Thursday, April 12, 2007

Two Classic Books

Pumping up asset prices is easy as pie, under the right circumstances and loose moral inhibitions, a.k.a. intentionally blind regulators. For the best explanation on how such manipulation is performed, please read "Reminiscences of A Stock Operator" a book about Jesse Livermore - one of Wall Street's most famous plungers.

What's wrong with rising asset prices? Nothing - as long as there is little or no debt associated with them. But when real money is borrowed by the gullible crowd against artificially inflated securities, then real trouble lies directly ahead.

And since I said "crowd", I refer you to "The Crowd" by Gustave Le Bon, another classic written over 110 years ago. It is not directly related to markets but it is considered a ground-breaking study of mass psychology and crowd behavior. Some snippets from the book:
  • "Crowds do not accumulate genius, but mediocrity."
  • "Since the crowd is not impressed by anything but violent feelings, the orator whose aim is to subjugate and lure must seduce with intense assurances. He must exaggerate, assure, repeat and never attempt to prove anything by logic..."
  • "The events that must be doubted more than all others, are surely those that were witnessed by the greatest number of people."
So, beware of the certainty of current high asset prices - particularly under the enormous debt loads they "support".

4 comments:

Fran├žois said...

"Pumping up asset prices is easy as pie, under the right circumstances and loose moral inhibitions, a.k.a. intentionally blind regulators.[...]

What's wrong with rising asset prices? Nothing - as long as there is little or no debt associated with them.[...]"

I should say i really liked the straight way you put it there and agree 100% percent.

In a sense, the situation is a repeat of previous historical scenarii. Except for one item. The level of globalization has never been so high.

This is definitely an aggravating factor.

Fran├žois

Alex Zeissig said...

hellasious,

It is a sad state of affairs to see regulators stand by while investors are repeatedly bamboozled by "financial wizards" focused solely on short term financial gain.

The regulators are not doing anybody any favors by creating the conditions for widespread systemic failure in the financial markets.

The regulators, along with their co-conspirators, have now painted themselves into a corner by virtue of their greed, neglect and ill conceived policies which will eventually bring widespread financial ruin.

These are people who should know better.

Hellasious said...

Re: Regulators

The wolves are now looking after the sheep.

ross said...

The second quote from Le Bon was chilling. It is precisely the modus operandi of The Shrub. And as in the case of the German people and Hitler,
a critical number of the U.S. electorate found, until relatively recently that is, Bush's presentations appealing.