Tuesday, June 30, 2009

Golden Bubbles: A Parable

Colorado was settled in large part because of the gold rush and the silver rush 150 years ago. A great many people came out here actually believing that they could just walk around and pick up gold nuggets that were just laying around for the taking. Of course, some people did find easy pickings, but most did not. A lot worked hard and ended up going back home broke.

Those who set up other businesses went through boom and bust times with the rise and fall of the population and the ups and downs of the mining industry. Mostly those who worked hard and didn't fool themselves about how easy it would be to become fabulously wealthy by just walking around filling sacks with gold nuggets that were scattered all over in plain view managed to build a business. Some ore, of course, was brought to market by miners who did the dirty, dangerous work of digging it out of deep holes underground.

There was money to be made mining and refining ore and precious metals, and there were great opportunities in the early days for those who were willing to risk harsh weather, loneliness and murderous thieves in their quest.

So the gold rushes are akin to what we call bubbles today. Slick operators find a way to game the system until other people catch on. For a little while, some people make big money until their shaky schemes collapse.

We had golden bubbles when people greatly exaggerated the earning potential of new websites or new software. Another bubble was all about exaggerating the value of real estate and then offering loan terms that were unreasonable. Another bubble was all about using unethical trading techniques to run up the prices of stocks. The economy was artificially stimulated for years when banks kept sending more credit cards to people who had not even requested them, but once those cards were in their hands, they could not resist the lure of going shopping for more than they could afford, and then finally being unable to pay for it all. These more recent golden bubbles all made it seem as if there was money just laying around to be scooped up, with no hard work and no consequences.

Today we also have the slick promoters who send out emails every day promising that you can get rich without working. It amazes me that the Nigerian letters are still going around. The fact that they still are circulating with various twists on the theme, is testimony to the gullibility of those who actually believe that a total stranger who just happened to email them wants to deposit millions of dollars in their bank account. Then they get the rude awakening of discovering that instead of money coming into their account, money was taken out.

Then there are the work from home scams that promise that all you have to do is set up your own website and you can have hundreds of thousands of dollars rolling in every day because people will want to buy the stuff that is on your website. Of course they have kits and lessons to sell you about how to do this, but they kind of gloss over the fact that it takes tons of time, energy, money and hard work to let other people know that you even have a website, and get them to come there and buy stuff.

So there is always an opportunity for hard workers who are willing to take risks in order to cultivate opportunities, but just as in the gold rush days, money is not just laying around waiting for you to shovel it into sacks. Not in most honest endeavors anyway.

In this way, I guess you can say that bubbles are not really new. Just remember that old saying that "luck is the intersection where hard work and opportunity meet."

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