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Manias, Panics, and Crashes: A History of Financial Crises
The best known and most highly regarded book on financial crises
Financial crises and speculative excess can be traced back to the very beginning of trade and commerce. Since its introduction in 1978, this book has charted and followed this volatile world of financial markets. Charles Kindleberger's brilliant, panoramic history revealed how financial crises follow a nature-like rhythm: they peak and purge, swell and storm. Now this newly revised and expanded Fourth Edition probes the most recent "natural disasters" of the markets--from the difficulties in East Asia and the repercussions of the Mexican crisis to the 1992 Sterling crisis. His sharply drawn history confronts a host of key questions.
Charles P. Kindleberger (Boston, MA) was the Ford Professor of Economics at MIT for thirty-three years. He is a financial historian and prolific writer who has published over twenty-four books.
Financial crises and speculative excess can be traced back to the very beginning of trade and commerce. Since its introduction in 1978, this book has charted and followed this volatile world of financial markets. Charles Kindleberger's brilliant, panoramic history revealed how financial crises follow a nature-like rhythm: they peak and purge, swell and storm. Now this newly revised and expanded Fourth Edition probes the most recent "natural disasters" of the markets--from the difficulties in East Asia and the repercussions of the Mexican crisis to the 1992 Sterling crisis. His sharply drawn history confronts a host of key questions.
Charles P. Kindleberger (Boston, MA) was the Ford Professor of Economics at MIT for thirty-three years. He is a financial historian and prolific writer who has published over twenty-four books.
304 pages, Paperback
First published January 1, 1978
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Displaying 1 - 30 of 195 reviews
March 18, 2009
If you're looking for a colorful, narrative history of financial bubbles, this book is not for you. Kindleberger is bone dry, and his goal is mainly to analyze common features of bubble cycles. Towards that end, he tends to pick a feature, then run through ten or twenty examples of how that feature worked during past bubbles. That leads to a lot of repetition, but by the end of the book, you definitely get a clear sense of how the Minsky model views bubbles. I think that's the reason the book has become such a classic-- it's probably assigned in economics classes all over the world.
But a word of caution to the lay-reader: I have an MBA, and a couple of years of economics courses under my belt-- and some of the discussion was definitely above my head. You'll definitely need to hit Wikipedia to refresh your macro-economic knowledge-- especially at the end of the book, during the discussions of Domestic and International Lenders of Last Resort.
But a word of caution to the lay-reader: I have an MBA, and a couple of years of economics courses under my belt-- and some of the discussion was definitely above my head. You'll definitely need to hit Wikipedia to refresh your macro-economic knowledge-- especially at the end of the book, during the discussions of Domestic and International Lenders of Last Resort.
February 7, 2020
This was the second time reading this book. Honestly, the second time around I found this book to be rather boring. The theme of the book is as timely as ever, and I highly recommend reading something like it if you are interested in manias, panics, crashes (and financial fraud). As with the first time around, I appreciated the lack of bias and the common sense historical approach of the author. But this time around, I found elements of the book problematic.
The first problem is the academic tone of the book. As a work of financial history, the book often found it necessary to deal with the theories and ideas of non-historians, particularly economists. Why? I found that historical analysis is often useful on its own merits and does not need to play too much with the theories of economists and their models. I also felt like the book would be better served dealing less with other academic works and more with establishing clearer historical narratives.
The second problem I found was the author's use of historical cases. As the book develops he uses a historical shorthand, reaching across cases to develop his themes. For someone like me not familiar with all the cases in-depth, this became a dizzying affair. The author has laid out a chart in the book of the book. This chart is useful, but it would have been better if the author had established a clear narrative without haphazard jumping between cases. It's a pain to have to jump to an appendix to figure out where and what is going on with a particular example.
And finally, the main thesis of the book: There should exist a lender of last resort, but the market should always be left wondering when and if it will come to the rescue.
When I first read the book, I found this argument to be reasonable and well-argued. But having read this argument, I was looking for more the second time around. Some ideas I missed. Some tidbit that would make me rethink the elements of this book. Unfortunately, I didn't find it.
I'm still interested in the subject matter and hope to find another book that can take me into the elements in way that is engaging and can challenge me a bit more. If possible, too, I would like this book to have a historical approach...but I would like the author to create clearer case studies and develop the patterns of human behavior in a more cogent way.
I'll keep my eyes open for just such a book.
The first problem is the academic tone of the book. As a work of financial history, the book often found it necessary to deal with the theories and ideas of non-historians, particularly economists. Why? I found that historical analysis is often useful on its own merits and does not need to play too much with the theories of economists and their models. I also felt like the book would be better served dealing less with other academic works and more with establishing clearer historical narratives.
The second problem I found was the author's use of historical cases. As the book develops he uses a historical shorthand, reaching across cases to develop his themes. For someone like me not familiar with all the cases in-depth, this became a dizzying affair. The author has laid out a chart in the book of the book. This chart is useful, but it would have been better if the author had established a clear narrative without haphazard jumping between cases. It's a pain to have to jump to an appendix to figure out where and what is going on with a particular example.
And finally, the main thesis of the book: There should exist a lender of last resort, but the market should always be left wondering when and if it will come to the rescue.
When I first read the book, I found this argument to be reasonable and well-argued. But having read this argument, I was looking for more the second time around. Some ideas I missed. Some tidbit that would make me rethink the elements of this book. Unfortunately, I didn't find it.
I'm still interested in the subject matter and hope to find another book that can take me into the elements in way that is engaging and can challenge me a bit more. If possible, too, I would like this book to have a historical approach...but I would like the author to create clearer case studies and develop the patterns of human behavior in a more cogent way.
I'll keep my eyes open for just such a book.
January 17, 2020
This work, I believe, takes first prize for the poorest editing of any recent read; it’s downright bad. While the message is important, the work is so choppy, disorganized and repetitive that it was mighty difficult to finish. I had this vision of someone updating this work at the corner bar, after first downing two or three pints of quality ale. Oh, for the poor student that finds this volume required reading. I’d be interested to see how the seventh edition compares to the first.
