Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics)
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Manias, Panics, and Crashes, Fifth Edition is an engaging and entertaining account of the way that mismanagement of money and credit has led to financial explosions over the centuries. Covering such topics as the history and anatomy of crises, speculative manias, and the lender of last resort, this book puts the turbulence of the financial world in perspective. The updated fifth edition expands upon each chapter, and includes two new chapters focusing on significant financial crises of the last fifteen years.

Customer Reviews:

  • If you like investments, you need read this book. Now!
    This book is exceptional.
    After read it you will see the market, the history, and... Specially the warnings, with other eye.

    Kindleberger wrote an excellent book about Manias, about Panics, about Crashes, about HOW keep alert!
    Don't panic... just read it.

    [...]...more info
  • Overrated
    Where are the "hilarious anecdotes, the elegant epigrams, and the graceful turns of phrase" promised on the back cover? There are valuable insights and ideas, but they are buried in more historical information than needed, and are somewhat disconnected and undeveloped. The material is not particularly well organized, and,like history, the author repeats himself a lot. The writing is awkward and difficult to read in places. However, I did pick up a good many insights and bits and pieces of historical information that are relevant to the current problems in the credit markets. History does repeat itself. Although I think this book is over-rated, if you are a patient reader and a serious student of financial markets, I would recommend it....more info
  • There's nothing new under the sun, or in the world of financial chaos
    This book is compendious and at times dry but immensely illuminating. As I write this, the U.S. and the world are descending into what looks like a very ugly economic time; Manias, Panics, and Crashes will make you think it was written for this very crisis, when that's sadly the point: the same story gets recapitulated over and over again, and no one seems to learn the lesson. The latest edition came out in 2005, well before the housing bubble popped but not too long after the dot-com bubble popped. As Paul Samuelson says on the cover, "Sometime in the next five years you may kick yourself for not reading and re-reading Kindleberger's Manias, Panics, and Crashes."

    Kindleberger argues, apparently following Hyman Minsky, that the business cycle largely follows the credit cycle. This sounds incredibly obvious if one is sitting in the middle of the 2008 bubble, but let's review the arc. First some external shock gives the economy a boost -- say, the rise of the Internet in the mid- to late nineties. Money rushes to fund that boom. Banks and venture capitalists loosen their purse strings perhaps more than they should. The money from the boom spills over into other markets, like real estate. Asset prices keep climbing, and people believe that they'll never come down. People buy securities with the expectation that they'll be able to sell them off in a few months, and that there will be at least one idiot after them ready to buy up their asset when they're ready to sell it. Any number of investment experts claim that we've overturned the law of gravity, and that the sky's the limit.

    And then some sort of pop happens. Maybe an Enron collapses when people notice that their numbers don't make sense. Suddenly the banks that had lent them money on easy terms are taking a big hit and need to call in their loans. The customers holding those outstanding loans need to sell other assets in a hurry to make their payments. So they dump their real estate, say, at distressed prices. Property values decline. The various bubbles pop in tandem.

    Now credit contracts, as banks only make loans to those they can really trust. When it gets really bad, no one trusts anyone else, and credit is entirely frozen.

    Bubbles and their popping are contagious not only between classes of assets, but between nations. Kindleberger lays out any number of examples of this "contagion," with the Japanese bubble in the 80's and early 90's being maybe the most fascinating. Tokyo real estate was famously overvalued: "the chatter ... was that the market value of the land under the Imperial Palace was greater than the market value of all the real estate in California." Japan was swimming in money. That money has to go somewhere, so among other places it went to Hawaii; Hawaii is to Japan, apparently, what Florida is to New York City. When the Japanese bubble burst, so did the Hawaiian economy. And so did the economies of Indonesia and Thailand. But again, money has to go somewhere, and it's not going to stay in Asia when Asian economies tank. So it flowed to Mexico. All was well for Mexico until the Chiapas uprising and the assassination of Luis Donaldo Colosio Murrieta in 1994. On the money moved to the United States. And so on around the circle. One concern with the present crisis is that the whole world may have run out of places where the money can flow: we're all getting hit simultaneously by the credit freeze.

