Marketwatch Paul B. Farrell
The next crash is coming but few see it. Here's why you're
hard-wired to repeat your mistakes.
http://albertpeia.com/nextcrashcomingfewsee.htm
(MarketWatch) — ‘Warning: Forget the cuts, your brain is
sequestered. That’s the real problem: Your brain. That’s why the economy and
markets will crash, a new Dow high notwithstanding. Why it’s inevitable. Bigger
crash than 2008. Longer afterwards. No bank bailouts. Austerity worse than the
Great Depression. Hunker down.
Listen closely: America’s big problem is our
“sequestered” brains. Meaning: “to remove, isolate, set apart, retire, withdraw
into solitude.” Think post-trauma stress, paralysis, amnesia, lobotomized,
entranced, just plain irrational. You’re out of it, incapable of acting
rational.
And not just you: Economists, politicians and media
pundits all have sequestered brains. They blab on endlessly about this or that
of their special interests hiding among the trillion-dollar war-and-peace
sequester cuts. Blab on and on. Myopic.
Why? Their brains are sequestered too. Millions of noisy
brains. But you can’t hear them, no matter what. Your brain is on a different
frequency. Only hears your set channels. That happens to your sequestered
brain.
In fact, our collective brain, America’s conscience, our
psyche, mind-set, even our soul is sequestered. America lapsed into a trance,
confused. Our entire nation’s rational brain has been sequestered, collectively
“removed, set apart, isolated, retiring, withdrawn.”
Brain sequestration: read all about your biggest problem
This is also why 152 nations worldwide as well as America
can’t see the light at the end of the tunnel. Why we’re blindly driving
headlong into a massive economic and market collapse. Why we refuse to see it.
Why? Our collective brain periodically goes through these cycles, in the
economy, markets, drama, in our personal lives. But our sequestered brains
can’t hear, never learn.
Our sequestered brains fail to learn
the lessons of history.
Still our noisy self-centered economists, politicians and
media pundits blab on, telling us: this time really is different. Why? They
too, says Shakespeare, have their prescribed “entrances and exits.” The script
never changes. Always the same drama, bull-bears, boom-busts,
recession-recoveries, prosperity and austerity. Like Lear, same play, new
actors, same result, always too late, main character blinded.
Flash forward. BusinessWeek just asked: “Why won’t anyone
listen to Alan Simpson and Erskin Bowles?” Two brilliant brains, they see the
oncoming train: A former GOP senator. Former Clinton chief of staff. Been
“touring the country almost nonstop, warning of America’s impending fiscal
doom,” for two years.
Yes, they see doomsday dead ahead. But few listen.
History repeats. History teaches. But, we never learn.
Our brains are sequestered, trapped, repeating an 800-year old drama that you,
me, all Americans and all world leaders can’t seem to escape.
Even Harvard historian Niall Ferguson, author of “The
Ascent of Money: A Financial History of the World,” admits economists Carmen
Reinhart and Kenneth Rogoff’s brilliant “This Time Is Different: Eight
Centuries of Financial Folly” is “the best empirical investigation of financial
crises ever published.”
But “This Time is Different” is much more than an
800-year history of endless human “follies” through bull/bear, boom/bust
cycles. It is also the single best book on behavioral economics ever. It
exposes the shadowy side of the investor’s brain and the faux promise of
behavioral economics: “Just follow our advice, and your irrational brain will
become less irrational.”
Princeton psychologist Daniel Kahneman’s 2002 Nobel Prize
in Economics killed that theory. Investor’s decisions are always irrational,
because our brains are sequestered
800 years of historical proof: This time is never, never different
The fact is, the market’s roller-coaster ride of
bull-bear cycles will never end. It’s trapped in our brains and genes. Nobody
can stop America’s endless economic, market, financial and business cycles. The
big reason, Wall Street doesn’t want behavioral economists educating Main
Street to beat them.
If the promises really worked, investors would wise up
and Wall Street’s con game wouldn’t work. So they’ll keep replaying the script
in investors brains for the next 800 years. Here’s how Reinhart and Rogoff
explain the never-ending drama:
Brain sequester ... fading memories, lessons forgotten, renewed
arrogance
“This Time Is Different” is a “quantitative history of
financial crises in their various guises. Our message is simple: We have been
here before. No matter how different the latest financial frenzy or crisis
always appears, there are usually remarkable similarities from past experience
from other countries and from history.”
