Be careful: conditions are ideal for the “bezzle”
It’s been a vintage few months for all kinds of “bezzle”, says John Stepek – the not necessarily criminal behaviour that just loves an economic boom. Just make sure you don’t get taken in.


In his book, The Great Crash 1929, economist J. K. Galbraith came up with one of the most useful concepts ever coined in finance: “the bezzle”. In short, it’s the as-yet-unrevealed inventory of nasty shocks that builds up in the economy during the good times, when “people are relaxed, trusting and money is plentiful”, only to reveal itself when tougher times arrive. While Galbraith describes this as “embezzlement”, “bezzle” is not necessarily outright criminal. Rather I see it as being similar to the Austrian economic notion of “malinvestment”. So it’s not just about the Bernie Madoffs of this world, it’s also the overambitious founder who is better at selling his idea than turning it into a successful business. Or the blatantly wacky investment fad that nevertheless takes off. Or the once highly-profitable fund manager who just got lucky with timing or borrowed money – or both.
What’s impressive about today’s investment environment is that it’s already been a vintage few months for revealed bezzle of all kinds, and we haven’t even had the crash yet. Here in the UK, under the likely category of overambitious founder, we have the ongoing unravelling of Lex Greensill’s “supply chain finance” group Greensill Capital, which employed none other than former prime minister David Cameron as an adviser. On the wacky investment side, we’ve seen non-fungible tokens (NFTs) – New York Times journalist Kevin Roose sold an NFT of a newspaper column he wrote on NFTs for more than $500,000 (for charity, but still – and yes, I am open to offers). And this week, in markets, we’ve seen the implosion of “family office” Archegos Capital Management, which appears to have done nothing much more complicated than borrowing lots of money from fee-hungry banks to make big leveraged bets on stocks, which then turned bad.
What does any of this mean for your money? First, it’s a useful reminder that as an investor, your scepticism should grow in direct proportion to the levels of credulity around you. A lot of bezzle consists of nothing more than momentum and herding behaviour, as investors assume that because everyone else is doing it, it must be OK. Trust your own judgement. If you can’t wrap your head around an investment, don’t invest in it.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Second, be especially alert for scams. The low-interest-rate era combined with Covid-19 forcing even more activity online has created the ideal breeding ground for scammers, and there are huge numbers of them about right now. The tax-year end is a particularly ripe time for financial scams – from threatening automated calls purporting to be from HMRC (hang up immediately) or fake Isa accounts with ridiculously high interest rates. Be on your guard and never fall into the trap of imagining that you can’t be fooled – that’s what they’re relying on. Third, make sure your portfolio is in resilient shape. As I said, if this is the bezzle that’s already coming to the surface, what’ll happen when the tide really goes out? The next crash will be one for the record books (admittedly, so were 2020 and 2008).
Finally, don’t miss Merryn’s video interview with the wonderful Dr Pippa Malmgren, in which they discuss everything from Donald Trump’s next big adventure to those aforementioned NFTs to sex in a post-pandemic world. You can watch it here.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
What is the 25x retirement rule and does it work?
The 25x retirement rule has been around for decades but many experts question if it is a suitable strategy
-
When is the self-assessment tax return deadline?
If you are self-employed, rent out a property or earn income from savings or investments, you may need to complete a self-assessment tax return. We run through the deadlines you need to know about
-
Are wealthy whisky enthusiasts leaving Britain?
Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
'The rise and fall of Kodak is a lesson for the tech giants'
Opinion The long decline of Kodak – a once-dominant company – shows why no business is safe from disruption, says Matthew Lynn
-
8 of the best properties for sale with kitchen gardens
The best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicators
Opinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growth
Growth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estates
The best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth