Why We Are Afraid to Acknowledge the True Cause of the Economic Crisis

My boys (Timothy, age 12, and Robert, age 9) and I were watching a DVD of the old television series I’ll Fly Away a few days ago. The series tells the story of the civil rights struggle of the early 1960s and how it affected the people of a small town in South Carolina. There’s one scene that we watched that I believe tells a good bit of the story of what is going on in our minds re the economic crisis of today.

A black minister and several members of his congregation make a decision to sit down at the lunch counter and order sodas. The white people in the town are horrified and take action. A milkshake is poured on the head of the minister. A cup of coffee is poured on the head of one of the members of the congregation and he runs screaming from the premises to the sound of the taunts and laughs and threats of the white people of the town.

It’s tough stuff. Obscene stuff. It’s stuff that I am confident left an impression on my boys.

The wonderful thing about the series is that its message is not “Weren’t those people awful?” That is one message, but it is balanced with others. One of the other messages is “Weren’t those people afraid?” Even the father of the black maid who is the protagonist of the show warns her against registering to vote because he fears the social unrest that will follow once people like her start making choices like that.

We have goodness in us. And we have e cowardice in us. That’s the full truth.

The people who turned to hate during the civil rights battles made bad choices. It doesn’t follow that they were 100 percent bad people. They were frightened people. Change is scary. They used their minds to rationalize justifications for behavior that could not be properly justified on grounds that “that’s the way it is” and that racism can never be ended and so it only causes trouble and pain to take steps in that direction.

That’s where we stand today re the Get Rich Quick investing advice that Wall Street has been shoving down our throats for decades now and re the unimaginable amounts of human misery that we have caused by our failure to speak up.

Moving on to better models for understanding how stock investing works is going to mean pain. Thousands of books will need to be rewritten. Thousands of big shots who made their reputations promoting failed ideas will either need to leave the field or remake their reputations promoting very different strategies. Thousands of lawsuits will be brought by those who trusted in economic and political systems that have failed us all.

The question that prudent people need to ask in situations like this is — Is there another way? Is it possible to avoid the pain that we see coming if we do the right thing?

The people who pushed for civil rights laws were right to do so because there was no other way. The way of life that had come to be in that South Carolina town could not continue. It was degrading for blacks. And it was degrading for whites. It was unacceptable times ten.

So it is with Buy-and-Hold. Those who follow the academic research have known for 30 years that there is precisely zero chance that this “strategy” could ever work for any long-term investor. But those who can imagine the pain we will all feel as we make the transition to something better are able to rationalize not speaking up. It’s always been this way. Wall Street has always been in the business of exploiting human weaknesses and getting rich off of tall tales. That can never change.

If it were true that it could never change, the foot-draggers would be right. No good is served by fighting battles that cannot be won.

But this battle can be won and cannot be avoided. Once we did away with defined-benefit pensions and put the responsibility on workers to finance their own retirements, we made it impossible for the Get RIch Quick garbage for which Wall Street has long been famous to continue too much farther into the future. The human suffering that follows from the continued promotion of Get RIch Quick has grown too great. What cannot be will someday no longer be.

I believe that we will win this battle. I know from my conversations with tens of thousands of middle-class investors that most today want to kick the can down the road, to avoid talking openly about what caused the economic crisis and about what we need to do to bring it to an end. I also know that many also possess a secret longing for learning the realties, a longing that will achieve greater influence after the crisis worsens enough to leave us all feeling that we simply have no choice but to stop kicking the can and to start talking real.

We’re not bad people. We’re flawed people We’ve done a terrible, terrible, terrible thing in letting this situation go on so long. But my hunch is that we are going to surprise a lot of people with the good we do once we put our minds to it. Once we accept that we have no choice but to fight this fight, we will fight it hard and we will fight it to win and we will achieve a great deal of good in a short amount of time.

