Monday, March 15, 2010

Mass delusion (updated)

Michael Lewis is one of the economics and finance journalists who are doing yeoman's work reporting the Great Recession and its origins. His piece "The End of Wall Street's Boom" was an early exposure of the insanity that had descended on New York's investment bank culture.

Sunday Lewis was on 60 Minutes in a great interview with CBS correspondent Steve Kroft. The nuance Lewis provides is to look past the good-guy, bad-guy dimension of the story. There were/are plenty of "bad guys"--no doubt about that. The questions are why were there so many and why was is it so easy for them to do such bad things? As Lewis says:

I'm afraid that our culture will come to the conclusion, 'cause it's always the easy conclusion, that everybody was just a bunch of criminals. I think the story is much more interesting than that. I think it's a story of mass delusion.

Indeed, in some ways, it was a delusion that gripped most of the country. Bernard Madoff looks more understandable once you realize to what extent the whole investment and credit culture had become one giant Ponzi scheme. Who, for example, wanted to blow the whistle on the sub-prime mortgage game when, as President Bush had declared, we were headed for the "ownership society"? Why couldn't everyone own their own house? Of course, what regulators or legislators wouldn't do in an organized fashion, the markets eventually took care of in a painful and chaotic crash.

Listening to Lewis's story, I keep thinking, "You can't make this stuff up." Watch and learn and then laugh or cry, as you choose. The videos are available below (with annoying Lipitor commercials) or you can read the transcript at the CBS News website. (Hat tip Barb for alerting me to this broadcast.)

Update: A guest post on Yves Smith's Naked Capitalism (see my previous post), draws attention to an important point Lewis makes about "the delusion": people involved had huge financial incentive not to see what was going on. Here's Lewis, preceded by Upton Sinclair:

Upton Sinclair said:
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

Bestselling financial writer Michael Lewis is now saying the same thing. In an interview with 60 Minutes, Lewis said:
"Wall Street is able to delude itself because it’s paid to delude itself. That’s one of the lessons of this story. People see what they’re incentivized to see. If you pay someone not to see the truth, they won’t see the truth."

Watch CBS News Videos Online

Watch CBS News Videos Online

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