Bubble Dynamics

Here We Go Again?

While early investors savor their gains and see their money multiply, those still on the sidelines must consign themselves to earning less than nothing on their savings.

At first, it's easy for prudent savers and investors to tune out the "siren call" of the hot market du jour, and "just say no."

But eventually, you feel like a chump sitting on the sidelines while everyone else is partying.

And if you're someone who actually needs to earn a return on your money -- like a retiree -- you really have no choice but to take more risk.

So, you hold your nose and join in.

Today's stock market?

Well, yes.

But it also describes the dynamics underlying the housing bubble, and the last stock market bubble in the '90's.

Who's ultimately responsible for creating a (promiscuously) easy money environment that creates such perverse incentives?

The Federal Reserve.

Who benefits? Banks and wanton risk-takers.

Who loses? Everyone else.