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Conclusion


Credibility Crunch engendered by Hope-mongering: "Credit crunch" focus as symptom of a dangerous mindset (Part #21)


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The question above concerns how appropriate reliance on hope is to be distinguished from dysfunctional and abusive hope-mongering.

Modelling credibility crises of the future: The current financial crisis and the associated credit crunch, triggered by subprime lending and accumulation of "toxic debts", help to make it very clear that humanity has gulled itself into a process of living on borrowed time. Attitudes to the population explosion and its implications for resource usage have been cultivated in a bubble of confidence continually reinforced by hope-mongering. This has encouraged a frenzy of unregulated speculation in pursuit of personal gain -- by some at considerable expense to others. The opportunities to exploit environmental resources have multiplied endlessly, enabled by ever-increasing ingenuity. This is usefully modelled by the development of the tremendous complexities of the derivatives market -- with its minimum transparency and its dissociation from any sustaining reality. These developments have engendered ecological deficits beyond the capacity of most to comprehend -- if any even considered it relevant to do so.

The dimensions of the sudden financial crisis have been totally unexpected by those most implicated in hope-mongering and denial of its possibility. They may well prove to be relatively minor by comparison with the probable consequences for human society of the imminent crash engendered by population overshoot and imprudent strategies of resource exploitation. It is appropriate to note that as with the crash of the financial system, this too has been widely predicted.

The current urgency of the pleas for a "bailout" is made by those most committed to a mindset of unregulated speculative use of limited resources. The proposed bailout -- and the effort to stampede decision-makers into approving it -- can be seen as presaging the manner in which any "solution" will be proposed to any future environmental crisis, whatever dramatic form it takes. It is therefore indicative of the nature of the response to the underlying emergent challenge, the highly problematic consequences of the simplistic remedies that will be available at the last minute, and the burden it will place on future generations.

As an indicative model of a future "credibility crunch", the "credit crunch" draws attention to consequences of a complete erosion of confidence and trust in the institutions and authorities that have been so complicit in the hope-mongering processes by which the crisis has been engendered. In this respect, the fact that both funds and markets have been "frozen" by the crisis is suggestive of how even non-financial and informational transactions would be "frozen" by any future more general crisis of confidence. The loss of "liquidity" now experienced in financial terms may then translate into a more dangerous loss of flexibility in both socio-economic and psycho-social systems -- with unpredictable consequences.

Recognition of dangerous underlying patterns: Beyond the financial crisis, it is therefore even more vital to identify other -- even more fundamental -- systemic processes that are also effectively based on "confidence". Are they vulnerable to a form of "subprime crisis" as a result of questionable "lending" -- through hope-mongering? A number of candidates for consideration are identified above. But the prime candidate, worthy of the most careful attention, is overpopulation -- in relation to the capacity of humanity to live within its planetary means, and especially in the light of the many analyses of "overshoot" and the manner in which such warning signals have been authoritatively considered to be of no significance

Archetypal hope-mongering: It is with respect to any such systematically-denied underlying challenges that hope-mongering becomes most clearly evident in two distinct forms, whatever population levels are reached:

  • creative responsive of human ingenuity: as noted above, the challenge with respect to this form of hope-mongering has been explored by Thomas Homer-Dixon (The Ingenuity Gap: how can we solve the problems of the future? 2000) who subsequently recognized the inevitability of collapse of civilization as it is currently known (The Upside of Down: catastrophe, creativity, and the renewal of civilization, 2006), as with Jared Diamond before him (Collapse: how societies choose to fail or succeed, 2005). For technocrats, as discussed elsewhere, this is the prime reaon for optimism (In Quest of Optimism Beyond the Edge -- through avoidance of the answering process, 2007). Especially interesting in any comparison with the financial markets is the degree of creative ingenuity, of the highest mathematical order, that has been employed in the development of the derivative market -- held specifically to be one of the systemic factors that resulted in the financial crisis.

  • hope-mongering and rapture: as noted above, equally significant if not more so, is the degree of influence on faith-based governance of the widespread belief in some form of rapture, or divine "bailout". Is this "bailout by God"? This is notably a factor in the US presidential campaign at the time of writing. In a sense the more fundamental or dramatic the complex of problems faced by humanity, the higher the probability of such intervention from a faith-based perspective. Responsible, rational strategic responses may therefore be readily set aside in a celebration of short-termism worthy of the financial markets. But what if it proves to be "bailout by Allah" as the lender of last resort -- with a different conception of "Wall Street"? The final crisis is both a matter of prophecy and to be welcomed for the future it will then enable, as discussed elsewhere (Spontaneous Initiation of Armageddon: a heartfelt response to systemic negligence, 2004). Is God appropriately to be instrumentalized as a sophisticated form of luck-cum-bailout device, responsive to praise and appeals?

Credibility: In whom should one have confidence when authorities have abused trust to such a degree -- and with a minimum of humility and self-criticism? The intellectual brilliance of the best and the brightest, and their supporting institutions, is now completed dissociated from the hopes that might otherwise be appropriately placed in them. It is their very "ingenuity" that engendered the crisis. It is in this sense that hope-mongerers need to be seen as operating like the mortage brokers that engendered the subprime crisis through "toxic loans". To what extent do "lobbyists" perform a similar function -- as "pushers" of the hope-drug in a drug-dependent culture?

Given the role they are called upon to play, should the UNDP Human Development Report or the Human Development Index also reflect the degree of reliance on hope, the incidence of hope-mongering, and the extent of broken promises made to populations? A precedent has been set by industry in various countries having an "index of business confidence" or an "index of consumer confidence". Concerns with social capital have resulted in an "index of confidence in institutions" and an "index of confidence in the employment market".

After the bursting of the bubble engendered by the dynamics of an unregulated financial system, what other bubbles may soon burst -- equally unexpectedly and with what implications? Although a specialist in mathematical finance and an early pioneer of complex financial derivatives, the perceptions of Nassim Nicholas Taleb ( The Black Swan: the impact of the highly improbable, 2007) are particularly relevant to the bursting of such bubbles. This argument has been further developed in an associated paper (Systemic Crises as Keys to Systemic Remedies: a metaphorical Rosetta Stone for future strategy? 2008).

In lieu of any other apology?

Editorial conclusion by The Economist, 20th September 2008: Ten short days saw the nationalisation, failure or rescue of what was once the world's biggest insurer, with assets of $1 trillion, two of the world's biggest investment banks, with combined assets of another $1.5 trillion, and two giants of America's mortgage markets, with assets of $1.8 trillion. The government of the world's leading capitalist nation has been sucked deep into the maelstrom of its most capitalist industry. And it looks overwhelmed....

This is a black week. Those of us who have supported financial capitalism are open to the charge that the system we championed has merely enabled a few spivs to get rich. But it helped produce healthy economic growth and low inflation for a generation. It would take a very big recession indeed to wipe out those gains. Do not forget that in the debate ahead.

Editorial of the Financial Times, 27th September 2008: In praise of free markets: a flawed but precious mechanism.

The financial system has reached the point of maximum peril. After years of profligacy, banks have all but stopped lending to each other as the US Congress decides whether to extend support. If the unravelling of the banking system continues, the economic consequences will be dire. Yet there is an even greater risk: that the politicians now contemplating Wall Street's follies draw the wrong conclusions and take the wrong decisions, losing their confidence in markets altogether.

Is this bubble-blowing at its best -- under difficult circumstances?
What level of economic disaster, if any, would induce The Economist
to write an Apologia per vita sua -- as theologians used to understand it?

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