How to Avoid Stockholder Syndrome

You might have heard of the term ‘Stockholm Syndrome’ before.

It was coined in 1973 by Nils Bejerot, a Swedish criminologist and psychiatrist, after a particularly strange bank robbery.

Stockholm syndrome is a condition that causes hostages to form positive feelings and bond with their captors. Its implications for human nature are extraordinary.

It’s the kind of weird observation that often leads to the most worthwhile insights into our collective behaviour.

Which is why it’s important for investors to know about. Collective behaviour is what drives the markets. At least in the short term…

A similar underlying psychology may help explain why, despite the repeated bad behaviour of the banking industry, a lot of people still prefer to defend it.

First let me recap the strange tale in 1973 that led to this insight…

During a failed bank robbery in Stockholm, Sweden, a convict on parole by the name of Jan-Erik Olsson took four employees of a bank hostage.

While holed up with the hostages he negotiated the release from prison of his friend Clark Olofsson to assist him. The duo held their victims captive for six days in one of the bank’s vaults, throwing in a little torture to boot.

But here’s the strange thing…

When released, none of the hostages would testify against either captor in court. Instead they began raising money for their defence.

How can such behaviour possibly occur?

Well, psychoanalysts believe that ‘the victim’s need to survive is stronger than the impulse to hate the person who has created the dilemma.

It’s basically a survival mechanism.

If you can’t change a situation, you accept it and amend your thoughts to make it palatable. And that feeling can remain even after the situation ends.

What’s got to do with banking?

Well let’s think about the reality of banks…

Big banks like to portray themselves as bastions of capitalism. The gatekeepers of free market economics. But even a brief look at the last decade shows the reality is very different.

It started with the bailouts in 2008, during the GFC.

Shareholders of private companies bailed out by taxpayers. Bank executives gave themselves large bonuses afterwards!

Most people think this cost around US$700 billion. A huge bill for future taxpayers. But it might be far worse than that…

Mike Collins at Forbes Magazine estimates the true cost to be closer to US$17 trillion!

And he goes on to state that the GFC bailouts are just one dimension in a continual story of banking corruption that has often been criminal.

It includes US$881 billion worth of money laundering by HSBC for Mexican drug cartels. This went to court in court and HSBC ‘copped’ a US$1.9 billion penalty.

Or how about JP Morgan and Goldman Sachs actively betting against their customers in the very same toxic mortgages they created? Products that led to the GFC in the first place.

As well as financial planning scandals, loan protection rorts, LIBOR interest rate cheating… And that’s all only in the past decade.

Here in Australia, the same model of ‘protected’ banking is very much in place.

Consider the implicit guarantee of the Australian government to support our big banks. Again, that is effectively the nation guaranteeing the debt of a private company.

I’m sure your local MP won’t be ready to do the same for your business!

Whatever you think about taxes in general, as a taxpayer you can understand the reason for this bank tax. Why should ‘we’ guarantee a private company for nothing in return?

Of course, if the guarantee for the banks didn’t exist at all, the tax wouldn’t have to exist either. Perhaps that would add some responsibility into banking lending practices as well?

So, we can safely say that banks are not quite the free market stronghold they like to portray. They are actually rent seekers. And every rent seeking industry has people who benefit most from the monopolies they create and maintain.

In the banking world they are the senior bankers, the already-rich, and the global elites. Sure, you and I benefit from time to time in the way of dividends or share prices rises. But on the whole, that is like a hostage being thankful for being fed.

Let me be clear…

The function of banking is obviously important. But that is not the same as supporting the banking cartel that operate these functions.

Which brings me back to ‘stockholder syndrome’.

Are we suffering from ‘Stockholder syndrome’?


Despite this history, there is quite a lot of resistance to any change to this system. The benefits of banking gets muddled up with the benefits of banks.

And in the past, you could probably understand this position.

There really was no viable alternative. And weak politicians could never take on such a powerful industry.

But things have changed recently…

I’m talking, of course, about cryptocurrencies. Whatever you think about cryptocurrencies, they represent the best hope of reforming the inefficiencies and blatant power imbalances of the banking industry.

This image from last night’s Fed Reserve meeting is going viral in bitcoin circles. It shows an enthusiast photobombing the picture. And when you read the accompanying caption on the image below Yellen it’s just brilliant timing.

Yellen on news - and a bitcoin enthusiast with a buy bitcoin sign

Source: Bloomberg

We’ve had some great feedback to our recently launched Secret Crypto Network. But we’ve also had quite a bit of feedback saying that crypto is a scam, it’s not real money. Some people would prefer to continue trusting the government, central banks and big banks.

They prefer to trust institutions that, time and time again, have supported vested interests and the already-powerful.

It begs the question then, why are so many people resistant to change despite the evidence that something is very wrong?

Is this a kind of collective Stockholm syndrome? Have we fallen in love with our banking captors?

Do we believe that only they, in their all-powerful self-interest, can protect us from…well from them, basically?

Or maybe like the hostages in 1973, we have internalised their necessity to such a degree that to think anything else is too scary?

But surely rationality would at least allow consideration of an alternative?

Cryptocurrencies as an alternate financial system offer a potential solution to the problems of banking.

Forget about their technicalities for a moment and consider the benefits of a well implemented crypto-economic system.

First of all, no fractional reserve banking.

This would mean a purer form of banking could take place, akin to using gold as the underlying asset that backs the cryptocurrencies issued.

In effect this is a return to ‘real’ money, with real assets behind it.

Secondly, no centralised control. Cryptocurrencies are created with a set of rules at the start. And no one can change them without collective agreement.

And as there is no fictitious money, there is no possibility of ‘bank runs’ as everyone tries to get their holdings out on some scandal or economic issue.

No ‘deposit’ haircuts implemented by struggling governments in cash grabs, such as what happened in Cyprus in 2008.

In fact, no one can touch your assets even if they wanted to. Unless you had agreed as part of a smart-contract.

Costs will decrease dramatically. Efficiency will increase. No more queuing, or waiting weeks for a credit decision.

A true free market solution, with lenders responsible for their decisions in both good times and bad.

And no one can create assets out of thin air!

So, to the defenders of the current banking system I ask, is this really as good as it can be?

Ryan Dinse

PS: Maybe you’re already a crypto expert. Or maybe you can’t tell a bitcoin from an ether. No matter your level of understanding, Sam Volkering’s Secret Crypto Network offers invaluable advice and resources in this booming new market. Whether you’re looking to invest or just want to learn more, your next step into this fast-changing world is here.

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia