Sep 12 2007
REVIEWS & RESPONSES
The Independent, UK. Book Review:
An Irreverent Take on the World of Finance
- Roger Trapp
11 September 2007
The recent market turmoil stemming from concerns about loans in the so-called subprime mortgage market in the United States makes this book extremely timely. As markets around the world reacted first to the sudden emergence of doubts about the availability of credit associated with this lending policy and then to each other’s reaction, observers were treated to a typical example of the mania of crowds.
None of it would have surprised William Bonner, head of Agora, one of the world’s largest financial newsletter companies. The easing of credit that was a characteristic of Alan Greenspan’s long spell as head of the US central bank, the Federal Reserve, was a disaster waiting to happen in his view.
He has long been a maverick commentator on the financial world and you get an idea of his world view from the titles of his previous books: Financial Reckoning Day and Empire of Debt. With Lila Rajiva, a contributing editor and writer at Agora, he has - rather like the historian Barbara Tuchman, whom he name-checks early on - decided to look at the present through the past. The result is an irreverent but thought-provoking examination of the goings on in international finance today.
Growing businesses have been less than impressed with the idea of gaining stock market listings for some time. This is a marked change from just a few years ago, when seeking a listing was a key ambition and sign that they had “made it”. Now, the level of scrutiny from both outsiders and market analysts, and the perceived inability to make the quick decisions necessary to succeed in an intensely competitive environment have combined to make it much less attractive than it once was. Anybody still contemplating seeking a listing - on either side of the Atlantic - who reads this book is likely to come away with serious doubts.
Though the book is light-hearted in tone, it packs a serious punch. One particular target is globalisation, as described by Thomas Friedman’s best-selling book The World Is Flat. Mocking this view in a chapter entitled “The Flat Earth Society”, Bonner and Rajiva write: “We are all one: one people, one world with one idea - to get rich. And in this new flat earth, we can all get rich, too. It is as if the world had been flattened into a kind of United States of Earth, where people in Mississippi can live as well as those in New Guinea - competing for the same jobs, trading, co-operating and schlepping their way toward a new world order that is better for everyone”.
It is all very tongue-in-cheek, but you get the point. The idea that globalisation is good because it enables people in less developed countries to buy the same clothes as those in industrialised ones has become pretty well accepted by most people, at least those in business, largely because it has been repeated so often. As Bonner and Rajiva point out, just a few don’t get this sort of “United States of Earth”. They are “losers, who think religion is more important than material progress; insurgents, who defy the empire; and protectionists, who want to push a stick into the wheels of history”.
Of course, it is not as simple as that. Not only is the spread of huge companies across the world not all good for people in less developed places it is also certainly not good for many workers in developed countries, who are suddenly seeing their jobs threatened by low-cost competition from the same sort of places that are being sold goods they never knew they wanted.
Though there will be many victims, this might be a fad that passes. More worrying is when the crowd or mob mentality takes over the stock markets. In a chapter towards the end of the book that advises on “how not to be chumped by Wall Street”, Bonner and Rajiva make the obvious point that investments should be bought when they are down and sold when they are up. Of course, the uninitiated do the exact opposite. “The lumps get excited about an investment when everybody else is excited about it - which is precisely the time not to buy”.
This is straightforward enough, but how does an individual know when a stock is up and when it is down? They tend to seek answers from the so-called experts in newspapers and elsewhere. But such commentary is part of the general noise. Without such sources of information, investing would be more of a private matter, more a question of an individual making his or her own assessments and acting accordingly - and it would be better for it, the authors assert.
Perhaps that is why owner-managers who know their own minds and have an instinct for what will work often see opportunities that larger organisations with all their strategists and analysts and advisers do not.
MoneyWeek book review: Mobs, Messiahs, and Markets
Why do ostensibly intelligent people pay six times their salary for a home they can ill afford? Why did equally smart people rush to buy shares in technology companies that didn’t make any money and never would? The answer is mainly because other people were doing the same. Sadly, following others blindly is a certain route to financial ruin – as Mobs, Messiahs, and Markets, the new book from MoneyWeek’s publisher Bill Bonner and co-author Lila Rajiva, amply demonstrates.
In a sharp-witted jaunt through the mass hysteria that’s defined markets and people through the ages, Bonner and Rajiva observe that when large groups of people “are thrown into the company of legions of their fellow men, some chemistry turns humans who are individually of irreproachable integrity and unimpeachable prudence into stark, raving blockheads”. That’s when they start burning ‘witches’, swapping tulip bulbs for houses, or, as we saw not so long ago, putting money into stocks ending in ‘.com’. The message is simple. Man is a herd animal, say the authors. And just like the swallow or the wildebeest, he will move with his pack.
