Collateral crisis psychology
Lately I've been talking to a lot of people about the collateral crisis going on in the banking sector and I have to say the average person is so savagely ignorant about it all. This is despite the average person having quite a lot at stake here as things like pensions and investments are directly impacted by this. Unfortunately the truth of the matter is complicated and most people are far too lazy to figure it out and the legacy media just isn't willing to tell them. In more extreme cases the legacy media is pumping exit liquidity for vested interests and is telling people the exact opposite of what they should be doing. A lot of people are also in various states of denial since the situation is presenting people an uncomfortable situation where they will need to reconsider their deeply held beliefs if they wish to succeed. Denying that a paradigm shift is happening is easier that changing your entire investment outlook, though it will not be as profitable.
Due to ignorance and complacency combined with a large amount of greed I think a lot of people are going to lose out big in this current recession (yes it's already started). In the upcoming crisis a lot of people are going to lose a lot of money, this is already entirely predictable. But good luck telling anyone this. One thing I find difficult is that being kind to people is not the same as being nice. Telling people uncomfortable truths, even if these are very much going to help those people out, can lead to people hating you. People still love to shoot the messenger because to them the goal is to reduce short term psychological distress and the long term just simply isn't a factor for these people. We repeatedly see evidence of people sacrificing their long term wellbeing for their short term psychological comfort1. This meme I think is a perfect summary:
The hardest thing I find with these people is not treating them with contempt. It is hard to convince people to do the right thing for themselves if you are contemptuous of them, after all your thoughts are less private than you think. Many of these people are just brainwashed and/or stupid and in some limited sense their ignorance is not entirely their fault (although partially it is and a general lack of accountability is a massive problem in the modern world). After all most retail financial advice is bullshit and most people don't know how much of a ride they are being taken for. Now I don't expect people to know about esoteric topics, after all not knowing is the fundamental human condition, we are all ignorant about the vast majority of things2. But it's the rejection of wanting to learn about the fundamentals of finance that enable financial freedom that's most grating aspect of dealing with many people in the financial space. With matters of money many people think they already know it all while in reality nobody does.
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There's a bunch of fascinating research into why people don't take care of their long term interests. Many people have different brain activation patterns when thinking about their future self as compared with their current self. In some cases people see their future self with the same mental framework and patterns as they see friends. For some people their future self is not integrated with their current self, their future self they literally see as someone else. People generally put their own interests ahead of others (there's a number of exceptions to this of course, though talking about those would be something that would need at least a few articles to cover, but realistically could easily be multiple books of content). But where this becomes really strange is when someones future self is seen as a different person to their current self. In this case the heuristic of putting yourself first means putting your current needs in front of your future needs. One approach to getting past this is to integrate the idea of your future self as part of your current self, but I don't think many people even attempt to do this for a variety of reasons. Your future self is not the same as your current self but it is also not different. This is one of the very deep insights from some buddhist learnings. This is the sort of ancient wisdom that could help people with some very modern problems like dealing with their finances and life planning. ↩
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I'm also highly ignorant on a lot of topics, the things I publish on just happen to be some topics I happen to know some things about. But I try to not be aggressively ignorant, if I don't know something I'm keen to learn rather than double down on my not knowing. ↩
This post is part 19 of the "MonetaryPolicy" series:
- Finally getting around to publishing some monetary policy articles
- Fast things happen slowly then quickly
- Politics of unproductive debt
- Futures markets lower prices, both in good and bad ways
- Why do stable coins matter
- Why is so much financial advice bullshit
- Bank bail ins
- Where is money created
- Bastiat on legal systems and morality
- Transitory inflation means permanent purchasing power reduction
- Problems with Celsius
- Crypto's Lehman moment
- Crypto crash update May 2022
- The myth of the unbalanced government budget
- The 2006 debasement of NZ coinage
- Demand destruction anecdotes
- Central bank interventions and price discovery
- Luna a modern case of hyperinflation
- Collateral crisis psychology *
- The death of full employment