The lessons of history of financial crises in a nutshell: the setting, characters, plot & lessons.

1. Reflections on the US
Sub-Prime Mortgage
Crisis: When Will We
Ever Learn?
Association for Good Government
18 May 2008

2. A Market: Simpler the Better
 Simple
 Fair
 Impartial
 Transparent
 Accountable
 Stable & Efficient
 ... Unless They’re
RIGGED!

3. When Markets Get Confusing
 Complicated
 At Someone’s
Discretion
 Preferential
Treatments
 Opaque
 Immunity from
Responsibility
 Unstable & Volatile

4. Playing In the Marketplace
 Investing Involves
 Full Knowledge
 Full Consent
 Grave Matter
 Games of Cards
 Know the Hands
You Deal With
 Know the Game
Plan

5. Card 1: Create an Illusion
 Never Give the
Entire Picture
 Hide Behind “Trade
Secrets”
 Obtain More
Information than
You Give
 Use Information as
a Control Lever

6. Card 2: Making Money Is Everything
 Focus on the
Objectives
 The Deal: Sell the
Product/Service
 A Fool & His Money
Are Easily Parted
 The Outcome:
Maximum Profit at
the Least Cost &
Effort AND LITTLE
ACCOUNTABILITY!

7. Card 3: Manipulate the Customer
 Play with Desires &
Insecurities
 Food: Security
 Friends: Prestige
 Freedom: Power
 Make It Look “Fast,
Fun & Easy”
 Inject Self-Doubt to
Win Their Trust
 “Give Them An Offer
They Can’t Refuse”

8. Card 4: A Getaway Plan
 Reward Yourself
Heaps While the Good
Times Last
 Hide the Fine Print
Behind the Façade of
Expertise
 Make the Innocent
Share the Guilt: It’s
Their Responsibility
 Bail Out “Run to Papa!”

9. History is Our Story ...
 Those who fail to
learn from the
lessons of history
are doomed to
repeat them
 Those who learn the
wrong lessons of
history are twice as
cursed

10. Opening Scene: Good Times
 Economic
Upswing
 Policy Shift
 Windfall
Earnings
 Extra Cash

11. Next Scene: The Bait
 Lure of Passive Income:
Let Us Make Your
Money Work For You
 “Hot Tips” & Trends:
“Haven’t You Heard?”
 Gurus in the Market
Place: I Heard That …
 Opportunities of a
Lifetime: The Promise
of Quick Overnight
Returns

12. Rising Action: the Frenzy
 Self-Fulfilling Prophecy:
Demand Pull
 Buying What You Don’t
Need or Know: Keeping
with the Joneses
 Investment Decisions
 Flashy Lifestyles
 Silencing Reason: Don’t
Be a Party Poop

13. Behind the Scenes
 Gloss Over the Fine
Print. Bend the Law
Without Breaking It
 Avoid Talk of Worst
Scenarios
 Make Hay While the
Sun Shines
 If Returns Are
Disappointing:
Dazzle with BS “In
the Long Run …”

14. Climax: The Peak
 Hubris: We’re
Experts, We Can’t
Go Wrong
 Borrowing In Order
to Invest
 Saturation Point:
Running Out of
Fresh Customers,
Wells Start to Dry
 Noisy Entrances &
Quiet Exits

15. Falling Action
 Someone Breaks
the Bad News
 Market Tapers Off &
Suddenly Drops
 Panic at the Disco:
The Mad Rush to
the Exit
 Chain Reaction to
Other Markets

16. Rude Awakenings
 Angry Investors
Storm the Gates
 Sharing the Blame: I
Should Have Read
the Fine Print
 Catching &
Punishing the Guilty
 Woe Is Me!
Somebody Help Me.

17. Same Old End of a New Beginning
 Government Comes
to the Rescue
 Of Confidence in
the System First,
the Victims Welfare
Second
 Passing the burden
on to taxpayers &
the Third World
 Cracking Down But
Forgetting Lessons

18. Asking the Right Questions: Basics
 How Do Free Markets
Work: Freedom to
Prosper vs. Freedom to
Manipulate? (Outcome
or Choice?)
 Is Development
Material Affluence or a
Mutual Respect of
Equal Rights?
 Are Social Justice &
Good Governance, Not
One Upmanship,
Integral to Democracy?

19. Regulation: More or Less?
 Too Little, Too Late?
 More Command &
Control Means Less
Freedom &
Democracy
 Is the “Freedom to
Invest Wrongly” the
Government’s
Problem?

20. Hardest Part Is Looking Within
 Whose Fault or Who
Ultimately Pays?
 Envy, Greed &
Hubris in Prosperity;
Fear, Despair &
Wrath in Poverty
 Whatever
Happened to
Security & Leaving
a Legacy?

21. Closing Thoughts
 There Are No
Right Answers to
the Wrong
Questions
 If We Aren’t Part
of the Solution,
Then We’re Part
of the Problem