What You Don't Know You Know

PLEASE NOTE

2009-03-22T10:29:00.000-07:00

MY BLOG CAN NOW BE FOUND AT: WWW.KENEISOLD.COM

BAD COMPETITION

2009-02-23T05:52:00.000-08:00

and How to Tell it From Good

Competition is so enshrined in our culture as a virtue, so essential a motivation to our economy, that it is hard to be critical of it. If it goes bad, if it drives individual to cheat, say, to take performance enhancing drugs, or injure others or lose sight of their other needs, we punish the individuals who succumb to temptation. In fact it seems as if we punish them doubly: first for the transgression itself, but then for the disappointment and let-down we experience in having our ideals sullied and our role models tarnished.

We see this now clearly in the treatment of the baseball players who took steroids but it is also echoed in the current villification of CEOs and hedge fund managers in the wake of the collapse of Wall Street. I am not suggesting that those who cheat, who are greedy or use poor judgment should not be punished. On the contrary, I am suggesting that singling them our for blame can stop us from fully understanding why it happens and where useful changes might be made.

Competition in its essence is not an individual phenomenon. At the very least, it takes two to compete. Actually it take classes of combatants as well as teams – and observers - to sustain a viable competition. Look at the Olympics industry, subdivided into associations and leagues for dozens of individual sports throughout the world. Look any any market. Or any spectator sport with its season ticket holders, avid fans and spin off products. So much is at stake for so many. The individual competitor is only the tip of the iceberg.

Bad competition for the individual is where it comes to mean too much, where the difference between winning and losing is catastrophic, unacceptable. Such devastating pressure can come from parents of little leaguers who are over-invested in the child's success, coaches whose own careers are at stake in their team's performance, and certainly it can come from individual competitors whose insecurities find failure too painful to endure. Not for nothing do we do our best to inculcate pride and sportsmanship in our children.

But the bigger problem is the larger system, when we ourselves demand that the competitor succeed for our own sakes. If our self-esteem is invested in the performance of an athlete or our self interest bound up with the achievements of a financial guru, we lose tolerance for disappointment and loss. In such circumstances, all too often, there are no inner restraints to mitigate our response, no sign that our expectations and demands are out of hand, that we are asking others to do more than they possibly can. In essence we egg them on and on.

We create, in effect, a double pressure, without restraint and without forgiveness, and we do this largely without knowing that that is what we are doing. It's not fair that we do this, of course; but, worse, it is counterproductive because we encourage corruption and ultimate failure.

So how can we tell when good competition become bad? We have to look at ourselves and our stake in the outcome. This is not a foolproof test, but it is something we are not used to doing -- and something that will make a difference if we try.

SCHADENFREUDE: THE PLEASURE IN OTHERS FAILURE

2009-02-20T07:26:00.000-08:00

DOES IT ONLY HAPPEN IN GERMAN?

The recent flood of news about financial scandals and economic reversals afflicting the wealthy and prominent have given a real workout for schadenfreude, the most embarrassing of our emotions.

We like to think of ourselves as empathic to those who suffer, good hearted and generous to those in distress -- and sometimes are actually are. But all too frequently we are not. In fact, we work hard to suppress our wan smiles or smirks or to conceal our spiteful thoughts when we hear about the victims of Bernie Madoff who can no longer afford their five houses, their private jets, or even, merely, the country club fees they used to pay without a thought. We don't want others to know about those feelings; worse, we don't often even want to know about them ourselves.

Recent research has confirmed what psychoanalysts have known for sometime: schadenfreude is a cousin of envy. Because we do envy others for what they have that we don't, we take a special pleasure when they lose it. And we don't like the fact that we are envious, either, and seldom will we openly acknowledge it.

But Natalie Angier has reported in Science Times on recent research that shows the actual links in the brain. New scanning techniques illuminate the areas of the brain activated in response to scenarios of envy and, then, the extended scenarios in which the envied person has a downfall. The evidence is unmistakable: we suffer with envy and we enjoy the reversal. (www.nytimes.com/2009/02/17/science/17angi.html?em)

In a society characterized by a widening gap between the rich and the poor, this happens more and more. And in a recession such as the one we are now experiencing, our own pain only intensifies the pleasure we take in the pain of others. This too can be amplified when we band together to enjoy punishing the "greedy" investors and managers to led us down this lane. Indeed, the collective pleasure of schadenfreude can become irresistible, and a powerful political force.

Another aspect of this worth considering: how much we don't want to know we are the object of other's envy -- and subsequently, of course, the fact of being a source of pleasure for others when we suffer a loss or reversal. This may be a key element in humiliation, where we suffer not only the loss of esteem in the eyes of others but sense as well that we will continue to be punished for having been envied in the first place.

I have often wondered why our language has not come up with a native term for "schadenfreude." It's not as if the German word is so mellifluous or, even, easy to say. Perhaps it is yet another way for our culture to keep awareness of such feelings at a distance. Without a convenient label, maybe we won't notice it so much.

CONFLICTS OF INTEREST

2009-02-17T09:26:00.000-08:00

A PROBLEM THAT WON'T GO AWAY

There is no area of our society that is immune to conflicts of interest. The revolving door between lobbyists and legislators -- and the conflicts and difficulties they give rise to -- was once again illustrated by Tom Daschel's failed nomination. Bankers and regulators often move in and out of bed together. Physicians and pharmaceutical companies are intricately bound by competing needs and mutual interests. Pentagon officials and defense contractors, accountants and their clients, reporters and their sources . . . . The list goes on and on.