    Kindleberger goes through the standard litany of approaches to crises like this: a central bank, deposit protection, etc. These solutions all have a standard problem, namely moral hazard: if you know you're going to get bailed out, you'll be more likely to take risks. The challenge is always to provide a backstop so that the whole system doesn't collapse, while not encouraging risky behavior. Depository banks get FDIC protection, but they all need to pay into the insurance fund. The story for investment banks doesn't seem that different: if they're going to be subject to bank runs like depository banks were, and if they leverage themselves as outlandishly as depository banks did, then they need to be regulated like depository banks are.

    One important challenge is to provide this backstop internationally. If nations are increasingly interconnected, they need an increasingly interconnected response to economic crises. The International Monetary Fund and World Bank are supposed to handle this role, but everyone seems to be dissatisfied with them for reasons that I only dimly grasp.

    In much of this, Kindleberger overlaps with books like Galbraith's Money: Whence It Came, Where It Went and Eichengreen's Globalizing Capital, but he's carved out a nice niche for himself. Shorter Galbraith is "An introduction to money, with special emphasis on the American and British banking systems and a hat tip to Keynesian demand-side management because that's what Galbraith's hobbyhorse appears to be." Shorter Eichengreen is "How it happened that the Western world got the gold standard, how we fell off that standard, and what happens now." Shorter Kindleberger is "A compendium of crises, one after the other, from the 1600s to now, and how no one seems to learn a thing from any of them."

    Apart from policy prescriptions -- "always provide a backstop, but periodically let a bank or two fail to encourage the others" -- one of the things I take from Kindleberger is to put my money in some vehicle that yields a real annual return of 6%, then forget about it; I'm willing to make my way through bubbles getting comfortable while my friends get rich, if only so that I can remain comfortable while they get poor....more info
  • Manias, Panics, and Crashes
    I gave this book to my grandson who is majoring at UCSD in economics. He has not had any course yet covering the history of financial crashes, etc. and finds it fascinating to compare past times with the present economic slowdown. Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics)...more info
  • Sorry amazon, I read the library's copy...
    I'm puzzled by some of the negative comments about this book here, as I'm neither an economist nor a historian and I found the book quite accessible and interesting. The fairly predictable sequence of events leading to crashes, which have been played out many times in the past, is the book's central theme. Some of the story-telling could even be described as fascinating at times, though my knowledge of the subject was pretty much limited to what one learns of the famed `29 crash in high school american history.

    Anyway, the critics here are not entirely wrong, though I think they're being a bit nit-picky. I don't think the widely-read and educated lay-person should be scared off. I liked the book, learned something significant from it, was mildly entertained and impressed by the author's plethora of knowledge, and occasionally recommend it to those with an interest in financial markets, especially their so-called irrational side....more info

  • Writing after crashes is easy
    Many causes for financial crashes. All have more or less the same pattern. A lot of publication appear after a crash, who will write before the crash?
    This book gives good insight into financial chaos.
    ...more info
  • Minsky to Understand Today
    Dry, sometimes overly dense, but amazingly relevant to today's mess. While I normally would put the warning label of "heavy lifting" when recommending to friends, being able to see an analysis that shows how bubbles are created and what happens in the aftermath of their popping is worth the effort. Charles Kindleberger puts economic bubbles throughout history into the model developed by Hyman Minsky.

    This seems to boil down into: (1) speculation begins in some commodity (often real estate); (2) this speculation causes an upward spiral of overvaluation as investors compete--often irrationally; (3) investors then may use the profits to speculate in other areas (often the stock market); (4) once the overvaluation of the original commodity is "discovered", the whole house of cards comes crashing down. This happened in the lead up to the Great Depression (Florida real estate; stocks) and happened recently (mortgage mania; mortgage backed securities and insurance on the same).

    Kindleberger died before the most recent mess, but he warned at the end of chapter 5 in the wake of the dot com bubble:

    "The mild and short recession in 2001 after the massive implosion in US stock prices resulted in the abrupt change in the policy of the Federal Reserve and its rapid and aggressive move to reduce interest rates. The result was a mortgage financing boom; millions of individuals refinanced their mortgages at lower interest rates and used some of the cash obtained in the refinancing to buy autos and other consumer durables and to go on vacations...One result was a boom in the housing market...Skeptics wondered wondered whether the deflationary effects of the implosion of the stock price bubble had largely been offset by a bubble in the housing market."

