Peter MacDonald
Brian Easton’s recent article on 3 November 2025 in Interest.co.nz gives a lucid account of the Minsky Cycle, leverage and the fragility of financial systems. He reminds readers that crashes are not random: they are the predictable outcome of speculative borrowing and overconfidence. Yet, while his technical analysis is solid, it misses a deeper truth: why so many capable – individuals economists, bankers and regulators – fail to act even when the danger is visible.
When Queen Elizabeth II asked, after the 2008 Global Financial Crisis, ‘Why did no one see it coming?’ she voiced the bewilderment of ordinary investors and citizens. Her question was not naïve: it was devastatingly clear. How could a world of experts – armed with models, data and experience – allow a collapse to happen? The answer lies in something that Easton touches on but does not fully explore: the human and social dynamics of group confidence.
Consider the tragic 1995 K2 disaster, when six of the world’s most experienced climbers, including Alison Hargreaves, perished near the summit. Peter Hillary, son of Sir Edmund Hillary, survived because he turned back when the wind began to rise. The others – all natural leaders – pressed on. Each assumed the others’ judgement confirmed their own. No one wanted to be the first to call it off. Their individual skill became a collective vulnerability.
This is the same dynamic at work in financial markets. The Minsky Cycle describes it well:
- Hedge phase – cautious borrowing and clear risk.
- Speculative phase – rising confidence, interest-only borrowing and more leverage.
- Ponzi phase – borrowing not even for interest, relying entirely on rising asset prices.
Everyone sees the risk, but no one acts alone, because incentives, reputation and greed all push in the same direction. Markets, like high-altitude climbing, reward conformity and punish caution. When the ‘wind’ shifts – a shock, a sudden drop, a tightening of credit – the entire system collapses almost instantaneously.
Easton describes this mechanism technically, but misses the moral and psychological insight captured by Upton Sinclair:
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
In 2008, many could see the storm brewing. Few acted. Most stayed on the climb, tethered to a system that rewarded ascent and punished prudence. Peter Hillary survived because he listened to the quiet voice of doubt. The Queen asked the same question of a civilisation caught in groupthink and hubris: Why did no one turn back when the wind changed.
The lesson is simple yet profound: stability breeds complacency, expertise breeds collective overconfidence, and shared confidence can be fatal when the storm hits. Easton’s analysis gives us the technical warning. The K2 analogy and the Queen’s piercing question remind us why human nature ensures that technical warnings are never enough.
Markets, like mountains, humble all who mistake momentum for mastery.