The problem won't go away because the increasing complexity of our world requires that those who monitor and service industries know more and more about how they work in order to be effective. That creates pressures to recruit those who not only know those industries intimately but also retain ties with them. But then, of course, there are the advantages for those who are able to get on the inside track. Pressures of competition mean that any advantage will be thoroughly exploited, and no amount of deterrance will prevent most people from doing their best to maximize whatever advantages they can, legitimately or not.

On the other hand, with our increasing sophistication and knowledge about how thinking is shaped by unconscious influences, we know we need to worry about the impact of these special relationships: they impair and distort judgement, they skew decisions, they confound reality with powerful motivations. Impartiality and neutrality may be impossible goals, in the last analysis, but that only means we have to struggle to maintain rationality, integrity and prevent corruption. Disclosure is not enough.

Obama set out to put limits on influence peddling in Washington, and from the start he has been forced to make exceptions. It is so pervasive and so accepted a part of business as usual, one has to wonder what kind of goal is reasonable to strive for. At the same time, it is vitally important to restore integrity to the democratic process, and some greater degree of rationality, free of special interests, to public policy. Because of the power of unconscious thinking, we so easily lose sight of what really makes sense, what actually needs to be done.

Dick Cheney's career is the outstanding case in point. After serving as Secretary of Defense, he went on to serve as CEO of Halliburton, leaving that job to be Vice President in the Bush administration. One could argue -- and no doubt he himself would and did -- that the knowledge gained in each job was invaluable in understanding the whole. But that is a perfect example of the "military-industrial complex" that Eisenhower warned us about at the end of his second term, the point of view embodied in the CEO who proclaimed "What's good for General Motors is good for America." Who could maintain an impartial and objective perspective in the face of such merged experiences and convictions?

Are we destined to have a partial and corrupt view of the issues we face? Will the example of Cheney set the standard, or will significant reforms be possible? And even if reforms prevail, will it be possible to establish clear boundaries that protect us from the ever-present danger of unconscious influences distorting decision making. We would have to really want to make those changes occur in order to be constantly vigilant and enquiring.

A PSYCHOLOGICAL RECESSION

2009-02-15T07:54:00.000-08:00

HOW LONG WILL IT LAST?

An economic recession inevitably produces psychological depression, and that, in turn, undermines our energy, hope and ability to recover. We can't help but ask ourselves, then: "How much of a psychological impact will this recession have?" But we are asking the question indirectly, afraid to stare it in the face because we don't want to know what we know the answer is likely to be.

Those whose parents and grandparents lived through the great depression of the 30's know how much they were permanently scarred by it, how they tended to live out the rest of their lives hunched over with fear. We also know that such individual traumas as the loss of a significant job or a foreclosure and eviction can be as devastating as a fire or life-threatening illness, and the numbers of those enduring such losses is growing daily. How great will the collective miasma become?

We can detect this concern now in the media discussions about how long this recession will last -- more precisely when will it end. Time here is an underlying reference to depth and darkness. The frequent analogies with Japan suggest that it could be a very long time indeed. Their banks were "dead" for ten years , and now their gross domestic product has declined at an annual rate of 12.7 percent.

In today's New York Times (Friday, February 20th), Paul Krugman quoted from the minutes of the Federal Reserve, suggesting that some believe "more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates . . . of growth . . . unemployment and an appropriate rate of inflation." He had to go back to the Panic of 1873 to find an historical analogy, a depression that lasted five years, followed shortly by another that lasted an additional three. (www.nytimes.com/2009/02/20/opinion/20krugman.html?_r=2)

David Carr's column in last Monday's New York Times not only highlights the pessimism of some experts but the extraordinary reluctance of journalists to hear what they have to say. Carr cites last week's discussion on "Power Lunch" with Nouriel Roubini, the Stern School professor who has come to be known as Dr. Doom, and Nassim Taleb, author of "The Black Swan." If you know their work, you may not be surprised at their pessimistic view of the economy. What is surprising and disturbing is how consistently the panel wanted to steer away from their message. Asked to offer any sign that the economy was turning the corner, they demurred. As Carr put it, they "did not play ball." It was too depressing for journalists, Carr noted, but too depressing for the public as well. (www.nytimes.com/2009/02/16/business/media//16carr.html)

In recent years we have come to appreciate that the cost of war inevitably includes the penalty of Post Traumatic Stress Disorder, an inescapable consequence of exposing our soldiers to battle. And sometimes it does not show up until much later. A financial setback is not a trauma in the same sense, and yet it comes with its own emotional cost of discouragement if not hopelessness, fear and withdrawal, avoidance of risk and circumscribed ambition -- and it can take years to recover from such symptoms, if indeed recovery ever comes to all.

CLASS WARFARE

2009-02-13T09:30:00.000-08:00

The Underlying Fear

It is not difficult to see behind the criticism of Wall Street bonuses and the proposed salary cap for senior executives, the looming threat of a major battle between the haves and the have-nots. It is the story hidden inside the congressional battles over the financial rescue package and Obama's failing efforts at bipartisanship.

Class warfare has been a central feature of western history since the French Revolution, and it has played itself out again and again in European politics. FDR's New Deal, crafted while armies of the unemployed marched in protest and camped out on the Washington Mall, is widely seen as the effort that "saved" the US from a proletarian take-over. Now, as Obama's rescue plan is being compared with Roosevelt's, we can't help but sense the same underlying threat beneath the surface. The anxiety is that there could be winners and losers on a scale unprecedented in our history.

The signs of this fear are subtle, and many of them are masked as denial. Newsweek, for example, featured an article last week on "Why There Won't be a Revolution," making the point that "Americans might get angry sometimes, but we don't hate the rich. We prefer to laugh at them." And to make their point, they posted a picture of Donald Trump in his absurd, over-the-top bedroom, evoking images of Versailles. But there isn't much laughter these days and there is not likely to be any more laughter as unemployment mounts, foreclosures continue, and people watch their retirement savings disappear.

