•Who warned about the bubble: former Federal Reserve governor Edward M. Gramlich, expert on bubbles Charles Kindleberger, Martin Feldstein, Paul Volcker (former chairman of the Federal Reserve), and Bill Rhodes (a senior official of Citibank)
•demand and supply curves in economic theory reflect “perfect decisions” of actors and their “perfect knowledge” of the world
•there comes the idea that financial markets are self-correcting, various synthetic instruments are based on it
•human situation are not perfect at all, on the one hand participants seek to understand the situation, on the other, they seek to influence the situation
•this causal chain does not lead directly from one set of facts to the next but reflects and affects the participants' views
•Since the ultimate truth is beyond human reach, totalitarian ideologies have to be based on a distorted interpretation of reality; consequently, they can be imposed on society only by the use of repressive methods
•the author was able to predict financial market boom when disequilibrium established on a market where economic theory failed (book The Alchemy of Finance (1987)
•If the theory of reflexivity is valid, the belief that financial markets tend towards equilibrium is false, and vice versa.
•Consider a statement about the objective aspect: "It is raining." That is either true or false; it is not reflexive. But take a statement like: "You are my enemy." That may be true or false, depending on how you react to it. That is reflexive.
•Perfect knowledge is not within our reach, so the consequences of our actions diverge from expectations
•the behavior of financial markets needs to be interpreted as a somewhat unpredictable historical process rather than one determined by timelessly valid laws
•market participants act not on the basis of their best interests but on their perception of their best interests, and the two are not identical. This has been demonstrated by experiments in behavioral economics.
•The misconception on which the conglomerate boom (1960) rested was the belief that companies should be valued according to the growth of their reported per-share earnings no matter how the growth was achieved. It was exploited by managers who used their overvalued stock to acquire companies. Investors liked it and bought even more stock. But companies couldn’t buy businesses forever - they faced the limit. Then investors started to sell stocks and at that time managers realized that they didn’t pay attention to internal problems. They had to face the reality of day-to-day operations and disintegrate
•events in financial markets are best interpreted as a form of history. It is easier to explain how the present position has been reached than it is to predict where it will lead
•every crisis involves credit contraction when banks reduce availability of loans or toughen conditions for getting one
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