“Greed And Stupidity” – Of Wall Street, Washington Or American TV Networks?

“Greed and Stupidity” is the title of an article about the current economic crisis by David Brooks of the New York Times. David Brooks has become a favorite of ours; we find him sensible, balanced and devoid of dogmatism that seems to be the bane of many Newspaper opinionators. (see http://www.nytimes.com/2009/04/03/opinion/03brooks.html?_r=1 )

In this article, Brooks discusses reasons for the current crisis. He writes that “two general narratives seem to be gaining prominence,…, which we will call the greed narrative and the stupidity narrative. The two overlap, but they lead to different ways of thinking about where we go from here. ”

For the first narrative, Brooks refers to an essay “The Quiet Coup” by Simon Johnson in the Atlantic. Brooks writes “In short, he (Simon Johnson) argues, the U.S. financial crisis is a bigger version of the crises that have afflicted emerging-market nations for decades. An oligarchy takes control of the nation. The oligarchs get carried away and build an empire on mountains of debt. The whole thing comes crashing down.”

Like us, Brooks does not seem to concur with this narrative. He writes, “The second and, to me, more persuasive theory revolves around ignorance and uncertainty. The primary problem is not the greed of a giant oligarchy. It’s that overconfident bankers didn’t know what they were doing. They thought they had these sophisticated tools to reduce risk. But…, their tools were worse than useless.”

So what are the two ways of where we go from here?

Brooks writes “The greed narrative leads to the conclusion that government should aggressively restructure the financial sector. The stupidity narrative is suspicious of that sort of radicalism. We’d just be trading the hubris of Wall Street for the hubris of Washington (emphasis ours). The stupidity narrative suggests we should preserve the essential market structures, but make them more transparent, straightforward and comprehensible.”

We offer a third narrative below.

This third narrative combines both Greed AND Stupidity. It also explains the spread of the economic crisis to the rest of the world. (The two narratives of Brooks only cover the American participants of the crisis). 

In fact, it was Brooks who led us to this third narrative with his paragraph 
“To me, the most interesting factor is the way instant communications lead to unconscious conformity. You’d think that with thousands of ideas flowing at light speed around the world, you’d get a diversity of viewpoints and expectations that would balance one another out. Instead, global communications seem to have led people in the financial subculture to adopt homogeneous viewpoints. They made the same one-way bets at the same time (emphasis ours).”

This, we think, is the most penetrating insight in the Brooks article. Except, when he mentions “global communications”, he should have stated “American TV Networks”.

In the past few years, American TV Networks have spread around the world under the name of globalization. People around the world can and do watch American Television. This is the principal reason why so many people in the world end up thinking the same way and behaving in the same way. It is also the reason for the spread of the American virus to the rest of the world, at least the rest of the world that watches American Television Networks.

In particular, consider CNBC, the network we watch virtually all day. This network proudly proclaims itself as “First in Business, Worldwide”. In a sense they are. CNBC may be the most important network in the world for money and investing.

CNBC is like McDonald’s. Regardless of where you are in the world, the CNBC content is consistent and consistently delivered. We can vouch for this consistency. We have watched CNBC in India and all over Western Europe. The approach and the material is virtually identical to the central message of CNBC-USA. 

If everyone in the world watches the same one-way CNBC investing advise (Love China, Love Commodity Stocks, Hate US Treasuries), then it is understandable that everyone in the world ends up making the same one-way bets.

CNBC was a huge cheerleader of the housing bubble. What did the entire world end up doing? Buying houses until house prices reached a bubble and the bubble burst because they became unaffordable to the marginal buyers who were left. This was true in the USA; it was true in England; this was true in Dubai; this was true in Mumbai and so on.

The next CNBC mantra was “Global Liquidity & Global Growth” or GLG2 as we term it. Using this mantra, CNBC promulgated the cult of equities worldwide. CNBC sang the glories of the great Private Equity Investors who could buy any company on the face of the earth. CNBC told investors of how widely available credit was around the world and how investors could get on this fast moving train. CNBC also scoffed at the returns available from Government Bonds. Their favorite slogan in the USA was “why would you lend money to the Government at 5% for ten years?”

Then, as the credit boom was beginning to sag, CNBC launched “Fast Money“, an aggressive show designed to cater to the average investor’s dream of getting rich quickly. This show appealed to the average investor’s greed and fed on the average investor’s stupidity. To further entice and lock in the viewers, the Fast Money traders would yell out names of celebrities that watched the show (like they did last week by yelling on the show that Tiger Woods was a fan).

This message was persuasive and intoxicating with predictable consequences. By the time 2008 came around, the vast majority of the world’s investors were loaded up with equities at the expense of traditional safe government bonds (Treasuries in the USA, Gilts in the UK, RBI Bonds in India and so on). 

Finally it was too much even for the Comedy Channel. Jon Stewart of The Daily Show skewered CNBC in a biting television commentary. While we felt he went too far and we defended the many honest reporters of CNBC, it was undeniable that Jon Stewart had hit a nerve.

Yet, CNBC does not seem fazed. On Thursday, March  26 2009, a trader on CNBC’s Fast Money Show made a materially false statement about the plans of the US Federal Reserve (See our article “CNBC’s Fast Money – Playing Fast & Loose With Facts About FED & US Treasuries?“ – March 28, 2009 – http://www.cinemarasik.com/2009/03/28/cnbcs-fast-money–playing-fast–loose-about-facts-about-fed–us-treasuries.aspx ).

More than a week has elapsed since this error. But, CNBC Fast Money has neither corrected the erroneous information it gave its viewers nor has it admitted its mistake.Why? Does CNBC Fast Money fear admitting a mistake on its show might cause some viewers to stop watching? That would seem like Greed to us. Or do they believe that no one would notice this significant error? That would seem like Stupidity.

Is this a piece of evidence for our opinion that CNBC (like many of its peers, we guess) seems afflicted with both Greed And Stupidity? We think so. 

Send your feedback to editor@macroviewpoints.com or editor@www.cinemarasik.com.

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