The writers don’t restrict themselves to crowds; the follies and delusions of the political leaders and “world improvers” who stir up these hysterias, from Che Guevara to George Bush Jnr, are skewered in the irreverent style familiar to readers of MoneyWeek and Bonner’s email newsletter, The Daily Reckoning. And special mention is reserved for Alan Greenspan, the man whose time at the helm of the Federal Reserve is arguably most to blame for the current financial crisis facing the markets.
So what has all this got to do with investing? Understanding the psychology of crowds is central to understanding the psychology of the markets, says Bonner. It is the mob, and not the free-minded individual, that determines which way the FTSE 100 and every other asset class under the sun moves. But mobs make bad decisions, which means that the assets that are most popular are inevitably the ones set to lose latecomers the most money. If you can understand that, then you’ll know what to do with your money when everyone else is scrabbling to get in or out of the next craze. Which is largely to do precisely the opposite.
To buy Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics by William Bonner and Lila Rajiva (priced £16.99), visit www.moneyweek.com/bookshop, or call 01730-233870.
Bill and Lila on the war in Iraq: an extract from Mobs, Messiahs, and Markets
Americans had little doubt that they had liberated the desert tribes of Mesopotamia from “Tyranny”, rather than imposed a new tyranny of their own. They managed to support – and applaud – the biggest growth in government spending, debt, and bureaucracy since Franklin Roosevelt, and applaud it, of all things, in the name of liberty…
Success has transformed a modest people whose greatest virtue was once minding their own business into a vainglorious race, who mind everyone’s business but their own. They cannot save a dime themselves, but now they offer to save the entire planet. There was a time when they admired the English for their literature… the Germans for their organisation… the French for their intellect and style… and the Japanese for their industrial discipline. Now they turn their heads to the heavens and see only their own reflection in the clouds. They revere themselves with double the adoration and thrice the fidelity. Old Europe is a museum, they complain. It is rigid, cowardly, and gummed up with social welfare regulation. And Japan? The so-called miracle economy has been stuck in an on-again, off-again recession for more than 16 years, they gibe, because the Japanese lack the guts to restructure their economy along American lines.
This disdain is not based in logic or reason, of course. Few attitudes are. Or, as they say on Wall Street – “Markets make opinions”. That is to say, when stocks have been rising for a long while, investors have opinions about why the bull market will last forever. If stocks are falling, their feelings lead them to believe prices will continue to fall for all eternity. But, of all attitudes, none is so irrationally conceived and so inveterately held as people’s good opinions of themselves. And Americans’ opinions of themselves are no exception. Since they have created their success themselves, surely they must be in charge of it too, they think.
Discounted is the hard work of their fathers and grandfathers who went ahead of them. Dismissed are the virtues of thrift, sound money, limited government, and collective modesty. Flipping with boredom through the back pages of their history, Americans pay no attention to the dead. And the future… the unborn? It is as if they think the book has no sequel…. as if it were the last opus ever… the final word, the Omega Civilisation. We can almost hear the gods snickering. One day, historians will look back at our era and marvel at how George Bush and Tony Blair determined to convert the Iraqis to democracy. To our descendants, it will look like a mad caprice; a quaint, religious gesture; an act of remarkable faith or delusion, like missionaries showing the heathen the correct posture for copulation.
Web Reviews:
Dr. Jonathan Dolhenty, President of the Center for Applied Philosophy and Webmaster of Radical Academy:
Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics
by William Bonner and Lila Rajiva
Wiley - August 2007
Reviewed by Dr. Jonathan Dolhenty
Mobs, Messiahs, and Markets by William Bonner and Lila Rajiva is a fascinating work which considers how people think and behave, privately and collectively, and the effects these different modes have within the public sphere. I haven’t quite decided which specific literary genre this book falls into; maybe that is inconsequential anyway. There’s a lot of history, much economics and politics and, well, almost every other recognized social science comes into play. The main theme, however, seems to be well illustrated in the subtitle of the book: “Surviving the Public Spectacle in Finance and Politics.” This is not, therefore, merely an academic inquiry into group dynamics, but a very practical one as well.
In the interest of full disclosure, I have received Bill Bonner’s “Daily Reckoning” financial newsletter via e-mail for a number of years, so I am somewhat familiar with his writing style and his viewpoint regarding matters economic and political. This is the first time, however, that I have read a book which he has authored or co-authored. Fortunately for the casual reader, this book is not the least bit “dry” or dull, as all too many book dealing with this or similar topics seem to be. In fact, there are many times in this work where the authors relate or allude to something that is downright hilarious. Be that as it may, this is a serious look at an important phenomenon in the human condition.
