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The Paulson Plan and the Psychology of Fear
As a psychologist I tend to see things from a slightly different perspective. To me the Paulson plan clearly comes out of a state of panic on the part of its author. I have worked with a number of people who have led secure, anxiety-free lives and have then had to cope with the sudden onset of severe anxiety due to a crisis. Having little or no experience dealing with this emotion, these people tend to panic, and when they do they revert to fairly primitive modes of thought. Panic reactions are often characterized by an overwhelming need to regain as much control as possible as immediately as possible, without concern for any other factors. This is also what characterizes the Paulson plan: it was a demand to do something extremely large right away, regardless of any problems that the action would cause. The essence of the plan and its presentation also was this: “You must give me enormous resources and absolute power over them and must do it immediately or else we are all doomed.” If that doesn’t describe the thought processes of panic nothing does.
I would also point out that news accounts mentioned that Secretary Paulson at one point in the negotiations seemed to be suffering from dizziness, and some were afraid that he might have needed medical attention, but he recovered quickly and continued working. This sounds just like an anxiety attack to me.
It disturbs me to come to this conclusion because I believe Secretary Paulson was doing a pretty good job before he presented his plan. When FDR became president he realized that he had to stop the contagion of fear that had spread throughout the country and took steps to do that. Secretary Paulson has done the opposite, spreading the contagion and adding to a state of panic which has made proper consideration of the problem and its possible solutions impossible.
Comments (7)
Thanks for the interesting diary. I don't doubt the anxiety attack for a minute, but Paulson was part of engineering the crisis:
October 3, 2008 7:59 PM | Reply | Permalink
Thanks for responding. I agree completely that the SEC decision you reference was terrible and feel it was part of a general pattern of ideology-driven deregulation that everyone now can see was incredibly foolish. What I meant in my post was that I had felt Paulson, while Treasury Secretary, not when he was at Goldman, had done an OK job with the earlier stages of the crisis, at first refusing to bail out investment banks and trying to reassure the markets. Then he panicked and did a 180.
October 3, 2008 8:46 PM | Reply | Permalink
I think there is quite a bit of truth in Thomas' assessment. That was my immediate conclusion, i.e., "He's freaked out big time."
Paulson, personally, does not have any financial worries. What is more likely is that he thought he was "doing the right thing" all along and it just was not working.
I'm not particularly fond of any over reductive explanation of events like this. For example, I think the real problem here is that people like Bernanke and Paulson really do not understand what they've been doing all that well but articulate a particular set of beliefs that got them where they are. They have rejected or dismissed quite a bit of economic thought at some point and the truth is that if they had taken it seriously, they (and we) would not be where we are today. To be clear, these guys are not the amsters of the universe. This is a huge social phenomenon and there is a lot of covert collusion involved. If it was just two or three bad apples, the problem would be easy to fix.
Paulson is a hard-charging guy but he is no god. When the bubble he helped to create burst, he pushed all the well-known levers and nothing happened. Then he panicked. I doubt if he wanted this outcome. We'll see how does from here on out. He's back in his element now. They've given him a big pot of money and he can go around and be really powerful. Something will happen. If we are lucky, he won't make it worse. I do not believe in luck.
October 3, 2008 9:03 PM | Reply | Permalink
I can see how you drew your conclusions, but you have applied them to fit only one possible scenario. Have you considered the possibility that this bailout plan was known or assumed to some (like Paulson) well before it was proposed. Have you considered the possibility that any anxiety or "dizziness" he may have had was related to his not anticipating the first house vote (and massive public outcry) against his plan. Do you factor in the acting abilities of some people--especially when fear and panic help accomplish their goals? (like the run-up to the war in Iraq, for example)
October 3, 2008 9:32 PM | Reply | Permalink
Logico, I don't think either of us could prove our point. I've seen enough people like Paulson in action to take the panic theory seriously. I would have no trouble considering that they knew there was going to be problems with the eventual collapse and fall out of the housing bubble but I suspect they thought they could manage it. I also have no problems believing that those around them have no problems inducing panic into the public.
The Iraq War seems different to me. The architects of that war had wanted it for a long, long time. 9/11 gave them something to work with. It seems like Paulson, et al. really didn't help themselves. They wanted some aspects of the bubble.
I don't think BushCo gives a hoot about the economy or money other than as a tool. I don't think Paulson is a good guy or anything like that and I think a few folks will make a lot of money off of this. Notice that I said a few.
I do agree that he was probably totally freaked that it almost fell apart on him. He's used to ordering panzer divisions around. So... you may be right but I kinda think he was over his head from the git go.
October 3, 2008 10:25 PM | Reply | Permalink
Dark Times, thank you for commenting. I agree with most of what you say. I also feel that Paulson, like many conservatives, operates out of economic ideology rather than sound economics, and that that is what brought on the crisis. I was just talking about his behavior once the crisis hit. He's probably a lot less anxious now that Congress has passed something, but I don't think we are anywhere near out of the woods.
October 4, 2008 12:29 AM | Reply | Permalink
Logico, thank you also for commenting. I do think that any anxiety Paulson was experiencing was due to the overall situation, including, as you point out, the very negative reaction his plan was getting. Certainly, if he is panicking and believing that everyone has to do what he says or we're doomed, then he'll be a lot more anxious when everyone doesn't want to.
I doubt, however, that this plan was formulated well in advance, because it was so poorly conceived and so totally lacking in the kind of detail that something like this would require. It was only three pages long.
October 4, 2008 12:36 AM | Reply | Permalink
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