I feel a brief comment on the current US investment zeitgeist is in order. With interest rates at historic lows, American unemployment at 3.5%, inflation subdued, and a decade of substantial equity market returns, the impression is easily formed that risk and scoundrels have been excised from the system, that economic stability and moderate growth are ensured in perpetuity; the policy wonks have, finally, mastered the calibration of our economic future, having learned from their many prior mistakes. I remember how similarly I felt in the mid 1990s. And then what happened?
I feel a brief comment on the current US investment zeitgeist is in order. With interest rates at historic lows, American unemployment at 3.5%, inflation subdued, and a decade of substantial equity market returns, the impression is easily formed that risk and scoundrels have been excised from the system, that economic stability and moderate growth are ensured in perpetuity; the policy wonks have, finally, mastered the calibration of our economic future, having learned from their many prior mistakes. I remember how similarly I felt in the mid 1990s. And then what happened?
January 6, 2015
Was a bit disappointing,
most of the book is about events that happened more than 100 years ago,
short coverage of the last 80 years.
The book reads like 10 different people wrote parts of it
and didn't know what others were writing.
Some events are covered multiple times,
the south sea bubble has 16 entries, often saying the same thing.
Treasury sec Paulson was called Mr. Bailout in 2 separate parts that read the same.
I totally disagree that Lehmann bro should have been bailed out.
They piled on billions of dollars of extra debt the last 10 months trying to become a "too big to fail" bank.
Fuld should have gone to prison for that and other things.
The author seems to think "money flows" were more important than
the corrupt rating agencies giving AAA to junk bonds. Baloney
page 120 claims CPA's count the number of beans that firms claim.
NOT true, that's the sole responsibility of management.
Accountants see that GAAP's are used
and that accounting principles are the same from one year to the next.
p135
NYSE is owned by its members & provides a trading floor
Both not true.
p 265
claims that when many firms collapse at the same time
its because of the mismanagement of the economy by the monetary authorities.
Baloney, the FED didn't rate junk AAA,
or make liar loans,
or bundle junk, call it AAA and sell to foreigners who didn't
realize how corrupt wall street is.
p 269
makes the asinine claim that the cost of Lehmann not being bailed out
was the total budget deficit of the US gov the following year
!!!!!!!!!
p299
claims the US housing bubble was from an "increase in the supply of credit"
again idiotic
The banks will screw up again,
what we need to do is increase the required capital to 20% from the very risky 6% at present.
most of the book is about events that happened more than 100 years ago,
short coverage of the last 80 years.
The book reads like 10 different people wrote parts of it
and didn't know what others were writing.
Some events are covered multiple times,
the south sea bubble has 16 entries, often saying the same thing.
Treasury sec Paulson was called Mr. Bailout in 2 separate parts that read the same.
I totally disagree that Lehmann bro should have been bailed out.
They piled on billions of dollars of extra debt the last 10 months trying to become a "too big to fail" bank.
Fuld should have gone to prison for that and other things.
The author seems to think "money flows" were more important than
the corrupt rating agencies giving AAA to junk bonds. Baloney
page 120 claims CPA's count the number of beans that firms claim.
NOT true, that's the sole responsibility of management.
Accountants see that GAAP's are used
and that accounting principles are the same from one year to the next.
p135
NYSE is owned by its members & provides a trading floor
Both not true.
p 265
claims that when many firms collapse at the same time
its because of the mismanagement of the economy by the monetary authorities.
Baloney, the FED didn't rate junk AAA,
or make liar loans,
or bundle junk, call it AAA and sell to foreigners who didn't
realize how corrupt wall street is.
p 269
makes the asinine claim that the cost of Lehmann not being bailed out
was the total budget deficit of the US gov the following year
!!!!!!!!!
p299
claims the US housing bubble was from an "increase in the supply of credit"
again idiotic
The banks will screw up again,
what we need to do is increase the required capital to 20% from the very risky 6% at present.
May 2, 2016
Highly disappointing read. I read the book based on its reputation as the definitive work on extreme economic valuations.
I found a disconcertingly disjointed presentation. The book reads like a random sampling of the author's thoughts. There was not a linear/cohesive presentation of any of the historical bubbles.
I found a disconcertingly disjointed presentation. The book reads like a random sampling of the author's thoughts. There was not a linear/cohesive presentation of any of the historical bubbles.
May 22, 2016
Kindleberger's "Manias, Panics and Crashes" is a must read for anyone active in the markets. If you want to learn how to identify downcycles early, and to understand their progression and eventual end, look no further than Kindleberger's work.
While other worthy tomes, such as "History of Financial Disasters in 3 Volumes" cover much of the same material, the original organization of Kindleberger's work is what commends it. He disentangles the narrative of many financial disasters into their component parts, then works to educate the reader how to identify which phase of the financial cycle the reader finds himself. It is a remarkable feat of simplification.
I remember very vividly loaning my copy to a friend one evening, noting the chapter title "The Emergence of Swindles" as a cautionary tale for us to expect the revelation of a major financial fraud, only to see the very next day the emergence of the Bernie Madoff Ponzi scheme. My friend was amazed at the power of this book, and you should be too. But Kindleberger had done the work and knew what was next. And he was right!
If there was only one book I could recommend on how to understand and navigate financial crises, it would be this book. Ignore it at your peril. Begin your journey here to better knowledge of financial crises.
While other worthy tomes, such as "History of Financial Disasters in 3 Volumes" cover much of the same material, the original organization of Kindleberger's work is what commends it. He disentangles the narrative of many financial disasters into their component parts, then works to educate the reader how to identify which phase of the financial cycle the reader finds himself. It is a remarkable feat of simplification.
I remember very vividly loaning my copy to a friend one evening, noting the chapter title "The Emergence of Swindles" as a cautionary tale for us to expect the revelation of a major financial fraud, only to see the very next day the emergence of the Bernie Madoff Ponzi scheme. My friend was amazed at the power of this book, and you should be too. But Kindleberger had done the work and knew what was next. And he was right!
If there was only one book I could recommend on how to understand and navigate financial crises, it would be this book. Ignore it at your peril. Begin your journey here to better knowledge of financial crises.
December 1, 2013
This is a classic book in the financial world, but I was somewhat disappointed with it. Kindleberger uses Hyman Minsky's "anatomy" of financial crises to discuss commonalities between a number of different financial panics from different countries at different times in history. I had been hoping for more of a straightforward narrative description of each crisis, many of which, after all, occurred in unfamiliar settings. But in fact, Kindleberger uses the generic "crisis anatomy" as the structure of the book, touching on each episode only as it relates to a given part of the anatomy. This can be disorienting for the reader who is not already familiar with the episodes, which description I imagine fits virtually all readers.
For those interested in the generic anatomy of crises, I think it's better to read Minsky himself, who is pretty accessible. For those looking for detailed descriptions of specific crises, something like Bagehot's "Lombard Street" is more entertaining. This book ends up being neither here nor there.
For those interested in the generic anatomy of crises, I think it's better to read Minsky himself, who is pretty accessible. For those looking for detailed descriptions of specific crises, something like Bagehot's "Lombard Street" is more entertaining. This book ends up being neither here nor there.
July 11, 2023
I believe it may have been Satan who let this become an audiobook. It's like 19 hours and is a textbook. It's hard to follow and to be frank I'm not sure it actually makes an argument. I guess, capital flows are important?
January 14, 2023
I read Kindleberger’s classic textbook in its seventh edition, as updated by Aliber. It really gave me much intellectual pleasure to read it and opened my eyes to certain patterns and variables to take into account when perusing financial bubbles which I wasn’t aware of.
The main thesis of the book relates to the connection between investment inflows (and outflows), price of currency and price of securities and other assets (mainly, real states). It plays with two main concepts: overshooting and undershooting and the “pains” of in-between adjustments. At certain points, it is kind of scary the likeness between certain pre-burst periods and the current time of manias/euphoria.
Another success of the book is its non-US-centric approach, collecting and analyzing extensive data from South American and Asian countries.
The part which I disagreed the most with was the chapter on the “Lehman affair”. I believe that the book was too basic when facing the moral hazard argument and almost completely ignored the lack of a clear legal framework to act on Lehman, along with the political heating which highly discouraged the officers in charge to pursue a path of bailing out Lehman. This part of the book clearly needed more density.
However, this doesn’t contradict the conclusion that this is a marvelous economics book, accessible and readable by everyone with a pretty basic understanding of the subject-matter.
The main thesis of the book relates to the connection between investment inflows (and outflows), price of currency and price of securities and other assets (mainly, real states). It plays with two main concepts: overshooting and undershooting and the “pains” of in-between adjustments. At certain points, it is kind of scary the likeness between certain pre-burst periods and the current time of manias/euphoria.
Another success of the book is its non-US-centric approach, collecting and analyzing extensive data from South American and Asian countries.
The part which I disagreed the most with was the chapter on the “Lehman affair”. I believe that the book was too basic when facing the moral hazard argument and almost completely ignored the lack of a clear legal framework to act on Lehman, along with the political heating which highly discouraged the officers in charge to pursue a path of bailing out Lehman. This part of the book clearly needed more density.
However, this doesn’t contradict the conclusion that this is a marvelous economics book, accessible and readable by everyone with a pretty basic understanding of the subject-matter.
March 29, 2014
This is not the easiest book to read without some prior knowledge of economic history. That said it is probably the most complete book on the history and causes of economic upheavals from the 17th century to 2010 available to the non-economist.
In particular the authors have identified what they call the 4 waves of international financial disaster in the last 40 years. Perhaps the most striking conclusion one can draw from their study is how similar the causes of each wave has been. If you take the time to work your way through this book you will come away with a more sophisticated understanding of words such as "credit" , "liquidity" and "asset prices" and how they are interrelated. You will also come to understand how basic human nature rather than complex financial strategies underlie decisions which repeatedly cycle from beneficial to disastrous consequences for humanity.
In particular the authors have identified what they call the 4 waves of international financial disaster in the last 40 years. Perhaps the most striking conclusion one can draw from their study is how similar the causes of each wave has been. If you take the time to work your way through this book you will come away with a more sophisticated understanding of words such as "credit" , "liquidity" and "asset prices" and how they are interrelated. You will also come to understand how basic human nature rather than complex financial strategies underlie decisions which repeatedly cycle from beneficial to disastrous consequences for humanity.
February 17, 2015
This book was referred to by another book I've been reading. This copy as gifted to me by my alma mater at an event where Professor Aliber, the co-author of this edition, spoke.
One of the most dense and therefore challenging books I've read. Every paragraph is jammed with facts. I think the book would be better if it had a few graphs and ignored corruption. There's plenty to digest here without getting into Ponzi, Madoff, or Enron. I also think some more perspective on why credit bubbles get inflated would have been helpful.
One of the most dense and therefore challenging books I've read. Every paragraph is jammed with facts. I think the book would be better if it had a few graphs and ignored corruption. There's plenty to digest here without getting into Ponzi, Madoff, or Enron. I also think some more perspective on why credit bubbles get inflated would have been helpful.
March 5, 2015
I think it would have been a lot more fun to sit down and talk with Kindleberger about his theories than to read this book. He clearly knew a lot on the subject, and I generally agreed with his ideas, but I found the way the book was organized hard to follow. A case of, "I'd have done it differently if I was writing it."
December 11, 2022
The following is an excerpt from a discussion post for my MSF grad program. I thought I would post it here because the ideas are largely taken from Kindleberger, particularly the link between credit expansion and speculation.
The excerpt:
I can’t remember if it was in our portfolio management class or our estate planning class, but I remember cautioning that some crypto exchanges would treat their customers as creditors in the event of bankruptcy. This is precisely what is happening in the FTX-SBF fiasco. I hope none of you were affected.
I’ve been following this story since it started, and it highlights a few things and poses certain questions. I would like to share them here:
1. The fiscal and monetary response to Covid led to capital misallocation. E.g., the stimulus creates artificial demand (demand in excess of what it would have otherwise been), which confuses entrepreneurs. The objective of the entrepreneur is to match supply with demand; this requires that he correctly ascertain and forecast demand, as his capital investments depend on the accuracy of his forecasts. When his forecasts prove to be incorrect—when they overestimate future demand—his capital allocations are revealed to be malinvestments. This is a critique of low-interest rates often made by Austrian economists. If you’re interested in this topic, google Austrian business-cycle theory.
2. Financial bubbles are invariably preceded by low interest rates. “[W]ithout easy credit creation a true bubble cannot occur” (Furguson, 2008, p. 122). And Kindleberger (2015): “You can’t have a real estate bubble without the rapid expansion of credit” (p. 78). Note that though Kindleberger specifically mentions real estate, his point applies to asset prices more generally. As a rule, a monetary expansion will first result in asset price inflation (e.g., commodity prices, equities, housing, etc.), then it hits consumer prices (e.g., 8% CPI).
I’ve been reading everything I can find on this, as I plan to be an equity analyst, and my main takeaway is that one must understand the business cycle and one’s current position in it. The typical trajectory: crisis, monetary/fiscal stimulus, economic expansion, inflation and bubbles and mania, Fed tightens credit, economic contraction, boom goes bust and asset prices fall. Dalio’s book on debt crises has a good discussion of the phases for those interested.
3. Low interest rates can create speculative orgies. Analysts value companies by discounting their future cash flows/dividends/earnings. Lowering interest rates lowers the discount rate, thereby raising valuations. This disproportionately benefits tech companies. Why? Because most tech companies are growth companies, that is, most of their profits are in the future—some far in the future. (It was said during the Dot-Com Boom, though I forget by whom, that some companies were discounting the future and the hereafter, so delayed were their profits!) The point is this: low-interest rates enable ridiculously irrational valuations. And there not infrequently develops a positive feedback dynamic, such that price rises cause more people to buy, which causes prices to rise, etc., etc., leading to speculative excess (Shiller, 2015). The flip side is that tech stocks have the greatest interest rate risk, as rate hikes raise the discount rate, thereby lowering the PV of future cash flows. Hence, the Nasdaq fell further than the S&P this year.
3. Hyman Minsky has an insightful taxonomy of companies’ credit quality:
Hedged, i.e., cash flows from operations are sufficient to cover interest and principal payments.
Speculative, i.e., cash flows from operations are only sufficient to repay interest charges, that is, principal payments must be rolled over.
Ponzi, i.e., cash flows from operations are insufficient to repay interest or principal, that is, interest and principal must be rolled over.
Ponzi financing is only sustainable if interest rates fall or profits rise—and, crucially, if the creditor allows the debt to be rolled over. Also, consider that these financing positions aren’t static: Minsky notes that “speculative positions turn into Ponzi positions if cash flows fall or if interest rates rise” (Wray, 2016, p. 28). As I understand it, many of SBF’s crypto bets were premised on the proposition that the price of a given crypto token/currency would only go up. One wonders how many crypto business models were predicated on such as premise.
4. The Bitcoin white papers were published in 2008, I believe, in response to the housing crises (though I’m sure the intellectual/technical work began long before). A big theme in the papers is the notion of peer-to-peer transactions, disintermediation, and decentralization. This serves many functions: it protects privacy rights; it prevents the state from intervening in commerce; it prevents the state from debasing the currency; and many other libertarian ideals. However, the idea of a crypto exchange is centralized and entangled with the state. SBF was lobbying the SEC to create a regulatory moat, for instance. Further, I’ve read some people in this space that believe that the prominent failure of crypto firms, such as FTX, will be used to push CBDCs, which are antithetical to the crypto project, as they aggrandize state power. Rogoff (2016) is a good book on the topic, one which argues in favor of CBDCs. Essentially, CBDCs will give the state absolute control and surveillance over commerce, to the point of determining who can and cannot transact. This is not only anathema to the crypto project, it is tyrannical and nightmarish.
The excerpt:
I can’t remember if it was in our portfolio management class or our estate planning class, but I remember cautioning that some crypto exchanges would treat their customers as creditors in the event of bankruptcy. This is precisely what is happening in the FTX-SBF fiasco. I hope none of you were affected.
I’ve been following this story since it started, and it highlights a few things and poses certain questions. I would like to share them here:
1. The fiscal and monetary response to Covid led to capital misallocation. E.g., the stimulus creates artificial demand (demand in excess of what it would have otherwise been), which confuses entrepreneurs. The objective of the entrepreneur is to match supply with demand; this requires that he correctly ascertain and forecast demand, as his capital investments depend on the accuracy of his forecasts. When his forecasts prove to be incorrect—when they overestimate future demand—his capital allocations are revealed to be malinvestments. This is a critique of low-interest rates often made by Austrian economists. If you’re interested in this topic, google Austrian business-cycle theory.
2. Financial bubbles are invariably preceded by low interest rates. “[W]ithout easy credit creation a true bubble cannot occur” (Furguson, 2008, p. 122). And Kindleberger (2015): “You can’t have a real estate bubble without the rapid expansion of credit” (p. 78). Note that though Kindleberger specifically mentions real estate, his point applies to asset prices more generally. As a rule, a monetary expansion will first result in asset price inflation (e.g., commodity prices, equities, housing, etc.), then it hits consumer prices (e.g., 8% CPI).
I’ve been reading everything I can find on this, as I plan to be an equity analyst, and my main takeaway is that one must understand the business cycle and one’s current position in it. The typical trajectory: crisis, monetary/fiscal stimulus, economic expansion, inflation and bubbles and mania, Fed tightens credit, economic contraction, boom goes bust and asset prices fall. Dalio’s book on debt crises has a good discussion of the phases for those interested.
3. Low interest rates can create speculative orgies. Analysts value companies by discounting their future cash flows/dividends/earnings. Lowering interest rates lowers the discount rate, thereby raising valuations. This disproportionately benefits tech companies. Why? Because most tech companies are growth companies, that is, most of their profits are in the future—some far in the future. (It was said during the Dot-Com Boom, though I forget by whom, that some companies were discounting the future and the hereafter, so delayed were their profits!) The point is this: low-interest rates enable ridiculously irrational valuations. And there not infrequently develops a positive feedback dynamic, such that price rises cause more people to buy, which causes prices to rise, etc., etc., leading to speculative excess (Shiller, 2015). The flip side is that tech stocks have the greatest interest rate risk, as rate hikes raise the discount rate, thereby lowering the PV of future cash flows. Hence, the Nasdaq fell further than the S&P this year.
3. Hyman Minsky has an insightful taxonomy of companies’ credit quality:
Hedged, i.e., cash flows from operations are sufficient to cover interest and principal payments.
Speculative, i.e., cash flows from operations are only sufficient to repay interest charges, that is, principal payments must be rolled over.
Ponzi, i.e., cash flows from operations are insufficient to repay interest or principal, that is, interest and principal must be rolled over.
Ponzi financing is only sustainable if interest rates fall or profits rise—and, crucially, if the creditor allows the debt to be rolled over. Also, consider that these financing positions aren’t static: Minsky notes that “speculative positions turn into Ponzi positions if cash flows fall or if interest rates rise” (Wray, 2016, p. 28). As I understand it, many of SBF’s crypto bets were premised on the proposition that the price of a given crypto token/currency would only go up. One wonders how many crypto business models were predicated on such as premise.
4. The Bitcoin white papers were published in 2008, I believe, in response to the housing crises (though I’m sure the intellectual/technical work began long before). A big theme in the papers is the notion of peer-to-peer transactions, disintermediation, and decentralization. This serves many functions: it protects privacy rights; it prevents the state from intervening in commerce; it prevents the state from debasing the currency; and many other libertarian ideals. However, the idea of a crypto exchange is centralized and entangled with the state. SBF was lobbying the SEC to create a regulatory moat, for instance. Further, I’ve read some people in this space that believe that the prominent failure of crypto firms, such as FTX, will be used to push CBDCs, which are antithetical to the crypto project, as they aggrandize state power. Rogoff (2016) is a good book on the topic, one which argues in favor of CBDCs. Essentially, CBDCs will give the state absolute control and surveillance over commerce, to the point of determining who can and cannot transact. This is not only anathema to the crypto project, it is tyrannical and nightmarish.
August 20, 2018
There are countless opinions about whether it's preferable to have a top-down or a bottom-up approach to investing. Typical value investors embrace the bottom-up approach where they mainly look at company fundamentals while others have a more open approach of considering factors as the business cycle and various macro factors. The top-down investor risks falling into the trap of predicting the unpredictable and the bottom-up approach got criticism after the financial crisis which hurt many value investors badly. Many have recovered well since then though. It is in my view useful for all investors to study financial history in order to learn from events of the past as it often repeats itself. In the words of George Santayana "Those who don't remember the past are condemned to repeat it".
Charles P. Kindleberger's Manias, Panics and Crashes is an oft-cited book in the realm of financial history and used in MBA programs across the world. Kindleberger was an economic historian and author of over thirty books and he originally published Manias, Panics and Crashes in 1978. During his career, he held senior roles within the US Treasury, the Federal Reserve and Bank for International Settlements. He finished his career as Professor of International Economics at MIT where he worked for more than thirty years. Robert Z. Aliber, who has updated the last three editions of the book, is a professor emeritus of International Economics and Finance at the University of Chicago.
The first couple of chapters presents a background of historical financial manias and typical patterns of how a mania evolves and how it turns to a panic and eventually a crash. Fraudulent behavior that is a typical theme towards the end of a mania is described with the examples of Charles Ponzi and Bernie Madoff as well as with instances of corporate frauds including Enron. The author summarizes some of the worst financial panics from the tulip mania in the 17th century, through the Great Depression in 1929 to the latest financial crisis in 2008 among others. The last couple of chapters of the book are primarily written for policy makers, advising on how to understand financial calamities in order to decide on the right policy from a fiscal and monetary perspective.
To sum up the main thesis of the book there are some typical factors that usually leads to a forthcoming mania and crash. The two most important factors have been increases of cross-border investment inflows as well as credit. The increases have typically led to rising stock- and real estate prices which have led to further increases in cross-border investment inflows and credit and in turn further increases in asset prices in a positive feedback cycle supported by behavioral phenomena. To cite from the book: "Asset bubbles - most asset bubbles - are a monetary phenomenon and result from the rapid growth of the supply of credit". The party has typically stopped when the creditors have got worried that debtors won't be able to pay back the loans and have in turn stopped issuing new loans. The debtors have relied on new loans to cover the interest payments and when the flow stops bankruptcies erupt.
As there are regularities in the financial crises the reading gets a bit monotonous at times. Also, I felt it was difficult to get a flow in the reading but that can probably be explained by it being a book written by academics for academics. It is not a must to read this book from cover to cover. The book is still a great source for investors who want to learn history in order to be able to be on alert for future occurrences. It's also a great start for those who want to dig into a specific event.
This is a book that is beneficial for both bottom-up and top-down investors. Just as individual companies, the stock market and currencies follow the investment market’s pendulum swings of euphoria to depression and overpricing to underpricing to use some of the terms often used by the legendary value investor Howard Marks.
Charles P. Kindleberger's Manias, Panics and Crashes is an oft-cited book in the realm of financial history and used in MBA programs across the world. Kindleberger was an economic historian and author of over thirty books and he originally published Manias, Panics and Crashes in 1978. During his career, he held senior roles within the US Treasury, the Federal Reserve and Bank for International Settlements. He finished his career as Professor of International Economics at MIT where he worked for more than thirty years. Robert Z. Aliber, who has updated the last three editions of the book, is a professor emeritus of International Economics and Finance at the University of Chicago.
The first couple of chapters presents a background of historical financial manias and typical patterns of how a mania evolves and how it turns to a panic and eventually a crash. Fraudulent behavior that is a typical theme towards the end of a mania is described with the examples of Charles Ponzi and Bernie Madoff as well as with instances of corporate frauds including Enron. The author summarizes some of the worst financial panics from the tulip mania in the 17th century, through the Great Depression in 1929 to the latest financial crisis in 2008 among others. The last couple of chapters of the book are primarily written for policy makers, advising on how to understand financial calamities in order to decide on the right policy from a fiscal and monetary perspective.
To sum up the main thesis of the book there are some typical factors that usually leads to a forthcoming mania and crash. The two most important factors have been increases of cross-border investment inflows as well as credit. The increases have typically led to rising stock- and real estate prices which have led to further increases in cross-border investment inflows and credit and in turn further increases in asset prices in a positive feedback cycle supported by behavioral phenomena. To cite from the book: "Asset bubbles - most asset bubbles - are a monetary phenomenon and result from the rapid growth of the supply of credit". The party has typically stopped when the creditors have got worried that debtors won't be able to pay back the loans and have in turn stopped issuing new loans. The debtors have relied on new loans to cover the interest payments and when the flow stops bankruptcies erupt.
As there are regularities in the financial crises the reading gets a bit monotonous at times. Also, I felt it was difficult to get a flow in the reading but that can probably be explained by it being a book written by academics for academics. It is not a must to read this book from cover to cover. The book is still a great source for investors who want to learn history in order to be able to be on alert for future occurrences. It's also a great start for those who want to dig into a specific event.
This is a book that is beneficial for both bottom-up and top-down investors. Just as individual companies, the stock market and currencies follow the investment market’s pendulum swings of euphoria to depression and overpricing to underpricing to use some of the terms often used by the legendary value investor Howard Marks.
December 24, 2017
Written by an eminent economic historian, this book outlines what I believe is the standard view of bubbles, crashes and financial panics -- three closely related but not identical topics. The author's account goes something like this:
From time to time the price of some class of assets starts to rise and people get excited. Often there is some good reason for this -- railroads, canals, tech companies and so forth are real productive assets and people realize at some point that they have been previously underestimating just how productive. Tulip bulbs with exciting pretty patterns also qualify -- a bulb that produces a new kind of flower is a capital asset, since you can produce many such flowers by cutting. The first third of the book documents this process.
As speculators pile in, the price of the asset grows higher than can be justified based on future cash flows. In addition to sincere promoters of the new asset, there are incompetents and frauds promising returns they can't reliably deliver, or have no intention to deliver. Insiders notice this and cash out. At some point the cycle goes into reverse -- often due to some prominent failure, sometimes due to simply a lack of new investors. Prices falter and fall. When people notice the decline, there's a feedback loop where everybody wants to sell "before the crowd" -- hence, the crash. The author traces this pattern with examples going back to the tulips, with special emphasis on English, French, and American panics from the South Sea bubble through 1929. Reading the book at the time I did, it was impossible not to think of Bitcoin. The second third of the book describes the crash and shows that it feels remarkably similar whether it's stock in the South Sea Company or a 2000-era Dotcom company.
Sometimes, a bubble can burst without drastic effect (e.g., the Dot-com bubble.) But sometimes the bubble is big enough, or has sensitive-enough investors, that it causes larger scale disruption. In particular, if people or banks had been borrowing against the now-worthless asset, the individual or bank will now be under water. At this point, creditors notice that they need to get their money out before the insolvent party goes bankrupt -- and there's a rush to call in loans and de-leverage. This cycle, if it grows big enough, is a panic. Anybody who was paying attention in the fall of 2008 knows what this looks like.
The last third of the book is devoted to discussing responses to panics. The author looks particularly at doing nothing, at declaring bank holidays, central bank cash infusions, and international rescues. The author notes that "bank holidays" [and their shorter-timescale equivalent, the trading circuit-breakers] rarely work -- those devices leave investors more anxious to get out quickly, while they still can, the next time. "Do nothing" is questionable: some problems do go away on their own as investors take their losses and move on; other times, the scale of financial deleveraging does a great deal of unnecessary damage. Rescues (domestic or foreign) do work, but have corresponding challenges -- they risk moral hazard,, and sometimes the rescuer doesn't have enough money to go through with it. The author at length concludes that we are little advanced over Walter Bagehot, the mid-19th-century economic journalist -- it's good to do rescues, when we can, but without being too consistent or predictable about it.
The book is written for both a professional-economist and lay readership. The author is at pains to draw contrasts between his view and either Marxists who assert that all investment and money is a sham or radical neoclassical types who assert that there are no bubbles, investors are always rational and things that look like bubbles and crashes are a misreading of the evidence. I found the book generally easy reading though was confused about technicalities at some points.
From time to time the price of some class of assets starts to rise and people get excited. Often there is some good reason for this -- railroads, canals, tech companies and so forth are real productive assets and people realize at some point that they have been previously underestimating just how productive. Tulip bulbs with exciting pretty patterns also qualify -- a bulb that produces a new kind of flower is a capital asset, since you can produce many such flowers by cutting. The first third of the book documents this process.
As speculators pile in, the price of the asset grows higher than can be justified based on future cash flows. In addition to sincere promoters of the new asset, there are incompetents and frauds promising returns they can't reliably deliver, or have no intention to deliver. Insiders notice this and cash out. At some point the cycle goes into reverse -- often due to some prominent failure, sometimes due to simply a lack of new investors. Prices falter and fall. When people notice the decline, there's a feedback loop where everybody wants to sell "before the crowd" -- hence, the crash. The author traces this pattern with examples going back to the tulips, with special emphasis on English, French, and American panics from the South Sea bubble through 1929. Reading the book at the time I did, it was impossible not to think of Bitcoin. The second third of the book describes the crash and shows that it feels remarkably similar whether it's stock in the South Sea Company or a 2000-era Dotcom company.
Sometimes, a bubble can burst without drastic effect (e.g., the Dot-com bubble.) But sometimes the bubble is big enough, or has sensitive-enough investors, that it causes larger scale disruption. In particular, if people or banks had been borrowing against the now-worthless asset, the individual or bank will now be under water. At this point, creditors notice that they need to get their money out before the insolvent party goes bankrupt -- and there's a rush to call in loans and de-leverage. This cycle, if it grows big enough, is a panic. Anybody who was paying attention in the fall of 2008 knows what this looks like.
The last third of the book is devoted to discussing responses to panics. The author looks particularly at doing nothing, at declaring bank holidays, central bank cash infusions, and international rescues. The author notes that "bank holidays" [and their shorter-timescale equivalent, the trading circuit-breakers] rarely work -- those devices leave investors more anxious to get out quickly, while they still can, the next time. "Do nothing" is questionable: some problems do go away on their own as investors take their losses and move on; other times, the scale of financial deleveraging does a great deal of unnecessary damage. Rescues (domestic or foreign) do work, but have corresponding challenges -- they risk moral hazard,, and sometimes the rescuer doesn't have enough money to go through with it. The author at length concludes that we are little advanced over Walter Bagehot, the mid-19th-century economic journalist -- it's good to do rescues, when we can, but without being too consistent or predictable about it.
The book is written for both a professional-economist and lay readership. The author is at pains to draw contrasts between his view and either Marxists who assert that all investment and money is a sham or radical neoclassical types who assert that there are no bubbles, investors are always rational and things that look like bubbles and crashes are a misreading of the evidence. I found the book generally easy reading though was confused about technicalities at some points.
August 10, 2013
I read the 1st edition written in 1977, published 1978. I understand that the book has been updated in later editions, the 6th written in 2006. It was written during the height of the California housing bubble which saw Bay-area studio apartment rent go as high as $1000 per month when 3-bedroom home mortgages elsewhere were running in the $400-$500 range. It is an eerie foreshadowing of the true mania that seized the country in 2004 when the government communicated its intent to effectively free the financial markets of regulatory oversight. Given the events of the last 10 years, which so closely mapped to the de-emphasis of financial regulation by President Bush and the resulting toxic mortgage derivative scams that triggered both the mania of 2004-2006 and the panic that culminated in US financial collapse in 2008-2009, I seriously doubt that Kindleberger’s conclusions could have changed, as the model he revealed matches the current events with surreal accuracy.
All of his conclusions are drawn from analysis of historical events dating back to 1720, and give a clear and consistent picture of how bubbles and crashes work. I mention events of the past 10 years because Kindleberger could not have foreseen the changes in the financial practices that lead to what has happened, but it has clearly followed his model as if he had been writing today.
I gave him 4 stars because some of the historical stuff (especially in chapter 8) got into plain list mode, without enough explanation, as if he felt he was part of a larger discussion the reader was not privy too. Otherwise I would have given 5 stars.
All of his conclusions are drawn from analysis of historical events dating back to 1720, and give a clear and consistent picture of how bubbles and crashes work. I mention events of the past 10 years because Kindleberger could not have foreseen the changes in the financial practices that lead to what has happened, but it has clearly followed his model as if he had been writing today.
I gave him 4 stars because some of the historical stuff (especially in chapter 8) got into plain list mode, without enough explanation, as if he felt he was part of a larger discussion the reader was not privy too. Otherwise I would have given 5 stars.
March 19, 2020
”The last 400 years have been replete with financial crises, which often followed increases in the supplies of credit, greater investor optimism, and more rapid economic growth.”
“There have been 4 waves of banking crises; a large number of lenders in 3,4, or more countries collapsed at about the same time as the prices of real estate and securities in these countries and the prices of their currencies fell sharply. Each country that experienced a banking crisis also had a recession as household wealth declined in response to the sharp fall in the prices of securities and real estate, and as the banks become much more reluctant suppliers of credit as their own capital was depleted. The Great Recession that began in 2008 was the most severe and the most global since the Great Depression of the 1930s.”
General interesting quotes in this context:
“The Chinese use two brush strokes to write the word 'crisis. ' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger--but recognize the opportunity.”
/JFK
”It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: "And this, too, shall pass away." How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!” /Abraham Lincoln
“There have been 4 waves of banking crises; a large number of lenders in 3,4, or more countries collapsed at about the same time as the prices of real estate and securities in these countries and the prices of their currencies fell sharply. Each country that experienced a banking crisis also had a recession as household wealth declined in response to the sharp fall in the prices of securities and real estate, and as the banks become much more reluctant suppliers of credit as their own capital was depleted. The Great Recession that began in 2008 was the most severe and the most global since the Great Depression of the 1930s.”
General interesting quotes in this context:
“The Chinese use two brush strokes to write the word 'crisis. ' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger--but recognize the opportunity.”
/JFK
”It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: "And this, too, shall pass away." How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!” /Abraham Lincoln
December 20, 2015
There have been many attempts to explain the GFC – greed, irrational behaviours, bell curve, derivatives, excessive leverage, failures by rating agencies, regulatory failure, etc, which all can be groups as a demand side shock.
This book artfully presents (or had presented) another factor, excess capital floating around in the world built by the current account surpluses from the economic imbalance since 60’s. This is more of a supply side shock, which no one has control over after the collapse of the Bretton Woods system. We don’t even know the volume of this excess capital, let alone the movement. This indicates, the next financial crisis will occur where this excess capital ends up triggered by whatever the demand side shock mentioned above meaning as long as there is this excess capital, another crisis is inevitable.
There may be a way to track the flows of this capital but the financial transaction tax being largely rebuffed by free market capitalists, there does not appear to be any other means to predict or curtail the next crisis but just wait it to happen.
This book artfully presents (or had presented) another factor, excess capital floating around in the world built by the current account surpluses from the economic imbalance since 60’s. This is more of a supply side shock, which no one has control over after the collapse of the Bretton Woods system. We don’t even know the volume of this excess capital, let alone the movement. This indicates, the next financial crisis will occur where this excess capital ends up triggered by whatever the demand side shock mentioned above meaning as long as there is this excess capital, another crisis is inevitable.
There may be a way to track the flows of this capital but the financial transaction tax being largely rebuffed by free market capitalists, there does not appear to be any other means to predict or curtail the next crisis but just wait it to happen.
February 5, 2016
A good introductory book to the history of financial cycles, but only for people with some background in economics.