No country is immune: “Fading memories of borrowers and
lenders, policy makers and academics, and the public at large do not seem to
improve over time, so the policy lessons on how to ‘avoid’ the next blow-up are
at best limited.”
Delusions ... we’re smarter, learned our lessons, old rules don’t apply
“The essence of the ‘this-time-is-different’ syndrome is
simple. It is rooted in the firmly held belief that financial crises are things
that happen to other people in other countries at other times; crises do not
happen to us, here and now.”
Each new generation convinces itself, like Silicon Valley
did in 1999, that “we are doing things better, we are smarter, we have learned
from past mistakes. The old rules of valuation no longer apply.” And that each
new boom, “unlike the many booms that preceded catastrophic collapses in the
past (even in our country), is built of sound fundamentals, structural reforms,
technological innovation, and good policy. Or so the story goes.”
Similar self-delusional “stories” guarantee the cycle
will repeat ad infinitum.
New technologies ... new leaders, new regulations, but same old greed
“The lesson of history, then, is that even as
institutions and policy makers improve, there will always be a temptation to
stretch the limits. Just as an individual can go bankrupt no matter how rich
she starts out, a financial system can collapse under the pressure of greed,
politics and profits no matter how well-regulated it seems to be. … Technology
has changed … but the ability of governments and investors to delude
themselves, giving rise to periodic bouts of euphoria that usually ends in
tears, seems to have remained a constant.”
Excessive debt ... one common problem repeating in all crises
“If there is one common theme to the vast range of crises
… it is that, excessive debt accumulation, whether it be by the government,
banks, corporations, or consumers, often poses greater systemic risks than it
seems during a boom.”
Our brains are sequestered, too irrational in good times
as well as bad. “Highly indebted governments, banks, or corporations can seem
to be merrily rolling along for an extended period, when bang — confidence
collapses, lenders disappear and a crisis hits. …”
Blinded ... credit fuels success, arrogance, warning signs missed
Reminds us of 1999.“Highly leveraged economies … seldom
survive forever … history does point to warnings signs that policy makers can
look to access risk, if only they do not become too drunk with their
credit-bubble-fueled success and say, as their predecessors have for centuries,
this time is different” as leaders and followers all stay “too drunk,” till too
late.
“This Time Is Different” should be in every investor’s
library — it’s the best description of our financial history, the impact of
behavioral economics and why your sequestered brain is the real culprit in
Washington’s sequestration drama.
Looking back 800 years, we now know bull-bear cycles are
inevitable. The reason? Because our brains are sequestered, forever vulnerable
to this endless roller-coaster ride. And why, right now, the cycles are again
peaking, will crash, making the right exits, then the next entrance.
No, this time really is not different. And,
unfortunately, Reinhart and Rogoff also tell us that in the process our
sequestered brains are also sabotaging capitalism, damaging America’s role in
the world and, sorry to say, killing your retirement.
Worse, the cycle will go on for another eight centuries.
Prepare to hibernate. ‘
Paul B. Farrell is a MarketWatch columnist
based in San Louis Obispo, Calif. Follow him on Twitter @MKTWFarrell.
-----
Al Gore's
'sustainable capitalism' is DOA
SAN LUIS OBISPO, Calif. (MarketWatch) — ‘Warning, Al
Gore’s new book, “The Future: Six Drivers of Global Change,” is not what it
appears at first. It’s not a scientific forecast for a new “sustainable
capitalism” by a Nobel Prize-winning environmentalist dedicated to “saving the
world.”
By focusing first on the lofty ideals of “Six Drivers of
Global Change,” you’d hope to see the old Al Gore, America’s environmental
dragon slayer, a kindred spirit with folks like the legendary Rachel Carson and
Bill McKibben.
Not true. Forget for the moment “Six Drivers,” the six
macroeconomic trends. Yes, they define the problem. But nothing’s new. Focus
instead on his “sustainable capitalism”: a package of five proposed new
governmental regulations. Look closely. Don’t be misled by the buzzwords.
There’s nothing “sustainable.”
Ask yourself: Won’t his five regulations have the
unintended consequences of putting a damper on free markets, slowing economic
growth, handicapping job creators, and making America more socialistic than
capitalistic?
