So our search for a culprit in the global financial meltdown has taken us from Nick Paumgarten's "The Death of Kings" in the May New Yorker (where many were called but no one chosen), to Michael Lewis' "The Man Who Crashed the World" in the July Vanity Fair (which chose Joe Cassano, head of the financial products group at A.I.G.).

John Cassidy, in a New Yorker piece last month called "Rational Irrationality," suggests a culprit closer to home: You. OK, me. OK, all of us. Not in a "we're all guilty" way but in a "human nature" way. Cassidy suggests that those involved didn't act particularly greedy or irrationally; they acted normally greedy and rationally. They acted the way most of us do. And they will keep doing so. And that's the problem.

He starts with a factual metaphor: the opening of the Millennium Bridge in June 2000, and how, apparently because the bridge's architects hadn't anticipate so much foot traffic, the bridge, with people on it, began to sway a bit; but the more pedestrians adjusted to the swaying the worse the swaying got. Engineers call this phenomenon "synchronous lateral excitation," and Cassidy says, in a non-metaphoric way, it's responsible for our booms and busts. We all do what we all do. Or to quote Catch 22:

Dobbs: Look, Yossarian, suppose, just suppose, everyone thought the same way you do.
Yossarian: Then I'd be a damn fool to think any different.

When the subprime mortgage was going gangbusters, why wouldn't you get involved? When it faltered, why wouldn't you get out? Cassidy writes:

The trigger [for the Global Financial Meltdown] was, of course, the market for subprime-mortgage bonds—bonds backed by the monthly payments from pools of loans that had been made to poor and middle-income home buyers. In August, 2007, with house prices falling and mortgage delinquencies rising, the market for subprime securities froze. By itself, this shouldn’t have caused too many problems: the entire stock of outstanding subprime mortgages was about a trillion dollars, a figure dwarfed by nearly twelve trillion dollars in total outstanding mortgages, not to mention the eighteen-trillion-dollar value of the stock market. But then banks, which couldn’t estimate how much exposure other firms had to losses, started to pull back credit lines and hoard their capital—and they did so en masse, confirming Shin’s point about the market imposing uniformity. An immediate collapse was averted when the European Central Bank and the Fed announced that they would pump more money into the financial system. Still, the global economic crisis didn’t ease up until early this year, and by then governments had committed an estimated nine trillion dollars to propping up the system.

Whatever the asset class may be—stocks, bonds, real estate, or commodities—the market will seize up if everybody tries to sell at the same time. Financiers were accordingly obliged to keep a close eye on the “mass psychology of the market,” which could change at any moment. Keynes wrote, “It is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passes the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops.”

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