Sunday, August 21, 2011

capitalism irrationality - market psychology

We are taught to think of businessmen as absolute worshippers of objective truth as they allegedly practice "due diligence" to confirm underlying facts and ensure that their decisions are based on research and thoughtful decisions. When things go well, the wizards of Wall Street are anointed by the media as geniuses.

In fact, the "smartest guys in the room", as those Enron executives were called, proved to be the dumbest, buying into a warped worldview, and then, believing their own hype leading to decisions that brought the house down. And that's what happens again and again, over and over, as panic seizes Wall Street and the City of London, followed by a herd of decision makers making bad decisions.

Paul Farrell wrote in Marketwatch of "all the too-greedy-to-fail fatheads running Wall Street. And, unfortunately, Main Street America's 95 million irrational and self-sabotaging investors".

Institutionalised irrationality, an irrationality that goes by the name of "Market Psychology", helped cause the financial crisis, as the federal inquiry commission pointed out, quoting an appraiser who watched the real estate industry underwrite loans with no collateral over and over again: "'I see a lot of irrationality,' he added. He said he was unnerved because people were saying: 'It's different this time' - a rationale commonly heard before previous collapses."

Forget the bulls or the bears - this is a world of sharks.

Adapted from a blog by Danny Schechter here

No comments: