Mental health problems and debt finance are strongly linked. People in debt have a higher incidence of psychiatric problems, and there is a higher rate of psychiatric symptoms among the people working in the finance sector too. During a bubble, egos are pumped up with asset values – and, when the bubble bursts, reputational collapse occurs with corresponding psychological effects.
When we look at the financial markets from an emotional and mental health angle, we don’t find optimal equilibrium states and rational people adapting to them. Instead, we come across a large number of unhappy, dysfunctional and disorientated people. Let’s look first at the debtor – creditor relationship from a mental health point of view.
Mental Health and Debt
For a start, there is a striking correlation between mental ill health and debt – on both sides – lenders as well as borrowers. Among other things, it is now well documented that self-reported anxiety increases with the ratio of credit card debt to personal income; that the onset of mortgage debt has a negative impact on mental health on males; that of people receiving debt advice, a high proportion (62% in a UK study) reported that their debt led to stress, anxiety and depression which they are likely to consult their doctor about; that there is a relationship between debt and post natal depression; that debt is the strongest predictor of depression; that difficulties in repaying debts are strongly connected with suicidal ideation and self-harm; that debt is associated with feelings of shame, social embarrassment, a sense of personal failure, negative self-identities and is implicated in isolation, social exclusion and strained relationships. (Fitch, Chaplin, Trend, & Collard, 2007)
Now let is turn to look at the situation on the other side, among the people who lend money, or at least those who manage and direct the credit markets. Mental health problems can be severe in the heat of financial competition. Drugs and alcohol are commonplace on Wall Street.
In a study of 26 men ages 22 to 32, all prestigious Wall Street brokers, researchers at Florida’s Nova South-eastern University examined how work stress affects brokers” physical and mental health. Led by John Lewis, Ph.D., a psychology professor at NSU, the study found that a broker’s average workday was 10 to 12 hours long, and that those earning the most also slept the least. The participants rarely missed work, calling in sick an average of twice a year but suffering from the flu or a virus at least twice as often. And despite being wealthy, the brokers were unhappy. Thirty- eight percent met the criteria for subclinical major depression, while 23 percent were clinically diagnosed with major depression—shocking, considering only 7 percent of men are currently depressed in the U.S., according to the National Institutes of Mental Health. (Gorrell, 2001 update 2009)
A few years ago, during the financial crisis of 2007-2008, New York newspapers revelled in stories about stressed-out traders reaching breaking point. One broker, Christopher Carter, was charged with assault for throwing a hedge fund manager, complete with an exercise bike, at a wall in an Upper East Side gym. The hedgie’s offence? He grunted and shouted, “You go, girl!” too loudly during a spin class.
In London, a hedge fund manager, Bertrand des Pallières, made news during the time of the financial crisis because he was so busy shorting stocks that he didn’t notice for three months that his £80,000 Maserati had been towed away.
Jim Cramer, a hedge fund manager turned television stock picker, told the New York Times that drugs tended to reinforce traders’ inability to spot a looming downturn: “Prozac and all those other drugs banish the ‘this is the end of the world’ thoughts. Which means you are not as anxious as you should be about an obvious downside.” (Clark, 2008)
During the panic, therapists reported that there was an epidemic of psychological illnesses in the finance sector, while some of the managers used some of the oldest of psychological strategies for coping – avoidance, denial, switching off mentally in the heat of the crisis. An example was James Cayne, chief executive officer of the Bear Stearns bank.
The German news magazine Der Spiegel described Cayne’s work style thus:
“Even in times of the greatest crisis the boss of investment bank Bear Stearns did not let himself be distracted from his hobbies. Last July, as one of his Hedge Funds broke down, the head of the board travelled undisturbed to a several day long bridge tournament in Nashville, Tennessee. While his troops fought for survival Cayne was not contactable. He had turned his mobile phone off. Its ring could have disturbed the many times American bridge champion.” (Die Bank Raeuber, 2008)” – translator author.
Even a cursory glance reveals therefore that, from the point of view of community mental health, the credit system is highly dysfunctional. Of course mental health workers meet desperately unhappy people living absurd lives all the time. Meeting people trapped in belief systems that, from the outside, seem crazy goes with the job. Normally, to be unlucky enough to qualify for a mental illness diagnosis, the apparently strange belief system that you have, and your strange way of making sense of the world must be unique to you. It will be seen as part of your inability to communicate with others. Then a psychiatrist can damn you with a variety of diagnostic labels like “thought disorder” which are said to be the symptoms of something deeper.
Over the last couple of decades, it has become clear that a lot of these strange thoughts are actually interpretable with a bit of effort. Psychologists, therapists and counsellors who become good at this quickly note emotional response patterns in society at large – the common cultural assumptions that help form collective emotional responses made by whole groups of people. There is nothing new in this. Freud applied his ideas out of the consulting room in observations about the wider world and his ideas were picked up by the advertising industry in the manner already described.
Using what we know about group emotions, it seems to me that it ought to be possible, and would indeed be valuable, to integrate the knowledge of group psycho-dynamics into our understanding of the way that markets evolve, including financial markets.
As explained in the previous chapter, using borrowed money during a boom phase, as long as asset values continue to inflate, it is easy to make money using borrowed money. This is called leverage and the point about leverage on the way up is that it can get out of control. Betting that asset values will go up with borrowed money creates a further pressure pushing those values up even more in a self-fulfilling prophecy. Such self-fulfilling prophecies are common in mental health – confidence leads to success and builds confidence even more. However, where there are no limits to mood enhancement, it leads into mania – and that includes on the financial markets…
Egos get pumped up at the same time as assets values
In the circumstances of a leveraged boom it is not only asset values that get pumped up but egos. Ordinary mortals who, in other circumstances would see themselves as no more or less important than anyone else, suddenly become very rich and acquire the symbols of social success that are so important to “marketing characters”. It is, thus, not only bank balances that swell in size when bonuses are announced.