Obama was chastised during his campaign for suggesting the tax system be used to "redistribute wealth," actually an old-fashioned, commonplace idea. In these days, however, it smacked too close to what more and more people wanted to see happen, but were afraid to say or hear. Now, if anything, the sentiment is rising. Curtailing salaries and bonuses, a far more radical idea, looks as if it is about to happen.

American politics has usually been a subtle dance between two parties both close to the center. Radical change is kept at the margins. For all his occasional radical talk, FDR's establishment ties made him a credible mediator, and his policies did undermine the prospects for revolution in this country. Obama, similarly, is no radical. He wants to bring us all together. Class warfare, no doubt, is the last thing he wants to stimulate.

I am not suggesting that class warfare is actually lurking in the wings. It's not so much that we like to keep the rich around to laugh at as that, for the most part, we still hope to emulate them. America has not lost its promise as the land of opportunity, and we want our rich to represent the reality of that promise -- though that want is no doubt hedged about with more and more ambivalence.

My point is that the unconsciously registered threat of class warfare is actually inhibiting the discussions we need to have about what to do. The gap between the haves and the have-nots is just too great. The disparity between the almost $15 million average salary of CEO's and the average wage is unfair and, at this point, discouraging. What we don't know we know about the issues we face is that our hidden fears of class warfare may prevent us from thinking and speaking freely about the remedies we need to consider.

THE FIRST MISTAKE

2009-02-06T08:09:00.000-08:00

"I Screwed Up"

It was bound to happen, and the specifics were predictable. And yet there is something refreshing in the way Obama owned up to it. (See my entry for December 24th: Obama's First Mistake.)

To be sure, it took the New York Times, among others, to call for Daschele to withdraw his nomination after many days of unsuccessful damage control. And it followed hard on the heels of Geithner's tax problems. But the response was candid, efficient, even acknowledging the nature of the fault. Perhaps it is a new era in politics, but also Obama is still riding the wave of hope, and he gets an easy pass.

This was brought home in today's Times, when Brandeis University's president paid him the ultimate compliment of imitation. Referring to his own "mistake" of announcing the close of the Rose Museum on the Brandeis campus, he said "I screwed up." Maybe he will get away with it as well.

"The Mini-Madoffs" (NYTimes)

2009-01-28T19:04:00.000-08:00

Or As the WSJ Put It (January 28): "Ponzi Cases Proliferate"

It is beginning to appear that the Ponzi scheme is the defining scandal of our time. The Journal noted that a "recent review of Securities and Exchange civil actions shows an increase . . . in Ponzi schemes. . . . at least 23 cases last year, up from 15 in 2007. It has already filed four in 2009."

Why would this be so? Of all the forms of fraud and corruption available to financial manipulators, why choose the scheme that is inevitably doomed to fail? Insider traders can hope to escape detection, and no doubt many embezzlers get away with their thefts before their victims uncover their losses. But a Ponzi scheme has no chance to succeed indefinitely. At some point the funds will run out. There is no alternative.

There are many interesting dimensions to this, not the least of which is what the perpetrator thinks as he propels his scheme forward at the expense of friends and colleagues. Madoff may have been sociopathic, as the Times suggested recently, akin to a serial killer motivated by the thrill of getting away with it again and again. But it will be some time before a credible psychological profile emerges from interviews and the recollections of those closer to the action.

The profiles of the gullible may be somewhat easier to discern. A steady and strong return on investments is desirable, to be sure, though the ups and downs of our financial system make it unlikely to be consistent and hard to explain when it is. Still people have hopes and project their faith into the most unlikely vessels -- and Madoff certainy pulled off a very respectable image.

What interests me is the collective dimension now emerging. Why now? Why so many? What does it say about us?

There is an element of magic in the promises of a Ponzi scheme, just as there appeared to have been an element of magic in many of our dazzling financial successes over the past several decades. Bill Gates became the world's richest man in the space of a couple of decades, and his partners also made tens of billions of dollars as well. So many young kids, fresh out of college, have made huge profits from their technology innovations, then cashed in on IPO's or buy-outs. Retailing innovations produced WalMart and other box stores like Costco, Best Buy and Home Depot that didn't exist several decades ago, creating many personal fortunes in the process. More recently Amazon, eBay, Google and others have dumbfounded conventional expectations on the internet. The rise of hedge funds has been explosive, and international currency speculators, like George Soros, have captured the public imagination with billion dollar gambles. CEO's have become celebrities and billionaires. These have been amazing times -- almost magical in their production of wealth. To be sure, there have been reverses, but it does seem that something unprecedented, dizzying, almost crazy has been going on in the marketplace.

As a result, traditional values of fiscal prudence, balance and caution have come to seem outmoded. People acting in accordance with such logic can look like timid losers. Our technology and housing bubbles have contributed to this, illustrating how virtually everyone can become wealthy as prices for a time have seemed to go nowhere but up -- until they don't.

In this context, a Ponzi scheme doesn't look so implausible. It can easily mimic the appearance of a normal investment, since the investor knows as little about how his profits are to be made as does the typical investor in a hedge fund. It is only in retrospect that the putative source of profit is exposed as bogus.

In a sense the only difference between a Ponzi scheme and any other scheme for enrichment is the absence of a basis in reality. It is a perfect symbol for any extraordinary, implausible investment, an alluring appearance that can correspond to almost underlying reality because it is thoroughly uncontaminated with reality at all. Completely self-referential, it is infinitely expandable, endlessly adaptable to suit every hope.

