New Yorker failure

 

Nick Paumgarten’s New Yorker piece (thanks Chris) ‘Death of Kings: Notes from a Financial Meltdown’ is one of the most incisive pieces on economic failure endemic to our times. He embraces two dimensions of this financial failure that is defining our current time: (a) it’s not going to get better, and (b) the systemic failure is ingrained into human nature.

He cites Colin Negrych’s observation about the insidious American optimism…

“The markets were plummeting, and the public’s consternation was in some respects, to Negrych, a disappointment. ‘There seems to be an unwritten rule that this can’t be allowed to happen,’ he said. “So much effort is put into sustaining the stock market and home prices. This whole culture has been set up to see stocks and homes as annual riskless investments. They most assuredly are not.’…He went on, ‘What constituency is there for pessimism? People believe optimism is necessary, an American right. The presumption of optimism is the problem. That’s what creates the debt we have now.” (As a well-regarded French investor said to me one day, with a sigh, ‘There is no spirit of resignation in the American people.’ Most of us would probably regard this as a virtue.)”

There’s also not much of constituency for Clarity. Most people prefer ignorant bliss (for which ‘black boxes’ are particularly well suited)…

“Financial engineering tapped into a strain in the investor’s mind by replacing uncertainty with the appearance of certainty,” Mikhailovich said. Certainty came in a guise of inscrutability; the products designed to reassure also happened to befuddle. Many of the people responsible for evaluating the engineering considered their mystification to be further proof of its brilliance. They were, like Bernie Madoff’s investors, comforted by their own ignorance.

And like Peter Schiff, he concludes that the market downturn is a necessary medicine society must stomach to preserve the very principles of not just the economy, but society…

“The bear market is integrity,” Negrych went on. “It’s honesty, transparency, and common sense.” This was as much a moral declaration as a mathematical one. Truth in accounting—the proper recognition of losses and liabilities, the acknowledgment of inconvenient facts—is a kind of virtue. Credit relies on a foundation of trust, which comes of honesty and fair dealing. The bull market, we’ve learned, did away with these things. Enthusiasm, in the presence of lucre, tends toward rapacity.

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