Why do intelligent people do stupid things?

I  have a friend who is a senior barrister, specialising mainly in commercial law. I don't believe he has a great deal of money to invest, but he is anxious to get a good return on his capital because  he isn't getting much work at the moment. He described a seminar he attended which was run by a so called "property expert."

He was enthusiastic about the seminar. When he outlined the "expert" pitch I was  not surprised to learn that it was the same pitch I had heard 30 years ago from a similar organisation when I first arrived in Melbourne. Of course, there have been several bad slumps since and anyone following these pitchmen's advice would be broke by now. The operation revolves around strata titling, which involves buying a blocks of flats, which had been rented out individually but are on a corporate title (or apartments as they are now called) and changing the title to an individual title, so each apartment can be sold separately. Today they are doing almost the same thing, except the apartments tend to come from slow-moving residential developments. Of course, they offer finance. You would be very silly to accept this highly leveraged offer, as are are no doubt getting a hefty commission.

My friend was tempted, but  he is too intelligent to be caught, but smart people do get trapped into this sort of deal. But what about when an entire community is trapped? Banksia was a financial group operating in the northern part of Victoria, around Kyabram. It was, apparently, a generous funder of community activities and offered interest rates a bit above a bank. Banksia functioned like a bank, but was not supervised by the Australian Prudential Regulation Authority (APRA)  as the banks are. Australian banks are among the most strictly regulated financial institutions in the world with self sustaining ratings to match. Banksia's funds were invested mainly in commercial property and dubious ventures such as golf clubs. Banksia had less than half the liquid reserves banks are required to maintain by law.

Cruel though it is to tell the girl who has lost the money she saved for her wedding or the retiree who lost his life savings  that they are fools, but they are. Luck doesn't enter into it.  How can an entire community be conned? It has happened numerous times in Australia. It's almost a carbon copy of what happened with the Pyramid financial group, also in Victoria. Pyramid caused a near depression in Geelong, where it had its headquarters. Geelong, about 70 kms south of Melbourne, is the largest provincial city in Victoria.

Not only country dwellers get trapped. The Teachers Credit Society in Perth, Western Australia, went bust when it invested most of its members' funds in a chain of health studios, which failed, like most other health studios did at the time. In a scandalous abuse of taxpayers' funds, the State government bailed the teachers out, even though there was no legal justification for doing so. But how could a government facing an election allow every teacher in the State lose his or her life savings?

The lucky electors of Kyabram have Paul Weller of the National Party  representing them. The National Party can be expected to play true to form and put the thumb screws on the Premier, Ted Baillieu, whose Coalition Government is holding onto power by one vote in the Legislative Assembly, especially now the odoriferous Geoff Shaw's car usage has been referred to the police. It is thus a lay down misere that the trusting people of Kyabram will suffer, but not too much if the National Party can help it.

Why do people do these things? Greed is certainly right up there but you would have to be a bit simple  minded to trade a term deposit in one of the Four Pillars, which have better ratings than many sovereign nations, for a percentage point of so more in an unregulated  deposit taking institution. Then there's the "support the local business" argument, especailly if they cost effective marketingf such as supporting local sporting clubs. Again, people convinced by this argument can't be too bright, but for people in a regional area (including Western Australia) it is a very convincing argument. The gnomes of Zurich aren't popular in the country. Sheer irrationality in the face of money is a predominant factor in all these cases.

And one should not forget sheer ignorance. My mother said the only investments she has ever lost a lot of money on were "property investments". She means mortgage trusts where the mortgages were held over commercial property. When I told her mortgage trusts go bust  about every 20 years, she was quite confused. "But the financial adviser told me to invest in them. If you can't trust a financial adviser, who can you trust?" Well said, Mum! When I added that most people understood the principle that the higher the interest rate, the higher the risk, she said she had never heard of it and she got her financial information by "talking to her friends." My mother does not subscribe to a daily paper.

I don't think people should be rescued from the consequences of their own stupidity, ignorance or bad luck for that matter People either make their own decisions, or they don't. Former Liberal Prime Minister John Howard transformed Australians from a nation of free people to a nation of mendicants. Bad luck used to be part of life, now Australians expect the government to rescue us from the consequences of our own stupidity.