“Manias, Panics, and Crashes” was first published in 1978 and the current edition that I read is the 5th edition. It is a very good book with the recommendation from Professor Paul A.
Samuelson, Nobel Laureate, Institute Professor Emeritus, Massachusetts Institute of Technology, “Sometime in the next five years you may kick yourself for not reading and re-reading Kindleberger’s Manias, Panics, and Crashes.”The book is written about the financial crisis happened since 1636 (The famous Tulipomania) to 2005 including 2001 IT Bubble and this book is a very good bedside book for all finance and investment professionals.Content of the BookThe book is separated into 13 Chapters.Chapter 1 gave a summary of the whole book and mentioned the cases of the financial crisis happened in the history.
(a) The Dutch Tulip Bulb Bubble 1636, (b) The South Sea Bubble 1720, (c) The Mississippi Bubble 1720, (d) The late 1920s stock price bubble 1927-29, (e) The surge in bank loans to Mexico and other developing countries in 1970s, (f) The bubble in real estate and stocks in Japan 1985-89, (g) The 1985-89 bubble in real estate and stocks in Finland, Norway and Sweden, (h) The bubble in real estate and stocks in Thailand, Malaysia, Indonesia and several other Asian countries 1992-97, (i) The surge in foreign investment in Mexico 1990-93, and(j) The bubble in over-the-counter stocks in the United States 1995-2000. These cases are being used as analysis cases.Chapter 2 talks about the inherited instability of the financial markets including opinions from generations of economists including Adam Smith, John Stuart Mill…. Chapter 3 analyzes the development of mania and the usual reasons of the build up of the bubble.
Chapter 4 analyzes the role of supply of money on the development of mania. It also mentions the difficulty in the management of the monetary mechanism. Chapter 5 analyzes stages of manias and whether warnings of authority can help to stop the mania. One of the very famous warning is given by Honorable Alan Greenspan, the Chairman of the Federal Reserve Board, in December 1996 about the IT Bubbles that imploded in 2000-01. When Mr. Alan Greenspan uses the word, “irrational exuberance”, the NASDAQ is 1300 and then peaks at 5000 four years later.
From this, you can see whether it is useful for the authority to give warnings.Chapter 6 is about the domestic propagation of the mania and the subsequent panic. Chapter 7 is about the mania of one country affecting the financial situation of other countries such as the 1997 Asian Financial Turmoil, which happens in Thailand first and infects other countries such as Malaysia, Korea, Indonesia, Hong Kong, Singapore, etc.Chapter 8 is about the analysis of recent 15 years 3 bubbles including Japan property and stock bubble in 1980s, South East Asia property and stock bubble in the first half of 1990s, and New York stock bubble in the latter half of 1990s.
Chapter 9 adds the element of fraud, swindles that occur in the manic phase, Enron, MCIWorldCom, Tyco, Dynegy… are mentioned. Chapter 10 and 11 are about crisis management in the country, such as using exchange holiday to cool off the panics, guarantees, and deposit insurance or even hands-off. The lender of last resort as a final means to relieve the credit tightness is also discussed.Chapter 12 is about the international lender of last resort in international or regional crisis. In fact, International Monetary Fund is formed in 1940s with this aim but it seems that it is not very effective.Chapter 13, the last chapter, tries to find answers to the questions: - “Why there are so many financial crises in last 30 years?” and “Could the international lender of last resort help?”ConclusionThis is a very good bedside reading for finance and investment professional.
I hope that after reading this book can help us to avoid the losses and panics in the investment venture.
