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Charles P. Kindleberger

Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics) Paperback – October 4, 2005

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Manias, Panics, and Crashes: A History of Financial Crises
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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.

Print length

355 pages
Language

English
Publisher

Wiley
Publication date

October 4, 2005
Dimensions

5.45 x 0.98 x 8.44 inches
ISBN-10

0471467146
ISBN-13

978-0471467144
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Editorial Reviews

From the Back Cover

Finance

"Underneath the hilarious anecdotes, the elegant epigrams, and the graceful turns of phrase, Kindleberger is deadly serious. The manner in which human beings earn their livings is no laughing matter to him, especially when they attempt to do so at the expense of one another. As he so effectively demonstrates, manias, panics, and crashes are the consequence of an economic environment that cultivates cupidity, chicanery, and rapaciousness rather than a devout belief in the Golden Rule."
from the Foreword to the Fourth Edition by Peter L. Bernstein,

author of Against the Gods and The Power of Gold

Praise for previous editions of Manias, Panics, and Crashes

"Classic...Manias, Panics, and Crashes is a durable guide to meditation: wise, witty, and practical. It is a template against which to measure the latest financial crisiswhatever and whenever that happens to be."
David Warsh, The Boston Globe

"Definitive."
Floyd Norris, The New York Times

"[Manias, Panics, and Crashes] is a scholarly account of the way that mismanagement of money and credit has led to financial explosions over the centuries."
Richard Lambert, Financial Times

"What long has been the best history of financial pathologies is now even better. The reader who absorbs Kindleberger's lessons will be prepared to foresee and navigate the financial crises that surely lie ahead. Like a true classic, Manias, Panics, and Crashes is both timely and timeless."
Richard Sylla, Kaufman Professor of Financial History

Stern School of Business, New York University

About the Author

Charles P. Kindleberger was the Ford Professor of Economics at MIT for thirty-three years. He is a financial historian and prolific writer who has published over thirty books. Manias, Panics, and Crashes is his most popular book.

ROBERT ALIBER is a Professor of International Economics and Finance at the University of Chicago Graduate School of Business, where he has been a faculty member since 1965.

Product details

Publisher ‏ : ‎ Wiley; 5th edition (October 4, 2005)
Language ‏ : ‎ English
Paperback ‏ : ‎ 355 pages
ISBN-10 ‏ : ‎ 0471467146
ISBN-13 ‏ : ‎ 978-0471467144
Item Weight ‏ : ‎ 1.05 pounds
Dimensions ‏ : ‎ 5.45 x 0.98 x 8.44 inches

Best Sellers Rank: #586,626 in Books (See Top 100 in Books)
- #139 in Microeconomics (Books)
- #1,211 in Economic History (Books)
- #2,502 in Finance (Books)

Customer Reviews:
4.7 88 ratings

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dizzy dean

Minsky to Understand Today

Reviewed in the United States on March 8, 2009

Verified Purchase

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....

5 people found this helpful

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Abacus

Second to none on the cause of financial crises

Reviewed in the United States on November 28, 2008

Verified Purchase

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) .

10 people found this helpful

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Ben Around&Back

How I Use The Kindleberger Text

Reviewed in the United States on January 1, 2014

Verified Purchase

I bought this three years ago and it has shaped my investing greatly. My goal in investing is always to buy low and sell high. This book helps me understand how to do the first half--buying low. I now buy after crashes.

Interestingly, something somewhere is always crashing. And I have also used Kindleberger to size up what are obvious manias (easy one: there are now more construction cranes in Toronto than any other city in North America). Places where I have bought after crashes are Greek shipping companies in January 2013 (42% gain in 12 months even including a stock that went from $70/share to $0.11/share) and Indian small caps in August of 2013 (up ~30% gain in 5 months), the US housing market in 2012, and a small bank whose shares went from $300, to $1, to $11 (counting reverse splits).

I have proven that you can still lose money even buying after a big fall (US Treasurys)--so I am not touting Kindleberger as a panacea. it is far from clear how to get the timing right during or after a crash. But this book did a great job illuminating the crazy ways people can cause a good or a stock to part from reality both on its way up and on its way down. Using it, I succeed more often than I fail. And I succeed more often than if I had not read it.

I would place this book on the short list, with Taleb's, Lefevre's, and Malkiel's work if you invest for yourself.

26 people found this helpful

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Daffy Bibliophile

Good Information Poorly Presented

Reviewed in Canada on December 14, 2011

Verified Purchase

Charles P. Kindleberger was a well-known economic historian and I have no doubt that he knew his stuff, but this book is in dire need of editing. On one page, I counted the phrase "the invisible hand" three times, in addition, his writing style seems disjointed, hard to follow at times. He also assumes a knowledge of arcane financial crises over the centuries and references them without giving any background.

I am not an economist, I'm a general reader with a reasonable knowledge of economics and I found this book to be a tough read, partly due to my ignorance of the aforementioned financial crises and partly due to the fragmented, dry style of writing. Two chapters, one of which deals with a domestic lender of last resort and the other which deals with an international lender of last resort were quite interesting and saved the book, in my opinion. These chapters dealt with central banks and the IMF and I wish that Kindleberger had spent more time on these topics.

You may want to check this book out of your local library rather than buying it, it has some good insight into crowd behaviour (manias) and the role of government in containing and cleaning up after bubbles, however, while reading the book is a fairly good investment of time, buying it might not be as rational.

One person found this helpful

Frank Reibold

Mehr Anekdoten als Analyse

Reviewed in Germany on January 27, 2012

Verified Purchase

Dieses Buch bietet eine Geschichte der wichtigsten Finanzkrisen und zeigt, was man daraus lernen kann.

Am Beginn steht immer ein Aufschwung, der irgendwann zu einer Manie wird. Die Marktteilnehmer sind dann euphorisch; immer mehr Leute wollen mitmachen und verschulden sich dafür immer weiter. Die konkreten Auslöser der Manie sind unterschiedlich (früher u. a. Tulpenzwiebeln, heute meist Blasen am Aktien- oder Immobilienmarkt).

Zu einem bestimmten Zeitpunkt zeigt sich, dass die Euphorie grundlos war; die Menschen geraten in Panik und versuchen, ihre Anlagen zu verkaufen. Durch diese Panikverkäufe sinken die Preise, sodass es durch mangelnde Nachfrage zu einer Rezession kommen kann.

Nach Minsky gibt es drei Phasen der Finanzierung: (1) das Unternehmen kann Tilgung und Zinsen zahlen; (2) das Unternehmen kann nur die Zinsen zahlen; (3) das Unternehmen kann aus eigenen Mitteln nicht einmal die Zinsen zahlen. Während eines konjunkturellen Aufschwungs gelangen durch die allgemeine Euphorie immer mehr Unternehmen in die späteren Phasen. Einige Unternehmen realisieren erst in der Krise, dass sie in der nicht tragbaren Phase (3) sind, weil die Finanzierung nun schwieriger ist.

Die Voraussetzung der Manien ist aber immer in einer zu lockeren Geldpolitik der Zentralbanken bzw. einer zu großzügigen Kreditvergabe durch die Geschäftsbanken zu sehen.

Das Buch untermauert diese Thesen auf zwei verschiedenen Ebenen:

(b) Anekdoten zeigen, wie sich frühere Krisen abgespielt haben. Was dachten Investoren, einfache Leute, Banker und Regierungen?
(b) Ursachen und Bekämpfung von Krisen werden schon lange diskutiert (z. B. Banking School gegen Currency School im viktorianischen England). Soll man nichts tun, wie die Österreichische Schule fordert? Oder sollte man etwas tun? Aber falls ja, wer? Die Zentralbank? Der Staat? Der Internationale Währungsfonds?

Man ist sich heute so gut wie einig, dass Finanzkrisen durch die Zentralbanken bekämpft werden sollen. Diese müssen den klammen Banken Geld leihen. Aber sollte dies national oder international geschehen? Wem soll man zu welchen Zinsen Geld leihen? Im viktorianischen England schlug Bagehot die Regel vor, dass die Zentralbank jede beliebige Summe verleihen sollte, aber nur an namhafte Institutionen für gute Sicherheiten und gegen hohe Strafzinsen. Aber gegen diese Regel wurde oft verstoßen. Außerdem schafft eine Bankenrettung unangenehme Präzedenzfälle, die die Banken zu riskanterem Verhalten ermuntern könnten. Der Markt kann Finanzkrisen selbst bereinigen, aber nach Ansicht der Politiker braucht er dazu viel zu lange. Außerdem scheint Nichtstun teurer zu sein.

Der Anhang enthält eine Tabelle mit den wichtigsten Finanzkrisen.

***

Mir hat das Buch teilweise gut gefallen.

Die Darstellung der Weltwirtschaftskrise geht ausführlich auf die Situation in Deutschland und Österreich ein. In diesem Zusammenhang werden auch die Positionen des Nichtstuns (u. a. US-Finanzminister Mellon) und der staatlichen Hilfen (US-Präsidenten Hoover und Roosevelt) diskutiert.

Über das Buch verteilt gibt es Informationskästen, die sich u. a. mit Schneeballsystemen, Gold und Schrottanleihen beschäftigen.

Den Punktabzug gibt es, weil das Stichwortverzeichnis oft fehlerhaft ist (teils + / - 2 Seiten) und man Informationen zu bestimmten Finanzkrisen aus mehreren Kapiteln zusammensuchen muss.

Für eine Erweiterung des Minsky-Schemas kann man "Boombustology" lesen. Eine wissenschaftliche Übersicht über die Finanzkrisen bietet "This Time Is Different".

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