A look back.

I'd be interested in seeing a followup on this clip.  Has the press picked it up yet?

Having played around a bit with what you might call complex financial products, I know a little bit about not fully understanding exactly what factors might have huge impact on your investment.  I was lucky.  I made more than I lost and I got out when things started happening around the world that didn't look like "business as usual" to me.  I got out, not because I knew what I was doing, but because I realized that I didn't.

A lot of people got greedy, they listened to bad financial advisors and bet their savings and lost. (Rule #1: never invest more than you can afford to lose).

If the subprime crisis demonstrated one thing it is that the financial world is complex and that very few people actually understand it very well.  In fact, as the first stages of the subprime crisis unfolded, most of the people in the financial industry were embarrassingly noncommital when it came to predicting the consequences.  That, or they downplayed it in the hopes that the inevitable could be postponed.  Basically most had no idea.  They had no idea of whom was exposed to what risk where.

And I don't blame them.  Most third-year economy students wouldn't understand the risk structure of investments banks were offering left and right.  Let alone the murky trade in crap loans between international banks.

It is important to keep this in mind.   

These people are good at working the system.  But the vast majority of them do not understand it to a degree where they can see trouble coming, and once the system starts breaking down, the rules change and all of a sudden they have no ground to stand on.  One does not need to understand what they do not to infer this.

Be careful who you listen to and try to remember who is full of shit the next time around.

No comments: