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Mobs, Messiahs and Markets

Author: William Bonner & Lila Rajiva

Publisher: Agora

ISBN: Mick Yates

Summary:An entertaining, well researched book on the origins and impact of bubbles and consequent crises in the economy

 

 

Leader Values

ISBN: 978-0-470-11232-8


""In their book, Rajiva and Bonner explain why we blindly follow leaders who are clearly wrong, succumb to witch hunts stirred up by the press and the pundits, and buy ridiculously overpriced stocks just at the moment when we should be selling them." So went the summary I received from the publishers - and, this time, it was right on!
 
This is a well researched and documented book - with each assertion backed by facts and analysis. Yet somehow it manages to entertain and hold the readers attention. It might be a little long (412 pages including notes) but it is a well argued case.
 
Why do financial bubbles happen - well, it seems because we want something for nothing. We want to survive on assets without worrying about income or servicing debts. And, if a million other people are buying stocks or houses at silly prices, then we tend to throw our own judgement out of the window and follow the mob. We all know this is true, and I suspect many of us have been burnt. Yet we all still fall for it, because somehow as a collective we think and act differently as we would as individuals. Worse yet, from a money management perspective, we each take our hard earned money and hand it over the financial managers who are strangers.

 

The authors admit that they offer no real alternatives to how to do this properly, but they sure give examples of how not to do it. That in itself should help us all.
 
The book starts with the concept of "Do Gooders Gone wrong" - meaning that people who apparently start out with good intent so often lead the rest of us to the wrong thing. And, sometimes people who want to do bad things and who are delusional (Hitler, anyone?) manage to get other good people to follow.
There are many stories in the book illustrating the authors points - but this macabre and downright terrifying tale is particularily powerful:

"The do-gooders who never catch on, of course, are hopeless from the get-go. Take poor Armin Meiwes. The man thought he had a solution to the problems of poverty and over population. He was, no doubt, discussing his program with Bernard Brandes just before the two cut off Brandes’ most private part and ate it. Then, wouldn’t you know it, Brandes died, either as a result of blood loss from the butchering or as a consequence of Meiwes slitting his throat. And then the press made a big stink about it, branding Meiwes the “Cannibal of Rotenburg.” But Meiwes was not merely a pervert; he was an activist.

 

“We could solve the problem of over population and famine at a stroke,” said he, according to testimony in the Times of London. “The third world is really ripe for eating.” But wait, a fellow omnivore thought he saw a flaw in Meiwes’ utopia: “If we make cannibalism into the norm, then everyone will start eating each other and there will be nobody left.” “That’s why I’m not keen on eating women,” replied Meiwes."

Wow.
 
Moving hastily along, Rajiva and Bonner analyse how we mis-remember history (otherwise we might learn from our collective mistakes?); how we blame someone or something else for our personal misfortune (it was a curse I was given by a witch, m'lord); and how we ignore our instinct and intuition to follow the logic of the crowd because somehow that makes us feel comfortable.
 
And yet we forget that the world's most successful private investor (Warren Buffett) is meticulous in understanding the businesses and the people he invests in.
 
Perhaps the most sobering part of the book is the discussion of the subprime market. I do not claim to be an economist, but when you study the records the authors present over several years (and with the benefit of objective hind sight, of course) anyone can see the trouble brewing. Too much cheap money, lent out against inflated assets, with no real generation of value (and thus income) by anyone in the system to sustain it.

 

We all never had it so good - until those unfortunate people who could no longer service their mortgage debts lost their homes. South Sea Bubble? Dot Bomb?

 

So, an entertaining and sobering book. Read it, and learn how to think for yourself, analyse the facts, trust your own intuition ... and don't get conned.


Copyright 2007 Mick Yates