    I wish more people had paid attention to those skeptics.... ...more info
  • Buy this Book.
    An overview of manic speculative bubbles and their subsequent crashes. There is a shared anatomy in all of these bubble, and Kindelburger makese that anatomy very clear.

    This book really helped me understand what just happened here in the U.S. and what things will be like in the coming years. Get a financial markets education and stop being a wall street retail mutual fund buyer! ...more info
  • Presents a correct analysis but should have devoted some more time to the warnings of Smith and Keynes-4 .5 stars
    Kindleberger does a great job of demonstrating what the root cause of economic downturns is.The process starts as bubbles of speculation on a sea of enterprise and entrepreneurship as pointed out by Keynes.However,as time passes the bankers decide to shift loans to speculators as well as starting to engage in speculation themselves.The situation changes as one observes a sea of speculation with few bubbles of enterprise floating on top.This sets the stage for the bubble to start growing with the finance coming from the bankers who fuel the expansion in the bubble.This leads to the mania stage.All it takes here is for some tiny liquidity disruption to set off a panic of selling which leads to the Crash as various participants discover that their paper wealth has evaporated ,leaving them with crushing debt loans as their debt leveraging and margin account financing now becomes an albatross around their necks.The end result is various bankruptcies and defaults and a recession or depression.


    Kindleberger shows how this pattern occurs over and over again in history.Unfortunately,Kindleberger fails to provide the reader with a simplified summary from the earlier work of Adam Smith and J M Keynes that explains the crucial steps involved in inflating,but not creating, the bubble-(a)loans from the commercial bankers to loanees whom the bank knows for certain are going to be engaged in speculative behavior and (b)the decision by the banks themselves to enter the market as active speculators.It is true that the bubbles themseves start irrespective of the banking system since individuals are free to engage in speculative finance with their own money and assets.However,the bubbles could not grow and expand over time if the bankers refused to allow the speculators to leverage their debt position by obtaining extensive lines of credit from the bankers to expand their debt positions.


    Everyone who reads this book should also read pp.290-340 of The Wealth of Nations[1776;Modern Library(Cannan)edition]and chapters 12 and 22 of The General Theory of Employment,Interest and Money(1936).Keynes proves mathematically that it is uncertainty and speculation(the speculative demand for money) that cause involuntary unemployment in chapter 21 on pp.305-306.The neoclassical(monetarism,rational expectations,real business cycles,etc.) schools must,therefore ,deny that there is anything called uncertainty or ignorance;there is only risk, which is represented by the standard deviation sigma.Similarly ,they must deny that there is any significant speculative demand for money;there is only a transactions demand for money.Kindleberger essentially demonstates that the neoclassical schools have absolutely no historical support.This also means that there would be no statistical support for their claims that the normal probability distribution is applicable to a wide range of industrial and financial markets.Kindleberger, as well as the new coauthors of this latest edition, overlooked the immense support that Kindleberger could have used to buttress his overwhelming historical evidence that has been madee available by Benoit Mandelbrot. Benoit Mandelbrot has presented massive amounts of statistical evidence, for over 50 years ,demonstrating that the neoclassical school's claims about the normal distribution do not have a shred of evidence to support them.It should not be surprising to discover that NO neoclassical economist in the 20th or 21st century has ever done a single goodness of fit test on the various time series data sets in order to supply support for their claims that price changes in all markets are normally distributed over time.



    I recommend this book .It will allow a reader to understand the negatives that could very well happen in the 2008-2010 time period.Ben Bernanke's 1.2 trillion dollar banker and Wall Street bailout,from August,2007-May,2008, has merely delayed the inevitable while creating massive new bubbles in oil and commodities and driving the value of the dollar to new lows.Bernanke has merely substituted future stagflation for recession.
    ...more info
  • Classic description of the perennial business cycle
    This is a classic one-volume description of the perennial business cycle. It is not really a history and it is not really a book of economic theory. Instead, it is a description of the boom-bust cycle, which draws extensively upon both history and theory.

    I have read a good deal on this subject. I think most of what is written in this area is theory, which is divorced from reality. Not this book. He knows exactly what he is talking about, and he describes it very pragmatically.

