Famous Financial Fiascos
Train, John
FAMOUS FINANCIAL FIASCOS John Train/Clarkson N. Potter-Crown/$8.95 Aram Bakshian, Jr. As that great and good student of human nature, W.C. Fields, so often reminded us, "You can't cheat an honest...
...Often at play here is what Mr...
...So perhaps this volume, like a birdwatcher's handbook, will help the reader identify some of the familiar ones-groupthink, hubris-nemesis, the Ponzi scheme, speculative manias, the "distance lends enchantment" mirage and other raptures-as they occur, alone and in combination...
...let it be deceived...
...writes frequently on history, humor, and the arts...
...Great is the danger of the glib pitchman with a "convincing, but wrong, idea," because "exciting buzzwords and clever slogans often transmit fallacies', since mankind craves simple solutions to complicated problems...
...How appropriate...
...If he does occasionally err on the details- which he does- it is in trivial degrees, as when, in referring to the Crimean War, he writes that "dysentery killed far more British soldiers than the Turks did...
...Train has any moral at all to adorn his tale, it is not his own, but that of a rather bright Swedish cabinet minister, Alex Oxenstierna, who put in his best years under Gustavus Adolphus and his semi-daughter, Christina: "Semper vult mundus decipi: decipietur" ("The world always wishes to be deceived...
...All this is to Mr...
...Only people with flawed intellectual or moral integrity fall ready, self-made victims to get-rich-quick schemes of the sort described in John Train's amusing and gracefully written little compendium of con games...
...The Ponzi scheme phenomenon is as old as the hills and still drags people in by "paying off the earlier participants in a bubble with the money of the later ones...
...They become sleepwalkers...
...and second, the greater the involvement of the state (or influential interest groups capable of determining state policy, as in the case of Ferdinand de Lesseps' catastrophic Panama Canal company), the greater the potential damage the fiasco may inflict on innocent bystanders...
...Besides entertaining us with his accounts of twenty historic cons ranging from the South Sea Bubble and seventeenth-century Dutch Tulipo-mania to the more recent depredations of Ivar Krueger (the Swedish Match King) and the unsavory Spanish tycoon, Juan March, Mr...
...The illusion of invincibility leads inevitably to disaster ("It is astonishing," Mr...
...The pyramid scheme has been around a lot longer than the pyramids...
...When the interchange is Aram Bakshian, Jr...
...If Mr...
...Train's credit...
...Communism being, needless to say, a classic case of the spurious, pseudo-scientific panacea to social and economic problems...
...Something always comes along to break the flow of endless buildup...
...It really does seem as if certain vices and certain virtues are ingrained in the race, the good to be encouraged, the bad to be discouraged...
...Hence the two great lessons of Mr...
...Americans encounter it regularly in pyramid clubs and door-to-door-selling organizations of the 'Dare to Be Great' variety, in which your payoff comes from recruiting salesmen, who are supposed to recruit still more salesmen, and so on ad in-finitum...
...All so amusing . . . and all so sad...
...Train, since the Turks were allied with the British against the Russians...
...Train calls the "bigger fool" theory, under which the investor willingly pays more than the real value for shares or merchandise on the assumption that someone even dumber is out there waiting to buy the stuff at an even more grotesque markup...
...Train quotes Maynard Keynes as saying, "what foolish things one can temporarily believe if one thinks too long alone...
...People simply will not learn...
...One should hope so, Mr...
...A former aide to three Presidents, his latest book, Winning the White House, was published last September in England...
...The symbiotic relationship between the quack and the zealot eager to embrace a crank theory, or the charlatan and the speculator (more greedy than gullible), is as old as the human race...
...But, then again, the whole point of Famous Financial Fiascos is that ignorance is invincible...
...Train draws a useful conclusion: When large matters go awry, they often follow standard patterns...
...Groupthink, claims Mr...
...But when, as in several cases recounted by Mr...
...Train, rules the stock market and other speculative enthusiasms because "people will go along with an authoritative leader's crazy decision even though they half-know that they are being led to perdition...
...Train's book: First, when unslakeable greed and invincible ignorance combine, fiasco follows...
...so simple a task, and yet so endless...
...Thus, while a totally dishonest sharper like Bernie Cornfeld could only victimize individual investors stupid enough to swallow his transparently false sales pitch, Regency France could be brought to its economic knees when John Law, an emigre Scots financier, sincerely convinced the Due d'Orleans to float the inflationary schemes of the Banque Generate...
...Train, the scam is pitched to a central state authority, whole societies can be convulsed, the innocent suffering along with the guilty...
...on a modest or individual scale, the crime is victimless, with the smarter of two cheats coming out on top...
...Fields, so often reminded us, "You can't cheat an honest man...
...Nowhere is the ancient principle of supply and demand better illustrated than in the ritual by-play between hick arid huckster...
...The hubris-nemesis syndrome, which recurs again and again in both finance and politics, may involve an initially honest, even able, leader who is driven over the judgmental edge by early successes...
Vol. 18 • June 1985 • No. 6