Trading rooms are fiercely competitive places and the action is fast and furious. In finance, just as in any other branch of life, the more one devotes one attention to the matter at hand, the better one will do. The broader and deeper one’s knowledge is, the more edge one will have over everyone else. However, this has some resemblance to addictive behaviour. In an addiction, everything and everyone takes second place to the addiction. The guru who understands the markets better than anyone else probably understands the other things in life less well – and certainly gives them lower priority. For the finance experts, it will probably seem self-evident, ultimately, that the way out of problems is to buy one’s way out. This will not make for happy relationships. (Kreitzman, 1999, p. 26)
Earlier in the book, I quoted the example of the currency trader whose marriage was wrecked because of the way that he tried to keep track of the 24 hour currency market and woke every 2 hours to keep track as markets on the other side of the world opened. This is the kind of thing that a manic person will do. The fact that other people in the financial markets are living in the same crazy way is likely to mean that it is not interpreted as mania, but it does not change its essential character. The euphoria of mania is like the excitement of a small child the day before its birthday. This child cannot sleep because the next day will bring a pile of presents, a party and lots of attention. The manic person cannot find a way to switch their feelings off and is constantly on an adrenalin high. Often enough, in these circumstances more and more commitments are taken on. What is missing is the idea of a personal limit to one’s practical and work capacities.
In the life of a person who is not wealthy, these practicalities and the urgent adrenalin-charged character of their relationships will eventually mean that they come unstuck. Making ever more commitments means that they over-reach. Complications are not foreseen. Other people do not play ball with grandiose designs. If one does too much one doesn’t have time to wash one’s clothes and do the washing up. Life, practicalities, projects and relationships fall apart as one goes past one’s limits.
A rich person may not have some of the complications of ordinary life which would floor a manic person. Their money can buy servants and, with enough wealth, sex (though not love) is no problem either. Many of the practical problems in life can be solved with money or a credit card – until the crash.
The whole history of the market economy tells us that a crash comes eventually. Euphoria impairs judgement. The overconfidence of rich and powerful people, because it cannot be held in check by the countervailing power of those who are not as strong economically or politically, nevertheless, reaches a point beyond which it cannot go further. As I once argued in a psychotherapy journal:
“The ancient Greeks already knew how to describe situations like this. This was a job for the Goddess Nemesis whose role it was to maintain equilibrium on earth “rebalancing” happiness from time to time. In fulfilment of her role, Nemesis had a tricky relationship with the goddess Tyche – who was irresponsible in handing out Luck and Fortune, indiscriminately heaping her horn of plenty, or depriving others of what they had. In particular Nemesis would wreak havoc on those favoured by Tyche if they failed to give proper dues to the gods, become too full of themselves, boasted of their abundant riches or refused to improve the lot of their fellow humans by sharing their luck.” (Davey, What Future?, 2007)
People who become too full of themselves eventually believe that they can get away with anything in the pursuit of their addiction. In the literature about the financial crisis of a few years ago we could read over and again that the banks did not trust each other. When trust breaks down, we have a very specific kind of psycho-dynamic occurring between people.
A Professor of Organisational Ethics at the Cass Business School, Roger Steare, undertook integrity tests on more than 700 financial services executives in several major firms and came to the conclusion that: “There is a systemic deficit in ethical values within the banking industry. This will not change by hanging a few people out to dry”.
The results of these tests indicate that, as a group, they scored lower than average in honesty, loyalty and self-discipline. Steare compared traders to “mercenary hired guns”, who regularly switched firms to maximise earnings. (Hunt, 2008)
Reputational collapse
Behind the technical language of “liquidity”, is a language that distances us from the deeper reality. The truth about the credit crunch was that it was a reputational collapse of the participants of an entire economic sector – the people running this sector overreached themselves. The really damaging thing has been that most of them have been able to get away with it because governments feel that they must bail them out. This means that the whole charade will happen again… and again… until society organises a fundamental root and branch reform of this sector.
The road that has brought humanity to this crazy point has been one where there have been, and still are, plenty of illusions. These are little different from the illusions that a manic person would create. Cassandras who try to express the folly of pushing beyond the limits are ignored.
In the case of the financial markets, because the manic process is a collective one, the illusions are repeatedly embodied in institutions and are dignified with words like “financial innovation”.
Rather as a mad person will split off the part of their personality that does not fit their cosy self-image, that is, the murderously angry and hateful self, so the financial institutions split off the financial junk that earns them fees making predatory loans to people who cannot afford to pay them back or are in other ways dubious ethically and financially. The splitting hives securities off balance sheets into “special purpose institutions”. Rather as the mad person will wishfully believe what they want to believe rather than hard realities, the banks have paid other organisations to give AAA ratings to the worthless pieces of paper that they issue so that everyone, including themselves, can believe that everything will be OK.
Such strategies have their parallels in mental mechanisms of avoidance – the pathologies unravelled by clinical psychology. But then, to use the terminology of Freudian analysis, the repressed truth, the reality that has been held at bay, returns. The worthless assets have to be taken back onto the books. Reality bursts through the illusion.
To conclude, it would be valuable to integrate into our theorisation of what happens in the course of the credit and other economic cycles and events, the emotional changes of the people involved as they act and live through these events. Very often, people live with their emotions but barely notice them. They have no language or concept systems to describe their emotional responses and we may describe them as emotionally illiterate. Not having reflected deeply on their own emotional responses and those of others, they may act in ways which are unconscious, lacking in self-awareness. As explored in other chapters, this kind of person lives through what the therapist Erich Fromm called a “marketing personality”.
