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