Yes, as you’ll see below, Gore’s five proposed
“sustainable capitalism” actions are, in effect, secret poison pills. Why?
Because today, in America’s totally dysfunctional political drama, they are
DOA. That’s right, the five are totally unacceptable to the vast majority of
conservative billionaires and Forbes Global 2000 corporations. Their lobbyists
would kill the five proposals before they ever reached Congress.
Why skeptical of a ‘Future’ defined by a Super-Rich Capitalist?
Why add five DOA solutions? Surely Gore’s smart enough to
know those five “sustainable capitalism” proposals would go nowhere. So why
add? Because such a book needed solutions, not just a definition of the
problems. Get it? Even if the solutions are never considered in today’s
political circus, they enhance “The Future’s” aura of scientific research and
challenging scholarship.
Yes, we’re skeptical of motive, of adding
less-than-serious solutions to dress up the work. So what’s going on? Here’s a
skeptic’s observation: Al Gore, the former environmental activist who parlayed
his Oscar, Grammy and Noble Peace Prize into a capitalist fortune, is
protecting his newly acquired $300 million personal fortune by publishing this
new 558-page business calling card about “The Future” to increase his firm’s
credibility as successful capitalists, private equity investors and science
gurus.
So forget the five solutions. Now Gore has “Six Drivers”
that target six strategic macroeconomic trends for investment opportunities.
That way, as the world continues down the road of “unsustainable capitalism,”
Gore and his billionaire capitalist buddies will keep amassing and hoarding
maximum capital before the “end of the world.”
‘Unsustainable capitalism’: Missing ‘7th driver’ into a global failure
But are we too harsh? Too skeptical? Too cynical? No.
Media experts also sense Gore’s contradictions. Have been unkind: Reuter’s
Sinead Cruise focused on Gore’s real target, “unsustainable capitalism,” which
is here to stay. And in “Gore’s Grim Prophecy,” Rolling Stone editor Jeff
Goodell says the title, “The Future,” suggests Gore wrote his book as if it
“were written by God himself.” And that it will “surely raise questions about
whether Gore is an arrogant technocrat or a mad visionary.”
EPA/Franck Robichon
Al Gore
In the New York Times Book Review, Michael Lind wrote:
“Democracy, Hacked ... Corporate interests keep us from facing our problems.”
And earlier in “Up Ahead: The World According to Gore,” another Times reviewer,
Michiko Kakutani, dismissed Gore’s book: “Bites off way more than it can
plausibly chew ... lacks cogency and focus” ... and merely retraces “ground
covered in more persuasive detail” by Clinton, Brzezinski and Stiglitz ...
often reads “like updates on Alvin Toffler’s 1970 classic, ‘Future Shock.’”
But perhaps the harshest review is in the American
Interest, “Futurama: Al Gore mispredicts our future by misunderstanding our
present,” writes Columbia University Economics Prof. Jagdish Bhagwati, an
expert in globalization: “The problem Gore faces in the bulk of this book
therefore is that his identification of problems, and his proposed solutions,
are not compelling.”
Bhagwati says Gore’s “erudition is considerable but is
necessarily limited since he casts his net wide, and he is both unfamiliar with
important issues pertinent to his analysis and also shallow in his
prescriptions for remedial policies.”
Moreover, “given Gore’s justified reputation on climate
change, a disappointing feature of Gore’s book is in the chapter titled ‘The Edge.’
... Where he fails is in the remedies.” Not compelling. Shallow. Fails.
‘The Future’s’ ‘Six Drivers’ will mainly benefit new capitalist rulers
Now take a close look at Gore’s “Six Drivers of Global
Change.” Remember, Gore’s net worth is $300 million since selling his cable
network to Dubai’s Al Jazerra. Are the “Six Drivers” really a new strategic map
of “target-rich environments” guiding his investment company’s future profits?
Didn’t his earlier books help him to transition from
environmental activist worth just $2 million into one of Silicon Valley’s Super
Rich? And isn’t he looking for more megamillion investments? Here are six
targeted areas of investment opportunities:
Economic
globalization:
Gore’s “Earth Inc” is a new world ruled by capitalists.
Global
communications: A
new “global mind” linking humans with “intelligent machines, robots, ubiquitous
sensors, and databases.”