Those of us who oppose can kicking need to keep all this in mind. Those who aid the can kicking project will be our friends when we get to the other side of the Big Black Mountain together. I have a catch phrase that I use to remind myself of where to draw the line: We need to be as loving as we can possibly be short of becoming dishonest and we need to be as honest as we can possibly can be short of becoming unloving.

Written by Rob Bennett

Rob Bennett’s A Rich Life blog aims to put the “personal” back into “personal finance” — he focuses on the role played by emotion in saving and investing decisions.

7 Responses to Why We Are Afraid to Acknowledge the True Cause of the Economic Crisis

  1. Hi Rob–I think part of the problem is that Wall Street has become the institutionalized version of get-rich-quick. People don’t go into it wanting to invest for the long haul, but just to make money. With economists and the mainstream media lined up along side of Wall Street, it takes on a greater air of legitimacy than it deserves. That air is a lot of the problem. It’s an image, not a realiity, and it’s why so many people have done so poorly in the market since 2000 despite the lofty price levels.

    Wall Street only seems to lose it’s legitimacy when it crashes, then every one scratches their heads and says “what were we thinking”. In the meantime, there’s power in the repitition of messages, and that’s what we’re all bombarded with. That’s definately going to be an uphill fight.

  2. [i]With economists and the mainstream media lined up along side of Wall Street, it takes on a greater air of legitimacy than it deserves.[/i]

    Yes. This is a huge problem. I know because people have told me. I have had people on discussion boards say to me “Everything you say about investing makes perfect sense, but I just have to go with what the experts say.” People don’t stop to think that the “experts” here are salesmen first and foremost.

    No one would say that the only person you should listen to when buying a car is the guy who makes a living using any trick in the book to get you to sign on the dotted line. People consider it just common sense that you want to look at Edmunds.com or something like that before going to the dealership so that you don’t get taken. But with stock investing, people say “oh, I better just go with what the most effective salesmen in this field have to say.” No! When people get paid millions of dollars for pushing something, it influences what they say about that something.

    People should be checking the research for themselves. It takes 15 minutes and it is your retirement at stake. You need to put that little bit of effort into it if you want to have realistic expectations of being able to retire someday.


  3. That’s definately going to be an uphill fight.

    I’m more optimistic than most, Kevin. Again, it is because of the conversations I have had over the past 10 years.

    The financial planners WANT to flip. They are humans, and, like all the other humans, they would like to go to bed at night feeling that their energies have been directed to positive purposes. There are tens of thousands of financial planners who would be thrilled to move beyond Buy-and-Hold if the opportunity to do so and not commit career suicide by doing so presented itself.

    The problem is that the entire industry is built around the promotion of Buy-and-Hold. This is why I compare our situation today to what we were going through during the civil rights struggles. There were a small number of people who were out-and-out hateful racists. Most whites were not that. They were regular people, which means they were scared people. They didn’t feel that they could afford to be the ones speaking out. They didn’t want to miss out on promotions, that sort of thing. So they rationalized. They told themselves “there is nothing that can be done about this, it is just the way the world has always been and the way the world always will be.”

    Things change. Really. Things change for the better. This really happens. It can happen to us!

    I rag on the Buy-and-Holders all the time. So i think it is a good practice for me also to be sure to point out the many wonderful contributions that came to us from the Buy-and-Holders. It is the Buy-and-Holders who came up with the idea of rooting your investment strategies in the academic research. This is the thing that is going to do in Buy-and-Hold in the long run. The research no longer supports Buy-and-Hold. So people can present a data-based case against Buy-and-Hold. That kills it.

    We have to help people get over their feelings of wounded pride. The Buy-and-Holders started out with a good idea. They are not dumb. They are very smart. They are not evil. They are good, hard-working, loving people. We can USE that. They want to put this behind them but they just are not able to work up the courage to bring on all the change that is needed. The change is a fundamental one. When we begin talking honestly about the last 30 years of academic research, we are going to need to rewrite all the textbooks in this field. It’s very big and very wonderful stuff.

    We never would have got to where we are today without the Buy-and-Holders. They laid the foundation. We need to praise them to the skies (appropriately and honestly) and thereby win them over to our side. They want to help their clients. They want to do good work. All of that works to our advantage.