    The basic argument is simple. There is an unending business cycle, driven by mass psychology. The cycle has very definite stages. First, as the economy does well, optimism builds. As people become more optimistic, business expands and credit expands. The upswing starts to feed on itself. Business expands more, because credit is expanding, and credit expands because business is expanding. At first, the expansion tends to be based on real business trends. As time goes on, however, euphoria builds. Credit tends to be expanded way beyond what is justified by any economic fundamentals. This phase is one of mania. We are all familiar with it, having been through the recent dot.com and subprime mortgage manias. What this books shows us is that these manias are not new; they have been coming along, at regular intervals for the last 400 years.

    Then the cycle turns. Something happens to cast doubt on the insanity. People panic. Credit is contracted suddenly. Depositers run to their banks demanding all of their money. Shareholders all try to sell their stock simultaneously. Foreign money all tries to leave the country. In the same way that the upswing feed on itself, the downswing is also self-reinforcing.

    Free market theory tells us that markets are always in equilibrium, due to supply and demand. From a long-term perspective, that may be true. From a short-term perspective, it is almost never true. In the real world, markets tend to swing from one extreme to the other. This book explains why. There is nothing new here, for those of us with extensive experience in the economy. What is new, however, is having a professional economist take reality more seriously than theory. THAT is extremely unusual.

    One minor grievance. The question we all have, of course, is what can we do to stop this crazy cycle? Kindleberger very learnedly discusses all of the various answers which have been tried and which have been proposed. His conclusion? Government intervention makes things worse, some of the time, and better, some of the time. In his view, handling the business cycle is an art, not a science. Realistically speaking, that is probably the best answer anyone has yet come up with, yet I hope -- as do most of us -- that there is a better answer out there somewhere....more info
  • Absolutely Professional
    This research and analysis book is thoroughly reseached and reader friendly. We learn a lot about the causes of booms and busts and can see analogies in the future. It's so in-depth both in detail and breadth....more info
  • A Book That Must be Read
    I only had one semester of economics in college. The course was taught by an old man who had lived in the small city of Appleton, Wisconsin for most of his adult life and had therefore missed the labor wars to the extent that I took exception to his interpretation of a union factoid that I knew about because I had worked the summer previous in a union shop and learned the hard way what he had gotten out of a book. I made a deal with him; if he would pass me I would not take his class again.
    Since then I have read books about economics and think that if I knew how to fill a blackboard with all those arcane formulas economists use, I too could be an economist.
    You make a product and you sell it. Then sidemen figure out how things are bought and paid for and how every list bit of profit is squeezed out of the transaction.
    Economists like to write about how some people are better squeezers than others, and so when you see the history of a transaction spelled out in black and white you can only think, "of course, that's the way it worked."
    The author presents some transactions through history that make the reader wonder how people can be so stupid, e.g., the Great Tulip Bust. Why would anyone be so stupid as to bet the farm on flowers?
    Right now we are going through an economic panic that may be more psychological than actual. The author makes the case that what we have endured before is what we are enduring now, so let us once again try not to do the damn fool things we have done in the past, and he does it in a readable manner that is not pedantic or filled with insider's jargon. ...more info
  • Relevant but hard to read
    I am no economist and just an interested general reader. I expected to read narratives about past financial crises and how they played out. But this book is not organized that way. It doesn't tell any story from start to finish. Instead it references lots of different crises in a kind of shorthand way, without giving the background or the overall narrative.

    Many of the references are pretty darn obscure, at least to me. So fine, if he's talking about how a certain phenomenon works and he says, "as in 1932," or "as in the S&L crisis," I'm with him. But when he says, "just as in the 1762 case in Belgium" (made up example)--well, my eyes start to glaze over, because he hasn't told me the story of 1762 Belgium, but referenced it as if it should be as familiar to me as the Great Depression in the US.

    I also think there's something wrong with the writing style. He seems not to start out with topic sentences that show us where he's going, or to end with a summing up of the significance of what he's just said. Certain details recur within a few pages of each other. The effect is pretty scatter-shot, as if it was not carefully edited and made to flow.

    There is plenty of raw material here for anyone watching our current economic crisis and wondering how it happened, but you have to work for it. What I get from it is that in certain circumstances, if everyone does what seems best to him or her in the market, the end result will be disaster for all. It's not really irrational to buy when prices are increasing by the day, because huge profits can indeed be made. But the more people that make that individually rational choice, the more irrational the whole thing becomes.

    Maybe I could compare it to a stampede to an exit door in a fire. Each person's individual best choice is to get out as quickly as possible. But if you allow that psychological reality to play out, you might have people trampled to death at the door who then block everyone else from escaping.

    Reading this was like listening to a rather elderly professor of history who is intimately familiar with many obscure incidents, but doesn't provide the context for his young students to follow his train of thought. ...more info
  • Relevant, but difficult to read
    There is a wealth of great information and insight in this book, but it is organized in a manner that reduces interest and readability. The authors make points and then provide examples from several financial crises, with the result that almost every single page covers multiple events but you never really get a full picture of those events. It is incredibly relevant to the current (2008) crisis, so it is unfortunate the book isn't organized better....more info
  • superb
    This is a review of the 2005 edition. Although details differ, there are striking similarities in the basic structure of economic booms and busts. The author provides enough history to develop his arguments, then proceeds to apply them over 300 years of history. But this is more than "nil novum sub sole," because he focuses the last part of the book on the past 40 years, where more and bigger manias-crashes have occurred. This book, reviewed in early 2009, makes fascinating reading for those interested in what may lay ahead for all concerned. You really (but really) need to read this one. ...more info
  • Excellent book, but not a good financial history
    The subtitle (A History of Financial Crises) is misleading. This is an excellent book as far as dissecting manias and trying to understand them, but it is mainly that -- a study of how manias develop and turn into panics or crashes. The impression that I got is that Dr. Kindleberger assumes the reader already knows financial history. If history is more of what you're looking for, I highly recommend Edward Chancellor's "Devil Take the Hindmost". You can always come back to "Manias, Panics, and Crashes" later for a deeper study....more info
  • Poorly organized, poorly written
    If you're looking for an interesting review of the panics and stock market crashes of the past, look elsewhere. This book reads as if a well-organized, concisely written history of panics was thrown into a blender and pieced together out-of-order....more info
  • valuable history lessons
    This book provides accounts of financial manias in history. Analyze many aspects of manias, how they come about, what are various players in manias, how they end. One thing the book is missing is how to position yourself or profit from these episodes of mania....more info
  • Understand why this recession is "normal"
    This is a classic of financial history, written long before the current economic crisis, but nonetheless highly illuminating about current events. You may be very surprised by the similarities of this bust with the many, many that preceded it. This version of the book seems to me less readable than the earlier version I skimmed a few weeks ago, but it will still give the general reader a great historical overview of booms and busts, and help one to be a smarter reader of the news and a more informed voter. Highly recommended for anyone wanting a better understanding of this very important and timely subject....more info
  • Not a history - more of a survey
    Definitely NOT a "Popular" history. Very much a survey of the topic. Appears to me that there is an assumption that you are quite familiar with the events briefly alluded to in the discussion. Interesting concepts and fascinating historical glimpses. The details of the book's title will be found by reading the source notes and then going to the library to read the source documents....more info
  • A classic book on financial bubbles from an exceptional scholar
    Kindleberger was a professor of economics at MIT, and a deep scholar of the history of financial bubbles and subsequent crashes. He proves with many examples that growth in the supply of credit is a fundamental factor in bubble development, stengthening associations of this type categorized by Hyman Minsky. While Kindleberger's writing is sometimes redundant, his amazing grasp of the details of financial history, numerous examples, and deep understanding more than compensate for this minor limitation of style. This book has been through 5 editions and is an indispensable reference; it is also a fascinating read. It should not to be missed by any serious investor, nor any student of financial manias and panics. ...more info
  • Only for serious economists
    This book is definitely not for the arm-chair investor. Although the idea is very good, a thorough understanding of economics will be required to make this very factual book worthwile....more info
  • A wealth of information, badly written, poorly organized
    This investment classic offers a comprehensive survey of all the major crashes and panics in financial history from the 17th century all the way to the dotcom era. The author analyzes these phenomena with a Minksy framework and provides indispensable insights on the psychology of the markets, the relevance of historical conditions, the deep underlying fundamentals as well as policy responses.

