We have only ourselves to blame

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:

  1. he took notes – he never takes notes
  2. every discussion topic had profound implications for the capital markets
  3. the opening panel, had legendary market players recounting their experiences during the financial crisis – sad, angry, hopeful
  4. we humans tend to forget just how shocking that period was
  5. some of the behaviour they witnessed at various institutional investment funds was both hilarious and frightening
  6. one panellist said “you can have a committee of 10 geniuses that proves collectively to be a moron.”
  7. research into “collective computation in nature” has significant ramifications for various machine-human hybrid activities
  8. there is a warning in #7 for artificial-intelligence and algorithm driven trading
  9. Behavioural finance & neuro-finance – what occurs within the human cognitive system when risk & reward decisions are made
  10. humans only experience a rough version of NOW. In reality, the future and the past are false constructs
  11. 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
  12. 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
  13. this has implications for investors’ retirement savings rates
  14. the US has a looming retirement crisis: “84 per cent of U.S. mutual funds under-perform their benchmark over any 10yr period
  15. the combination of high costs and under-performance are like termites eating away at the structure of a house
  16. given the financial realities of longer lifespans, they want to raise the retirement age from 65 to 70
  17. 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”
  18. a financial market deregulated is like a zoo without bars
  19. 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
  20. the next financial crisis is staring us in the face!

We have only ourselves to blame.