A Meltdown Primer: Two Must-Reads

I pull myself away from rearranging the songs in my iPod Broadway Hits playlist long enough to recommend two articles from the December issue of The Atlantic. According to these articles by Henry Blodgett and Virginia Postrel, the only thing we learn from studying the history of market  bubbles (from South Sea to dot.com to housing)  and financial meltdowns is that we do not learn from studying the history of market bubbles and financial meltdowns.

Or, put less cutely, we–even the most financially savvy of us, with the possible exception of Warren Buffett–are prey to powerful forces of greed and self-deception, and when we want to convince ourselves that something is too good but still true, we’re very good at doing it.

Shades of Rudyard Kipling, whose “Gods of the Copybook Headings” was discussed here recently.  In this sobering view of life,  human nature is obdurate stuff,  changing glacially if at all.

Reading these pieces, I’m already shaking my head in resignation as I think about the cavalcade of Congressional hearings into What the Hell Happened  that will air over the next few months. At each of them, we’ll hear several variations on the “Never Again” theme as the New Regulators sweep in to nail the barn door shut now that the horses are gone.  Alas, human nature does not change with a new tally from the Electoral College.

I’m not wholly pessimistic here. I do think the New Regulators will re-jigger things to make it much, much harder to screw things up in just the way they were screwed up over the past 4/6/8/10/12/18/25 years, just as the bolted-cockpit policies put in place after the September 11 attacks made it highly unlikely that anyone will ever replicate those attacks in just that way. Future credit-default swappers, mortgage bundlers and Bernie  Madoffs will be forced to develop new tactics. And they will.

Still, despite their less-than-rosy conclusions, there’s  value in reading articles like these from The Atlantic.  To echo the old wisdom from the AA prayer, we need the serenity to accept the things we cannot change, the courage to change the things we can, and the wisdom to know the difference between them.

 The Blodgett piece is here.  The Postrell piece is here.

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