Lewis tells the story of the financial meltdown through the history of several who saw it coming. At the heart is mans greed. Even those who should have known better - the Wall St firms, let greed consume them and they ignored the unreasonable assumptions on the continued growth of property values and risk, then continued to buy and sell bad investments because they did not want to be left out of the party.
You will be angry at the hubris and irresponsibility of those that should have known better.
For me this is another episode in the history of human greed. Greed drives human behavior so often and so often leads to destruction. It makes us blind to rational decision making and we end up following Madoffs, buying pets.com, buying gold today, Wall St creating or buying mortgage backed securities knowing that they were a house of cards. All for fear of being left behind and not making money when it appears everyone around us is getting rich quick.
Whether you are Morgan Stanley, Merrill Lynch, Bear Sterns, Lehman Bros etc. or you are an average investor, the lessons, and they are not new, are:
1. There is no free lunch
2. If it is too good to be true - it is. Do your homework, especially when it appears everyone is making easy money.
3. The higher the return the greater the risk and the potential to lose your investment.
4. You do not get better than CD returns without the chance of short term losses.
5. If you do not understand the investment you are buying don't buy it.
Hopefully good investors and our financial leaders will be students of history, hopefully they will learn from this story. But beware: human nature has yet too change, bubbles and irrational exuberance will reoccur, those that have learned from history and stay true to economic/financial fundamentals will generally survive the next bursting.
No comments:
Post a Comment