Why do we believe so much in powers of ‘Men of Money’?

One is tired of reading these kinds of articles (or this) on prowess of central banks and their managers. Why does it take us so long  to figure this despite repeated occurrences showing their infallibility?

All one wants is to quote these memorable lines from John Kenneth Galbraith’s book – Money, Whence It Came, Where It Went. This blog reviewed the book here but did not quote the lines. Given continued madness, one has no choice but to quote straight from the book:

Men possessed of money, like men earlier favored by noble birth and great title, have infallibly imagined that the awe and admiration that money inspires were really owing to their own wisdom or personality. The contrast between their view of themselves, as so enhanced, and the frequently ridiculous or depraved reality has ever been a source of wonder and rich amusement. Similarly there has always been pleasure of a low sort in the speed with which the awe and admiration evaporate when something happens to the individual’s money.
Money bemuses in another way. Recurrently over the centuries men have supposed that they have mastered the secret of its infinite amplification. And as reliably as they have persuaded themselves of this, they have also persuaded others. Invariably it involves the rediscovery, perhaps in slightly novel form, of some infinitely ancient fraud. 
The span of time between the transcendental heights of the financial genius and the nadir of the ensuing collapse — from being John Law the savior of the French Regency to being John Law the penitent in Venice, from being Nicholas Biddle the first master of American finance and a fearsome figure to Presidents to being Nicholas Biddle the most distinguished of Philadelphia bankrupts, from being Bernard Corn-feld of the jet planes and sad-eyed concubines to being Bernard Cornfeld of the prison of St. Antoine — is often only a few months, at most only a few years. There is wonder and a certain wicked pleasure in these giddy ascents and terrible falls, especially as they happen to other people. 
Here, no doubt, it is the story and not the meaning that is important.”
Brilliant. One hardly has to say anything more.
There are several names which can be mentioned picked from Galbraith’s book and also those that appeared post his book:
  • John Law who set up a bank in France and created paper money. Died in poverty in Venice.
  • Patterson who formed Bank of England was ruined financially.
  • Robert Morris financier of American revolution went in a debtors’ prison for several years
  • Alexander Hamilton shot dead due to an affair
  • Jay Cooke who sold the bonds with the greenbacks paid for civil war met with a crash
  • Andrew Mellon successor to Hamilton escaped an income tax trap
  • Harry D White, Lauchlin Currie and Marriner Eccles who brought Keynesian economics to Washington were dubbed as communists
  • John Connally concluded the Smithsonian agreements as Treasury Secretary in 1971. He was indicted but fortunately was acquitted.

The list goes on. Add Nobel Prize founders of LTCM (perhaps the biggest case), Committee that saved the world, Alan Greenspan (part of the committee but has to be mentioned seperately) and several other policymakers. One could add Dr Manmohan Singh to the list as well whose fall from grace is as shocking. Further add high profile fund managers and bankers to the list. Most bite the dust eventually.

The question is what is it about people of money (Galbraith mentions men and we need to include women as well. Though it seems women are far better managers as they don’t get carried by hype as much as men)? Perhaps their belief that they are behind it all which most of the time is just an illusion..There are multiple factors for the rise but they choose to take the credit. When those multiple factors eventually  decline, they are trapped in the decline.

It is puzzling why people of money make such a show of their prowess despite these historical lessons. It is all about hubris and belief things are different because of me. I am the factor. And then comes the sudden decline. It has this spirituality twist to it.

It is actually quite ironic. The most effective central bankers/money managers are usually those who neither think of themselves as really supreme nor people think of them to be. This way the chances are things are likely to be far more institutionalized and people coming and going does not change things. No one expects much and things remain normal. The more hyped the whole thing is worse are the outcomes going ahead. It is much better for both the hyped and those hyping to let go off the former before it gets too late. But they just do the opposite and make you believe that things will end if the hyped goes away. Nothing could be further from truth. It is much better to get a reality check earlier than postpone the pains for later as it keeps happening.

These lessons are as universal as those learnt when we say “This time is different”. But we just refuse to learn..

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