In the past century, affluence increased greatly, eager parents could send their future Newtons to big-name schools, which tried furthering education. Schools did a commendable job of schooling folks in tailoring individual actions to suit immediate self-interests but did not teach the art of contemplating the consequences of collective individual efforts. We began believing in the limitless powers of our knowledge. Soon Hubris came knocking and Prudence made a quiet exit.
Not content with building bridges and railroads, man extended ingenuity to other areas. Financial instruments were one such serendipitous invention. Real assets – land, gold, metals – were gradually superseded by paper assets. The benefits of this transition, while real, gradually fostered excesses which began ending disastrously. Attempts at plugging holes only led to creation of new ones. Nobody had/(s) solutions but that does not dissuade us from creating the illusion of finding one.
…and so it is fashionable today to vilify finance as the root cause of our woes. Given this, it is our humble duty to do our bit in furthering this notion. What better way to make a case than engender a crisis?
Yours truly offers a prospect that carries a high probability of culminating in a disaster of gargantuan proportions.
Since gadgets have come to be considered yardsticks of coolness today, we begin with Apple’s battery of products. The launch of the latest iPad was a widely watched event. Even as the price of the latest gizmo was announced, prices of earlier versions of the iPad dropped.
One of the near maxims in the technology world is that a launch of a newer version causes prices of older versions to drop, sometimes precipitously and permanently. The first step would involve creating instruments that derived values from the prices of various versions of the iPad. Once such derivative instruments come into existence, one would buy the instrument that mirrors the latest product (we’ll refer to the derivative instrument as IPD 3, for simplicity) and simultaneously sell the instrument that mirrors the older versions (IPD X).
Crowds, apart from mongrels, are among man’s best friends and should be tapped appropriately. Generally, anything new in the technology world evokes frenzied interest. As flashing the latest gadget seems to have a direct bearing on one’s societal and social media standing, demand for iPad3 would be immense; accompanied by a concomitant decline in demand for older versions. Prices of IPD 3 would increase, while IPD X would fall. The above suggested trade would yield juicy, almost-certain gains. Near risk-free arbitrage.
Fools do in the end what the wise do in the beginning. Once the earliest adopters of this trade make out with handsome gains, the crowd would, as they always do, latch on to the operation. Soon demand for IPD 3, the paper product, would outweigh demand for iPad3, the real product, leading to divergence in prices of the real and paper instruments. The seeds of disaster would begin to sprout…
Demand would then increase to a point where frenzied people would find it difficult to get in on the trade. The concept could then be extended to other competitors. Blackberry and Samsung, for instance. Keen technology watchers would have, no doubt, followed Blackberry’s recent tale of woe with alacrity. Instruments similar to IPD 3 that mirror prices of Blackberry’s slew of products would be created and pumped into the system to satiate demand. Smart folks would, for instance, buy Apple’s paper derivative instruments and simultaneously sell Blackberry’s.
We could utilise another fashion of the present day. Social media. Twitter and Facebook would be helpful in creating Like-able pages and spreading the word. Crowds would be useful here too. As most of us revel in indulging in you-lick-my-back-I-lick-yours activity in the social networking world, the above idea could go viral, till a great number of people joined the juggernaut. Gradually, so many would be dabbling in the trade that nobody would remember the original idea or the mode of execution.
Just to ensure that the crisis would be one of gargantuan proportions, we could introduce another instrument suggested by yours truly earlier. Fortune Default Swap: Hedge Your Misfortunes Away, that is designed to safeguard against attacks of misfortune.
Once enough people line up on one side of a boat, not much is needed to tip the boat over.
Crowds would serve as catalysts that would trigger the disaster. Prices of the real and paper instruments would get so far out of whack that a group of smart early bunnies would look to cash out. All at once. These would be the original boat rockers. Once enough folks rushed for the exit, all at once, the process of crisis creation would be complete. By then, the above instruments would have become so big that they would qualify for too-big-to-fail.
At this point, governments would get involved and orchestrate a bailout to save the crowds, so they could indulge in similar activities in the future.
Finance would be vilified.
…and the crowds would live (un)happily ever after.
Haphazard Linkages 
I enjoyed your discussion of this topic. Do you think it happens more in one future than another, or is human nature the cause for always wanting the newest configuration of the same system?
Ronnie
I suppose it is our attraction towards novelty. Anything novel piques our interest, by default, as Sharmishtha puts it so well (below). Whether we grow to like/dislike it occurs over a period. Some attain cult status while others are relegated to oblivion.
Thank you for stopping by and commenting.
