why markets boom & bust

Reflections on the US Sub-Prime Mortgage Crisis: When Will We

Ever Learn?

Association for Good Government

18 May 2008

A Market: Simpler the Better Simple Fair Impartial Transparent Accountable Stable & Efficient ... Unless They’re

RIGGED!

When Markets Get Confusing

Complicated At Someone’s

Discretion Preferential

Treatments Opaque Immunity from

Responsibility Unstable & Volatile

Playing In the Marketplace

Investing Involves Full Knowledge Full Consent Grave Matter

Games of Cards Know the Hands

You Deal With Know the Game

Plan

Card 1: Create an Illusion

Never Give the Entire Picture Hide Behind “Trade

Secrets” Obtain More

Information than You Give

Use Information as a Control Lever

Card 2: Making Money Is Everything

Focus on the Objectives The Deal: Sell the

Product/Service A Fool & His Money

Are Easily Parted The Outcome:

Maximum Profit at the Least Cost & Effort AND LITTLE ACCOUNTABILITY!

Card 3: Manipulate the Customer

Play with Desires & Insecurities Food: Security Friends: Prestige Freedom: Power

Make It Look “Fast, Fun & Easy”

Inject Self-Doubt to Win Their Trust

“Give Them An Offer They Can’t Refuse”

Card 4: A Getaway Plan

Reward Yourself Heaps While the Good Times Last

Hide the Fine Print Behind the Façade of Expertise

Make the Innocent Share the Guilt: It’s Their Responsibility

Bail Out “Run to Papa!”

History is Our Story ...

Those who fail to learn from the lessons of history are doomed to repeat them

Those who learn the wrong lessons of history are twice as cursed

Opening Scene: Good Times

Economic Upswing

Policy ShiftWindfall

EarningsExtra Cash

Next Scene: The Bait

Lure of Passive Income: Let Us Make Your Money Work For You

“Hot Tips” & Trends: “Haven’t You Heard?”

Gurus in the Market Place: I Heard That …

Opportunities of a Lifetime: The Promise of Quick Overnight Returns

Rising Action: the Frenzy

Self-Fulfilling Prophecy: Demand Pull

Buying What You Don’t Need or Know: Keeping with the Joneses Investment Decisions Flashy Lifestyles

Silencing Reason: Don’t Be a Party Poop

Behind the Scenes

Gloss Over the Fine Print. Bend the Law Without Breaking It

Avoid Talk of Worst Scenarios

Make Hay While the Sun Shines

If Returns Are Disappointing: Dazzle with BS “In the Long Run …”

Climax: The Peak

Hubris: We’re Experts, We Can’t Go Wrong

Borrowing In Order to Invest

Saturation Point: Running Out of Fresh Customers, Wells Start to Dry

Noisy Entrances & Quiet Exits

Falling Action

Someone Breaks the Bad News

Market Tapers Off & Suddenly Drops

Panic at the Disco: The Mad Rush to the Exit

Chain Reaction to Other Markets

Rude Awakenings

Angry Investors Storm the Gates

Sharing the Blame: I Should Have Read the Fine Print

Catching & Punishing the Guilty

Woe Is Me! Somebody Help Me.

Same Old End of a New Beginning

Government Comes to the Rescue Of Confidence in

the System First, the Victims Welfare Second

Passing the burden on to taxpayers & the Third World

Cracking Down But Forgetting Lessons

Asking the Right Questions: Basics

How Do Free Markets Work: Freedom to Prosper vs. Freedom to Manipulate? (Outcome or Choice?)

Is Development Material Affluence or a Mutual Respect of Equal Rights?

Are Social Justice & Good Governance, Not One Upmanship, Integral to Democracy?

Regulation: More or Less?

Too Little, Too Late? More Command &

Control Means Less Freedom & Democracy

Is the “Freedom to Invest Wrongly” the Government’s Problem?

Hardest Part Is Looking Within

Whose Fault or Who Ultimately Pays?

Envy, Greed & Hubris in Prosperity; Fear, Despair & Wrath in Poverty

Whatever Happened to Security & Leaving a Legacy?

Closing Thoughts There Are No

Right Answers to the Wrong Questions

If We Aren’t Part of the Solution, Then We’re Part of the Problem