    However, it takes considerable effort to harvest the insights. The book is VERY difficult to read. The author is a non-mathematical economist but I cannot agree with other reviewers who call him a literary economist as his writing is an absolute massacre of the English language. The style is elliptical and verbose. He shovels detailed historical facts right into your face, leaving you to piece them together. The author also repeats the same facts and ideas across chapters under a different pile of verbiage.

    The appendix in this edition provides a useful chronological summary of all the crises treated in the main text. It is advisable to consult this first before diving into the mess....more info
  • Timely and yet enduring
    As I write this review, we are waiting to see if the Fed's somewhat drastic cut in the federal funds rate will stop the slide into recession. Bank of America is acquiring Countrywide mortgage lenders. UAE has bought an $7.5 billion worth of junk bonds from Citigroup in a manner similar to the late Dr. Kindleberger's lender of last resort. So we have an event going here as I write.

    As a Southern California homeowner, I am certainly not surprised at what is happening. Houses constructed and first sold for $30,000 in the late 1950's were selling for $600,000 and up a year ago. I would go to lunch and all anyone would talk about was real estate. I got a lot of crazy advice ("sell your home, move out to the desert, and live off the interest.") I would turn on the TV and watch Jim Cramer screaming "They're not making any more land out there!!!!!" How could that last? I decided it was time to read this book.

    Manias, Panics, and Crashes is a scholarly work of Economic History. It sets up a model of a crash or panic and then explores each phase in succession. He writes narratives of events, such as the South Sea Island Bubble, and how the events transpired. Dr. Kindleberger examines the mania or bubble phase, the critical stage, and then examines two ways in which it ends. The two ways to end the panic are either to let it burn itself out or through a lender of last resort. He focuses on the economic more than the psychological factors that make up these cycles.

    Kindleberger favors the lender of last resort solution as it cuts the duration of the crisis. He notes that the Great Depression could have been stanched more quickly had there been a lender of last resort. But, I think he presents opposing ideas to his in a fair and gentlemanly manner.

    Yes, this book is not an easy book to read. Few books in economics are easy to read. No it doesn't give advice on profiting from a panic. The Late Harry Browne used to write such books before he began running for President. Those books are useless generally; by the time you want to read them, its already too late. Gold, foreign currencies, and the like will be at all time highs, as they are currently.

    I recommend this book because this is a recurrent phenomena that is part of human nature. Optimism is a good thing. But if you are channel surfing late night television and an infomercial comes on with guys sitting in lounge chairs around a pool sipping margaritas and telling stories about how they became millionaires while working 2 hours a week, it's time to read Dr. Kindleberger's book.

    Update: Last weekend, the Fed arranged a deal where JP Morgan-Chase acquired Bear Stearns for $2 per share to forestall a panic. There are many critics of this deal. Some say the corporate headquarters alone was worth many more times than what Morgan paid for the company. Most of the press gave the credit for the deal to Ben Bernanke, but Robert Novak in the Washington Post gives the credit to Timothy Geithiner, President of the NY Federal Reserve Bank.

    So, the Fed is following the Kindleberger strategy of finding the buyer of last resort rather than the Milton Friedman strategy of letting the fire burn itself out. I suspect we will know in a month or so whether this strategy has succeeded or not.


    I am reviewing and recommending the edition of this book released in 2000. ...more info
  • Second to none on the cause of financial crises
    Kindleberger who passed away before the current financial crisis wrote the best book I have read on financial crises. His analysis of boom and bust cycle is prescient. It is much superior to Morris' still excellent The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash and Shiller's mediocre The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It.

    Kindleberger thesis is that manias and panics result from the pro-cyclical changes in credit following the Hyman Minsky model. Credit expands during economic booms as creditors compete for market share. Credit expansions fuel asset bubbles. At a turning point, leveraged speculative borrowers can't service their debt and have to liquidate their collateral (dubbed "Minsky Moment"). Asset bubbles burst. Economy slows down. Credit contracts as creditors struggle for survival. Thus, financial systems are prone to financial crisis.

    Minsky defined three states of financial deterioration: a) hedge finance (borrower can repay both principal and interest); b) speculative finance (borrower can repay only interest); and c) Ponzi finance (borrower relies on asset appreciation to refinance debt servicing). Bubbles eventually burst as leveraged investors experience a "negative carry" on their investments, and stocks and housing markets crash. Borrowers default (Ponzi finance) and banks fail. Credit tightens exacerbating the crash.

