Monday 5 May 2014

Money Mania

 ‘People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome’
George Orwell

All those who have seen Yash Chopra’s films must be familiar with the Tulip Gardens of Netherland where many a heroes of Yash Raj films have serenaded heroines with melodious songs. However, few people would know that tulips are not indigenous to Holland. They were brought to Holland in the late 1550s from the Ottoman Empire (present day Turkey).Though tulips may be easily available in Holland nowadays, it was always not so. When they first reached Holland it sparked off such a mania amongst the local population that it plunged the Dutch economy into a crisis. Initially the prices sky-rocketed but like all bubbles it was only a matter of time before the prices crashed. Such interesting anecdotes starting from the economy of the Roman empire abound in Bob Swarup’s Money Mania-Booms, Panics, and Busts from ancient Rome to the great meltdown (Bloomsbury India) which tries to make sense of various financial crisis  over the ages. It is amazing to read that even though a financial crisis in some form or other have been recurring with regularity right from the beginning of our civilization, we do not learn from these and continue to make similar mistakes again and again. The reason behind this cyclical pattern concludes the author is that at the end of the day, humans are at the heart of any financial institution or social order and it is but natural that any decision taken by a human being would be subject to the cognitive biases which are inherent to human behavior and will always remain so. These include ‘Aversion to ambiguity’, ‘Cognitive Dissonance’, ‘Extrapolation’, ‘Illusion of Control’, ‘Overconfidence’ etc. all of which prevent the human beings from taking a rational and logical decision whenever an opportunity to make money arises. The author obviously has a good grasp of the subject (he is a London based financial analyst who has been on the boards of several hedge funds and private equity firms) and towards the end the author attempts to offer practical solutions to prevent or at least mitigate the effect of any future financial crisis. I am sure many learned men have thought about these steps earlier and may even have implemented a few. But can the implementation of these prevent us from another financial crisis? I am not so sure about it. The book may not appeal to a casual reader but those with a bit of interest in economics or financial markets  or with some basic understanding of these subjects would definitely find this anecdotes laden book interesting and appreciate the insights offered by the author.

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