So Mr. Market was doing so well, and then he went broke. I know most of us have been confused and frightened by events the last two years. It is hard to make a coherent narrative about the 2008 crash. All the evidence says, “Everybody done it” in the spirit of Murder on the Orient Express.

There was a lethal combination of greed and carelessness at every point in the financial system, including commercial banks, investment banks, insurance companies, monoline insurers, hedge funds, private equity funds, real estate brokers, stock brokers, government agencies, politicians, and speculators. It is very hard to make sense of all this because there are just too many villains and no hero. One important thing to remember for next time -if you are around next time -is that bear markets have a clear purpose: to humiliate and ruin the reputations of everybody. The higher the reputation, the further it will fall. People such as Alan Greenspan, Sandy Weill, Jack Welch, Bernie Madoff, and even Warren Buffet are examples of business and financial titans who have been reduced to microtitans like the rest of us.

The failure of government to predict or prevent the crash is scary. An especially frightening part is that a common idea to improve the economy is to add more regulations. The Fed kept credit easy way too long. SarbanesOxley did enormous damage to the U.S. leadership role in finance, but had no effect whatsoever in preventing terrible financial chicanery. The SEC just went missing for the last three years and enforced nothing. Fanny Mae and Freddy Mac strongly encouraged the deterioration of quality in home mortgages. The agency set up specifically to audit Fanny and Freddy (the clumsily named OFHEO) did sound the alarm in 2004, but the congressional committee told them to shut up, and they did. The Greek hero Orpheo was able to accomplish his aims through the beauty of his music and singing, suggesting that the OFHEO might do better to file their next report as an operatic aria or a hip-hop video rather than a boring accounting report. How does a boomand-bust cycle happen?

One of the few people whose reputation has improved over the last three years is the late economist Hyman Minsky. He did a neat job of explaining how a boom and bust cycle is self generating. Imagine a few quarters of unremarkable activity. A period of quiet stability will not remain so, for after a couple of years, some of us financial geniuses will realize that buying lower quality bonds will create much better portfolio performance while others will buy high-beta stocks on margin. In a couple of more years a speculative boom will be roaring, followed eventually by tears. The speculative boom can last a long time, so there is an irresistible urge to join in. For instance, in 2002, the respected Standard Charter Bank of London brought out a $20 billion dollar SIV named Whistlejacket. (I leave to the reader, the pleasure of googling who Mr. Whistlejacket was.) The S&P declared the senior bond tranche to be AAA, and buyers of that paper had a good yield for five years. As you remember, a native uprising in Mortgageland broke out in 2007. In August of 2007, a Standard Charter spokesman calmed fears by saying that, “Whistlejacket is not in trouble, and we are quite comfortable.” Six months later the fund had collapsed and was in receivership. It is now being liquidated. If you are carrying a yellow marker, the part of the paragraph to highlight is, “When a banker has to tell you he’is not in trouble, he is in trouble.”

What is going on that makes us all Minsky marionettes in a period of euphoria? The cause is not economic theory or economic irrationality. It is a disease. A highly contaigious and very hard to cure disease that, if untreated, leads to certain financial ruin. The name of this dreaded illness is Aureodigititis, the golden finger disease. I will now describe a typical case history, using a false name to protect the patient’s privacy. However, you can find out what this patient looks like easily enough by walking into the bathroom and looking into the mirror.

Pat, a young CFA, works for a mutual fund manager. In June, Pat studies Aardvark Industries, and after two weeks of revising spreadsheets on the computer, crosschecks with other analysts and outside sources, finally concludes it’s worth buying. She goes in the trading room, points at Aardvark on the screen, and says, “Buy 20 thousand shares market not held.” One month later, the stock is up 15%, and the director of research for the first time smiles at her.

In August, Pat goes to work on Beefsteak Mines. It is in the same industry as Aardvark, so she can crunch the numbers more quickly, and she gets a good thorough job done in four days. Back in the trading room, she points to Beefsteak on the screen and says, “Buy 30 thousand up to 25 and a half.” Beefsteak goes up too. The director of research invites Pat to his office, and compliments her on her progress as an analyst, and even hints there may be a special bonus for her this year.

In September, Pat hears a street story about Corncob Industries. Corncob is going to report better than expected earnings in three days. Pat does not have time to do a lot of work on it, but she puts together a one pager cut-and-pasted from the brokerage report, points to the screen and says,“Buy 50 thousand Corncob, market not held.” Sure enough, the good earnings are reported, and the stock jumps. It is now clear to Pat that she is not just an ordinary analyst, she is certainly the best in her firm, and speaking modestly, one of the best in the country.

Now she realizes that it is not grinding through 10-K’s that made her great. She is so in tune with this market that she can skip the analytic drudgery. The secret is in her finger; her success has been in pointing it at the right line on the Bloomberg screen. She can test this out.

She heard a good story about Dogbone Bank at a party on Saturday, so she points her finger at the screen and buys a position. It works fine. Pat now has a full-blown case of Aureodigititis, the disease of the golden finger. She now believes herself to be a Master of the Universe.

All those years of college, three springs wasted in CFA class, and endless hours of looking at footnotes in annual reports have paid off. Her magic finger has given her Superhero status that the world is starting to recognize. She has a two-minute interview on CNBC to prove her star quality.

At this juncture, I started seeing Pat less frequently because she quit her job at the mutual fund and moved to Greenwich to work for a small but well regarded hedge fund. I did talk to her once, three months afterwards, when she said, “Oh hi, things are really great here. My fund is up to three billion in assets and I think I can take home $20 million this year the way things are going. Yes, Marvin left me. He couldn’t stand my late hours, but I don’t mind, my career is going really well. Sorry I can’t chat longer, but Singapore is opening in 10 minutes.”

Four weeks later, Pat called me at 10pm. Her voice was agitated. “Eggplant Industry has just dropped from 32 to 23 because the CFO resigned. My source in Tokyo says that everything is fine and that this is the buying opportunity that I’ve been waiting for. Do you think it’s okay for me to double up? My prime broker is happy to lend me the money.”

I advised her, “Follow your finger, its been working great.” I figured Pat had but a few weeks left.

You know how to finish this story. Pat has sold the house in Greenwich, is broke, divorced, and unemployable.

Another tragic victim of the dreaded Aureodigititis. Don’t let this happen to you! Help yourself and join me in helping others. When the volunteer from the Aureodigititis Foundation calls, give generously. Remember that the Golden Finger of today is the Fickle Finger of Fate tomorrow.

Ralph Wanger, CFA, is Senior Advisor to Wanger Investment Management, Inc.