    The point I am making is that, when we flip, we will flip all at once. It may take going into the Second Great Depression for it to happen. It appears that that will be the case. But the depression is going to scare people and cause people pain. And it is when people are scared and feeling pain that they open their hearts and minds to new ideas. When we have Wall Street using its millions to help achieve the change we need to see, that change is going to take place very, very, very quickly. And we are not all that far from that point today.

    This is a process. Change doesn’t happen just because someone has a great idea. People get scared and people fight the new ideas, there is all sorts of nonsense that goes on. There were people who didn’t like cars when they were invented. There were people who didn’t like computers when they were invented. I read a story about the guy who discovered that doctors need to wash their hands when performing operations. Patients were dying before we knew to do that. That guy ended up in an insane asylum because the doctors who didn’t know this were ashamed that he was the one who figured it out and blacklisted him and his career was destroyed and he couldn’t feed his family. But no one questions today that it is a good idea for a doctor to wash his hands before performing an operation.

    I think there are good reasons why we are so resistant to change. If we were more open, we would probably accept lots of bad new ideas and cause a lot of trouble doing so. So we should accept that there is always going to be huge resistance when powerful new ideas arrive on the scene. Sometimes, the ideas stand up to all the scrutiny and prevail in the end. I am confident that that is what we are going to see happen in this case. So we just need to stay calm and positive and loving and keep working it as hard as we can work it with hope for the future and with confidence in our fellow humans to in the end do the right thing.

    My thanks to both you and Two Cents in this regard, by the way. Both of you have been good and brave friends. I need a few of those to keep my own spirits up when skies look dark!


  4. Rob, your comments are just as good – no, better! – than the article! Great points.

    Not to take away from the main content of the article, I do find reading the last paragraph difficult because of the lack of hyphens – our English language has words that can be used as nouns and verbs, so without using hyphens, it can be sluggish to get the meaning correct. One suggestion is to hyphen “can-kicking”.
    Sorry about the diversion! This is a great article!

  5. [i]Rob, your comments are just as good – no, better! – than the article! [/i]

    Thanks for those kind and warm comments, Alan. I’ve traveled a lonely path the past 10 years. It provides me with a pick-me-up when someone like you comes along to let me know that the message is today being heard by at least a few.

    [i]One suggestion is to hyphen “can-kicking”.[/i]

    That makes perfect sense, Alan.

    Please take care.


  6. I remember the first time we tried to buy a house, we were offered an “ARM only” mortgage. We walked away from the offer because we wanted a 30 year fixed mortgage. 5 years later the market imploded with people choking on ARM mortgages. You are absolutely correct that Wall Street and Financial Products are out there to make money, not help the little people. Your only defense is to educate yourself and train your gut to know when something is wrong. And if it is, walk away.

  7. You are absolutely correct that Wall Street and Financial Products are out there to make money, not help the little people. Your only defense is to educate yourself and train your gut to know when something is wrong.

    Thanks much for stopping by and sharing your thoughts, My Money Design.

    The Personal Finance Blogosphere has a big role to play here. There are hundreds of blogs that help people resist the marketing efforts of the credit card companies by teaching the benefits of frugality. I’d like to see us playing a similar role in the investing realm. A lot of blog owners have fallen for the trickery themselves and are really just serving as marketing arms of Wall Street. I would like to see us all make an effort to dig enough to learn the other side of the story and to report the other side of the story to our readers.

    We could change the world in a very, very positive way if we did that. It’s an exciting opportunity that has been presented to us.

    And please understand that I see nothing wrong with bloggers making the case for Buy-and-Hold if they do some digging and decide that Buy-and-Hold really works. We need to hear that side of the story too. But we should not mindlessly repeat Wall Street marketing messages. We should check things out for ourselves and write our articles with the aim of truly helping our readers in the long term, not just telling them what they want to hear in the short term for the purpose of getting them to like us.


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