As would be expected from any serious economic downturn, Americans’ emotional reaction to the Great Recession is mostly a predictable collection of negative feelings: sorrow, fear, despair, regret, and so on. But there is another emotion in the mix that took me a little while to understand. It is anger. To be more specific, it is anger about losses in stocks and other financial assets.
It took a while for me to pick up on this partially because it is so alien to the way I think about my investments. Not to go too far into unpleasant details, but I have lost a lot of money in the stock market in the past year. Really a lot. I am sad about this. I am regretful that I didn’t bail out when I could have. I even feel foolish about a few particular investments I chose. But I am not angry at anybody about it. Why would I be?
I knew what I was getting myself into. As readers of this blog know, my attitude to the stock market can be characterized as long term optimism tempered with a healthy dose of life-isn’t-always-fair. I knew that the market going down by half was not likely, but always a possibility. It had happened before. And I knew that although being a long-term investor increased my chances of a happy ending, nothing guaranteed one.
But many people never understood that what just happened to us was even possible. Sure, they had been told that the markets were volatile, but over the years the message had been drilled home that long-term buy-and-hold investors were safe, that if you were responsible and carefully saved your pennies and put them into the stock market for safe keeping you would get a 10% average annual return.
Then, apparently without warning, people in their fifties and sixties, who had been doing what they were supposed to do with their retirement savings for decades, lost a third or even a half of their money. Poof. Some of them were on the final glide path to retirement. They had a date picked and a budget worked out that would let them live where they could play golf year-round. And then it all just fell apart. I met a 60ish woman the other day who bitterly wondered why she had bothered saving so much over so many years.
There are several possible emotional reactions to this sort of loss. Denial is popular. Investors just stop reading their monthly statements. Or they decide that this is just a temporary fluke and by this time next year stock prices will be back to normal. “It’s not a loss until you sell” they tell themselves.
Feelings of collective guilt are more popular than I would have thought. There is the theory that this is God’s punishment for societal waywardness. The secular version of this has the market collapse as the inevitable result of living beyond our means with big houses and big cars we could not afford.
Of course, collective guilt is only a stone’s throw from blaming others. Accepting even partial responsibility for a bad thing that has happened to you is no fun. So why not modify the explanation a bit: society may have done something bad, but I didn’t participate in it. The problem was runaway greed, but my plans to get rich on my house and investments were modest and wholesome.
Alas, if you are committed to the path of blaming others there are problems with the wayward society theory. Most obviously, you may have trouble separating yourself from the culture of greed and/or debt that you wish to blame. More troubling than that is the thought that if this fiasco was a result of widespread foolishness, then you should have seen it coming and avoided it. Moreover, if your world view is that what we have experienced in the markets is unnatural and not something that was supposed to ever happen, it is hard to see it as the inevitable result of something millions of ordinary people did.
Which brings us to anger. There are people who look at their 401k statements and conclude not that they have lost money, but that it has been stolen from them. By evil bankers on Wall Street. Why bankers? because they are the people closest to the scene of the crime whose function is not understood. Also, they’re rich.
What was most striking to me about the AIG bonus uproar was how ineffective patiently explaining the situation was to some of the most upset people. (See my post on AIG and its comments.) The upset people were not making a reasonable argument about fairness. They were very angry and wanted revenge. And we saw a glimpse of the same thing in the more awkward and unfunny parts of the Jon Stewart vs. Jim Cramer affair. At one point in the interview, when Stewart fell out of character and declared “This isn’t a game!” I half expected Cramer to put his hand on Stewart’s shoulder and supportively ask “How much did you lose, Jon?”
To former stock market professionals like Cramer and myself, this is certainly not a game, it is serious business. But being angry at losing money is hard for us to relate to. It’s like yelling at the little white ball on the roulette wheel. (Except that roulette is a bad bet. The stock market is a good one.) The core problem is that many, perhaps most, ordinary savers and investors did not understand what they were getting into. And in a limited sense, this is something they can justly blame on others, as those who were supposed to explain investments to Americans did a really lousy job of it.
[Photo of angry baby by Arturo J. Paniagua. I am not saying that the angry people are babies. I just like the picture.]