To begin with, there is good news, and confidence rises. Then more lenders and investors appear on the scene, attracted by the new opportunities. Soon, optimism turns to euphoria, and new theories emerge to justify why this particular business cycle will not have a downswing or why these super-high valuations aren't really excessive. The pattern has hardly varied. Today two new developments reinforce it further.
Computers now insure that investors, traders and bankers have instant real-time information.
As a result, hundreds of billions of dollars move by keystroke in response to a rumor, thereby worsening the damage caused by lemming-like financial behavior. None of these factors should deter the leaders at this week's summit meeting from doing the best that can be done now. But down the road they'll have to do more, like stabilize exchange rates among major countries and establish real global financial regulation. For the time being our leaders resemble King Canute, who, in the old legend, tried vainly to hold back the tides. As things now stand, the global economy will not be submerged, but we're all going to get wet for a long time to come.