I didn't like the style. Many times it felt like an endless list of historical examples that illustrate an idea. The idea that financial crises across the world are connected is repeated ad nauseam. Lehman Brothers didn't deserve its own chapter.
It doesn't read as a treatise on the economics causes and consequences of financial cycles, panics, etc., and it doesn't read as an economic history book. It tries to be both, and it fails at both. I don't like the organization of the content by chapters.
I still recommend the book, if you are very interested in the topic. If you're in a rush and want to get the gist, read the last chapter.
I wonder how this compares to "This time is different." I will find out this year.
I didn't like the style. Many times it felt like an endless list of historical examples that illustrate an idea. The idea that financial crises across the world are connected is repeated ad nauseam. Lehman Brothers didn't deserve its own chapter.
It doesn't read as a treatise on the economics causes and consequences of financial cycles, panics, etc., and it doesn't read as an economic history book. It tries to be both, and it fails at both. I don't like the organization of the content by chapters.
I still recommend the book, if you are very interested in the topic. If you're in a rush and want to get the gist, read the last chapter.
I wonder how this compares to "This time is different." I will find out this year.
June 15, 2015
The 2000 edition reads like a playbook for the collapse and bailout of of 2008. Both the descriptions and proscriptions of this book, especially its focus on the lender of last resort, seem to be amazingly prescient though it probably just that this iconic text was on the bookshelf of every major player in the fed at the time.
The book is not written for a general audience and some of the econ jargon gave me trouble as a non-specialist but it's not insurmountable. It is a historical and non-quantitative book so it's still a very interesting overview of the many global financial crises since ~1600.
The book is not written for a general audience and some of the econ jargon gave me trouble as a non-specialist but it's not insurmountable. It is a historical and non-quantitative book so it's still a very interesting overview of the many global financial crises since ~1600.
February 24, 2012
This book was incredibly dense and difficult to read. While Kindleberger knows his stuff, he fails to organise it in a way that is accessible or comprehensible. There are one or two chapters that are (relatively) easy to follow, but the majority leap from historical crisis to crisis with little in the way of context or explanation. This reads like an academic treatise written exclusively for tenured professors in their ivory towers, rather than a book that I can recommend to a lay person interested in financial crises and their causes.
May 9, 2015
Bailed early; just could not get into the topic, and the sentence structure and phrasing felt odd.
keywords: bubble finance recession
keywords: bubble finance recession
February 2, 2016
Important material delivered in a dry, difficult to follow narrative.
May 6, 2020
Reads like a textbook at times and also has a confusing timeline as it often jumps back and forth between economic catastrophes throughout global history.
August 20, 2020
The conclusion is: Lender of the last resort is indeed helpful in panics and crises.
This book tells you all the ways banks fall - surely useful for the coming years!
This book tells you all the ways banks fall - surely useful for the coming years!
May 9, 2020
Touted as a must read for anyone with an interest in global macro investing, I probably had too higher expectations. It’s filled with quality financial history, which should provide useful references against which to compare current events. Kindleberger, like his teacher Minsky, were students of credit cycles and the flow of global capital. I enjoyed the way in which he sketched the linkages between the financial crises of the last 50 years. From the inflationary 70s and the oil price shock of the early 80s, the Japanese 80s boom and its subsequent crash in 1990, the 90s East Asia boom and 1997 crash that followed with capital flooding into the US market, stoking the DotCom bubble. The solutions of the past crisis often sow the seeds of the next… Kindlebergers analytical approach is a welcome addition to an Austrian Economist but its supplemental. He implicitly places the responsibility for these cycles at the hands of central banks, banks and policymakers without explicitly obligating them to act more responsibly, which I see as a necessity. I’ll keep it as a reference book, but I wasn’t enthralled. Perhaps I just didn’t click with his writing style, even though I could display subtle comical undertones from time to time.
March 26, 2023
I was expecting this book to read more like a history book (i.e. with a coherent plot and characters), but it's more of a technical text grouped around recurring elements of financial crises (e.g. an expansion of credit, an external shock). After each element, the author gives several examples of how this element was seen in various crises; however, since these crises largely overlap, the book gets repetitive towards the end. I feel like the more technical aspects would have been easier to process if the book had just been structured chronologically, though it does cover its topic pretty comprehensively.
July 31, 2020
OMG I am finally done.
Have never read a book that galvanizes its title to your soul as much as this has.
Neverending examples that seem to be repeating themselves over and over, transcending time, culture, political beliefs and geography.
More often than enough, the examples, well researched as they might be, seem to be portraying only parts of the problem. Conclusions are easy to be drawn when an event has passed and been thoroughly documented.
Was expecting more conclusions as to what awaits us or more scientific evidence on the psychology behind this never ending cycle.
Would recommend it to any investor.
P.S. His take on Bitcoin is not supported enough.
Have never read a book that galvanizes its title to your soul as much as this has.
Neverending examples that seem to be repeating themselves over and over, transcending time, culture, political beliefs and geography.
More often than enough, the examples, well researched as they might be, seem to be portraying only parts of the problem. Conclusions are easy to be drawn when an event has passed and been thoroughly documented.
Was expecting more conclusions as to what awaits us or more scientific evidence on the psychology behind this never ending cycle.
Would recommend it to any investor.
P.S. His take on Bitcoin is not supported enough.
December 23, 2021
I liked the book a lot, as the author seems to make a sincere effort to address the data on panics and crashes and test the various theories about them rather than being doctrinaire and bashing the circumstances to fit a predetermined theory. The result is illuminating but also a difficult read that advocates for no clear position. On the other hand that is in part the message of the book -- that circumstances alter cases, and that no rule will really work to stabilize matters; as any rule-based intervention changes the behavior of speculators ("moral hazard") who count on future intervention. Worth it if you're interested in the subject.
June 16, 2020
The conclusion is very sharply summarized in the introduction and for me was 80% of what i will take away.
This book would have been easier to follow if i had more awareness of the economic history is goes over.
Overall this book is very dry.
This book would have been easier to follow if i had more awareness of the economic history is goes over.
Overall this book is very dry.
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