WHY IT HAPPENS AND WHAT WE CAN DO ABOUT IT

Stocks are plunging. Investors can’t fulfill their commitments to buy. Borrowers can’t pay back loans. We have come to call such conditions in the financial markets “panic.”

What it means is “sudden, uncontrollable fear or anxiety,” and that fits current conditions. It has come upon us quickly, catching us off-guard. Moreover it seems that events outpace us; no matter what we do, we can’t catch up. But if we look more closely at the definition, we see that it is the fear or anxiety that is out of control, not the events themselves. Indeed, we often enjoy the thrill and the challenge of fast-paced, unexpected change: skiing, running rapids, hockey games. What makes the difference with panic is that uncontrollable anxiety destroys the capacity to think. People panic when they lose their minds.

Markets too. In the midst of seemingly chaotic change, the group of people that makes up a market becomes stunned, paralyzed — or they resort to stereotyped and ritual acts that only make things worse. In short, the group has lost it leadership, the voices of those who provide guidance and direction, the minds those who can still think about appropriate responses.

We see that all too clearly today. Last week’s $700 billion bailout did very little to stem the panic. It was cobbled together as if mere action on the part of government itself could restore confidence. The more recent concerted action of European finance ministers and heads of state stands a better chance because, for one thing, it is concerted action. In a globalized economy, one country’s actions alone is insufficient — a lesson one might have thought we might have learned from the Iraq War.

The second thoughtful aspect of their plan is that it addresses directly the problem of assets and liquidity. Rather than simply buying up debt and hoping the market will do the rest, it pumps capital into the market, shoring up the institutions so they can function while at the same time giving government new control over their management. This counters the ideology of the free market, of course, but it addresses the reality of what is happening.

So we are beginning to reclaim our minds. Maybe we can then rebuild our bank accounts. What we don’t know we know about panic is how dependent we are on leaders who can think.

Lehman Brothers appears to be in its final throes, and the big question on front pages now is whether the government will intervene. A few days ago, of course, it rescued Freddie Mac and Fannie Mae – though the drastic treatment the mortgage giants got will compromise their quality of life for years to come. Six months ago, Baer Stearns went through a comparable life-saving operation. There are reports of other financial firms setting off red alerts.

[CHECK OUT BELOW: ANOTHER SACRED COW - DEREGULATION]

At a time when markets are so interrelated and so many other institutions and individual investors have so much at stake, this may be the right thing to do. But more and more it does begin to seem that Wall Street is covered by a large and loose insurance policy. Some firms are just too big to be allowed to fail.

The mind thinks by analogy and metaphor, so here is one that comes to mind: Frannie Lou (I made the name up) lost her job at the moment she was diagnosed with cancer. As she was the family’s sole breadwinner, her 3 children face a bleak future. Food stamps will feed them, but she is behind on her mortgage, owes money on her car, and is scrambling to get child care. Without insurance, what will they do?

My example of Frannie Lou may not be the best analogy, but it is good enough to suggest how ordinary people are likely to perceive what is happening on Wall Street. Obviously, the collapse of Lehman Brothers would throw its 24,000 employees out of work, while Frannie Lou’s catastrophe affects only 4 or 5; the aftershocks of a Lehman collapse might destabilize our financial markets, while the collapse of Frannie Lou’s world would agitate and depress only her family and friends, and perhaps some others who would see in her fate an image of their own. To be sure, the employees and shareholders of Lehman will endure substantial losses, but the ordinary citizen, perceiving such an analogy, might well conclude cynically that government is only about the big and powerful – if our ordinary citizen hasn’t already made up her mind about that.

But what actually is the difference? Can it be explained, and who will bother to explain it? Usually such questions are characterized as matters of PR or “spin.” But what is “insurance” anyway? And who does get to decide who or what is insured? There is substance in the questions raised by analogy.

What we don’t know we know about this is that there is an active under-life to such decisions and actions. They reverberate in our minds as they are assimilated, as people try to make sense of them. And this is where our political process enters into the picture. We need our leaders to shape our thinking and guide our responses. And we need to reflect on the kinds of leaders we need. How they answer such questions will help us to decide how useful they are.

PALIN IS NOT A STRANGER

Whatever has been said — and whatever may be said — about Sarah Palin as McCain’s choice for VP, she is not a “stranger,” some one who is unfamiliar and frightening to us.

