Saturday, March 26, 2011


Manias, Panics, and Crashes

A History of Financial Crises
Fourth Edition (2000)
by Charles P. Kindleberger

(I'm only in Chapter One. We'll see how far I get.)
(I am breaking up his one paragraph into three.)

By no means does every upswing in business excess lead inevitably to mania and panic. But the pattern occurs sufficiently frequently and with sufficient uniformity to merit renewed study. What happens, basically, is that some event changes the economic outlook. New opportunities for profits are seized, and overdone, in ways so closely resembling irrationality as to constitute mania.

Once the excessive character of the upswing is realized, the financial system experiences a sort of "distress," in the course of which the rush to reverse the expansion process may become so precipitous as to resemble panic.

In the manic phase, people of wealth or credit switch out of money or borrow to buy real or illiquid financial assets. In panic, the reverse movement takes place, from real or financial assets to money, or repayment of debt, with a crash in the prices of commodities, houses, buildings, land, stocks, bonds -- in short, in whatever has been the subject of the mania.

Well, that is Kindleberger's paragraph. Worth sharing, I thought. A way to look at events of the past few years, I thought. Good enough to stand on its own, I thought.

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