Every few years the investment community forgets all of the lessons from the past and proceeds to act, irrationally, like lemmings. To prevent over population lemmings, every few years, participate in a frantic stampede ending as they plummet, en mass, off a cliff and into the ocean. This is an unconscious action of the lemmings, which is ordained by Mother Nature. It may be that the investment community has a similar need to participate in mass stampedes, irrationally, every few years .As to why the investment community wants to jump off a cliff and into the ocean every few years and cause significant self-injury is puzzling.

There exists the well understood and very predictable, but frequently ignored, standard business cycles. There is another cycle, the 'bubble cycle'. It may be that there exists a primal and internal urge to occasionally ignore all rational investment and business thinking and participate in a 'bubble' investment cycle. Like lemmings, this is an internal drive that overwhelms thought processes and soon there is a herd stampeding towards a cliff where the final outcome of the action will result in disaster. This internal need is so strong that a 'bubble cycle' appears to be part of the natural conduct of business. An internal drive must be the answer, as there does not appear to be any other reason why, every few years, the investment community creates a 'bubble' by ignoring value and reality. In the past 30 years there have been a number of 'bubbles'. There has been one large and one small real estate 'bubble', an oil assets 'bubble', an Asian stock market 'bubble', and a computer hardware 'bubble'. Over the past year there has been the implosion of the dot-com 'bubble'. The dot-com 'bubble' is believed to be the largest and most expensive 'bubble' so far -- until the next one.

With energy and enthusiasm and predictability, every so often the investment herd collects and then proceeds at full speed in a chase for material gain that for most leads to the precipice and a dizzying and expensive drop from a high height into cold water. This is the pattern of the standard business 'bubble', and the participants, blinded by greed and ignoring both history and logic, must accept the consequences. It is the aftermath, following the drop into the cold water, that the ramifications that follow the 'bubble' bursting should be questioned.

As is the case with all 'bubbles' not everyone will have participated and many will have exited from the 'bubble' early enough to avoid the stampede and the crash.

After the 'bubble' bursts the losses and bodies are counted amid amazement that this 'bubble' existed at all and actions are initiated that injure the innocent and the uninvolved. This injury takes the form of new rules and new mandates designed to avoid the next 'bubble'.

The problem is that after these 'bubbles' burst banks experience bad loans, both corporate and personal, and possess reduced bad loan loss reserves. Subsequently the lending institutions revise and tighten their credit policies, to prevent further bad loans, thereby creating a credit crunch. Once again locking the door after the horse has fled!

The banking and investment community has always been very active, and equal, participants in the creation and growth of all 'bubbles'. The simple reason for this is the profit motive. Large commissions and consulting fees have accompanied the growth of all 'bubbles'. The banking, the consulting, and brokerage companies have all benefited by promoting 'bubbles' against all wisdom. Yet after the 'bubble' bursts the investment analysts will not admit to any responsibility for urging on the herd. The brokerage houses will not accept any responsibility for catering to this primal cyclical urge and their role in actively enlarging the 'bubble'. Finally the banks will also deny their role in perpetuating the 'bubble' and then punish the mid-sized and smaller companies, the uninvolved and innocent, in the short term by enacting restrictive credit policies.

The conduct of the banks, following the collapse of any 'bubble' is intriguing and self-serving. After being willing participants in lending money to support the growth of the 'bubble', as this was good business at the time, they now retrench, with loud fanfare, and begin a period when they do not want to accept any risk or make any marginal loans. Consequently after a 'bubble' has imploded, smaller companies have a very difficult time accessing capital. In effect these companies pay the price and become additional victims of poor decision making by the lending and investment community. In these times the small and medium sized companies are forced to pay the penalty, but they did not cause the problem and are merely innocent victims.




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