Mob psychology is one of the most interesting topics to study and reflect upon. Even a brief inquiry into the dynamics of crowd behavior raises all sorts of interesting questions. And then there is the notion of so-called “groupthink,” a term used by Bonner and Rajiva is their book. I particularly liked their colorful way of describing that notion. Referring to it as the “shifting bog of groupthink,” it is “not only completely different from private thinking but is an illusion, piled on top of a fraud, stacked on a foundation of humbug, built in the mud of misconception with the building blocks of lunacy.” Couldn’t have said it better myself! As for me, someone who is just as fearful of a “mobocracy” as of an “autocracy, that description is more than satisfying.
Many insights into crowd psychology are provided during this journey into human thinking and behavior and the historical range of illustrative topics is broad and sweeping. Why do so many otherwise intelligent people jettison their common sense and rational thinking in order to just “follow the crowd”? Why do so-called “do-gooders” go so bad? Why do “witch hunts” occur so often, even in sophisticated and intellectually advanced societies? How do Hitlers and Stalins come to captivate the attention of and accumulate power over otherwise intelligent and rational human beings? How does “groupthink” affect those involved in the financial markets, such as investors and advisors? Moreover, how can one avoid getting caught up in the frenzy of mob psychology, whether in economics or politics or anywhere else?
This book is both an interesting historical adventure and a very practical primer, especially for those involved in the financial markets. As it says inside the dust-cover: “The authors’ cautionary tale of the current bubble economy warns that the gush of credit let loose by Alan Greenspan is fraught with perils for the unwary — but their thoughtful and always entertaining approach also offers some sound investing principles for avoiding the pitfalls of the public spectacle, thinking for yourself, and protecting your money, your sanity, and your soul.” Who could ask for more than that?
Readers Responses:
Thank you, Lila and Bill, for unleashing this wild boar of a book upon civilised society. We absolutely enjoy our regular check-ins to Bill’s website and the emails from the Reckoning crew, in fact our gestalt has been irreparably altered at the expense of our own self-deceptions exposed!
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“It’s a commonplace nowadays in the psychologically hip circuit to divide people up into three categories, as based on a well-known experiment with rats: alphas, betas and gammas. Alphas are leaders; betas are followers; gammas are independent-minded dominant loners. Members of the last group often become alphas at some point in their lives, but discover that they don’t like leadership that much, and return to the dominant lonerhood that they prefer. Gamma leadership tends to be of the “gang’s all here” type.Each group has its own mindset. Alphas tend to see betas as docile, as good-enough sheep, who need to be led for their own good; gammas are seen by alphas as oddballs, but as ones that might rate respect based upon their accomplishments.
The beta mindset is the one that’s generally misunderstood in our competitive society. The idea that betas look up to alphas is a conceit generally shared by would-be alphas. If you want to find out the real attitude of the typical beta, there’s no better place to do so than at work. Try being friendly to the middle-aged person that’s unpromotable but well-liked. His or her views of alphas and gammas will give you an idea of what the typical beta point of view is. Chances are, you’ll find out that betas tend to size up alphas as people of use: a “good” leader is a useful leader. If a leader isn’t sufficiently attentive to the needs of the followers, then he or she isn’t a “good” leader. (If you’re interested, the eye-opening business book Neanderthals at Work by Albert J. Bernstein and Sydney Craft Rozen, divvys up alphas, betas and gammas as Competitors, Believers and Rebels, respectively.) The beta view of gammas is easier to guess. Gammas, from the point of view of the beta, are largely pitiable deviants unless they have some extraordinary talent worth noting. Sad to say, but the typical gamma fits into the beta world as part of the entertainment. No wonder that so many gammas get into the bash-the-alpha racket.
The gamma mindset is utterly cynical regarding general society. It’s in the gamma circuit where you find the maxims about the “sheeple” being asserted as fact. The typical gamma view of the alpha is that the latter is a huckster, or “humbug;” unlike frightened or disillusioned betas, the gamma sees an alpha as largely clownish or incompetent – as a Sorcerer’s Apprentice. The damage that the alphas do is the result of their limitations catching up with them. Given the amount of gamma-coined slogans about the “deluded masses,” it’s not that necessary to elaborate upon the gamma’s view of the typical beta. The gamma’s view of the alpha is the crucial mindset to remember. In a nutshell, alphas are sized up as tragic figures – impractical pragmatics whose loose moorings wind up getting the better of them. In the gamma world, alphas are often perceived as unruly slaves.
Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics is a thoroughly gamma book. Even the organization of it gives the authors’ mindsets away. Both Mr. Bonner and Ms. Rajiva are goldbugs; both are regular columnists at LewRockwell.com, the well-known libertarian Website. Had they been alphas, they could have gotten the message across to the general public through a Goldwateresque approach: first, by reviewing the horrors caused by Communist and leftist humbuggery; and then, by showing what damage has been wrought by American delusion-chasing. Instead, the reader gets the opposite. In the part that deals with politics gone wrong, “Militant Messiahs,” the three chapters therein discuss: the damage wrought by war; the blunderings of United States foreign policy, particularly in the area of nation-building; and, the horrors wrought by left-wing politicos – in that order. Further proof of the gammaeque nature of this book seems superfluous.
There is a devil figure in this book. It’s none other than the alpha that genuinely cares what the betas think of him or her. This kind of alpha inevitably winds up being a “do-gooder” – the type of person who, according to the authors, causes the most trouble in this oft-saddened modern world.
If you’re the alpha type, you’ll undergo something rarely experienced in this day and age, despite the number of Mencken imitators currently around: you’ll actually feel the same way that a good, worthy, successful U.S. burgher felt in the 1920s when reading one of Mencken’s works when it was hot off the presses. The two authors are that good at being intellectually detached from all parts of the popularity-and-leadership game.
Some may find it roundly offensive, but it would be tragic if the reader, through umbrage, expels him- or herself from the Bonner/Rajiva School for Creative Cynics. After reading this book, you will re-evaluate some of your more cherished ideas. Some will find grist for self-reflection in its material.
There’s actually little investment advice in Mobs, Messiahs and Markets, largely because the authors are attacking the underlying mindset that leads to recurrent and poor investment choices. If you graduate from the Bonner/Rajiva School in good standing, then you’ll have the mental equipment to come up with good investment ideas of your own and/or the recognition of which commonplace ideas are the good ones. It’s actually debatable whether or not this book has its prime value as an investment manual.” 
Daniel M. Ryan is a regular columnist for LewRockwell.com, and has an undamaged mail address here.
Buy Mobs, Messiahs, and Markets at Amazon.com for only $16.77 (40% off)
Business Pundit:
I recently finished Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics. Where do I begin with a book that takes a shot at pretty much anybody and everybody, including the authors themselves? To say that this book is skeptical or contrarian is like saying Warren Buffett has money. This book could set the standard for skeptical writing. That said, it’s part of the reason I enjoyed the book so much.
The general premise is this: we don’t realize how difficult and complex some things are, but we undertake speculative endeavors in an attempt to get ahead because we want to impress the opposite sex (it’s in our genes), and when you add all that together for the masses, you get really stupid behavior.
In an attempt to make sure everybody is equally offended, the authors first poke fun at liberals by claiming that their policies aren’t really designed to make things better, but instead are designed to “discomfort those who don’t agree… it is merely another way of bossing other people around, under the cover of a ‘good purpose.’” Next they lash out at conservatives (or, at least, the current administration) by saying that “success has transformed a modest people whose greatest virtue was once minding their own business into a vainglorious race, who mind everyone’s business but their own” and quoting Issac Asimov that “violence is the last refuge of the incompetent.”
This book creates cognitive dissonance that slaps you in the face very couple of pages. The authors seem to enjoy setting up critiques of the left or right, then flipping sides and using the same arguments on the other side. You nod in agreement as the authors tear down the people you don’t like, then feel guilty when they turn their firepower on your ideas too. It exposes the subtle complexity that is important in so many situations, but that we often ignore so that we can feed our desire for simplistic absolutist views.
Here are some of the more interesting quotes from the book.
Ignorance increases by the square of the distance from a given event.
The truth is — popular politics and bubbles are almost always frauds that flatter our sense of vanity.
Why is there a $700 billion trade deficit? Because Americans want to buy things they can’t afford. Why do they want to buy things they can’t afford? To pretend to be richer than they are. Why do they want to appear richer than they are? Because it gives them higher social status. Why do they want higher social status? So they will have better access to the opposite sex.
Studies show that people are more likely to accept the opinion of a confident con man than the cautious view of someone who actually knows what he is talking about.
The professionals may explain that derivatives help globalized information-drenched markets disperse risk, but this is wishful thinking. They don’t really disperse risk at all; they aggregate it. Fund managers all learn the same theories. They all read the same papers and attend the same conferences. And now they all trade the same things, using more or less the same strategies and formulas.
After 300 pages of entertaining criticism of anything and everything, the authors finally tell you how to get rich. Mostly, it doesn’t involve what you do, but rather, what you avoid. It’s the stuff you have probably heard before: buy and hold, minimize taxes and transaction costs, stick to what you know, analyze the risk that you don’t know you don’t know, and of course try hard to think for yourself and not pay much attention to other people.
I loved this book and I read the full 400 pages in just a few days. But I won’t recommend it to everyone. Francis Scott wrote that “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” I do not think most people have this capacity, but if you do, I highly recommend this book. For everyone else, it will just be offensive
