Wall Street's Gorilla Is Killing America's Soul

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Paul B. Farrell

June 22, 2010, 12:01 a.m. EDT · Recommend (5) · Post:

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By Paul B. Farrell , MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- On Lake Wobegon "all the women are strong, all the men are good-looking and all the children are above average" says the great American satirist Garrison Keillor in his "Prairie Home Companion" world.

But doesn't that also describe all the too-greedy-to-fail fatheads running Wall Street? And, unfortunately, Main Street America's 95 million irrational and self-sabotaging investors?

The White House has described the BP boss' decision to attend a yacht race during the oil leak crisis as a "big mistake". President Obama's Chief of Staff said Tony Hayward had committed another, in a "long line of PR gaffes." Alistair Bunkall reports.

Yes, all of us! We're Americans. Don't confuse us with the facts, with reality. We're the greatest in history, a legend in our own minds. And a rapidly mutating virus is spreading this lethal pandemic far beyond the shores of Lake Wobegon. Yes, folks, the "Lake Wobegon Effect" is hard-wired in America's brain, an illusion of superiority, a smug arrogance where each knows we are the best, the chosen ones.

Warning: The Lake Wobegon Effect is the single best summary of today's stock market psychology, high-frequency trading, behavioral economics theories and the new science of irrationality ... and it's sucking the life out of America's soul. Here, listen to more of these arrogant musings surfacing everywhere from deep in our collective brains:

All Wall Street bankers are worth 100 times any Main Street investor

All Corporate American CEOs deserve to make 400 times their workers

All children of all Forbes 400 billionaires deserve to inherit tax-free

All lobbyists deserve millions when winning billions for special interests

All taxpayers should pay for catastrophic mistakes of Wall Street Fat Cats

All rich hedge fund managers deserve to be taxed at capital gains rates

All senators deserve to become millionaire lobbyists when they retire

And Goldman Sachs CEO Lloyd Blankfein deserves a $100 million bonus

This is America's collective brain buzzing along at hyperspeed. This is the toxic irrationality driving America in the 21st Century ... and it really is destroying our soul from within. Seriously, look outside the isolation bubble you live in. Ask why so many other American brains are on autopilot, guided by what Yale psychologist Dr. Paul Bloom humorously calls the Lake Wobegon Effect in his New York Times review of "The Invisible Gorilla" by psychologists Christopher Chabris and Daniel Simon:

The Invisible Gorilla is "one of the most famous psychological demos ever. Subjects are shown a video, about a minute long, of two teams, one in white shirts, the other in black shirts, moving around and passing basketballs to one another. They are asked to count the number of aerial and bounce passes made by the team wearing white, a seemingly simple task."

Stop. Test yourself before you read on. What does "The Invisible Gorilla" study tell you about the brains of folks gambling in Wall Street's casinos? Where billions of shares, trillions of dollars, stocks, bonds, derivatives trade daily? What's "invisible" to you?

Stop again. Look closely: Not just in the brains of Main Street's 95 million investors. We know we're irrational and easily manipulated. But our leaders too? All our Wall Street CEOs, brokers, high-frequency traders ... all our government bureaucrats, policy wonks, congressional committee heads ... all our pension fund bosses, mortgage lenders, central banks policy makers ... and all the other global players playing games with derivatives in the $670 trillion unregulated global shadow banking casino that's avoiding real reform?

Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology.

The developers of new electronic readers started a price war on the first day of summer for one big reason. Beach reading.

5:21 p.m. June 21, 2010 | Comments: 12

It's true that most investors are overconfident in their ability to beat the market. It's also true that most are slow to react to changing conditions. That's why we tend to hang on to losing positions too long, finally giving up and selling close to the bottom. When things turn around, we're slow to accept it again, and we tend to wait until the market has been going up for a long time, and..."

- tec390 | 11:27 p.m. June 21, 2010

"An Invisible Gorilla is killing America's soul http://on.mktw.net/dgoRdz" 11:27 p.m. EDT, June 21, 2010 from MKTWFarrell

"Doomsday Capitalism virus is spreading http://on.mktw.net/d8AeFm" 12:30 a.m. EDT, June 15, 2010 from MKTWFarrell

"GDP growth fetish is bad for your money http://on.mktw.net/c0aXYt" 11:17 p.m. EDT, June 7, 2010 from MKTWFarrell

"American investors: predictably stupid losers http://on.mktw.net/bFle4F" 11:37 p.m. EDT, May 31, 2010 from MKTWFarrell

"Crash is dead ahead. Sell. Get liquid. Now http://on.mktw.net/949KT9" 11:49 p.m. EDT, May 24, 2010 from MKTWFarrell

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