The financial crisis ripped through Wall Street – and the rest of the world – 10 years ago, pushing the global economy to the ‘edge of the cliff’.
One might think those searing experiences would have created a learning opportunity — for managing risk better, understanding structural imbalances in the financial markets, even learning a bit about how our own cognitive processes malfunction.
Markets are sowing the seeds of the next financial crisis. Instead, we have little new wisdom or self-awareness to show for that traumatic event.
Here’s 20 observations that came from an attendee at an extraordinary conference in the US last week aptly called Risk: Retrospective Lessons & Prospective Strategies:
- he took notes – he never takes notes
- every discussion topic had profound implications for the capital markets
- the opening panel, had legendary market players recounting their experiences during the financial crisis – sad, angry, hopeful
- we humans tend to forget just how shocking that period was
- some of the behaviour they witnessed at various institutional investment funds was both hilarious and frightening
- one panellist said “you can have a committee of 10 geniuses that proves collectively to be a moron.”
- research into “collective computation in nature” has significant ramifications for various machine-human hybrid activities
- there is a warning in #7 for artificial-intelligence and algorithm driven trading
- Behavioural finance & neuro-finance – what occurs within the human cognitive system when risk & reward decisions are made
- humans only experience a rough version of NOW. In reality, the future and the past are false constructs
- the future is little more than our faulty guesses about one outcome out of many possibilities; the past is an error-riddled set of recollections, filled with selective retention and ego-driven biases
- once people visualise in life-like realism the impact of their behaviour on their future selves, it leads to profound changes in how they behave
- this has implications for investors’ retirement savings rates
- the US has a looming retirement crisis: “84 per cent of U.S. mutual funds under-perform their benchmark over any 10yr period
- the combination of high costs and under-performance are like termites eating away at the structure of a house
- given the financial realities of longer lifespans, they want to raise the retirement age from 65 to 70
- and this clanger that I’ve been saying for quite some years from 91 yr old Henry Kaufmann (aka Dr. Doom): “despite deregulation being a major factor in the crisis, it took less than a decade for many to forget”
- a financial market deregulated is like a zoo without bars
- as memories of the crisis fade, the seeds of the next crisis are already being planted. They are the exact same issues of debt and mismanaging risk & not understanding our limitations
- the next financial crisis is staring us in the face!
We have only ourselves to blame.