New
balance of global power: The
world is rapidly shifting away from an America-centered system to multiple “centers
of power, from nation-states to private actors, from political systems to
markets.” Yes, from democracies to capitalistic dictators.
Unsustainable
growth: Slowing
long-term economic growth with lower “consumption, pollution flows and depletion
of the planet’s strategic resources.”
Scientific
revolutions:
Genomic, biotech, neuroscience, life sciences transforming medicine,
agriculture, molecular science. Control of evolution is now in human hands.
Radical
disruption between humans and ecosystems: With today’s “revolutionary transformation
of energy systems, agriculture, transportation and construction worldwide ...
‘The Future’ is a map of the world to come.”
Earlier as Gore was finalizing his vision of “The
Future,” he wrote a major op-ed piece in the Wall Street Journal with his
Generation co-founder David Blood, former CEO of Goldman Sachs Asset
Management. Their goal: “To encourage businesses around the world to be more
responsible, ethical and sustainable,” making it clear that “while governments
and civil society will need to be part of the solution to these massive
challenges, ultimately it will be companies and investors that will mobilize
the capital needed to overcome them.”
Translation: Ultimately giant companies and capitalist
investors will run the world and democracy will have a minor role. What a
bizarre “Future!” Gore’s “sustainable capitalism” ideal is either heavy on more
governmental regulations that kill free markets or it’s a cleverly disguised
system of self-regulation run by capitalists.
Unfortunately, experience warns that this noblesse-oblige
mask for self-regulation has never worked with Wall Street banks. Nor is it
working today in Washington’s dysfunctional government-by-special-interest
lobbyists.
Gore’s new world order: Broken democracies run by rich capitalists
The truth is, Gore’s message isn’t new: He is giving up
on democracy. He’s convinced capitalism is America’s solution. And capitalism
will save the world. But what if capitalism is actually our biggest problem?
Cannot be fixed?
Let’s look closely at Gore’s five ways to fix
“unsustainable capitalism.” Will these five really help America recover from
our addiction to free-market greed? And won’t resistance by entrenched
capitalists sabotage Gore’s five solutions? Guarantee the “sustainable
capitalism” ideal is DOA, window dressing?
The reality is Gore’s five-part plan to create new
government regulations has no chance of succeeding in any future envisioned by
experts like Bhagwati. See for yourself: Here are Gore’s five action solutions
for “immediate adoption by companies, investors and others to accelerate the
current incremental pace of change to one that matches the urgency of the
situation:”
Gore:
“Identify and incorporate risk from stranded assets.” Translation: Stop shifting the costs of air
and water pollution and other environmental damages to the public and start
taxing long-term corporate polluters.
Gore:
“Mandate integrated reporting.” Translation: Force corporations to add to short-term financial
data new information on how non-financial ESG factors (environmental, social,
governance”) will enhance or damage “sustainable, long-term value creation.”
Also, legislate new rules to be administered by agencies such as the SEC with
new penalties.
Gore:
“End the default practice of quarterly earnings guidance.” Translation: End the SEC’s quarterly
earnings requirements because they “incentivize executives to manage for the
short-term. ... Ending this practice ... would encourage a longer-term view of
the business” for investors too.
Gore:
“Align compensation ... with long-term sustainable performance.” Translation: “Most existing compensation
schemes emphasize short-term actions and fail to hold asset managers and
corporate executives accountable for the ramifications of their decisions over
the long-term ... Instead, link pay to the drivers of long-term value.”
Gore:
“Incentivize long-term investing with loyalty-driven securities.” Translation: “The dominance of
short-termism” creates “market instability and undermines the efforts of
executives seeking long-term value creation.” Instead, “companies could issue
securities that offer investors financial rewards for holding onto shares for a
certain number of years.”
Comments? Are Gore’s five solutions workable? More
regulations limiting capitalism? Isn’t this a return to the pre-1990
Glass-Steagall world? Main Street investors will love it. But if Wall Street
banks, conservative billionaires and Forbes 2000 corporate giants hate this,
aren’t the five solutions DOA?
And ironically, won’t the unintended consequences of
Gore’s “Six Drivers” be to perpetuate “unsustainable capitalism” not fix it?
Comments? ‘
This column
originally published March 2.
Paul B. Farrell is a MarketWatch columnist
based in San Louis Obispo, Calif. Follow him on Twitter @MKTWFarrell.