IsitJustMe,oris2010FeelingaLOTLike2008?

Haven’twebeenherebefore?Oneofthestrangestaspectsofhistoryisthatitnotonlyrepeatsitselfbutthattherepeatsoftencomeinrapidsuccession.Today,theentirefinancialworldisrepeatingthe2008debacleonasovereignbasisandfewifanycommentatorsseemtosenseit.Weirdisn’tit?The2008Autumndebaclehappenedlessthantwoyearsago.ThepolicyresponsetoitwastosimplyshiftgarbagedebtfromWallStreettotheFederalReserve,suspendaccountingstandards,andpumpthefinancialsystemwithTRILLIONSofDollars(NONEofwhichfundamentallyaddressedanyoftheproblemscausingthecrisis)

andyetgrownadultswithfancytitlesanddegreesactuallybelievedthattheissueswereFIXED.

In2008,thefinancialworldwasfirstrockedbytheBearStearnscrisis.Truewe’dalreadyseensomemajorvolatilityinthecreditmarketssincetheSummerof2007,butBearStearnswasthefirstsignthatsomethingMAJORwashappening.Despitetheclearimplicationsofthiscollapse(thatinvestmentbanksalongwiththeentirefinancialsystemwereinBIGtrouble)mostcommentatorsshruggedtheissueoff.Infact,thefinancialheadlinesfortheSpringof2008largelyconsistedofeveryWallStreetCEOontheplanetpubliclystating,“theworstisover.”MostcommentatorsboughtintothisandproclaimedBearStearnswouldbeanisolatedevent.ThenwehadHankPaulson’s“BlankCheckBazooka”forFannieandFreddieinJuly2008.Asyounodoubtrecall,PaulsontoldCongressthatifhehada“blankcheck”tobailoutFrannie,themortgagemarketwouldstayafloatbecause“ifeveryoneknowsyouhaveabazookainyourpocket,youwon’thavetouseit.”(I’mparaphrasing).Giventhelevelofthisintervention(combinedthesetwofirmsaccountedforroughlyhalfoftheUSmortgagemarket)theBlankCheckBazookawasawakeupcallforthegeneralpopulacethattheworstwasNOToverandthatthingswerestartingtogetREALLYmessyinthefinancialsystem.ThencameSeptember2008,wheneverythingcameunhingedinamatterofweeks.Variousfinancialfirmsthathadbeeninbusinessfordecadesvanishedovernight(MerrillLynch,MorganStanley,Wachovia)beingmergedwithlargerentities.Andtheentirefinancialsystemteeteredonthebrinkofoutrightfailure.SowhatcanwegleanfromthisCrisisandthepsychologysurroundingit?Well,wecanseethatSystemicCrisesfollowaclearpatternwhenitcomestosocialpsychologyandhowpeoplereact.Thatpatternis: