Being Wrong - Kathryn Schulz [44]
In that, Greenspan was hardly alone. One of the most striking features of the economic catastrophe was the sheer number of financiers wandering around in a state of stunned bewilderment, trying to grasp how their understanding of the world had served them so poorly. As the hedge fund manager Steve Eisman told the financial writer Michael Lewis (he of Moneyball and Liar’s Poker fame), being an investment banker in the early twenty-first century was “like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: ‘Holy shit, I’m wrong!’”
Still, one could argue—and many did—that Greenspan, at least, had no business being quite so shocked. Over the years, countless people had challenged his deregulatory dogma, including (to name just a few) Joseph Stiglitz and Paul Krugman, both Nobel Prize–winning economists, and Brooksley Born, who was head of the Commodity Futures Trading Commission from 1996 to 1999. Born eventually became something of a Cassandra figure for the crisis, since she repeatedly called for regulating the market for derivatives, those ultracomplex financial products that eventually helped bring down the economy. Those calls were silenced when Greenspan, along with then-Treasury Secretary Robert Rubin and then-Securities and Exchange Commission Chair Arthur Levitt, took the extraordinary step of convincing Congress to pass legislation forbidding Born’s agency from taking any action for the duration of her term. In a joint statement issued at the time, Greenspan defended the move on the grounds of “grave concern about this [proposed regulatory] action and its possible consequences.” Merely discussing the option of government regulation, he asserted, could destabilize the markets and send capital surging out of the United States.
If Greenspan was reduced to “shocked disbelief” when the markets failed to regulate themselves and slid into chaos, it was not because he’d never been warned of the possibility. Nor was it because his own model had never been criticized (it had), or because alternative models had never been floated (they had). The problem, instead, was that his faith in the ability of markets to regulate themselves was, in Born’s word, “absolutist.” Greenspan was as figuratively invested in unregulated markets as the rest of us were literally invested in them. He had a model of how the world worked, and his confidence in it was all but immoveable.
Actually, Greenspan had many thousands of models of how the world worked. He must have, because we all do. These models are our beliefs, and they cover everything from how we should invest our money to where we left our wallet. We believe in some of these models only tentatively—personally, I’m only about 50 percent sure of the whereabouts of my wallet right now—and some of them absolutely. But no matter how unshakably we believe in them, the models themselves can be shaken; that is what differentiates belief from the imaginary ideal of knowledge. Knowledge, as we have seen, cannot make room for error, and therefore could not have failed Greenspan. But beliefs can, and his did. In fact, it failed us all.
This book is about our Greenspan moments: about what happens when our beliefs, including our most fundamental, convincing, and important ones, fail us. To understand how beliefs fail, though, we first need to understand how they work. And to understand that, we need to start with the most basic question of all: just what is a belief, anyway?
When we talk about beliefs in casual conversation, we usually mean our overt convictions about important matters: about religion or morality or propriety, politics or economics, ourselves or other people.