Change, yes. But why?

So, here we are two days later and guess what? It seems totally normal that Barack Obama easily beat John McCain and that the United States will have its first black president.

Don’t get me wrong. I’m not saying this wasn’t an historic event. Of course it was. I also believe it will be very positive for the international image of the US. All I’m saying is that the human psyche is very adaptable and gets used to change amazingly quickly.

Humans also cause dramatic change by altering their behaviour suddenly. Which brings us back to the financial crisis. Despite all the euphoria over Obama’s win, the credit crunch and the danger of a worldwide recession haven’t gone away.

Indeed, on Obama’s first two days as president elect, the world’s stock markets fell heavily. Any psychological “Obama-boom” — now, there’s a good name for a Eurovision song — had already caused share prices to rise before the election.

Psychology, we know, plays an important role in stock markets. But this makes it more or less impossible to explain why booms or busts come to an end when they do.

When asset prices are rising, people buy because they expect prices to rise further. Once asset prices start to fall, people sell because they expect prices to fall further and want to cut their losses. So far, so good. But why exactly does “buy, buy, buy” turn to “sell, sell, sell"?

When a friend asked me what had caused the recent crash, I wasn’t able to give a good explanation. Of course I mentioned sub-prime mortgages, too much borrowing, the decision to let Lehman Brothers go bankrupt and all the rest. But I couldn’t really explain why the crash came at the precise moment it did. I could only say that “change had come” to market psychology.

I was happy to discover that I am not alone in my ignorance. In his excellent book, A Short History of Financial Euphoria, the famous Canadian-American economist John Kenneth Galbraith says of the change from boom to bust: “Something, it matters little what — although it will always be much debated — triggers the ultimate reversal.”

In other words, change comes for some reason. It doesn’t really matter why. And afterwards people won’t agree on what the reason was.

As in finance, so in politics. Change will come. We won’t fully understand it or agree why it happened. But come it will. At the moment, we are experiencing Bush-bust and Obama-boom. At some point, that may well turn to Obama-bust, just as Blair-boom turned to Blair-bust.

Just don't expect to understand why.