In a world that has come to seem to shower riches on so many, so lavishly and indiscriminately, the Ponzi scheme is the disturbing dream that tells us what we are about.

WE CAN'T KNOW HIM NOW

2009-01-18T11:09:00.000-08:00

If We Ever Did

There is so much hope and fantasy surrounding Obama now, so much emphasis on his historic role, so many comparisons to Lincoln and FDR, such a stress on the mountain of problems he faces as he prepares to be sworn in, the person himself has been lost to view. Through the welter of projections, the layouts, the interviews, the cover stories, the punditry, he has been rendered invisible. And when he emerges, with or without his Blackberry, he will be safely encased in the Presidential bubble, his acts and statements endlessly spun, he will be invisible in yet other ways.

Clearly we are in the midst of a national celebration. He has become a totemic figure, an idol, a superman.

So what can we do about it? To be sure, we will all -- myself included -- succumb to our dreams and join the celebration. But then I think it will be important to keep reminding ourselves that we actually do not know him anymore -- if indeed we ever did. The focus will shift to the job: the actions and the projects he undertakes, what he uses his power and influence to accomplish, what he actually does.

The really important thing is that, as the real Obama disappears from view, he himself does not get seduced into believing that he is more than he is. Recent history suggests that this easily happens to Presidents. Most advisors have their own agendas, their ways of using those they advise to bring about their own ends. Few people speak truth to power. And then few powerful people retain the capacity to believe in their own limitations and ignorance.

That will be the real thing to watch for.

OBAMA'S FIRST MISTAKE

2008-12-24T07:05:00.000-08:00

WHEN WILL IT HAPPEN?

No doubt it will, and the anticipation is mounting. But the idealization -- the glorification, in some places -- is mounting as well. Some can't wait for it to happen, some dread the moment, some believe it will never occur. Obama, as Newsweek put, is "the one," inheriting the legacy of every great historical figure: Lincoln, FDR, Kennedy. We seem to need a Saviour right now, and he is the inevitable candidate.

He himself, I suspect, it too smart to go for this, and consciously we are too. But I suspect we don't know how much we are coming around to buying into into it. A number of pundits thought his choice of Hillary Clinton to head the State Department was the mistake, but that has died down amid the choruses of praise for most of his appointments. More recently, his invitation to the evangelical minister Rick Warren to speak at his inaugural aroused a storm of protest among gays, but that too has died down, as we are reminding ourselves of the importance of tolerating a diversity of voices. In one way, of course, Obama is showing really thoughtful leadership, but how long before he stumbles? Or we allow him to stumble? Or we want him to stumble?

Perhaps I am not the only one to have wondered if the widespread anxiety about his being assassinated masked an underlying desire for him to fall. To be sure, inspiring and charismatic leaders have been assassinated, including, of course, Lincoln and Kennedy. But it would be a mistake to underestimate the role of envy in politics, or simply the underside of idealization and hope. In investing so much in Obama, we might wonder who are we protecting?

He will make mistakes, and we will be disappointed. That simply can't be helped, and with so many overwhelming problems to solve it is likely to happen soon. But it is not too late now to think about protecting him and us from the backlash of denigration and rage that will accompany those failures and, perhaps, spoil the realistic leadership he is able to offer us.

FRAUD AND REALITY

2008-12-15T06:16:00.000-08:00

"Something is Happening Here"

Our minds are boggled by the recent scandals. What is so hard to grasp is how Governor Blagojevich's could think his attempts to sell Obama's senate seat would not be uncovered? How could Bernard Madoff's believe his 50 billion dollar Ponzi scheme could succeed. Where is reality in this?

It is not as difficult to grasp how others are deceived by such acts. The persistence of old perceptions and the desire to believe can easily override normal doubt, particularly in a group context where the group sets up norms to which members silently conform. But how can the "perpetrators" come to believe that they will not be found out? Are they sociopaths, without the regulating influence of conscience? Are they in a state of manic denial? Could they be psychotic? Clearly, they seem to be narcissistic, but that is hardly enough to account for such extravagant misbehavior.

These are the kinds of explanations we tend to use to account for such individual acts of self-deception, but none of them seem to fit what we know about the personalities involved. How does fraud lose touch with reality?

First of all, there must be something about our culture that supports such audacious gambles, such extraordinary ambitions. We have seen again and again over the past decades a number of people who seemingly arise out of nowhere to possess great wealth and fame. It has become something of a norm, and because we tend to assume that people are responsible for their own achievements and celebrity we discount the collective efforts that lie behind such accomplishments. In effect, we encourage a kind of delusion about what it takes to succeed. False expectations and standards are set up.

But while that may explain how such unrealistic expectations are established, how they become goals for many to aspire to, that is not enough to explain these scandals. I suspect that what happened here is a more gradual process. Each man, aiming for great success, no doubt, ventured to break the rules bit by bit, starting small and then venturing more as they found they got away with it. A little graft, to test the waters, a little cooking of the books.

Their beginning successes, no doubt, then convinced them to venture more, to up the ante -- and that seemed to work as well. At some point, they must have become convinced that the old realities just did not apply. And it must have been that they found supporters and assistants who seemed to confirm their new beliefs along the way and they lost touch with or severed connections with those who might have challenged their judgment. As they ventured further and further out on the thin ice, it did not break; they became more and more confident. Maybe the ice wasn't so thin after all.

Another analogy: if you put frogs in a pot of cold water and then turn on the heat, the frogs will stay in the pot until they die. There is no signal to warn them of danger, and so they stay put until it is to late. Indeed, they may well be enjoying their warmer environment as they lose touch with it. Similarly our consciousness can fail to warn us about a significant shift in our environment, until is too late to change.

In both cases, it seem clear that there were warning signs; suspicions were aroused. Perhaps the lesson here is that others need to be more vigilant in following up the signs of fraud, but also that we need to be more careful to speak up in the presence of delusions. Fraud of such magnitude requires assistance if not outright collusion. It remains to be seen who will stand accused or convicted in these cases. But it cannot be that these were simply individual acts.

HISTORY LESSONS LOST

2008-12-08T07:17:00.000-08:00

THE ECONOMY

For two hundred years our economy has endured vicious cycles of boom and bust, huge surges of capital accumulation followed by devastating contractions. This not only profoundly affected investors (formerly known as capitalists) but shaped the lives of workers and all those who supplied them with food, clothing and shelter. Looking back, if there is one thing which we learned from this was the need for regulation and oversight. The investors, too preoccupied with the lure of profit, do not attend to that, and the workers, of course, too dependent on others, cannot change the course of events.

How did we forget what we have learned? How did we neglect the lessons of our economic history?

Now as we are discovering this lesson all over again, trying to put into place the oversight and controls needed to manage this essentially unruly system, we need to think about why we forgot. What we don't know we know is how investors cannot be entrusted with the job of overseeing the system.

There are I think two prominent reasons.

1) After the collapse of the Soviet Union, the ideology of the free market clouded our collective judgement. More accurately, those who stood to profit from the expansion of business opportunities, deregulation, and privatization, used that ideology to inhibit any attempt to control their profits. James Galbraith has brilliantly outlined how this happened in his new book, The Predator State.

2) Gradually we all became invested through pension funds, savings accounts, etc. etc. As a result we too became blinded to the risk. Those who took out subprime mortgages or home equity loans, those who ran up credit card balances, who overextended themselves in our new credit economy -- they all lost the objectivity needed to keep in mind our economic history and the risk built into it.

As Obama puts together his new economic team and as we individually struggle to get out of this recession, how can we work to remember what we so easily forgot?

Team of Rivals?

2008-12-02T07:57:00.000-08:00

OR TEAM?

There is so much criticism of Obama's choice of Hillary for Head of the State Department - and of others in his new team. Many believe he was influenced by Doris Kearn's book about Lincoln's cabinet, and very possibly he was. There is an argument to be made for keeping one's rivals engaged and close to the decision making process. On the other hand, rivals can and often do fight to the death, or at least undermine their leader.

The key is strong and determined leadership -- and that may be what Obama has confidence in being able to assert in bringing such powerful people into his cabinet.

There is another precedent and analysis that is relevant to this discussion: the role of Kennedy’s advisors in preparing for the disastrous Bay of Pigs invasion, and a few months later their response to the Cuban missile crisis. As analyzed by Irwin Janis, the Yale Sociologist, the team of advisors went way off course by virtue of “groupthink,” a process in which differences and debate were silenced and a consensus emerged without adequate testing. The next time around, as Soviet ships carrying missiles to Cuba approached, Kennedy encouraged vigorous debate in his team, a process that allowed him to think the problem through more thoroughly and arrive at an effective solution.

The team that Obama is putting together is very strong, a group of capable and independent thinkers – every bit as strong as the team Kennedy had around him over 45 years ago. Obama appears to have confidence in his ability to tolerate conflict and dissent and to learn from it. Bush is notoriously conflict averse, no doubt a key reason he allowed Chaney essentially to take over his administration by operating behind the scenes and suppress dissent. Obama may see the benefits in the frank and full display of opinions as the run up to good decisions.

Maybe he wants a real team.

CHECKING YOUR PORTFOLIO - OR NOT

2008-11-22T06:36:00.000-08:00

What You Don't Want to Know

Countless numbers of people in the past few weeks have confessed to me they are not able to look at their balance sheets. Mostly these are not professional investors -- but the list does include several portfolio managers I see regularly. They can review their client's positions, of course, particularly when their clients call up in panic, but they can't seem to look their own losses in the eye. Why?

Obviously bad news is unwanted. On the other hand, little is to be gained from ignorance -- and more can be lost. I think that when people confess to avoiding the facts, they are relying on this common sense idea that the news is just too painful to bear. But if we dig deeper there are other motives, several in fact.

An obvious one is that knowing the extent of the damage creates a demand for action. It reminds people that they could do something about it, that they have the ultimate responsibility to act on their own behalf. In many cases, though, this responsibility can be more frightening than simply accepting the loss, especially if don't let yourself know exactly how much of a loss it is. Vagueness and uncertainty can be preferable to feeling incompetent or irresolute.

Then there is the defense of optimism. We can deny the fact of the damage or the extent of our losses if we believe that it will all work out in the end. Markets go up and then they go down -- and then they go up again. And our recent history seems to confirm that fact, along with the fact that when they go up again they eventually go up even higher than before. All you need is patience -- sometimes a lot of patience and enough cash to wait it out.

I think there is a third and less obvious hidden motive here: solidarity. When someone confesses he hasn't looked at his portfolio, he is letting you in on a secret, assuming a certain complicity. The hidden message is that "we are all in this together." It is a version of the fellow feeling that accompanies natural disasters. We feel closer to each other because we share a common misfortune. It is not so much that we help each other out, though we sometimes do. It is that sharing the experience makes the world feel less alien -- at least that portion of the world that includes you and me. There is a comfort in belonging to a larger whole.

These motives contradict the notion of a market driven by rational interests. At least they modify it significantly. Moreover, collectively, they suggest the power of inertia to curb the precipitous decline of markets. As a psychologist, I would not begin to know how to calculate the effect on prices, though I am sure that armed with decent survey data someone could. But it is obvious to me that markets would collapse even more thoroughly than they do were it not for the investor forces of avoidance, denial and shared misery.

That may be bad for the individuals who do not act, but it may be good for us all.

UPDATE ON RACISM IN THE ELECTION

2008-11-09T10:13:00.000-08:00

WHAT HAPPENED?

It did seem as if the so-called "Bradley effect" did not come into play in the election after all. Why?

Leaving our of account the possibility that there really is no "Bradley effect," no racism in our electoral politics, which seems impossible to accept, given the ubiquity of racism in our culture, what happened to our racism in the polling booth?

Benedict Carey argued in The New York Times on November 7th: the election illustrated that "mutual trust between members of different races can catch on just as quick, and spread just as fast, as suspicion." Clearly we would like to believe this -- and there is some truth to it.

On an individual level, person to person communication goes a long way towards mitigating prejudices. But to a very large extent, racism is a group processes that involves the identities of group members. One can hold to virulent racist views and still like and even enjoy friends who fit into those categories of hate. It isn't even that people make exceptions so much that these are two different types of experience, the experience of the personal and the experience of one's identity group. They can exist side by side.

I know this from my own experience. My father was an anti-semite who grew up in post-WWI Germany, but he loved and admired my jewish wife and he adored his jewish grandchildren. No conflict, no contradiction -- except, of course, for me.

Obama, of course, never became a "friend" to the electorate, never established a personal relationship. He was and remained "Black."

What happened, I think, is that over the course of the election he lost his strangeness. Repeated exposure in debates, interviews, advertisements, public appearances made him familiar to us, less threatening. To be sure, many remained "uncomfortable" with him, as they said, but many more lost their feeling that he was too different to understand. And, then, increasingly, Palin and McCain himself became strange, impulsive, intolerant, negative.

The process was a good example of how consciousness can, over time, and in the right circumstances, override unconscious prejudice.

Thank god!

CREDIT

2008-10-28T11:16:00.000-07:00

THE NEW CONSENSUS

The speed with which a consensus has emerged about the underlying cause of our current financial crisis tells us that it was something we knew all along – but didn’t let ourselves know we knew it. The unwanted truth now is clear: we have been spending beyond our means. It was not just homeowners taking out mortgages they couldn’t pay for and consumers running up astounding levels of credit card debt, it was banks, hedge funds, mortgage companies, investment firms and governments that discovered how easily the traditional limits of debt could be ignored.

This presents as an economic problem, to be sure, but fundamentally it is a problem of mass psychology. Beliefs become validated as truth when opposing ideas became silenced or disparaged, when they become the only ideas that can be espoused without the fear of ridicule. Two forces contribute to bringing this about: the desires that pull people into convictions they want to believe, and then the fears that drive people away from alternative ways of thinking – the fears that rule out the doubts that might otherwise cross their minds. If everyone believes something is true – or appears to -- how can you stand up against it?

In this case, of course, the clear desire was for more wealth and more purchasing power. In a consumer society who could object? The consumers purchasing more goods and services? The manufacturers expanding production? The merchants increasing sales? And then the American dream of home ownership was activated for those at the lower end of the economic spectrum. The ambition to acquire great wealth and status kicked in at the top.

Moreover, after the defeat of communism, other ways of thinking became proscribed. The victorious ideology of the market silenced critics who thought markets needed to be monitored or regulated. Even Alan Greenspan in his recent congressional testimony now admits there was a “flaw in his ideology.” His faith in the market’s ability to self-correct was too great.

Realizing that government could not afford to sustain basic levels of security for all its citizens, we created an Ownership Society in which everyone could aspire to the goods and services they wanted. We didn’t cut back on our desires, we simply found a new way to pay for them. Leveraging assets, borrowing from abroad, hedging bets, bundling and securitizing debt, we created an alternative to the defunct promise of the Welfare State. Once, people were worried about being in debt, but now debt now became normal, even a source of profit. No one would be left out of the opportunities that debt created. We persuaded ourselves that the risks could be safely managed -- and democratized.

It became our biggest bubble ever – and no one raised a warning cry. To be sure, doubts were expressed about the housing market, and concern about the credit swaps, but no one thought it would led to the disaster we now face. And yet, in retrospect, it is all too clear.

But no amount of correction and reform learned from the lessons of this disaster will protect as against future bubbles. We continue to be vulnerable to the hopes and fears reflected in Mass psychology.

Panic

2008-10-13T07:40:00.000-07:00

WHY IT HAPPENS AND WHAT WE CAN DO ABOUT IT

Stocks are plunging. Investors can't fulfill their commitments to buy. Borrowers can't pay back loans. We have come to call such conditions in the financial markets "panic."

What it means is "sudden, uncontrollable fear or anxiety," and that fits current conditions. It has come upon us quickly, catching us off-guard. Moreover it seems that events outpace us; no matter what we do, we can't catch up. But if we look more closely at the definition, we see that it is the fear or anxiety that is out of control, not the events themselves. Indeed, we often enjoy the thrill and the challenge of fast-paced, unexpected change: skiing, running rapids, hockey games. What makes the difference with panic is that uncontrollable anxiety destroys the capacity to think. People panic when they lose their minds.

Markets too. In the midst of seemingly chaotic change, the group of people that makes up a market becomes stunned, paralyzed -- or they resort to stereotyped and ritual acts that only make things worse. In short, the group has lost it leadership, the voices of those who provide guidance and direction, the minds those who can still think about appropriate responses.

We see that all too clearly today. Last week's $700 billion bailout did very little to stem the panic. It was cobbled together as if mere action on the part of government itself could restore confidence. The more recent concerted action of European finance ministers and heads of state stands a better chance because, for one thing, it is concerted action. In a globalized economy, one country's actions alone is insufficient -- a lesson one might have thought we might have learned from the Iraq War.