    The Minsky model is scalable. When homeowners (current housing crisis) and developing countries (LDC debt crisis) could not refinance their interest payments with new loans (Ponzi finance), the crisis ignited. The author uncovers other examples of Ponzi finance. These include Japanese real estate borrowers in the 80s, the S&L industry that became insolvent when rates were deregulated in early 80s, and the junk bond issuers of the 80s.

    Financial crises are frequent and massive. The 90s witnessed many real estate bubbles that rendered banking systems insolvent in Japan, Finland, Norway, and Sweden. Banks wrote down over 20% of their assets. Deposit guarantee claims exceeded 15% of GDP. In 2001, the Argentinian bank crisis costs 50% of GDP.

    Crisis can be lengthy. The Japanese asset bubble deflated the economy for two decades. During the Asian crisis, Hong Kong suffered deflation for 6 years.

    He indicates how asset bubbles are sequential as they flow from one country to another. As Japan's asset bubbles in the 80s deflated in the early 90s, international flows left Japan for Thailand and Malaysia. When those countries' bubbles burst in the mid 90s, the funds flows went to the U.S. causing a stock bubble in the late 90s. In Asian countries, bubbles in real estate and stocks often occurred together. But, bubbles can move from one asset class to another. Greenspan lowered U.S. rates to 1% to shore up the economy after the 2001 recession associated with the dot.com bubble. The resulting low ARMs rates contributed to the housing bubble. He also mentions that international stock markets are highly correlated whenever crashes occur. International diversification does not work.

    Asset price bubbles are triggered by economic "displacements." In Japan and Scandinavia in the 80s and 90s it was financial deregulation. Other displacements included financial innovations such as derivatives and securitization and technological innovations such as railroad, automobile, aircraft, and the computer.

    Kindleberger describes the two stages of manias. The first one is rational exuberance lead by insiders who leverage the positive implication of displacements. The second stage is euphoria when insiders sell out to naive outsiders at the peak. Vulnerable speculators rely on false assumptions. Lenders to the oil sector in the late 70s assumed crude oil prices were headed to $90 by 1990 leading eventually to a housing and banking crisis in Texas in the 80s when such oil prices did not materialize. During the 1970s LDC debt crisis, banks accelerated lending to governments assuming governments don't default.

    When Kindleberger analyzes the Great Depression. He notes that the speed of the money supply contraction was far slower than contraction of industrial production. The instant freezing of the credit markets resulting from the stock market crash provides a better explanation of the Great Depression.

    Kindleberger indicates central bankers most often avoid pricking asset bubbles. Addressing asset bubbles causes a policy paradox: should they raise interest rates to preempt an asset bubble at the risk of throwing the economy into a recession? The one example of Yasuki Mieno, Governor of the Bank of Japan in 1990 who did prick an asset bubble is discouraging as he triggered two decades of deflation (average GDP growth < 1%).

    Chapter 10 addresses whether Governments should intervene when bubble burst to preserve the financial system. Or do they create a moral hazard by doing so. He refers to Hoover and his Secretary of the Treasury as proponents of the "leave-it-alone liquidation" position. The rest is history. Their restrictive fiscal policies contributed to turning a recession into the Great Depression. History indicates that even when Government authorities did not intend to intervene at first, they eventually had to anyway. The Great Depression is an example. Hoover played tough and caused a disaster that FDR had to counter when he came in office.

    Chapter 11 focuses on the issue of a domestic lender of last resort as a means to resolve crashes. Such a lender is to halt the debt-deflation downward price spiral on affected real and illiquid financial assets. There is a chronic debate whether the most appropriate lender of last resort is a nation's Central Bank or its Treasury. The Central Bank can readily create money. But, the Treasury can implement nearly equivalent Keynesian fiscal stimuli. Chapter 12 focuses on international lenders of last resorts that include the IMF, the World Bank, the Asian Development Bank, and ad hoc bilateral commitments between countries such as the ones between the U.S. and Mexico. These international lenders of last resort have provided financial assistance to the countries affected during the Asian crisis in the late 90s and the Mexican crisis in 1994.

    All around this is an outstanding book. If you want to study this subject further, I also suggest Minsky's Stabilizing an Unstable Economy and The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy (Vintage)....more info