Saturday, January 16, 2010

Financial Crisis as Mental Problem

The financial crisis continues to foreground a crisis of knowledge: what are people allowed to know? When is what they know allowed to be true?

The financial industry has never faced the extent to which its analyses are skewed by its own financial interests, or how completely the uses of bailout money remain secret.  AIG remains a black box, and more generally we have no idea what any of it is worth once semi-detached from the government guarantees that float it now, and sink the rest of us.

Anne Enright has a nice piece in the London Review of Books on the universal mental unreality.  Called "Sinking by Inches," she writes about Ireland's meltdown as caused in part by Ireland's mental paralysis.
I can understand the denial at the end of the boom; what worries me is the denial that made it. From 2001 to 2007 it was not possible to be off-message about the Irish economy or, especially, about the housing market. You would barely be published. . . . It was no fun being informed, either then or later. People don’t like you for it, and why should they?
One of the strangest feelings, living through a housing boom, is that you are rich or poor not because of the money you earn, but the year you started earning it. It is not a question of effort, but of luck. This was part of the impotence and panic that drove Irish people to buy overvalued houses towards the end of the boom; it was the feeling that we were running up a down escalator and had to grab hold of whatever we could, to stop being swept away. . .
Telling the truth was, in the circumstances, not just boring, it was also unlucky, hexed, taboo. It might even be unclean. Careless talk costs jobs. If the bubble burst it would be your fault for calling it a bubble, because, at the end of the day, it’s not an economy, it’s a mood.
 This is still where the U.S. leadership seems to be, new bank tax or not.  Its main goal is to make the mistakes of the past into something bearable - at least for them.  While they continue to foucs on this, the country as a whole won't be able to tell the truth because it is still afraid of making it all worse.   And so we'll stay stuck with the combination of "impotence and panic" that got us where we are.


Gerry Barnett said...

Well, yes, when you let folks speculate on the commons, you force the participation of everyone, like it or not. Just the commons were not so obvious like water or food, but rather credit and risk. Governments happily took the consumption and tax revenue that resulted, living hand to mouth since it was so good a living.

Chris Newfield said...

thanks Gerry - nicely put.