The second thoughtful aspect of their plan is that it addresses directly the problem of assets and liquidity. Rather than simply buying up debt and hoping the market will do the rest, it pumps capital into the market, shoring up the institutions so they can function while at the same time giving government new control over their management. This counters the ideology of the free market, of course, but it addresses the reality of what is happening.

So we are beginning to reclaim our minds. Maybe we can then rebuild our bank accounts. What we don't know we know about panic is how dependent we are on leaders who can think.

"Greed"

2008-09-28T07:25:00.000-07:00

NO LONGER GOOD

Greed has now become the preferred explanation for the Wall Street debacle. John McCain and much of Congress have joined in the chorus. There is no doubt that there are huge disparities in wages and bonuses between those working on Wall Street and those working elsewhere, and many have said to me in recent years that the compensation and profits made from hedge funds and investment banks are "crazy," "obscene," "unfair," etc. That has been true for some time. But why is this being called "greed"? And why now?

Standing back from the events of the last month makes it clear how many factors contributed to the crisis: the mortgage lenders who saw only more business for themselves, the investment banks who packaged the securitized debt, the investment advisors following the herd, the regulators who stayed on the sidelines, and, of course, the poor suckers who took out loans they couldn't pay. So we need someone to take the hit.

But it is not just the complexity of the problem that leads to this search for oversimplified explanation. We don't want to know how flawed and how risky our financial system is -- at the point when "free markets" and triumphed and all out pensions, health plans, college funds, and savings are invested. We want to believe that we should be secure. And if it turns out that we are not as secure as we thought, that risk has not been managed down to a negligible factor, someone must be to blame.

Gordon Gekko is famous for suggesting that greed is good. This is our revenge. Not only is greed not good, he himself and his ilk are bad. They let us down.

Health Insurance for Wall Street

2008-09-11T18:24:00.000-07:00

Lehman Brothers appears to be in its final throes, and the big question on front pages now is whether the government will intervene. A few days ago, of course, it rescued Freddie Mac and Fannie Mae – though the drastic treatment the mortgage giants got will compromise their quality of life for years to come. Six months ago, Baer Stearns went through a comparable life-saving operation. There are reports of other financial firms setting off red alerts.

[CHECK OUT BELOW: ANOTHER SACRED COW - DEREGULATION]

At a time when markets are so interrelated and so many other institutions and individual investors have so much at stake, this may be the right thing to do. But more and more it does begin to seem that Wall Street is covered by a large and loose insurance policy. Some firms are just too big to be allowed to fail.

The mind thinks by analogy and metaphor, so here is one that comes to mind: Frannie Lou (I made the name up) lost her job at the moment she was diagnosed with cancer. As she was the family’s sole breadwinner, her 3 children face a bleak future. Food stamps will feed them, but she is behind on her mortgage, owes money on her car, and is scrambling to get child care. Without insurance, what will they do?

My example of Frannie Lou may not be the best analogy, but it is good enough to suggest how ordinary people are likely to perceive what is happening on Wall Street. Obviously, the collapse of Lehman Brothers would throw its 24,000 employees out of work, while Frannie Lou’s catastrophe affects only 4 or 5; the aftershocks of a Lehman collapse might destabilize our financial markets, while the collapse of Frannie Lou’s world would agitate and depress only her family and friends, and perhaps some others who would see in her fate an image of their own. To be sure, the employees and shareholders of Lehman will endure substantial losses, but the ordinary citizen, perceiving such an analogy, might well conclude cynically that government is only about the big and powerful – if our ordinary citizen hasn’t already made up her mind about that.

But what actually is the difference? Can it be explained, and who will bother to explain it? Usually such questions are characterized as matters of PR or “spin.” But what is “insurance” anyway? And who does get to decide who or what is insured? There is substance in the questions raised by analogy.

What we don't know we know about this is that there is an active under-life to such decisions and actions. They reverberate in our minds as they are assimilated, as people try to make sense of them. And this is where our political process enters into the picture. We need our leaders to shape our thinking and guide our responses. And we need to reflect on the kinds of leaders we need. How they answer such questions will help us to decide how useful they are.

The Other Side of Racism

2008-09-03T18:13:00.000-07:00

PALIN IS NOT A STRANGER

Whatever has been said -- and whatever may be said -- about Sarah Palin as McCain's choice for VP, she is not a "stranger," some one who is unfamiliar and frightening to us.

On the contrary, her small town background and small town virtues, her pettiness, her limitations, even her go-go boots, are all too familiar. We may be worried about her lack of experience. We may be embarrassed about her views. But we know who she is.

This brings up the fact that we do need to be able to idealize our leaders -- at least to some extent. We do not want them to be too foreign, but at the same time they have to be better than we are. This is the other side of racism.

Perhaps this is my McCain's "gut" urged him to choose her, the antidote to the "stranger.' But what we don't know we know about such a choice is that to trust someone we have to think they are at least a little bit better than we are.

Racism in the Election

2008-08-31T07:05:00.000-07:00

THOSE WHO REMAIN "STRANGERS"

The media is preoccupied with when and how the “race card” will be played in the campaign. But it is already in play for most of us - unconsciously. The real questions are how to play it right.

The basic fact is that as long as there is an unconscious, we will all be prey to racist thinking. It starts in the nursery when children learn to discriminate their caregivers from “strangers.” They cry or recoil in the presence of “strangers” and we can laugh, then, because we know that those “strangers” usually will be assimilated into the mental categories of “friends” or “family” – or else the child will learn to conceal and control his suspicion and fear. For most Whites, need it be said, most Blacks remain “strangers.”