Some great phrases you have used, like :
– Crowds, apart from mongrels, are among man’s best friends
– Fools do in the end what the wise do in the beginning
Seems like you have this process all taped-up. Are we, then, looking at the next recipient of the multi-billion dollar bailout by the tax-payer (read government working in cahoots with big biz.).
Thank you.
While it would be nice to be the trigger of a crisis, as a taxpayer who has directed years of capital for neglible direct pay-off, I fully empathise with the pain felt by the taxpayer lot.
I hope a regulator reads this to conjure up preemptive efforts to avoid crisis-warfare!
all business organizations are expert in human psychology (i mean succesful ones), they know if you place a new toy in front of an infant he will throw away the one in his hand and grab it.
all they have to do is convince the infant that the toy is new.
You put it well!
well a lot of online tests have told me i have potentials as a good businesswoman but my only attempt in this field failed miserably because i was not able to push sell my stuffs and after selling them on credit i failed in extracting the due amount from almost everyone. ha!
i am too introvert to become a good businesswoman but i have noted my mind clicks well with best of that creed.
Perhaps you might want to try your hand at businesses that receive cash upfront but pay their suppliers over time. That would take care of much of your cash flow problems. 🙂
cant gather the nerves of trying business, anyway, in india it takes more than guts to try business (Esp one man shows).
Now, he is being joined by several others with big aspirations.
I find that creating crisis to save the people is what government –I won’t mention which one I am speaking of. One that is huge, (notorious) popular, and “rules” over a continent placed aboveMexico— anyways, this government likes to create a crisis out of a situation in order to “save” the people and make a profit. Speaking of Mexico and its Latin America compadres, this government has done this throughout history to these countries. Is it not easier to get your proposals approved during a crisis?cause a crisis to implement more capitalism.
Frances, your thoughts would have many nodding in approval.
Come to think of it, Capitalism itself is in crisis. The intent of perpetrators is inextinguishable, especially when suitably fanned by helpful powers-that-be!
To be fair, though, much of our woes can be traced to the long arm of Unintended Consequences. It seems impossible for any of us to envision the many fallouts of one action (say, instituting a nailout package, for instance).
Thank you for stopping by!
Uh, I just noticed that I made a typo. The ‘nailout’ should actually read ‘bailout’.
Nailout alters the meaning completely, doesn’t it? 🙂
Hello HaLin,
The rich and powerful have accurately read the herd mentality of the rest and created a system where they get richer and more powerful, and as long as they throw the rest the placatory bone of endless shiny electronic consumer goods, they remain in a state of contented denial about the insanity and suicidal consequences of soaring and unsustainable global consumption which maintains the short term power (and it’s getting shorter) of the rich and powerful.
The powers that be need to maintain the system which is which is the root of its own destruction in order to preserve their own status, and they don’t care, and the rest don’t care… just as long as they can acquire the latest iGadget…
Will we ever learn? And if we do, will it be in time?
We are learning, and that’s why capitalism is in crisis. But I think capitalism is the new Darwinism. Survival of the financially fit. We judge each other not by meaningful criteria but by the nebulous notion of the zeroes in our bank accounts. The more zeroes the better.
We no longer need to guarantee survival by fighting to pair off our chromosomes, so in a state of confusion about what to do with our energies we use them to attain wealth and power, it’s the most recent fundamental adaptation of natural selection.
But what will the next adaptation be? Will it be the ability to live together without craving the need to dominate each other and everything around us, in a non-materialistic society that values intrinsic human properties over iPad’s, iPod’s, iPhones, iMac’s and all the other ultimately futile accoutrements of the prevailing acquisitive religion of Techno-Idolatry?
Just a thought.
I like your usage (Survival of the financially fit), which is true in our times.
I confess to harbouring reservations towards the finance finger-pointing that we have come to enjoy. Finance is akin to a gun in our pockets; we could use it either to protect or to kill. Nobody impels us to make one choice over another. The culture of consumption, in turn founded on the culture of credit over the past 50 years, is as much to ‘blame’ as the limitless greed of City/Wall Streeters.
One of the fallouts of the consumption era, that you touch upon, is probably of more significance. I hope to not sound like a spiritual master (!) but the extent to which we derive our sense of self-worth/judge others based on yardsticks of visible consumption is a wryly amusing development. I think the trend will gain traction over time. (I often ponder about what might take over, if techno-idolatry were to die today).
However, history is full of cycles (the study of Cycles happens to my one of my favourite areas). This wave will ebb and flow, as all others. There have been periods where Capitalism appeared to be in crisis, we gravitated towards alternatives, and then turned our attentions to the prevailing attitudes of the day. The rise of nuclear firepower superseded interest in traditional modes of battle and so on…
I try to discover humour in the world we inhabit. An alien looking at us leading our lives would likely smile at what he saw. I try to think like one!