The propensity to swindle grows parallel with the propensity to speculate during a boom the implosion of an asset price bubble always leads to the discovery of frauds and swindles
Interpretation
The tendency to engage in dishonest behavior increases during times of economic speculation, especially when bubbles burst.
This quote by Charles P. Kindleberger highlights the correlation between economic booms and instances of fraudulent behavior. During a time of speculation, as asset prices soar, people are more likely to take risks that can lead to swindles; when the inevitable crash occurs, the truth behind these fraudulent schemes often comes to light, revealing the darker side of financial enthusiasm.
In practice
In a discussion about the housing market crisis, one could use this quote to illustrate how many fraud cases emerged.
The securitisation of mortgages added a new dimension of systemic risk. Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximising fee income than in protecting the interests of bondholders. That is the verity that was ignored by regulators and market participants alike.
Don't invest in what you don't know. Learn first then invest.
When your outgo exceeds your income, the upshot may be your downfall.
When growth is slower-than-expected, stocks go down. When inflation is higher-than-expected, bonds go down. When inflation is lower-than-expected, bonds go up.
Mutual funds with superior performance records often falter.
Indeed, bull markets are fueled by successive waves of prior skeptics finally capitulating as their fears fade. Eventually, fear turns to euphoria, and that's the stuff of bubbles.
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