The Political Economy of Risk and Our Current Crisis.

Institutions are created as individuals interact to maintain fundamental affects by creating identities, facts, and norms to support these sentiments. Institutions change as these fundamental sentiments reach an extreme and then reverse. The fundamental affects of economics are confidence, or trust, and fear, or lack of trust. The fundamental affects of politics, as Machiavelli argued, are anger and contentment. Various measures of emotive meaning are used to show how optimism has changed from 1982 to now so as to reach extreme levels to support increasingly risky actions. An outline is then presented of how social relations, identities, facts, and norms changed from 1982 to 2000 as economic and political sentiment changed to support this increasing optimism and propensity to take risks. The belief in the efficacy of financial engineering is a development of this optimism. A discussion of the political and economic identities, beliefs, and norms to support such activities as Federal Reserve bailouts, securitization, sub-prime mirtgages, collateralized debt obligations, credit default swaps, and other means to manage risk is presented. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]