January 29, 2009: I'm always impressed by people's behavior during massive panics. They rarely believe or admit that they are panicked. Instead they assure one another that at last the wool has been lifted from their eyes. They are seeing the clear daylight of rationality after years of delusion.But a delusion that lasts for decades is not a delusion. It's an institution. And these, our institutions, are what now fail us. People no longer know what they value. They don't know what to believe. And unfortunately, it's part of the human condition to believe and invest in things that are demonstrably not true.
As 2009 opens, our financial institutions are deep in massive, irrational panic. That's bad, but it gets worse: Many other respected institutions have rational underpinnings at least as frail as derivatives or bundled real-estate loans. Like finance, these institutions are social constructions. They are games of confidence, underpinned by people's solemn willingness to believe, to conform, to contribute. So why not panic over them, too? More >>>
