Wall Street WARZONE
Super-Myths: Optimism, Happiness & Positive Mental Attitude Are Secret Saboteurs, Turning Investors Into Wimps & Weasels, Not Wizards & Winners!
by Paul B Farrell, JD, PhD
| Discuss | Print | 6/15/2010

Chances are you’ve read Napoleon Hill’s classics, Think & Grow Rich and Success Through Positive Mental Attitude, coauthored with insurance mogel Clement Stone.  I did way back when I was at Morgan Stanley in the 1970s. Today, the cult of “Positive Thinking” is very much alive. Look in the business & finance shelves in Barnes and Noble. Still, in the wake of Wall Street’s 2008 meltdown, many began questioning the magic of ”PMA” as they saw their 401(k)s flatline.  

It’ll take more than PMA, mantras, affirmations and a pep talk from the “God Wants You To Be Rich” crowd to rebuild your retirement nestegg. And it’ll take a lot longer than you hope because there’s a “new normal” for the American mind as well as the lower market expectations Pimco’s Bill Gross sees ahead. And it’s not about increasing your optimism level. The meltdown and bailouts left us with enormous anger, frustration, skepticism and mass distrust of virtually everything, including the Think & Grow Rich mantra: “Whatever the mind can conceive, it can achieve.”

Barbara Ehrenreich, the author of Nickel and Dimed, a 2000 bestseller, captures this new mindset in her diagnosis of America’s troubled psyche. Macho male readers may prefer reading the new books detailing Wall Street’s collapse in blow-by-blow real-time TV-style dramas, like Sorkin’s Too Big To Fail. But if you want the psychological “new normal,” step into Ehrenreich’s  office where you’ll dig deep and discover what’s really going on in America’s collective brain. Read Ehrenreich’s Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America.

Yes, ”Positive Thinking” & “Happiness” Are Undermining America!

She pokes huge holes in the myth of positive thinking and its “new age” siblings — optimism, self-esteem, positive psychology and the new “science of happiness” — that are undermining America with false promises of an entitlement of prosperty. In BusinessWeek Michelle Conlin focused on Ehrenreich’s warning to future whistle-blowers in the chapter on “how positive thinking destroyed the economy.” Listen:

“In pre-subprime America, delivering the news that we were all burning down the house was a career-ender. Nowhere was this more true than on Wall Street. One such martyr to the cause of financial realism, Ehrenreich writes, was Mike Gelband, who ran the real estate division of Lehman Brothers. Gelband warned Lehman CEO Dick Fuld about the real estate bubble in 2006. ‘Fuld promptly fired the misfit, and two years later, Lehman went bankrupt’.” Hmmm, isn’t that about the time Paulson left as Goldman’s boss to become Treasury Secretary, later Bloomberg News revealed that Paulson did warn the White House staff of a possible meltdown, still they stayed in denial till it was too late.

Today we know Paulson and Fuld are just bit players in America’s broader ‘positive thinking’ drama, which far more pervasive than the guys at the top of Corporate Amercia and Wall Street. It also infected home builders, realtors, mortgage brokers and millions of homebuyers were all hypnotized, in denial about the risks of defaulting on mortgage payments in event of a down market.

Other critics are equally blunt. Writing in the New York Times Hanna Rosin says “I have waited my whole life for someone to write a book like Bright-Sided. When I was a young child, my family moved to the United States from Israel, where churlishness is a point of pride. As I walked around wearing what I considered a neutral expression, strangers would often shout, ‘What’s the matter, honey? Smile!’ as if visible cheerfulness were some kind of requirement for citizenship,” adding that “America’s can-do optimism has hardened into a suffocating culture of positivity that bears little relation to genuine hope or happiness.” She hesitated to go as far as Ehrenreich who saw a larger conspiracy using positive thinking as ”just another way for the conservative, corporate culture to wring the most out of its workers.” Others were not so reluctant:

“We’re always being told that looking on the bright side is good for us, but now we see that it’s a great way to brush off poverty, disease, and unemployment, to rationalize an order where all the rewards go to those on top,” warns Thomas Frank, Wall Street Journal columnist and author of The Wrecking Crew: How Conservatives Rule. “The people who are sick or jobless — why, they just aren’t thinking positively. They have no one to blame but themselves,” a mindset that echoes the ideologt of many conservatives, religious fundamentalists and hard-core capitalists today.

Read Bright-Sided, it is a perfect psychological counterpoint to typical dramas like When Giants Fall, Bad Money, Panic  and Bailout Nation. You’ll get a shrink’s eye view deep into America’s collective brain. And by jarring you out of denial, it’ll protect you from the new bubble/bust cycle already blowing.

‘Optimist?’ Or ‘Pessimist?’ Will Wall Street Lose More in the New Decade Than the “Lost Decade” Just Ending? Ask Your Brain!
by Paul B Farrell, JD, PhD
| Discuss | Print | 5/11/2010

New decade. New investment strategy? Wall Street says “trust us,” buy stocks. Why should you? They lost 10% between 1999 and 2009. Lost 10% of the Dow’s market cap. Lost 10% of your retirement nest egg. They’re losers. Should you trust them? Trust America’s “too-greedy-to-fail” banks, the guys who triggered the 2007-2008 credit meltdown that’s dumped $23.7 trillion in new debt on future generations, failed to stimulate the economy by lending to businesses, instead rewarding themselves with record bonuses while rapidly returning to “business-as-usual” with their new high-risk “high-frequency” derivatives trading to jack up their profits. Maybe you need a new mindset, before rethinking strategy. Test yourself. Are you an …

(A) Optimist? In these early days of the new decade, are you an optimist who trusts Wall Street’s advice that 2010 will be a great time to buy stocks. Wall Street says the “Lost Decade” (what a great title) is now behind us. So you believe that the 60% market rally since the March 2009 bottom will continue, with at least 20% gains in 2010.

(B) Pessimist? Or, you’re distrustful, cynical and pessimistic about all predictions made by Wall Street’s bosses and pundits. You’re particularly skeptical of any and all forecasts by the “too-greedy-to-fail” bankers who stole trillions from taxpayers, the Fed and Treasury, then failed to stimulate the economy, and now pocketing mega-bailout bucks as record bonuses, just one year after we saved Wall Street from near-bankruptcy. (More)

Optimism: Secret of Success? Or Secret Saboteur?
by Paul B Farrell, JD, PhD
| Discuss | Print | 5/3/2010

Behavioral finance researchers are virtually unanimous in concluding that over-optimism is the single biggest saboteur that results in individual Main Street investors under-performing the stock market. While optimism and a positive mental attitude is essential to success in sports and in the military, for entrepreneurs and business executives in Corporate America … over-optimism is a killer in the stock market. Unfortunately, most active investors tend to be overly optimistic—they believe they know more than they do, overestimate their skills, underestimate risks, see trends and patterns that don’t exist, and as a result, make dumb and very costly decisions on a regular basis.

One of the earliest and best books profiling the mysterious world of investor psychology is Investment Madness by Professor John Nofsinger, a behavioral finance expert at Washington State University. It still is today, Nofsinger’s work explains complex issues in simple, easy-to-understand layman’s language that’ll open your eyes about how our brains malfunction when we turn to investing. If you’d like to start with the conventional wisdom about behavioral finance and get “less irrational,” then this is the best place to start. (More)