On the contrary, her small town background and small town virtues, her pettiness, her limitations, even her go-go boots, are all too familiar. We may be worried about her lack of experience. We may be embarrassed about her views. But we know who she is.

This brings up the fact that we do need to be able to idealize our leaders — at least to some extent. We do not want them to be too foreign, but at the same time they have to be better than we are. This is the other side of racism.

Perhaps this is my McCain’s “gut” urged him to choose her, the antidote to the “stranger.’ But what we don’t know we know about such a choice is that to trust someone we have to think they are at least a little bit better than we are.

THOSE WHO REMAIN “STRANGERS”

The media is preoccupied with when and how the “race card” will be played in the campaign. But it is already in play for most of us – unconsciously. The real questions are how to play it right.

The basic fact is that as long as there is an unconscious, we will all be prey to racist thinking. It starts in the nursery when children learn to discriminate their caregivers from “strangers.” They cry or recoil in the presence of “strangers” and we can laugh, then, because we know that those “strangers” usually will be assimilated into the mental categories of “friends” or “family” – or else the child will learn to conceal and control his suspicion and fear. For most Whites, need it be said, most Blacks remain “strangers.”

In full-blown institutional racism, such reactions eventually get to be aligned with economic or social competition and amplified by group pressure. It becomes virulent and destructive. But even if society wakes up to the problem, even if discrimination is prohibited and opportunities for jobs and education are extended, the mental category of “stranger” and the mistrust it arouses will remain in the mind. It becomes a part of unconscious perception.

5% of whites in a recent survey said race would not affect their vote, but 19% said it would affect others they knew. “Welcome to the murky world of modern racism,” Charles Blow wrote in The New York Times on August 8th , “where most of the open animus has been replaced by a shadowy bias that is difficult to measure. As Obama gently put it in his race speech, today’s racial ‘resentments aren’t always expressed in polite company.’ However, they can be — and possibly will be — expressed in the privacy of the voting booth.”

For me, the frightening fact is that, often, it will not even be experienced as resentment. It remains as a vague discomfort, an undetectable shudder, an uneasiness that is felt but usually not understood. As a result it will be attributed to something else – but it will form the basis for action.

What we don’t know we know about racism is how much we still recoil from “strangers,” how hard it is to trust those who are different.

WHAT IS REALLY AT FAULT

Just as our search to pin the blame on those responsible for the sub-prime mortgage crisis is winding down, the search for those responsible for the high price of such commodities as oil and wheat is revving up. We seem to need victims to account for our systematic failures. In the first case, the heads of investment firms rolled, and some firms themselves were dismembered. Now “speculators” are seen to be driving up the price of commodities – though, as yet, no fingers have been pointed at specific individuals. No doubt, they will be as Congress goes into action.

So long as investors search for increasingly profitable investments, banks and hedge funds will try to fulfill the demand. And because they are under increasing competitive pressures to produce results, they will take greater and greater risks. And, needless to say, caught up in their competition with each other, increasingly, they will tend to minimize the dangers. Greater and greater emphasis on “risk management” will not protect investment firms from the pressure to produce results in a competitive environment.

To be sure, some leaders of investment houses have been particularly imprudent and careless, and no doubt there are those who speculate in commodities futures. But so long as they are competing to succeed against each other in attaining unrealistic results, some will fail. So long as they keep looking to each other to see where they are in their own competitive race, they will minimize the dangers. And then some will be tarred and feathered with the blame for the whole fiasco.

It is a bit like campaign reform. No sooner does Congress pass legislation to restrict the influence of big donors and the power of lobbyists to affect the political process, than new loopholes are discovered. So long as campaigns are going to be more and more expensive and the benefits of winning increase, those running our campaigns will find loopholes to keep the system going. All can agree that the system needs to be reformed, but no one wants to give up a competitive advantage. It becomes a mass collusion.

What we don’t know we know about this is how we are all implicated: The banks that promoted cheap mortgages and home equity loans, the companies that continued to securitized them as they became less secure, the investment houses and funds that kept the bandwagon going, the regulatory agencies that looked the other way, and the home owners who minimized the dangers of debt. Most important: What we don’t know we know is what we would have to think if we didn’t have scapegoats to distract us and take the rap: our unrealistic hopes for endless gain, and the flaws in the system that keeps such hopes alive.