Posted on 07/20/2008 9:14:17 PM PDT by TigerLikesRooster
Why We Buy Into the Herd, Even When It's Not Good for Us
By Michael S. Rosenwald
Sunday, July 20, 2008; F01
After IndyMac Bancorp failed, customers waited in line for hours to collect their money. The police had to be called in to quell the mob. The scenes brought to mind dire moments from the Great Depression. This time, with satellite TV trucks parked outside the bank's branches, the world watched last week as our financial system took another body blow.
On the Federal Deposit Insurance Corp. Web site, IndyMac customers were told: "If the balance in your account . . . is less than $100,000, no action is required on your part at this time." The money is insured. But Ruben and Rosalie Uranga, who had less than $100,000 in deposits, lined up anyway, along with many others in similar circumstances.
Why? Though Rosalie Uranga told reporters "Why take a chance?" many behavioral economists watching people herd in line at the bank -- or flush their portfolios of Fannie Mae and Freddie Mac stock -- sense a much deeper, even primal, response at play. I suppose the only way to say this is to just say it: People are acting like frogs.
(Excerpt) Read more at washingtonpost.com ...
However, that's too boring, isn't it?
Ping!
People are not generally rational, as history shows us.
Not true.
In our current system, if you make a bad decision and you're the only one, you're out of luck. But if you follow the herd doing something stupid, you're rewarded by having your losses covered.
Allowing private profits but covering losses with public funds is fascist econonomic policy (using fascist in its real meaning, not just as an insult). Gee, what do we see going on in this country? My money being confiscated and given to "bail out" private losses.
So it becomes rational to take foolish risks, as long as there are enough others doing so. The incentives are set up to reward those who act irresponsibly...so with the system set up that way, it is rational to act irresponsbily, because the responsible will be forced to pay for problems, and you only stand to gain!
Most people are too busy and too into pop culture, too ignorant of history and too trusting of government rather than prudently distrustful of it, to act independently. Of course they act as a herd. This is how some people get very rich doing what every one else is not. They sell when everyone is buying and they buy when every one is selling.
As H. L. Mencken said, “Nobody ever went broke underestimating the intelligence of the American people.”
2/3 of America can’t tell you what a sub-prime mortgage is, but they can tell you the name, weight, time and of the birth of the latest bastard child born to the current member of Hollywood Slut of the Month club.
I had this arguement with a guy on another thread when we were talking about naked shorting.
He said that shorting was good for the market(which I agreed) however he presumed that people who didn’t trade on fundmentals or even technicals were not “logical” and I said well let’s see... I can think of two recent examples of the masses pushing a market without being rational. The Tech Bubble and now the housing bubble. Being in banking I can’t tell you how many people were just dying to buy a house to “flip it”. I don’t see that too much these days.
Why should these people "the herd" have to stand in line all day, when their accounts are supposedly insured up to a hundred grand? Hmmmm?
Who's being treated like *bleep*, and why?
The popularity of the house flipping shows, that show great profits for the investors has suckered in many people who didn’t have a lot of money to lose.
Even the wife and I had some aspirations of doing the same thing.
Glad we didn’t. Could have been stuck with property that may not move for months or years. would have been our fault. And nobody would bail us out.
As for the lenders who looked big profit in the eye with risky loans, there should be no bail out for them either.
The lure of fast money and greed fed the market for years.
Now people are re-discovering rational, sound financial management.
But rational financial management is not something our government is capable of. They just print more money to cover the debt, while American assets like Budweiser are being sold off piecemeal to foreigners. The cheap dollar will mean many more financial empires like Chevy or Ford will become foreign owned. Without those icons of industry and finance, how will America ever recover a superior financial standing in the world?
Like the old saying, if you’re going to owe money then owe enough that non-payment becomes the bank’s problem, not yours !
I think you’d like this thread.
It is like my mama taught me...If you follow the crowd, you will get no farther than the crowd....
"...people in a fearful state will make risk-avoidant choices," said Jennifer Lerner, director of the Laboratory for Decision Research at Harvard University. "The fear drives the goal of reducing uncertainty." So: Sell, sell, sell. "They want to pull their money out because they want that sense of certainty. They can't tolerate the uncertainty," she said.
This also explains why so many believe in global warming ("--but what if it's true!!!??"), or they buy gold ("--dollars aren't worth anything!!!"), or they want higher import taxes --no matter what it does to their food bills and their exporting job. The bad news is that people in this mode tend to elect Democrats. The good news is we make so much money buying during the panics and selling back on the peaks.
It all works out ;-)
Exactly what money of yours has been given to cover exactly which losses? Please be as specific as you can. Thanks.
Classic herd mindset.
Pretty much new to the US; for generations Americans would say things like "squeaky wheel gets the grease", "build a better mousetrap..." or "early bird catches the worm." Contrast those to a typical Japanese saying "the nail that sticks out gets hammered down".
OK, so we got some Americans that have joined the herd. No problem, the rest of us are still typical American 'cowboys' rounding them up...
That’s true. You will be held back. Look at our schools. Teacher teach with a “crowd” mentality in that all children are assumed to learn at the same rate. If schools were run like a video game, then the children who mastered Level I education could move on to Level II without having to wait for those children to catch up.
A lot of our lives are run in a crowd-like fashion.
Unfortunately the people you stick it to isn’t the management or even the investors.. it’s the bank customers that pay the price. It’s one reason I’m ok with bailouts and for putting more regulations in place that make it a crime punishable all the way up and down the company with prison and fines.
I’m all for capitalism but unregulated greed is just folly.
I’m simply flabbergasted at how stupid some people are:
The woman at work who is crazy about Obama but has absolutely not one iota of his policies or ideas.
Not one!
Last year my daughter was forced to change a shirt she had on at a school function because her polo shirt wasn’t the “right shade” of blue, royal instead of navy. Now I’m all for uniforms and enforicing policy anbd all but get this, the idiots made her put on a t-shirt that didn’t have a school logo on it...and that’s ALL a kid can wear per their very own policy! a polo shirt apparently ONLY in the right shades, OR a t-shirt with the school logo. NO EXCEPTIONS!
Seems they ran out though enforcing their policy that day so they made her put on a t-shirt without a logo since this was all that was left.
So I told the principal: “sooooo you essentially forced her to change one out of regulation shirt or another out of regulation shirt”? I mean to what end?
They’re so DAMNED fixated on anything and everything but education, accountability, religious flexibility...errrrr make that any mere mention of Christianity...all others seemingly get a free pass.
A kid allergic to peanuts asked a kid to buy him a nutty buddy.
One would THINK the family might acutally hold the kid accountable, you know since it’s literally a life and death thingy...but NOOOOOOO, the parent raised such hell that NO CHILD now has access to a nutty buddy anymore.
Frankly, we’re ^$#*@! with a capital F!
Depressing. What can I say? Stupidity is all around us. It is like we are living in some reverse world from the Twilight Zone. Alice in Wonderland seems sane by comparison.
Hi, Toddsterpatriot. There are many, many cases...but I'll give you one as an example: National Flood Insurance Program.
Whether it's decades of the taxpayer subsidizing the insurance of people in flood-prone areas, or the taxpayer-subsized (government) purchase of flood-prone land at inflated rates in the 90s, or the rebuilding of a city that flooded and is sinking (this decade), we have plenty of examples. When I moved to my address, I took the time and expense to examine historical aerial photos and soil survey maps, and consulted a geologist to confirm the site. When flooding took out 250 places below, I was glad I wasn't living in a former river channel...but did I ever get a check from the government to subsidize the engagement of a geologist? No. Did they thank me for being responsible? :-) No.
Additionally, even if there are no tax raises directly associated with bailouts, don't be fooled that you're not losing money. Devaluing the dollar and increasing your debt burden are two ways the government can confiscate money from you without having to increase tax rates. And that's the current favorite method.
Yes, that's a terrible program. Thanks, but I thought you were talking about the current financial situation. Never mind :^)
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