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Manias, Panics, and Crashes: A History of Financial Crises Wiley Investment Classics
Product: Manias, Panics, and Crashes: A History of Financial Crises Wiley Investment Classics Lowest Price! List Price: $21.95 Amazon Price: $14.93 Add to cart to see low price@ Availability: In Stock Usually ships in 24 Hours Free Shipping Available |
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.
- Amazon Sales Rank: #5615 in Books
- Published on: 2005-10-04
- Original language: English
- Number of items: 1
- Binding: Paperback
- 336 pages
Features
- ISBN13: 9780471467144
- Condition: NEW
- Notes: Brand New from Publisher. No Remainder Mark.
Much Improved 4th Edition of an Investment Classic
If you are interested in how Alan Greenspan will probably handle the financial weakness that follows the year 2000 collapse of the Internet stocks, this book is a good guide. Chairman Greenspan is basically a follower of Professor Kindleberger. Both believe that pragmatic, flexible activism by the Federal Reserve can shorten up the pain from financial excesses.
Those who are interested in the psychology of financial markets are often drawn to Professor Kindleberger’s book after reading Charles MacKay’s classic, Memoirs of Extraordinary Delusions and the Madness of Crowds. In this new edition, Professor Kindleberger has added useful perspectives on the Mexican and Asian financial crises of the 1990s and adjusted his interpretation to allow for more differentiation among crises than he did before. I found this edition by far the most satisfying of the four he has written.
Professor Kindleberger is one of the few remaining literary economists, those who make their points in essays rather than through long equations that depend on questionable assumptions. This makes his work very accessible, even though it is as rigorous as it can possibly be while still remaining a popular work.
If you believe in efficient markets or the overriding importance of macroeconomics, you will be angered and annoyed by this book. Milton Friedman and John Maynard Keynes each take their shots here, although in polite ways.
As Peter L. Bernstein summarizes nicely in his introduction, Professor Kindleberger’s argument boils down to four principles:
(1) Irrational behavior does occur from time to time in financial markets.
(2) There is a general, repeatable pattern in how this irrational behavior plays out (a positive economic displacement is followed by euphoria that takes the form of overtrading, then distress following revulsion, discredit by lenders in the overtraded assets, and then panic leading possibly to a crash brought on by those who bought high).
(3) The economic system needs a lender of last resort to step in at the right time and in the right way to restore confidence and liquidity.
(4) Trying to solve these problems by being doctrinaire is “wrong . . . and dangerous.”
Chapter one looks at how financial crises often accompany peaks in the economic cycle. Chapter two looks at the patterns of typical crises, described by “lumping” them together. Chapter three considers how speculative mania are begun by knowledgable insiders who then unload on overoptimistic outsiders who buy high and sell low. This chapter looks at how the crises differ from one another. Chapter four shows how either excess credit or too fast monetary expansion adds fuel to the flames. Chapter five considers the frequent association of swindles with these manias. Chapter six looks at the psychological stages of the whole process in more detail. Of central importance is the discomfort that many feel as they see a neighbor or friend become wealthy. Chapter seven looks at how the economic impact spreads to other domestic markets. Chapter eight looks at the transference to other international markets. Chapter nine looks at the pros and cons of trying to let these cycles take care of themselves. Chapter ten looks at the role of domestic lenders of last resort (the Federal Reserve in the U.S.). “How much? To whom? On what terms? When?” are the questions that require different answers each time in terms of who should get credit. In Chapter eleven, you see the special problems of the IMF. Will someone take the lead in time, or will everyone dally? The conclusion in Chapter twelve nicely summarizes the book. He argues tentatively that “a lender of last resort does shorten the business depression that follows the financial crisis.” He also says there is “a presumption . . . that halting a cumulative deflation helps shorten the depression that follows.”
One issue that is not addressed in this edition is how such crises may occur more rapidly and with greater amplitude than before due to improved information flows. As a result, it will be more difficult for lenders of last resort to take correct action in a timely way. Clearly, “jawboning” such as talking about “irrational exuberance” will do little good.
As we sort out the results from the crash of the “dot com” stocks, the groundwork is probably being laid for a fifth edition. How will you respond to the next mania that builds?
Keep sight on rational values, even in times of irrational exuberance. For a deflation along with a credit squeeze will usually follow.
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.
Economic history
History always has lessons to teach us. In addition to comments by Golden Lion from Utah, I believed this book really spoke poignantly about the “adjustment process” of global or local market imbalances and the possible causes.
The causes are elaborated in many different examples from the Dutch Tulip crash to the dot-com crash. Signs of the excess liquidity, overly generous expectations of future demand, and other general characteristics are drawn from these events.
In the economic case where A has caused B, then B has caused C, and so on. If Z is a market crash, one cannot blame Y for losses. The book writes that its the cumulative effects of A-Y that has caused this, and more likely the pin-prick that pops a “bubble” is normally from a totally unexcepted source. To me, this was the greatest take away point — naturally after every market crash we attempt to learn from our follies. However, the market has also learned and adapted, such that the next market failure is caused by a different set, but the same symptoms are similar to A-Y.
On the negative side, I wished that the latest version did a little better job at editing down the redundancies. For example, the Japanese real estate collapse in the early 1990’s was used 5-7 times in different parts of the book — in many cases, the underlying story was retold, even verbatim. I would disagree with one of the reviewers, that one needs an advanced degree to understand this book, however, an appreciation for economic theory is helpful, particularly monetary policies and capital markets. It does not require up-to-date knowledge of the stock, currencies, or bond markets.
Nevertheless, a good book to keep and re-read every few years. Always worth remembering our past mistakes and trying to create an edge.
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