In full-blown institutional racism, such reactions eventually get to be aligned with economic or social competition and amplified by group pressure. It becomes virulent and destructive. But even if society wakes up to the problem, even if discrimination is prohibited and opportunities for jobs and education are extended, the mental category of “stranger” and the mistrust it arouses will remain in the mind. It becomes a part of unconscious perception.

5% of whites in a recent survey said race would not affect their vote, but 19% said it would affect others they knew. “Welcome to the murky world of modern racism,” Charles Blow wrote in The New York Times on August 8th , “where most of the open animus has been replaced by a shadowy bias that is difficult to measure. As Obama gently put it in his race speech, today’s racial ‘resentments aren’t always expressed in polite company.’ However, they can be — and possibly will be — expressed in the privacy of the voting booth.”

For me, the frightening fact is that, often, it will not even be experienced as resentment. It remains as a vague discomfort, an undetectable shudder, an uneasiness that is felt but usually not understood. As a result it will be attributed to something else – but it will form the basis for action.

What we don’t know we know about racism is how much we still recoil from “strangers,” how hard it is to trust those who are different.

Another Sacred Cow: Deregulation

2008-08-26T10:10:00.000-07:00

UPDATE (SEPTEMBER 15)

With the collapse of Lehman over the weekend, the distress sale of Merrill Lynch and the looming collapse of Washington Mutual and AIG -- and who know what else -- the urgency of imposing some form of regulation is beginning to be more widely recognized. It is increasingly apparent that, without it, we are facing a financial disaster of unprecedented proportions.

Paul Krugman writes in this morning's New York Times: "The real answer to the current problem would, of course, have been to take preventive action before we reached this point. Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock?"

He accuses our financial leaders of playing ""Russian Roulette," but that is simply another form of denial. Taking such chances is based on believing that you really can't lose.

WHAT WE CAN'T THINK

The mortgage crisis brings home again our need for some form of market regulation. Without it there is little check on speculation or manipulation and great danger of markets running amok. But regulation seems now to be in that great dead zone of ideas that we can't get our minds to engage.

So haunted with associations to old style capitalism, so discredited, such a bad idea, we stop thinking as we get close to it. Whether it is the fear of ridicule from our peers, or the fear of being ostracized, or just the fear of being seen as stupid or out of touch, we keep our minds at a distance from the danger. The surge of growth that followed deregulation, the victory of capitalism with the breakup of the Soviet empire, the power of special interest and their lobbyists on Capital Hill, the evisceration of existing regulatory agencies -- all have become sources of intimidation to anyone interested in curbing the power of corporations to compete freely in the market.

"Groupthink" has familiarized us with how groups censor and proscribe thoughts that deviate from an emerging consensus. The failure of Kennedy's advisors at the Bay of Pigs, Nixon and Watergate, even Bush and the famous WMD -- all are good examples of how thought gets obliterated. This dead zone of thought operates on a larger scale -- but it too is fueled by anxiety and fear and is no less pernicious to rational solutions to the problems we face.

To be sure, old style regulation did stand in the way of growth, and deregulation did seem to fuel significant growth. Moreover, critics will add, there remain a host of regulatory rules that businesses and banks must comply with. But, surely, there is a middle way now in playing an active role to guide the private sector away from the disasters of unbridled competition. If Washington can't do a good job of it, perhaps a quasi-private amalgam of senior financial statesmen, ratings agencies, and foundations could step up to the plate. But in order for that to happen, we would have to face the need -- and to do that we would have to keep the need in mind.

What we don't know we know about deregulation is how frightened we are to do that.

Scapegoats Wanted

2008-08-20T08:15:00.000-07:00

WHAT IS REALLY AT FAULT

Just as our search to pin the blame on those responsible for the sub-prime mortgage crisis is winding down, the search for those responsible for the high price of such commodities as oil and wheat is revving up. We seem to need victims to account for our systematic failures. In the first case, the heads of investment firms rolled, and some firms themselves were dismembered. Now “speculators” are seen to be driving up the price of commodities – though, as yet, no fingers have been pointed at specific individuals. No doubt, they will be as Congress goes into action.

So long as investors search for increasingly profitable investments, banks and hedge funds will try to fulfill the demand. And because they are under increasing competitive pressures to produce results, they will take greater and greater risks. And, needless to say, caught up in their competition with each other, increasingly, they will tend to minimize the dangers. Greater and greater emphasis on “risk management” will not protect investment firms from the pressure to produce results in a competitive environment.

To be sure, some leaders of investment houses have been particularly imprudent and careless, and no doubt there are those who speculate in commodities futures. But so long as they are competing to succeed against each other in attaining unrealistic results, some will fail. So long as they keep looking to each other to see where they are in their own competitive race, they will minimize the dangers. And then some will be tarred and feathered with the blame for the whole fiasco.

It is a bit like campaign reform. No sooner does Congress pass legislation to restrict the influence of big donors and the power of lobbyists to affect the political process, than new loopholes are discovered. So long as campaigns are going to be more and more expensive and the benefits of winning increase, those running our campaigns will find loopholes to keep the system going. All can agree that the system needs to be reformed, but no one wants to give up a competitive advantage. It becomes a mass collusion.

What we don’t know we know about this is how we are all implicated: The banks that promoted cheap mortgages and home equity loans, the companies that continued to securitized them as they became less secure, the investment houses and funds that kept the bandwagon going, the regulatory agencies that looked the other way, and the home owners who minimized the dangers of debt. Most important: What we don’t know we know is what we would have to think if we didn’t have scapegoats to distract us and take the rap: our unrealistic hopes for endless gain, and the flaws in the system that keeps such hopes alive.