US Financial Groups Face Parmalat Backlash

Parmalat spells disaster in Italian much the way that the US can substitute the word Enron. It was an unmitigated fiasco involving 14 billion euros of debt and some very unhappy investors. But the Europeans are obviously learning something from their American cousins, because they're heading to court in a class action suit, according to the Financial Times, and going after the only people left with pockets of any size: the financial institutions and auditors - such as Citibank, Bank of America, Deloitte & Touche, and Grant Thornton - they think must have known about the precarious situation because, hell, it's inconceivable that these savvy organizations could have messed up that badly.

A year ago I might have agreed, but now I can only think of a quote from the movie The Princess Bride. Wallace Shawn's maniacal character Vizzini keeps calling every setback "inconceivable!" Inigo Montoya, played by Mandy Patinkin, eventually says, "You keep using that word. I do not think it means what you think it means."

Given the real estate bubble, it seems all too conceivable that people running money shops of various kinds are quite capable of flushing tens of billions of dollars down the nearest storm sewer while blinking in a confused way. "Inconceivable that we [they] could have screwed up so badly!" Or not.

Taking Bets on New Internet Bubble

John Dvorak, who pretty much came in with the PC and whose death will probably be a harbinger of Computing As We Know It, wrote an interesting article on the concept of Web 2.0 being the next bubble waiting to happen:

Every single person working in the media today who experienced the dot-com bubble in 1999 to 2000 believes that we are going through the exact same process and can expect the exact same results—a bust. It's déjà vu all over again. And since this moment in time is only the beginning of the cycle, the best nuttiness has yet to emerge. Nevertheless, this is not to say that a lot of nuttiness hasn't already happened.

He then suggests that there is a continuous series of bubbles in high tech, each one worse than the other. I don't know about the progressive deterioration, but successive bubbles? Absolutely - as in any part of industry. There was the 17th century tulip bubble. I remember the paperless office mania, the total quality hysteria (remember TQM?). There is the current housing bubble, along with the bubble in mortgage-based security derivatives. Every multi-level-marketing scheme is, to some extent at least, a bubble. Then there are the countless ones that no one ever names.

A bubble is a form of economic hysteria that comes about when a small group of people find a way to make a whole lot of money at something that seems to promise the same for many others. There are economists who argue that the term bubble is inexact and sloppy thinking.

So forget economics and focus on psychology. Call this phenomenon the free lunch, or something from nothing, syndrome. People become convinced that they're going to become fabulously wealthy, that a trend will continue ad infinitum, that no one will tire of buying a given something, that everyone will want it, and that enough available money is around to fund the whole rollercoaster ride. That's a human failing that I suspect is as old as the species. No wonder we keep falling into manias - we're too anxious for the free payoff to realize that we're two-legged lemmings and that there's a cliff looming ahead.