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Offbeat – 11 Nov 2011

The promise was that cut price lending could produce superior returns. By analogy, an apple tree that produced four apples can be made to produce those four apples for the same people. It’s loaves and fishes without the divine assistance.

Imagine this. Here’s a million. Here’s a loaded pistol. It holds one bullet. Point it at yourself, pull the trigger and the million is yours. Let’s be kind. You don’t have to point it at your head or heart or kidneys or lungs. You can point it at your foot or hand. On the count of three. One. Two. Three…

Did you do it? In your mind? A million is a major amount. Perhaps I should have mentioned that it is a semi-automatic, not a revolver.
There ought to be some kind of humour in this thing, but there isn’t.
Risk is the new lifestyle. Magazines position it. Lifestyle and self-help journalists write about it in breathless tones. It comes through in business articles and sporting choices. Without risk, there can be no gain, if they are to be believed. You must take risks to accumulate wealth, gain position and gather friends.
Assessment of risk always looks at the upside of the thing. It’s a series of rationalisations in the realm of psychosis. Scope all the things investors might have told themselves about the credit crisis and the sovereign debt crisis. “We’ll time the market and get out before the worst comes to the worst. This dip is cyclical. We know what a bubble is. We’ll get out before the big one. We’ll shift it all into precious metals. Gold is good.”
Risk is a short term perception. It is managed ‘now.’ If your dash across the highway doesn’t lead to a terminal ending in front of a bus, the management exercise must have been successful. If it was successful, that risk can be taken again. Using the analogy of the highway, the bus becomes less fearsome. And so the mugs and punters take the same risk again and again and, gauging the success of others, more join in.
If, on this notional highway, the odds of being hit by a vehicle while jaywalking are a thousand to one, sooner or later we can deduce that someone will forget to ‘look left again’. If another thousand people join in, the chances of a headline in tomorrow’s paper are very much in the realm of probability.
Risk has a downside or it wouldn’t be risk. Expecting nothing but gains is psychosis.
The whole thing boils down to a nasty case of greed. More is better.
It is going to get worse. Our response to competition is to push things further. If someone is bigger, we need to be stronger. If someone seems to need some of our resources, we grab as much as we can and then some.
There are seven billion souls out there, all of who need something. That’s a whole lot of grabbing that is going to be going down. All of this appears to be a forward looking thing, a prophecy that ought to have our stomachs churning. Unfortunately it is here right now.
Greed has driven investments in promises on paper. Financial theory somehow proved that two people could receive the same level of security from the same investment. The promise was that cut price lending could produce superior returns. By analogy, an apple tree that produced four apples can be made to produce those four apples for the same people. It’s loaves and fishes without the divine assistance.
That was the 2008 debacle. It is late 2011 now, and the sovereign debt thing is going down. The idiot optimism boggles the mind. What’s next? Apparently campesinos, peons and other peasant farmers will be able to spend vast amounts on cereals. That’s not an unreasonable statement. The FA Food Index has made it up to the second storey at weighted average prices from just under a decade ago. People who barely afford food in the first place are now expected to pay double for food. What we can deduce is that the profit expectation is there as well. What we can also deduce, from the successive waves of unrest across the world, is that things are going to get grim. Very grim.
I verge on giving reign to the idea of a planned, controlled economy. For now it feels as if it is the only way to curb the psychosis of people who believe that the miracle of the loaves and fishes is a reasonable expectation of an investment.

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