I thought it might be worth recalling easily ignored and quickly forgotten examples from the recent past, which threatened the global fiat currency systems, banking and economic stability.
As Samuel Longhorne Clemens, or more popularly Mark Twain wrote so accurately: "The one lesson we learn from history: is that we never learn from history!"
What is quite astounding to myself, is just how only a short time past, hard lessons are apparently discounted in the insane venal dash for instant wealth.
The Wall Street Crash was simply speculation gone mad: investors were commuting pensions and life assurances in order to speculate on stocks: and despite the then "High Tech" activities of the day, automotive manufacturer and radio suffering repeated early profits warnings from all major corporations, such were ignored in the blinkered Lemming-Like stampede for capital growth!
The Dot.Com Bubbl;e emulated the Wall Street Crash with eerily similar features: indeed, one major Wall Street Investment Bank was "boilerhousing" tech stocks even as they knew the market was tanking.
History provides us ready examples of blind speculation fever and its inevitable results in the South Sea Bubble and the Dutch Tulip scramble.
In 1969 a tiny unexploited Australian Nickel Mine, Poseidon was the focus of an insane price speculation, as sanity was abandoned in the venal and blind belief in instant riches:
In 1969 Poseidon, a small mining company, discovered a vast nickel reserve in Western Australia. The discovery pushed the company’s share price from $1 to a February 1970 peak of $280. By December 1970, Poseidon’s share price had plunged back to $39 as investors placed a more realistic valuation on the reserve. The company went into receivership in 1976.
http://www.wealthfarm.com.au/articles/.html?aname=getting-the-edge-with-managed-funds
However, more recently, we have seen Asia melt down; thanks to blind and insane speculation (1997).
http://faculty.washington.edu/karyiu/Asia/articles.htm
The root weakness of Japan's economy and financial systems, today, were seeded in greedy myopic speculation in real estate and investment instruments.
http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e070220
The 1980s saw the eventual collapse of Mike Milken's Drexel Lambert boutique financial outfit, which led on Junk Bonds, themselves employed to feed the capital needs of the LBO (leveraged Buy Out) frenzy: Milken served federal time in the slammer.
In the late 1970s the game was Eurobonds, placed through the global capital markets and mainly lending vast sums to emerging Latin American states: classic Sovereign Risk financing.
The core premise was the obligors (Borrowers) were of dubious rating; so the scheme was to charge them higher-than-market interest rates for their loans.
Let's look at this a while: they could not afford to borrow the cash and service the loans: so, we'll make the loans and charge even higher rates for the risks!
They defaulted.
Surprised?
What fueled the Sub-Prime meltdown was precisely identical mentality.
In desperation to climb onto the house ownership carousel, often minimum wage Americans took not just one but two or more sub-prime rate mortgages: and in many cases used their credit cards and unsecured personal loans to raise the necessary deposit!
This time around, however, the financial World enjoyed a whole new series of Derivative Instruments to cloud reality and dupe foreign investors, buying the debts via packaged investment instruments.
In Japan, then Asia, then Europe (Late 1980s Britain, mainly) house ownership fever inflamed imaginations and placed brains on hold.
The eventual disaster saw personal bankruptcies climb to the stratosphere, massive mortgage foreclosures and many living with severe Negative Equity (i.e. their mortgage debt was far larger than the value of their house).
One could be forgiven for thinking that as Blair and Brown came to power with their New Labour administration in 1997, the financial and economic meltdown engineered by Thatcher and her cohort Lawson would be fresh in people's minds. Perhaps somewhat assured by Brown's triumphant and apparent promise "No more boom and Bust!"
Could have fooled me.
Same old; same old.
In point of fact far worse: Brown, with Blair cosily looking on, allowed consumer borrowing to explode: and by 2005, residential property represented 66% of Britain's Total Wealth (Source, Office of National Statistics).
It is no wonder therefore, that in order to fund this insanity, capital had to be imported from abroad: since UK plc had not thrown off residual capital wealth from core, sustainable real wealth generational (And thereby job generational) economic activities since the early 1950s: it's been downhill ever since.
China is now headed towards precisely identical problems: instant new wealth has placed brain in cold storage: and property prices and speculation on investment assets is reaching fever pitch: expect correction soon.
One is therefore forced to pose the rhetorical question: will we ever learn?
I'm not holding any breath!
November 2010
