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? 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 brain:

· 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 super-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.

Yes folks, this is America’s collective brain buzzing along at hyper-speed. 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 auto-pilot, 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?

The investor’s brain is a very bad “computer”
Years ago America’s leading behavioral economist, Richard Thaler warned: “Think of the human brain as a personal computer with a very slow processor and a memory system that is small and unreliable … the PC I carry between my ears has more disk failures than I care to think about.” And it ages badly. Factor the “Lake Wobegon effect” and the “Invisible Gorilla” into your computer. What do they tell you about the impact of billions of irrational decisions made by all gamblers betting at Wall Street’s 24/7 global casino? (More)

In The Battle for the Soul of Capitalism Jack Bogle no longer sees Adam Smith’s “invisible hand” driving “capitalism in a healthy, positive direction.” Today, his “Happy Conspiracy” of Wall Street plus co-conspirators in Washington and Corporate America are spreading a contagious “pathological mutation of capitalism” driven by the new “invisible hands” of this new “mutant capitalism,” serving their selfish agenda in a war to totally control America’s democracy and capitalism.

The “Goldman Conspiracy” is the perfect B-School case study of Wall Street’s secret contagious pathology, with insiders like Blankfein, Paulson and others pocketing billions more of the firm’s profits than shareholders, evidence the new “mutant capitalism” has replaced Adam Smith’s 1776 version which historically endowed the soul of American democracy as well as our capitalistic system. But sadly for America, Goldman’s disease is rapidly becoming a pandemic spreading beyond Wall Street’s “too-greedy-to-fail” banks, infecting our economy, markets and government, as it metastasizes globally.

What are the symptoms of this growing “soul-sickness,” this “pathological mutation of capitalism” Bogle fears? Recently we reviewed the consequences of this “soul-sickness.” Today we’ll edit and paraphrase news reports about fifteen symptoms spreading “soul-sickness” beyond the boundaries of this Goldman case study: These are the 15 signs of a moral pathology undermining not just banking, but American democracy and capitalism.

1. Gross denial of any moral damage caused by their rampant greed
Seeking Alpha: ‘Goldman is America’s most hated corporation. We cheer as Rolling Stone’s Matt Taibbi calls Goldman “a giant vampire squid wrapped around the face of humanity.” Banks triggered a global crisis. Main Street suffers. Greedy bank CEOs raid the Treasury then stuff $30 billion in their bonus pockets, up 60% from last year.’ They are our 21st century General Motors, convinced ‘What’s good for Goldman is good for America.’ We saw how that arrogance ended. Wall Street has similar suicidal symptoms.

2. Narcissistic egomaniacs with secret “God complexes”
London Times’ John Arlidge interviewed Goldman CEO Blankfein: ‘He paid himself $68m in 2007, now worth more than $500 million, yet insists he’s a blue-collar guy. He says banking has a ‘social purpose,’ just a banker ‘doing God’s work’.’ When I was at Morgan Stanley in the seventies the firm ran an ad: “If God Wanted To Do a Financing, He Would Call Morgan Stanley.” Today, all of Wall Street is dual diagnosed: They’re morally blind money addicts who believe they’re “God’s chosen.” AA would say: They haven’t “bottomed,” won’t recover from their disease till a disaster hits, with another market meltdown and the “Great Depression 2.” Then maybe they’ll “quit playing God.” (More)

Using sophisticated MRI technology, various behavioral finance and neuroeconomic gurus have been looking deep into the decision-making activities of the investor’s brain. What they’ve discovered was that investors consistently make decisions using the lower, primitive brain functions—not the rational brain in frontal cortex—as investors we rely on what in ancient oriental cultures is called the “monkey-brain,” and what modern neuroscientists referred to as the “lizard” or “reptilian” brain. In short, the investor’s brain works like heat-seeking missile searching for immediate gratification, making buy, sell and trade decisions based on primitive short-term pleasure-pain motivators that relieve our momentary feelings of fear and greed, and in the process, we suppress, minimize and ignore long-term considerations.

No, it’s not very complimentary, but it is true: Terry Burnham, a former Goldman Sachs trader calls it a “lizard” brain. Clotaire Rapaille, a French neuro-marketing guru generalizes, it’s your “reptilian” brain. And up at Harvard there’s a wiseguy professor who refers to the investor’s primary decision-making tool in even less flattering terms: “Rat” brain!

Lizard? Rat? Reptilian? Get a grip guys, you sound more like some mean-spirited politicians than members of the world’s elite institutions and academies. But we get the point. You’re talking about our primitive brain, which research consistently proves is a very bad tool for making investment decisions … and yet, like addicts, we can’t stop the insanity, we keep using a flawed tool. Yes, you heard right: Your brain is handicapped, your brain is a saboteur costing you big money. In Mean Markets & Lizard Brains, former Goldman trader Terry Burnham says our primitive brain was designed to help our ancestors hunt for food, daily survival stuff. (More)