Forever blowing bubbles…?

teaching personally

Priceline.com was an online company that sold excess airline capacity. By the year 2000, the stock market had capitalised it to the tune of $150bn, or more than the value of the entire airline industry. That was, of course, before the dot-com crash of that year. A similar effect was seen pre-2008, when Northern Rock amassed loan liabilities of over £100bn on assets of a mere £1.5bn.

Reading further into Aeron Davis’ book, it becomes clear how such bubbles arise: herd behaviour dictates that more and more people pour investments into a company simply because others are doing the same. Even though people know this is risky behaviour, the short-term consequences of not doing so, in terms of lost shareholder confidence – and thereby even senior jobs, are too great. Bad practice is thus actively rewarded – and when the crash ultimately comes, those at the top simply blame…

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