers too.

For the remaining time of Lent, let no one point the accusing finger of blame at anyone outside their own house.   Let each group responsible for this mess finally and honestly accept the blame for what they did to contribute to the economic collapse.  Stop covering your own butts, stop trying to make everyone else look bad, stop blaming and accusing and start owning up to your share of the blame.  Then you will be able to correct the faults in your own house and you will contribute positively to the recovery.   Take the painful step of confessing how your political party, your organization, your profession was responsible for the economic collapse.

That’s about the only way we are going to end Washington gridlock and Wall Street greed.

[Editorial Note:  I just heard this on NPR this evening.    President Obama said, “Washington is all in a tizzy and everybody is pointing fingers at each other and saying it’s their fault, the Democrats’ fault, the Republicans’ fault. Listen, I’ll take responsibility. I’m the President.”    It’s a start!  He also said he didn’t create the mess, but acknowledged it’s now his job to deal with it.    A little lame – it’s easy to accept blame when you don’t really think you are part of the problem.  He was part of the Senate though.  What blame will he be willing to accept from that role?]

The Insecurities and Exchange Commission

When it comes to the Stock Market, analysts have often pointed to particular events as being the “cause” of the Market’s rising and falling.  Even without any evidence as to these influences, analysts continue to explain the Market’s daily “fortunes” by mentioning one event or another which they think explains the day on Wall Street.  And though some have pointed out that the analysts actually don’t agree as to what events have what effect on the Market, there is a strong sense that the Market is often driven not by hard economic news but by intangible and unpredictable psychological factors. 

This week’s plunge on Wall Street is being described as apparently the result of such psychological factors, for example in the New York Times by Vikas Bajaj in his 7 Octoberber 2008 Forget Logic, Fear Appears to Have Edge.   The precipitous fall in the market according to him has become almost a herd behavior.

In his article, Bajaj has an interesting description of what motivates people when it comes to investments.  Here is what he writes:

Fear is an immensely powerful force, perhaps more so than greed, said Andrew W. Lo, a professor at the Massachusetts Institute of Technology who has studied investor behavior.

Scientists who have studied the brain function have found that the amygdala, the part of the brain that controls fear, responds faster than the parts of the brain that handle cognitive functions, he said.

“Fear is a much stronger motivational force,” Mr. Lo added. “The loss of $1,000 has a much bigger impact than the gain of a $1,000.”

He cites a series of groundbreaking experiments in the 1970s by psychologists Daniel Kahneman and Amos Tversky. In one test, they asked students to choose between a sure bet of $3,000, or an 80 percent chance of winning $4,000 (meaning there was a 20 percent chance of winning nothing). Most students said they would take the $3,000.

The same question, framed differently, asked them if they would rather lose $3,000 or accept an 80 percent chance of losing $4,000 (with a 20 percent chance of losing nothing). In this case, they said they would take the riskier bet.

In other words, they were willing to take a bigger risk to avoid losing money than they were when they stood to make more money.

As the study shows when it comes to making big profits people tend to be cautious, but when the risk of losing money is at work, people throw caution to the wind and are willing to take riskier chances and risk bigger losses to try to beat the system.

The activities of investors in the Stock Market seem to closely parallel what actually happened in the banking industry.  Stock Market investors are greatly influenced by rumor and beliefs about things rather than basing their investing decisions on actual fact or hard evidence.  In turns out to be a belief based system – it is not the facts but what people believe about the facts that matters.  This is exactly what caused the banking/lending/home value crisis – much of what was going on in the lending industry ended up being based not upon real cash value but upon what people believed about land values and the economy.  This is as true for individuals as for institutions, except that the instritutions are operating on a grander scale – the hundreds of billions rather than the thousands.  The financial system ends up being based on rumor and beliefs, not upon any audited bottom lines.  It is more like a faith system than a financial system, but populated with people who are as likely to be skeptics as believers.   Maybe it is ironic that the U.S. dollar has printed on it – “In God We Trust” for the amoral financial system is ultimately not based on anything more than the ephemeral get-rich-quick (aka, greed) phantasmagoria of investors and brokers.  Some may think they are dealing in the real world of insured “securities,” when in actuality they are dabbling in the insecurities and superstitions of the human psyche.