Saturday, March 14, 2009

When we start getting serious about understanding where our money went..

We'll start paying more attention to articles like this one  and accept that these kind of catastrophes are due fundamentally to our cognitive inability to accurately asses risk.   Because we as a species do such a poor job of processing what we  don't know and continually overvalue what we think we know we lead ourselves in to these blind alleys  time and time again.  It isn't simply that we don't know what we don't know, we become absolutely certain that we DO know and chaos predictably follows.

And because we can't/wont/don't accept  that we're looking directly down the barrel of our limited brainpower we look for "blame" where it doesn't exist.   The list of correlative factors is long but none of them are causal.  Yes people overbought, yes Fannie and Freddie were mismanaged, yes the Bush administration was lax in oversight, yes Clinton undid too much financial regulation, yes Carter chose a tax policy that favored mortgage debt over consumer debt.   But not a single one of those things on their own or combined caused the bottom to fall out  of the economy.  

The fact is we still believe in alchemy.  Maybe not so much the lead into gold thing but if we judge our actions we clearly respond to the idea that risk can be entirely negated and something can be created out of nothing at all.

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