Psychotherapist and former banker Lucy Beresford says we’re all in denial about our guilt for the debt crisis

During the recent economic nervous breakdown, pundits everywhere put forward every possible financial cause. But they only told part of the story. Economics is also governed partly by human behaviour. So a fuller understanding of the crisis, and our reactions to it, requires psychological interpretation. Trouble is, it makes for such uncomfortable reading: like alcoholics refusing to admit our addiction, we are in acute denial about our collective guilt.

It’s easy to see why people reacted to the financial meltdown by panicking. We are group creatures after all, and historically our very survival depended on being able to detect correctly the signals within the tribe. Misinterpret the look on your fellow spear-carrier’s face and you became the local mammoth’s next lunch. A year ago, the queues outside Northern Rock tapped into our fear of annihilation, where money (our savings, our mortgages, our pensions) equals our very sense of self. Fast forward to rumours of HBOS going under and hysteria — understandable in psychological terms — ensues.

But what’s fascinating about the crisis is how skilfully we have resisted acknowledging our part in it. Our collective ‘shadow side’ took risks, but the ease of access to high-interest accounts, cheap credit and 125 per cent mortgages blinded us to the real value of those risks. Psychologically we thought we’d become invincible — which is how hedge funds evolved, their creators truly believing they could outsmart the market. We felt omnipotent, rather in the manner of a child who believes he is the centre of the universe. This ‘Little Prince’ syndrome is typical of narcissists, who are always right and who hate to be criticised. The preposterous idea doing the rounds that somehow the credit crunch was our fault is a mortal wound to our narcissistic, exaggerated self-belief.

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Of course, narcissists are also very fragile, often insecure creatures. And 2008 saw the crystallisation of the national compulsion to compensate for these deep insecurities by racking up debt. This is also a portrait of Gordon Brown himself over the past 11 years, spending money he didn’t have, and setting the trend — being the role model, if you like — for the have-now-pay-later culture.

To defend us, and themselves, against the anticipated attack that somehow we were to blame, politicians have cleverly whipped up the threat of the Other. The function of the Other is to act as a target for our indignant anger — which in turn springs from the unpleasant feelings of guilt we cannot bear. For Brown, the Other is US subprime lending, or ‘global market forces’ — anywhere but here, as it were — while Sarah Palin took moose-gun pops at ‘the liberal elite’ or Wall Street. Politicians everywhere leapt at the chance to create straw ‘enemies’ which could be targeted and then systematically destroyed. Step forward the likes of Fred the Shred, the now ex-RBS chief executive who became the instant hate figure of the hour.

We bought into this delusion because it was less painful than having to accept that we might share some of the blame for the mess in which we found ourselves. We regressed to childhood, and became incapable of accepting responsibility for our actions. We looked to parliament, in loco parentis, to clear up our mess (and to the likes of Vince Cable who, in his role as the voice of reason, became in our national, collective transference the kindly uncle who looks out for you). Sir Fred Goodwin’s eviction from RBS was part of the bloodletting we welcomed as the price for letting ourselves off the hook: ‘It wasn’t me, Mum, it was him.’ But he was just one of our targets. If it wasn’t Fred, it was the credit rating agencies, the regulators, the short-sellers, or the government of Iceland. Or those pesky ex-building societies and sundry other institutions for selling us mortgages we couldn’t afford, or sending us application forms for credit cards we didn’t need. Or Mervyn King for mentioning the ‘R’ word. Or for not mentioning it soon enough.

Even the media, and particularly Robert Peston (who is interviewed by Dominic Midgley on page 34), got it in the neck. Delivering his scoops like an eager prep-school boy who knows the answer but is being studiously ignored by the teacher, Peston was criticised for provoking or prolonging the agony.

Our collective unconscious also sought superheroes, a tag Gordon Brown did nothing to reject. His controlling inability to allow anyone else to take credit for October’s bail-out smelled, even at the time, egotistical — in the Freudian sense of someone whose ego was seriously buffed up for a while. Throughout this crisis, Brown has hubristically felt compelled to place himself at the centre of events (an interesting inversion of his McCavity act of yore) and on some level this fed into our desire for a fairytale ending. It certainly fed into his own desire for one.

So like Gordon, we lapped up the bed-time news stories of goodies and baddies. Cue Hank Paulson, riding in like Rambo to rescue Fannie Mae and Freddie Mac, swatting Lehman Brothers aside as he went. But our psychological attachments today are very fickle, and superheroes can find themselves swiftly demonised. The moment the markets wobbled, Paulson was vilified. The financial meltdown brought out the frightened inner child in all of us. We wanted to be rescued, and we wanted it now! And as the Paulsons and Goodwins waltzed across our screens, like the losers in some sombre global production of Strictly Come Dancing, they took with them some of our unwanted feelings of rejection and fear of failure.

No one comes out of these past few months well. Everyone has lessons to learn, whether it’s the humble investor who bought shares all those years ago because Sid told him to, but never took the trouble to understand the devil’s pact he had made, or the regulators who were caught napping; the bankers, intoxicated with stratospheric bonuses to compensate for their own inner frailties, or the politicians who dithered over Northern Rock and kept their cross-party mouths shut as the national debt ballooned.

But lessons will never be learned by those whose defence mechanisms are so well oiled. In Britain, the sense of denial on all sides has been pathological. Taking responsibility for our actions has gone out of fashion. We are imitative creatures — we learn and grow by copying others — but if all we see is people being reckless, or failing to ‘fess up’ when mistakes are made, we remain stuck and those mistakes will be repeated. And we’ve been so busy suppressing our fear of being held responsible for recent events that lately we’ve begun projecting our rage on to handy scapegoats: Russell Brand and Jonathan Ross spring to mind.

No one can escape blame for what happened. We were greedy. We got stung. Like alcoholics, we need to own our behaviour and accept responsibility before we’ll ever be capable of change. But we’re all still suffering from too much narcissistic hubris to do that.

This article first appeared in the print edition of The Spectator magazine, dated