Greed and Fear

Photo by Chema Madoz The global financial meltdown is proof that Money indeed makes the world go round. Not only that, it shakes the world beneath our feet, robbing us of our rationality and throwing us into panic. As analysts grapple to find the cause of the global market crisis, one thing is clear: the engine that drives the movement of money is not rational common sense, astute calculation and financial acumen. It is the twin engine of Greed and Fear with the roller coaster ride as its vehicle of choice.

In Indonesia, despite government assurances that the country can absorb the impact of the US sub-prime crises and weather the possibility of global recession, the stock market went into panic mode and causing the authorities to close the Indonesian Stock Exchange for a few days: Something that did not happen ten years ago when the economic crisis was closer to home and when the impact reached the ordinary people.

Meanwhile, since this time last year when they were at record highs, capital market indexes around the world have plunged by almost 50%. Some, like in Jakarta, plunged double-digit overnight. If the trend continues it will reach zero. Like lemmings committing mass suicide, traders all over the world are plunging into crash mode, driving shares to rock bottom prices. It certainly seems that the global market has lost confidence in their governments’ ability to handle the crisis. In this country by closing down the trading floor certainly makes it look like the government is panicking.

The big question that economists are asking at the moment and only hindsight will tell, is why? The Indonesian government is blaming short-sellers and speculators, vowing to hunt them down as criminals. However, this is missing the big picture. Markets react based on pure sentiment and that sentiment as we have seen is driven either by Fear or Greed.

A few months ago when the global market was bullish, Greed was the engine that fed the market. When the roller coaster you’re riding is on the up and up, there is only a feeling of exhilaration and excitement. The promise of good time seemed endless and everybody wanted to be part of the party. When human greed is in charge it blinds one to caution and deafens one to risks, like a gambler on a winning streak who finds it difficult to leave the gaming table even as the stakes get higher. Greed after all only needs itself to feed on.

The thing about riding a roller coaster however is that it is impossible to get off half-way, and it is only a matter of time before the ride takes on a downward plunge. And when it does go down, the engine of Fear takes over with the same intensity - though this time the feeling is no longer of excitement and anticipation, but of hair-raising terror and pure hysteria. Like with Greed, when Fear takes over it only needs itself to feed on. The impact is what we witness around the globe, culminating in the Fear and Trembling on the world trading floors.

What is needed on this ride is a stout heart and a strong stomach. What goes up after all must come down. The market authorities have closed down the Exchange in an attempt to calm the market down and return rationality to the trading floor. However, rationality has never been the force that drives prices up or down but highly irrational market sentiment. And when the government closes down the Stock Exchange, far from calming the situation, it is only revealing its own fear that results in fuelling panic in the ordinary investor who would otherwise not have been affected by events in the US and in Europe: ordinary main street investors whose fear might want them to redeem their savings and investments and put them under the pillow so they can sleep at night. It will be interesting to see what happens when they eventually re-open the trading floor.

The value of money after all is related to how much trust we put in that piece of paper we keep in our wallet, those bonds and those stacks of shares we lend to the government or entrust to the financial institutions. We forget that those institutions are made up of human beings that are also driven by Greed and Fear. We trust these pieces of paper when the value keeps going up; we dump them when they are worthless. We have confidence in the financial institutions when they serve us well and blame them when they fail us.

I have an aunt who loves buying gold jewellery, not because she likes to show off her wealth but because she doesn’t trust putting her money in the bank. I used to rebuke her for inviting robbery but now I see her point. It’s probably a lot safer wearing your riches round your neck than having your hard-earned money vaporised in the global financial meltdown. (The Jakarta Post)