In the past times, when american economy was just a primitive arrangement of dealers in goods like bear skin,
market troubles were already a fact of life. From time to time bubbles were created and burst, in waves no one can predict the moment and the intensity. And in each time a
bubble is under construction there’s a talk about things being different now and that the bursting of bubbles became a fad of past times. When there’s memory of past market troubles, people try to avoid them taking some measures that end up just concealing them instead of avoiding them. The scheme is in general a web of market interests in which structure there’s a try to pass to another person the possible failure of a commercial transaction. So, when a bear hunter was about to go for his bear season, he tried to sell the skins in advance to finance his enterprise and make sure the price he could get. That kind of future market was not the first in history, for merchants always expect to reduce risk and fund their investments sharing risk. So, in Venice and during the era of world navigations in XVI century, there were that type of share in a risky venture. When the season of skin bear was above expectations the price went down and investors could lose money if they had paid a higher price for the merchandise, that was the bear market. Nowadays bear skin is no more a commodity and bear has to fear only the destruction of their environment, but the bear market happens now and then. 2008 begins with the mark of a downslope in the shareholders’ portfolio, after a long period of high profits. The previous bubble burst about seven years ago and in that, so called technological bubble, many have said the market would no more experience drastic movements because economy has
changed to a new era of stability. Nonetheless, facts proved things have not changed in the way many predicted and wished and the speculation ended in a new price correction and many people lost money and hope. In those moments one may hear many billions of dollars have been destroyed and millions of investors end up in despair. But when you look at the real world everything seem to be the same and no richeses have disappeared. On the other hand there’s no doubt money have changed from someone possession to someone else’s. Although the physical side of economy have not changed, market turmoil can interfere in the future production of goods as far as credit and will to invest is impaired by fear of new losses. For some time after a market crash we may expect a period of convalescence to heal some wounds and prepare the mind to accept new risks. Some people never go back to the game, for psychological and
financial reasons. Memory is selective and the good times weights more then bad ones, so the majority of the losers is ready to new bets as soon as the overall picture seems normal again. The main force to drive people to venture is to see others earning money, and the closer is the person observed the more impressive is the urge not to be left behind. The process of flock instinct is in the raising when market is near the bubble burst, both in the last moments of expansion and in the first moments of contraction. Those in flock are the ones in the position of losing the most, for being the last to enter the game and the the first to set the losses. It’s amazing the urge to have all the wealth possible when almost nothing is going to be added to actual investor’s
wellbeing. Among other kind of behaviour, this is too a irrational one since the action is taken for reasons unknown to the agent. Recent researches have shown that human acts often in an unconscious way rather than in a thoughtful course. And after the unconscious brain decide what to do, an ad hoc justification is organized to give the impression that all has happened in a reasonable way. That behaviour is not specific of financial activities but part of human overall common life, but in dealing with money we may find an intuitive action in a field supposed to be the domain of reason amid mindful considerations. The main goal of a typical investor is not to improve his welfare but to climb in social consideration, having more wealth and then supposedly being more clever, smart and successful. It’s a game in which one bets sometimes the savings of a entire lifetime, risking to lose a comfortable situation in exchange for a possible improvement in social scale. Of course, competition is a fundamental fact of life and human mind is programmed to an endless comparative attitude related to other people’s situation, financial or not. Comparing financial assets is easier then other kind of contest, like beauty and other nonobjective matter because in this case we have numbers to deal with. So, if I have managed to have more assets than you, I am more than you are. And money is always seductive for being a flexible good that are able to be exchanged by others, not only material ones, but for esthetical ones and even love, the most craved of all assets.