Nowadays billions of dollars change hands on a daily basis, and some of it may be due to 'rational depression' as opposed to the 'irrational exuberance' it started with.
Federal Reserve board chairman Greenspan warned the markets then (in 1996) "....irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions...." Uncanny how accurate his insight was then, about what is truly happening now. Despite his own warning, Greenspan never put the breaks on. He believed that the market to a large extent regulates itself and let it go at that. (He says he really regrets things now).
Let's examine this a little further: 'put the breaks on'.... on what dare I ask ? The traders ? Well....turns out that it is not exactly the traders who are to blame. A new study finds that it is their hormones. A study by John Coates, neuro-scientist finds that successful traders (during the boom periods) were heavily influenced by positive feedback loops fueled by increasing levels of testosterone. Pumped Up ! It is like a winning streak among athletes: successive victories push testosterone levels higher and higher, which gives the winning athletes an advantage for the next game. Until they become stupid of course and start taking risks based on delusions of grandeur.
Testosterone, you guessed it, is a hormone produced by the testes, cojones, your 'balls' so to speak. It is a sexual hormone mainly in men, responsible for the unfolding of (male) sexual maturation. Once matured, an abundance of testosterone makes you feel energized, 'virile', and yes... even exuberant. This is apparently what happened to the traders on the floor --they were starting to feel they ruled the world in a euphoric, sexualized frenzy. Must have been very, very addicting.
Vice versa, when the markets tumble Dr. Coates measured a dramatic increase in cortisol production in the bodies of those same traders, a hormone associated with a response to stress. Cortisol is produced by the adrenal glands, sitting on top of the kidneys, and it is experienced as the fear that goes together with fight or flight situations. Once triggered by pituitary gland (in the brain) the cortisol steroid immediately enters the bloodstream, increasing the blood pressure and levels of blood sugar. It is in drug culture terms "a rush" since it alters the state of mind so immediately. In the somewhat longer run high levels of cortisol may undermine the immunity system and can lead to depression and anxiety, potentially aggravated by large intake of sugars (soda pop) and junk food .
While I enjoy the direction of the thinking of Dr. Coates, there is something lacking in it. While hormones may explain some of the extreme behaviors of the individual traders on the floor, it doesn't explain the mass behavior that causes the massive swings in the market.
I would like to suggest that there are pheromones involved here that
communicate the particular state of mind one trader to another. Much like the bees releasing an alarm pheromone causing the other bees to act aggressively 'en mass', on wall street at times pheromones are floating around causing a smell.... a certain smell....the smell of fear, which then triggers the pituitary gland which in its turn activates the adrenals secreting cortisol. How intricate!
The nose, backed up by a whole 'olfactory system' provides for the 'chemo sensory sense', the only sense that hard wires directly through neurons into the brain. For some bizarre reason, we humans have lost touch with smell even though 20+ percent of our brains (and dna) is devoted to the olfactory system.
Pheromone in Greek means: to bear a hormone. In other words pheromones are chemical information packages secreted by one individual, which once they are picked up by the nose and olfactory system of another individual, trigger hormones which then determines much of the subsequent behavior, such as bidding the market up (testosterone) or bidding it down (cortisol).
So funny: Our eyes are fixated so much the 'scoreboard' of the stock exchange --the always creeping ticker on the bottom of our tv screens. This is our human fixation and sensory bias anno 21st century which has dictated our perception and our ability to give meaning to large conceptual constructs like 'the economy'. Yet we know so much less about the hormones which cause the large swings in the 'mood' of wallstreet. What is even more remarkable is that we are completely ignorant about the pheromones which trigger those hormones... the smell of wallstreet....ruling the world.