In my first contribution, we have identified the neo-liberal economic course of the Reagan era as the original trigger, and the belief in the market's self-sufficient forces.
How is it from the moment of the release to this mighty, powerful wave, how does it spread? How does she achieve all her destructive power? There are essentially these four elements that contribute to the development of this tsunami-like financial crisis:
Too high speed due to global networking
In the early 60s, Stanley Milgram developed a theory. He hypothesized that everyone in the world is connected to everyone through six contacts. The theory entered social research as the “small world phenomenon”. In a world where everyone is already connected to everyone via a social network, this phenomenon applies even more to the financial world.
Instead of people, machines trade with each other there and are networked around the clock - 7 days a week, 24 hours a day. As a result of this strong networking, innovations in the financial sector can spread much faster than regulators ever have the opportunity to intervene. This fact very quickly leads to catastrophic aberrations.
Risky financial innovations
Innovation is closely linked to finance. By developing options, risks could be better hedged, for example. The development of credit default swaps has allowed bank limits to be extended.
The downside of all these innovative developments was that it opened the door for speculators. Similar to a pyramid game, a few very rich and many investors were very poor. Not otherwise, Warren Buffet described these instruments as weapons of mass destruction. These financial innovations finally found their way into the financial sector and caused enormous damage.
Greed is a vice
This is a driving force that is all too human. The immeasurable pursuit of wealth and power. In my book I describe how geniality (the human side of innovation) coupled with greed could unfold to a tremendous destructive force.
I had the opportunity in personal interviews, with people such as John Meriwether or Andy Krieger - both of which will be discussed later - to shed light on this dark side of finance.
The butterfly effect
That small causes can have great effects, Edward discovered. N. Lorenz in his modeling of the states in the earth's atmosphere for the purpose of long-term weather forecasts. This effect, also known as the butterfly effect, plays an important role in our financial systems today and explains, among other things, why bubbles can increase rapidly over the years by positive feedback.
A new, innovative business model or product can quickly spread through permanent adaptation and positive feedback. The risks and implications underlying the business model are often overlooked at the outset. In the course of time, however, they are clearly visible and enlarge, until finally they can hardly be managed. It is thus the initial underestimation of the consequences of a financial innovation, which later becomes a problem.
The builder of the financial crisis
As my research has shown, all four elements play an important role in the creation of a tsunami and are thus the builders of today's financial crisis. The prerequisite for this is the global networking of the trading systems, as well as the inexperienced practice of soliciting entire teams in the financial world and thus simply copying successful products and business models, regardless of the associated risks.
By means of financial innovations, one is usually one step ahead of the existing set of rules and can thus bring risky financial products to the people. In addition, the human weakness of overconfidence, coupled with the pursuit of even more wealth, plays a crucial role. Together, they ensure that the wave picks up more and more speed.
Economics and psychology: why we work more when hunger occurs
// By Professor Dr. Hanno Beck
E4 likes Tom Collins, Felsamisen and the real estate market. E4 is a rat. And it shows us why we are all a bit of economists.
Once Shopping Queen
Nina is called the Happy. Nina is from Hamburg. She has chosen a red evening dress, high heels and a handbag. Her tattoos - arms, hands, neck - work wonderfully in her look, as Guido explains.
Guido - that's Guido Maria Kretschmer, a German fashion designer, moderator and referee of the TV show “Shopping Queen”. Nina did it: With her look, she was voted Shopping Queen 2013, won a crown, a trip for two to the fashion metropolis of New York, 1000 euros of shopping money and tickets for New York Fashion Week.
More bang for the buck
The TV format “Shopping Queen” is simple and entertaining: every week five women compete against each other for five consecutive days. Your task: to dress and style yourself with a predetermined amount of money, as tastefully and elegantly as possible according to a given motto. Afterwards, every outfit is evaluated by all participants and by Guido, the lady with the highest score becomes the shopping queen.
Before you dismiss this format, which is ridiculed as “reality TV”, as a lower-layer television, a look at the rules of the game: you get a fixed amount X and have to spend it with it - that is, spend the little money so that you achieve the greatest possible effect. More bang for the buck, as the Anglo-Saxons say - more boom for the well-earned coal.
Economy accompanies us through life
Do you know that? Of course, everyone knows this, which starts with the pocket money: you are in the supermarket and considered how to spend the ten euro pocket money sensibly - ice or chocolate? Or both? And if both, in what proportion? Eight euros for chocolate, two for ice cream? Half half?
This problem accompanies us throughout our lives: we have to get along with a given income, a fixed amount of money - economists speak of a budget - and how to best divide this budget into the many wishes we want to fulfill.
The household theory
In the economic world, this problem is examined under the heading "Household Theory", and economists understand the art of describing simple problems in a complicated way:
To maximize the benefit ... an individual will buy such quantities of goods ... for which the psychic exchange rate between two goods (the marginal rate of substitution) is equal to the rate at which the two goods are exchanged.
It takes time and leisure to digest this chewing glare, only right when the whole is garnished with formulas and colorful graphics. And even if you understand it, who believes that? And above all: Who is this?
E4 - the rat that can count
Someone who behaves like that is in Texas. At Animal Laboratories, Texas AundM University and Washington University. There, between sterile corridors, rows of cages under neon light, John H. Kagel, Raymond C. Battalio and Leonard Green have exposed the elementary ideas of microeconomists to the reality test - are the ideas of economists close to life? Are you? And the witnesses wear fur. Or feathers.
Animals offer an easy way to test elementary economic principles, say the three researchers: You can repeat experiments, observe, change, you can reward the subjects - sorry, animals - and punish - many things that you can not easily with human subjects at least not without landing in front of the prosecutor or in the Bild newspaper.
More work when hungry?
For example, the researchers can test whether their proteges