I have a piece up on the New Yorker blog, on the same theme as Damien Hirst’s 1991 shark-in-formaldehyde artwork, as applied to big banks and their remarkable inability to write contingency plans for what they would do if they needed to declare bankruptcy, despite being point blank ordered by the regulators to do so.
It’s actually in my opinion, the single most toxic aspect of the culture of big banks. Greed and dishonesty are all very bad but they are to a large extent self-limiting processes. Greedy people have loss-averse utility functions, which limits their willingness to risk total destruction for gain. Dishonest people can do a lot of damage, to their employer and its customers, but there is usually at least a weak incentive for the bank to weed them out. Gamblers and the congenitally risk-loving can pile up the losses, but they tend to flame out quickly. Although all of these personality types can persist in a big bank in equiibrium, and their presence is more than enough to account for what John refers to as the ongoing tax loss from the rest of the economy to the financial sector, it’s very rare that someone will have both the right combination positive qualities to be given control of a large bank, and the right combination of greed, dishonesty and risk-appetite to blow it up. To get that sort of result you need something stronger.
What you need is denial, one of the most powerful psychological forces known to man. The cultural problem that regulators need to worry about is the tendency to avoid thinking about important financial risks simply because the consequences of them are so nasty that powerful ego-defence mechanisms stop you from considering them. As Zizek pointed out, as well as the three categories of knowns and unknowns from Donald Rumsfeld’s famous quote, we need to consider the unknown knowns – things which we do in fact know, but are not prepared to face up to. Things like death, or the possibility of a sustained and nationwide fall in nominal house prices.
 Which is itself apparently in the process of disintegrating and giving off toxic fumes as it does so, a metaphor I considered but rejected as perhaps too laboured.
 Pre-emptively: anyone who has been asked not to comment on my threads is still banned. If you are wondering whether your ban might have expired, it hasn’t. If you are genuinely unsure whether you are banned or not, tread carefully. In general the subject of whether I am an apologist for big banks has been done to death and I do find it irritating even when you’re not being excessively personal.
 I might disagree with estimates of the size of this tax loss relative to the useful services provided, because I think liquidity of investments is more valuable than John does, but that’s for another time.
 This is by no means confined to the financial sector. Think how many foreign wars have been launched on the basis of insufficient consideration of the downside risks. The “interventionist’s syllogism” – (A: this plan will not work B: in that case thousands of people will die and we can’t do anything to help them C: OK it will work then) is not valid, but something like it keeps getting used.