"Those who apply themselves too closely to little things often become incapable of great things." Francois de La Rochefoucauld

Monday, August 6, 2007

What Advice Would Einstein Give Bear Stearns?

In study and increasing intelligence the acceleration/adaptation template is somewhat famous, in regards to the beneficiaries of using this powerful force. Henri Poincare, famous mathematician and scientist; used the ac/ad template to erupt his creativity, producing some of the most important scientific works of his time. Einstein used to say that after wrestling with a difficult problem through arduous study and research; the aha moments would come during the casual bouts of everyday things. He once inquired to a friend from Princeton asking,"Why is it that I get my best ideas in the morning while shaving? The answer of course falls into the natural working of the creative mechanism; that works in the ac/ad format. Its almost an iconic symbol of sorts...the image of the scientist laboring arduously to solve a problem...researching, testing, questioning, etc.(acceleration). Followed by bouts of rest, sleep, recreation, etc.(adaptation)....leading to the solution, epiphany, or realization of the missing piece of the puzzle.
Economic cycles of the ac/ad kind are commonplace. The systems in place to regulate or deregulate businesses across the U.S. work with the intent of the common good. The Federal reserve board for example establishes key interest rate payouts as well as governmental watch over economic stability to ensure the "growth" (acceleration) of the U.S. economy and at times "deceleration" (adaptation) to maintain a state of productivity. Keenly aware of the dangers of rapid growth, government adjusts economic inputs to ensure a cyclic stability. Unabashed growth leads to dire consequences as is the current case in the housing market, with over appreciated property values across the majority of U.S. metropolitan areas. Ignited by profit insatiability, and lack of understanding of the underlying templates at work; investors over exploit market niche's and start to fantasize of a never ending parade of exponential growth and lead themselves to their own graves and taking with them other interconnected markets. Case in point, Bear Stearns, New Century, American Home, and many more yet to come. Its an interesting blind spot in most individuals as well as businesses and groups; that when "good" times are prevalent, such as the case with exponential growth we start to believe that we have somehow fooled the laws of existence. Continuous growth is definitely possible, and happens all the time; however, this occurs when the understanding of cycles and the ac/ad template is headed. Speculators and traders in numerous markets profit enormously on a continual basis, no matter what the market condition, because they are aware of "bull" markets (ac) and "bear" markets (ad), and adjust their bets accordingly.

"The monetary history of the last four hundred years has been replete with financial crises. The pattern (template) was that investor optimism increased as economies expanded, the rate of growth of credit increased and economic growth accelerated..." Manias, Panics, and Crashes, by Charles P. Kindleberger and Robert Aliber.

A classic example of a business suicide by neglect of the ac/ad template is Enron. The thirst for continual profit, that was unsustainable through their methods; caused fictitious selling up the value of Enron stock that really had limited value...metaphorically speaking they were "overtraining"...way beyond overtraining and eventually they dug their own grave, and down with them came billions of dollars in investor funds.

- Angel Armendariz, excerpt - Untitled


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