I understand the point you are making, Old Pro. There are lots of people for whom I feel deep respect who feel as you do.

I believe in the inspirational words of Robert Kennedy: “Some look at what is, and ask “Why?” Other look at what could be and ask “Why not?”

There was a time when it was “human nature” to have slavery. There was a time when it was “human nature” to have widespread illiteracy. There was a time when it was “human nature” to not have indoor plumbing or cars or cell phones.

I love some aspects of human nature. I am not so crazy about some others. The aspect of human nature under discussion here — the aspect that causes economic crises and all the human suffering that go with them — I could live without.

We the humans have the power to enhance human nature by educating people as to the realities of economic crises and the investing “strategies” that cause them. I see this as the most important work before us as a society for the next few years.

That said. I am truly grateful for those who state the other point of view, as you have here. I often learn more from those who disagree with me than I do from those who pat me on the back. We are all in this together and we are all trying to do the best we can to move things forward given the perspective we have attained from the life experiences we have been through.

Rob
.-= Rob Bennett on: My Google Knol on “Why Buy-and-Hold Investing Can Never Work” =-.

When the brown stuff hits the fan everyone runs gets over-scared until its washed out and they’ve forgotten what hit them.

To change that you’d need to change human nature – I love human nature myself.

Or s’pose you could go to planned economies but we saw what happened there (starving millions, gulags and bad haircuts).

In that sense it’s correct it’s not bankers fault – they are cogs in the machine. I do see why people resent them being paid a fortune though – most are me-too Sir tossp*ts.

I don’t see the economic system as being inevitably cyclical. I think it is cyclical because we encourage behavior that makes it cyclical. We could stop doing that.

The alternative is to keep doing what we have been doing. But that gets us in these circumstances where we need to bail out bankers whether we like the idea or not because the entire shebang will collapse if we do not. By permitting things to reach a crisis point, we put ourselves in circumstances in which we possess no good options. I favor taking the actions we need to take to avoid getting into the crisis situation in the first place (that requires stopping both the extreme economic ups and the extreme economic downs).

Rob
.-= Rob Bennett on: Podcast #196 — Valuation-Informed Indexing and Buy-and-Hold Are Opposite Strategies =-.

@Sam – I was sitting in a restaurant in the City with a chum last night thinking exactly that! The truth is that I would last about a day with some alpha male big swinging d*ck telling me what to do, whether in the brutally direct American banker form or the snidey “our people” British version (let’s leave the French out of it). Still, if I’d known how insane the finance industry was going to get when I was a student around two decades ago, I might have bitten my lip and held my nose…

By the way, the fact that I couldn’t thrive as a banker is not proof that they deserve £500,000 bonuses (because I can’t hack it etc). I couldn’t hack it in the army either, for instance, and the salary there is c. 10-50 lower, with the only bonus being you might hope not to get shot.

Thanks as ever for your comments everyone.

That’s a fair statement, Ermine. I of course agree that what you describe is not right. But it seems to me that it is a wrong that logically follows given our failure to correct the Efficient Market/Economic Man stuff for so many years after we learned that it doesn’t hold water.

What would you do if you were in the bankers’ shoes? All of the Economic Man/Efficient Market stuff is written up in all the textbooks. If they fail to take that long-discredited stuff into consideration when approving loans, they would be violating industry practice and could be held liable. Yet if they act rationally, they cause economic meltdowns. And then they are to be refused bonuses? Because they did what they are required by law to do?

We bailed out the bankers for our benefit, not theirs. It seems to me that we need to address the underlying problem. Our entire economic system is built on a myth. We need to act as a community to change that. At least then this sort of thing wouldn’t happen again. There’s nothing we can do about the past.

Rob
.-= Rob Bennett on: Podcast #196 — Valuation-Informed Indexing and Buy-and-Hold Are Opposite Strategies =-.

>Wasn’t the decision to do that rooted in the same unwillingness to take risk seriously that the bankers engaged in?

you’re missing something here. We do that, we get to lose our shirts. Bankers don’t, since the downside risk is socialised into bailouts, while the upside risk goes into their paypackets. Indeed, what’s happening now is they are creaming off some of the bailout through the rise in assets from the dip as the bailout works.

We need to split banking into safe stuff, and we need all banks to be small enough to fail…

They misassessed risk. That much is fair to say.

Didn’t just about everyone? Weren’t there lots of people who were investing heavily in stocks during the bull years? Wasn’t the decision to do that rooted in the same unwillingness to take risk seriously that the bankers engaged in?

All the textbooks push the Efficient Market Theory. All the graduate programs push Economic Man. The bankers got it more wrong than the rest of us because they studied this stuff longer than the rest of us and thus became more entrenched in their belief in the discredited ideas. That’s their “crime.”

I feel sorry for them. But only because I feel sorry for all of us.

Rob