1. MANIAS, BUBBLES, AND PANICS IN WORLD HISTORY
THE PSYCHOLOGY OF THE MARKETS

2. BUBBLE QUOTES
“There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich.”
Charles P. Kindleberger
“The four most expensive words in the English language are, this time it’s different.”
Attributed to Sir John Templeton

3. ECONOMIC ANALYSIS ASSUMES PEOPLE ARE RATIONAL AND RESPOND TO INCENTIVES LOGICALLY
TULIP MANIA
SOUTH SEA BUBBLE
RHODIUM BUBBLE
RAILWAY MANIA
ROMANIAN PROPERTY BUBBLE
MISSISSIPPI BUBBLE
FLORIDA LAND BOOM
POSEIDON BUBBLE
DOT-COM BUBBLE
URANIUM BUBBLE
JAPANESE ASSET BUBBLE
ROARING TWENTIES
GLOBAL HOUSING BUBBLE
A BUBBLE IS A PERIOD OF SPECULATIVE MANIA
SURROUNDING A PHYSICAL OR FINANCIAL ASSET

4. THE WORK OF HYMAN MINSKY
A TYPICAL BUBBLE EVENT ARRIVES IN THESE PHASES
DISPLACEMENT
BOOM
EUPHORIA
PROFIT-TAKING
PANIC
BAILOUT

5. AN OUTSIDE SHOCK TO THE ECONOMY:
DISPLACEMENT
AN OUTSIDE SHOCK TO THE ECONOMY:
WAR
NEW INVENTION
POLITICAL EVENT
FINANCIAL SUCCESS
CHANGE IN POLICY
ANYTHING THAT ALTERS THE ECONOMIC OUTLOOK

6. boom
THE OPTIMISM FROM THE CHANGE LEADS TO A RAPID RISE IN PRICES OF A PHYSICAL OR FINANCIAL ASSET AS INVESTORS AND SPECULATORS ATTEMPT TO EARN PROFITS

7. EUPHORIA LENDERS OFFER MORE CREDIT AT LOWER RATES
PEOPLE TAKE INVESTMENT RISKS
DEMAND INCREASES, DRIVING UP PRICES AND PROFITS WHICH DRIVES UP DEMAND-PRICES-PROFITS
NEW FINANCIAL INSTRUMENTS ARE CREATED
PEOPLE SEE OTHERS MAKING MONEY AND ARE DRAWN IN
THE BUBBLE IS INFLATED

8. PROFIT TAKING
A FEW INSIDERS BEGIN TO TAKE THEIR PROFITS AND PRICES BEGIN TO LEVEL OFF
LARGE INVESTORS BEGIN TO REALIZE THEY MAY BE OVER- EXTENDED AND ARE TAKING UNDUE RISK

9. PANIC
A LARGE INSTITUTION FAILS, A SWINDLE IS DISCOVERED OR AN INCREASE IN SUPPLY RETURNS PEOPLE TO THEIR SENSES
PEOPLE START SELLING IN AN ORDERLY FASHION BUT SOON CHAOS REIGNS
PEOPLE SCRAMBLE TO SELL AND PRICES FALL RAPIDLY

10. BAILOUT
A CENTRAL BANK MAY BEGIN TO EXPAND THE MONEY SUPPLY TO SAVE THE FINANCIAL SYSTEM
THE ENTIRE ECONOMY PAYS FOR THOSE DIRECTLY INVOLVED IN THE BUBBLE CYCLE
THE ANTICIPATION OF A BAILOUT MAY LEAD TO PEOPLE TAKING BIGGER RISKS
THIS DISREGARD FOR CONSEQUENCES IS KNOWN AS A MORAL HAZARD

11. JOHN KENNETH GALBRAITH SAID:
“Investors have a short financial memory (or ignorance of history) that makes them oblivious to previous financial disasters.”
“ Investors have a tendency
to attribute greater
intelligence to individuals,
the more income
or assets they control.”

12. WHAT WAS THE EVENT THAT CREATED THE CLIMATE FOR SPECULATION IN THE HOUSING MARKET?
PURSUIT OF SAFER INVESTMENTS AFTER THE DOT-COM BUBBLE BURST
THE ILLUSION THAT HOUSING PRICES ALWAYS RISE
THE BROAD AVAILABILITY OF CHEAP CREDIT

13. WHY DID THE COUNTRY FALL SO QUICKLY FOR ANOTHER SPECULATIVE FASCINATION?
THE REDUCTION OF INTEREST
RATES
THE ENCOURAGEMENT OF
HOME OWNERSHIP BY THE
WHITE HOUSE
THE FINANCIAL INNOVATIONS
THAT EXPANDED ACCESS TO
CREDIT
THE APPARENT WILLINGNESS
OF WALL STREET TO BET
HEAVILY ON HOUSING
THE FACT THAT SOME OF OUR
NEIGHBORS WERE GETTING
RICH AND WE WERE NOT

14. WHY DO INVESTORS IGNORE THE WARNINGS FROM ALAN GREENSPAN AND OTHER ECONOMISTS ABOUT “IRRATIONAL EXUBERANCE”?
THE GENERAL BELIEF THAT “THIS TIME IS DIFFERENT”
YOU DON’T WANT THE DOOR OF OPPORTUNITY SLAMMED IN YOUR FACE
THE CONTRADICTION OF RISING VALUES DESPITE THE ALARMS
TYPICALLY THE DOOMSAYERS ARE FAR OUTNUMBERED BY THE OPTIMISTS

15. WHAT CAUSED THE REALIZATION THAT THIS TIME WAS NO DIFFERENT THAN ANY OTHER?
RISING INTEREST RATES
THE INCREASING SUPPLY OF HOUSES
THE GROWING NUMBER OF MORTGAGE DEFAULTS
THE FAILURE OF HIGH PROFILE FINANCIAL INSTITUTIONS, SUCH AS LEHMAN BROTHERS AND BEAR STEARNS

16. WHY IS IT LIKELY THAT ANOTHER SPECULATION BOOM AWAITS US?
HUMAN NATURE SEEMS TO LEAD US DOWN THE PATH TO EUPHORIA
THE NATURAL PURSUIT OF SELF-INTEREST
OUR EAGERNESS TO EARN PROFITS WE SEE OTHERS EARNING
DESIGNING AND ENFORCING EFFECTIVE REGULATION IS DIFFICULT