Groupthink, Intellectual Arrogance & the Madness of Alan Greenspan

http://www.spiegel.de/international/business/0,1518,635051,00.html

This article should be read by anyone trying to understand the current financial mess or who is interested in understanding why it is so difficult to reform any institution that has allowed itself to be captured by its own dogma, like the Federal Reserve Board, General Motors, or the Pentagon.

The pathway to disaster is quite predictable in the abstract: When the organization’s leaders and members become captured by their own dogma, they see what they want to see. Dissenters or advocates of a different view are squelched or ignored. Add to this the pressures of ambition and greed, and the result is a positive feedback loop that corrupts information on an ever-increasing scale to disconnect the Observation – Orientation – Decision – Action loops of decision makers from the environment they must cope with to survive. The attached analysis in Der Speigel documents this how this process unfolded for the financial sector in excruciating detail, notwithstanding clear warnings of impending doom. As shown below, the incestuously amplifying disconnect between thinking and reality, left unchecked, became a prescription for a march of folly to inevitable catastrophe, a process that became dangerously reinforced when senior decisionmakers, like Alan Greenspan, become viewed (and viewed themselves) as infallible Delphic oracles.

President Obama would do well to understand how this widespread process influences governance, because incestuous amplifying behavior, flowing out of the systemic corruption of information, is not only a phenomenon of the Fed and the Treasury, it has been clearly documented in the dysfunctional decision making practices in the Pentagon, which are now clearly out of control notwithstanding a litany of warnings going back to the early 1980s, as well as in the counterinsurgency dogmas that are now threatening to repeat the decision-making errors of Vietnam in Afghanistan.

THE MAN NOBODY WANTED TO HEAR
Global Banking Economist Warned of Coming Crisis

By Beat Balzli and Michaela Schiessl
http://www.spiegel.de/international/business/0,1518,druck-635051,00.html

William White predicted the approaching financial crisis years before 2007’s subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.