CARDIFF U. (UK) — Bankers who brought the global economy to its knees two years ago may have actually enjoyed the sensation of losing hundreds of billions of pounds and plunging the world into recession.
The willingness of banks to deal in subprime loans and related derivatives, which were bound to result in disastrous losses, can only be understood if the bankers unconsciously desired the destruction of their own institutions, says Paul Crosthwaite, lecturer in literature and critical and cultural theory at Cardiff University.
Such catastrophic losses can be sources of masochistic pleasure for those who experience them.
Crosthwaite’s article, published in Angelaki: Journal of the Theoretical Humanities, coincides with the second anniversary of the emergency moves to nationalize stricken banks in the UK, US, and Europe.
Using psychoanalysis to explain the successive booms and busts that have shaken markets over the last two decades, he argues that financial crises, such as the ‘Black Monday’ crash of Oct. 19 1987, the bursting of the dot-com bubble in the spring of 2000, and the credit crunch which entered into its most intense phase in the autumn of 2008, are expressions of the innate urge for self-destruction that Sigmund Freud termed the ‘death drive’.
“Economists and financial policymakers must recognize that investor psychology is far more complex than their models have allowed up to now,” Crosthwaite says.
“They need to take much greater account of psychological factors such as emotion and desire, which affect how market actors behave in profound ways.”
The financial crash is the modern equivalent of the traditional Native American practice of ‘potlatch’, a ritual ceremony in which the chiefs of rival tribes competed to destroy ever greater quantities of their own possessions.
As with chiefs participating in a potlatch, the capacity to generate huge losses, just as much as huge profits, is experienced by investment bankers and financial traders as an expression of their power, prestige, and importance.
The findings strengthen the case for tighter restrictions on the risks assumed by financial institutions, Crosthwaite says.
“To avoid a repeat of the ‘great recession,’ it’s vital that policymakers and regulators limit the capacity of financial professionals to engage in excessive practices by curbing the disproportionate levels of risk that we’ve seen in the financial sector in recent years.”
More news from Cardiff University: www.cardiff.ac.uk/news/