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Learning from the bears
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Matthew Malowany
YEARS of massive investing by ordinary citizens who rode a wave of mad euphoria and a conviction that the market offered a road to easy money, plus overspeculation by banks - many of which had risked their assets in the market - finally came to a disastrous end when Dow Jones index crashed spectacularly, plunging an astounding 90 per cent in the blink of an eye, not only wiping out millions of people, but causing banks around the world to go bankrupt, taking with them the life savings of whole nations and dooming most of humanity to a long and agonizing economic recession.
This is not a reporting of current events. It tells the sad story of the US stock market crash in October 1929, an event which triggered the Great Depression, an era of poverty and global suffering.
Until recently, The Crash, as it is called by historians, was ancient history, an event never to be repeated. In recent years, after all, not only the Dow Jones index but other stock indices around the world have benefited from an astonishing bull run of success. Just a few years ago, economists were heralding an era of permanent prosperity, of a long boom with no end of sight. Some imagined the Dow Jones, currently wavering around the 10,000 mark, would hit a mind-boggling level of 30,000.
The ancient Greeks coined a valuable word: Hubris. Nowdays, we use it to mean an overweening pride, an exaggerated belief in one's own importance. But originally it meant far more, a transgression into the realm of the gods - that is, the belief by us puny humans that we have finally mastered the universe and become gods ourselves. Discovering this, the gods will punish us without fail, to show us our place.
One famous example of hubris was the construction of the Titanic. It was said to be unsinkable - one crewman quipped famously that "God himself could not sink this ship". And we all know just how misplaced that confidence proved to be.
In recent times, popular belief in the infallibility of the stock market gripped the world, particularly the United States. And why not? The numbers made a convincing case. The Dow Jones Index was founded in 1896, but didn't hit 1,000 until 1972. It hit 2,000 in 1988, and 3,000 in 1991. In other words, it took almost a century to arrive at 3,000.
But after 3,000, it simply took off. In 1995 it hit 5,000. By 1998 it was closing in on 10,000 - that's a doubling of the stock market in three years! - and the following year it topped 11,000.
The younger, tech-heavy NASDAQ market, meanwhile, saw even more spectacular growth. These climbs were accompanied by heavy marketing campaigns by brokerage firms, who managed to convince ordinary people that their money belonged not in banks or real estate but in the market. At the same time, a booming economy ensured there was lots of extra cash floating around.
It was so logical, so simple: why leave your money in a bank where it will earn perhaps two or three per cent interest, when you can put it in the market and make 20, 30, 50 per cent interest? Why set aside money for retirement when it can be put in the market and earn enough cash to retire a millionaire?
Hubris, thy name is greed.
Unfortunately, the stock market, despite the mad euphoria of the past few years, does more than just climb. It knows one or two other things too. Already the tech bubble has messily burst, and the damage it has caused has yet to be fully understood. Other ominous signs lie on the horizon: the Japanese economic, banking and political systems are approaching, in the words of that country's finance minister, "total collapse"; investment is slowing, demand seems to be dropping off. In fact, the only thing keeping the world's economy from falling into utter oblivion is consumer demand in the United States. Should that plummet, the outlook is bleak.
Without doubt, the world is in a tight corner, and finding a way out of it, assuming it's possible, will be tough. No matter what happens, there will be pain when all is said and done.
The lesson is not just the truth that we should learn from past mistakes, or even that there is such a thing as "easy money". The true lesson of the current - and past - market woes is simply this: happiness lies not in shares, mutual funds or stock options, but within ourselves. Perhaps we need to lose all our money to really understand that deep down. At least until the next "quick fix" comes along.
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