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Book: A Short History of Financial Euphoria (Whittle) :: Book
Date: Thursday, 08 January, 2009 :: 21:19
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A Short History of Financial Euphoria (Whittle)
List Price: USD $16.00
from USD $18.97
Product Group: book
Manufacturer: Viking Adult
Studio: Viking Adult
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Editorial Review: Product Description
The world-renowned economist reviews the great speculative episodes of the last three centuries, including the calamitous junk-bond follies of the 1980s, and shows how the lessons of history can help people avoid financial calamity. 40,000 first printing. $40,000 ad/promo.
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Reviews:
Average Customer Review: 
Summary: This is a great read
Date: 2008-11-11 - 
Comment: How appropriate this book is, given the recent real estate bubble burst. It is a short study of the historical bursting of bubbles. John Galbraith is a renowned economist, and admits he can't predict when bubbles will burst, just that they will. The language you hear during the upward trend of bubbles is exactly the same - that "it" will never go down. People get into a frenzy or euphoric state and ignore that fact that the bubble will ultimately burst, as it always does. This book was written prior to the Stock Market crash of 1987, the dot com era, the more recent real estate bubble, which ultimately is the root of our current economic woes. This was a very quick read and I enjoyed it tremendously. A friend of mine lent me his copy to read a few years ago, and the recent crash of the real estate market led me to remember how much I enjoyed the book that I bought it for myself to reread.
Summary: Bubble, "mass insanity", euphoria, crash, "mass memory loss"
Date: 2008-10-19 -
Comment: "A Short History of Financial Euphoria: Financial Genius is Before the Fall" is a book that every financial manager must be required to read. Every financial company must have one copy in its library.
The book is powerful in its explanation and predictions of financial speculative episodes. In eight brief chapters, (I wish I could do that), JK Galbraith describes the financial euphoria preceding major financial collapses starting with the Tulipomania in the Netherlands in the 1600s and ending with October 1987.
All crashes have common features. First, and nearly always, is a reinvention of a financial instrument sold to investors as the blockbuster wealth-creator of all time. People buy into the instrument in herds, creating a speculative bubble, which in turn leads to "mass insanity." Two speculative behaviors characterize all financial euphoria. One involves investors who believe the bubble will last forever. The second relates to those who know the bubble will ultimately burst, but contend "they will get the maximum reward from the increase as it continues; they will be out before the eventual fall" (p. 4).
The two behaviors reinforce one another in two different, but related ways. Because of euphoric "mass insanity", there is always a strong belief in the unfailing ingenuity of financial geniuses. Partly because of such a belief, a dogmatic theology has emerged that condemns to Hell anyone who dares to caution against excessive speculation and mass euphoria. Critics are generally put down as unpatriotic and against capitalism. The consequence is a crash that "always ends not with whimper but with a bang" (p.5).
Here is the common sequence of speculative episodes: Bubble, then "mass insanity", then euphoria, then crash, and finally "mass memory loss". The latter guarantees that there will be another episode just as severe or even more so.
Highly recommended!
Amavilah, Author
Modeling Determinants of Income in Embedded Economies
ISBN: 1600210465
1 of 1 people found the following review helpful:
Summary: 4.5 stars-Galbraith and Adam Smith agree that banker financed speculation is a grave threat to capitalism
Date: 2008-06-22 -
Comment: Galbraith has written an excellent little book on the negative impacts of speculation on the American economy.The speculative dangers to free enterprise restarted with the Reagan administration's deregulation and privatization of the financial sector of the economy in the early 1980's.Galbraith's analysis is completely applicable to the Michael Milkin-Ivan Boesky directed junk bond speculation of the mid to late 1980's that led to the collapse of so many banks and S and L's in the 1989-1991 time period,as well as the Dot com bombs and NASDAQ(DOW) meltdown of 2000-2002 period, and the subprime mortgage backed bonds folly of the 2003-? period that also witnessed the bankers' reflating of the DOW bubble(2003-2007) and Ben Bernanke's 1.2 trillion dollar attempted bailout of Wall Street that simply created another bubble in oil and commodoties while annihilating the value of the dollar.Galbraith, like Adam Smith,John Maynard Keynes,and Kindleberger before him,correctly identifies a pattern that emerges over and over again in capitalist economies-first,there is the banker financed and directed leveraging based on increased prices for some asset.It is claimed that this is a " new " economy and things will be different this time.This leads to the formation of the bubble .This is then followed by a mania featuring herd like " momentum " investing that is financed by the commercial banks.This leads to a panic ,which leads to a crash which leads to a recession or depression.
I have given Galbraith 4.5 stars here because he is completely ignorant of the fact that Adam Smith provided a much more detailed exposition of this problem in his The Wealth of Nations (WN)in 1776(See the Modern Library Edition (Cannan)of WN,pp.250-340).Smith's conclusions,supplied on pp.339-340,include the solution-prevent the bankers from financing the leveraging that speculators MUST have in order to put their plans into action.This requires a policy of restricting credit to 3 categories of borrower-the prodigals,the imprudent risk takers,and the projectors(Keynes's speculators and rentiers).Of course,the forces of banking and finance,as pointed out by Keynes in 1938 in an article in the Eugenics Review, will resist mightily.
It is unfortunate that Galbraith never read WN.Galbraith could have used the intellectual support provided from the analysis presented by the greatest economist of all time to buttress his position substantially.
1 of 5 people found the following review helpful:
Summary: Entertaining, but of little value
Date: 2008-02-05 - 
Comment: Yes, Galbraith predicted the '87 recession- but he did so throughout much of the 1980s, during a period of tremendous growth and wealth building. When the '87 recession did occur- and let us recall that it was exceptionally short and shallow, lasting only until April of 1988- he gleefully announced his vindication.
Galbraith built his reputation on his 1955 book on the Great Depression, written at a time when Economics was in large part a historical and largely literary field, well before the econometrics explosion of the 70s, 80 and beyond. Modern economists are as much mathematicians as anything, and the sophistication of the tools they use today is far beyond anything Galbraith had at his disposal in 1955.
In large part because of the sophistication of the tools available, the recessions of the past 20 years have been much shorter and milder than those of past years. One only has to look at the historical record to see the tremendous decrease. At the time Galbraith wrote this book, however, he was still writing in a very 19th-century, historical style of analysis and his arguments tend to reflect that. A large part of his argument is that psychology governs markets, which is true, but trivially so; markets are, after all, simply collective human behavior. But Galbraith thinks that bubbles can be explained entirely by "herd mentality." Of course, if that were so, the Fed could quit playing with the funds rate and just buy a lot of advertising space and time.
We now know, for instance, that the "bubble" of the late 90s was caused in large part by companies bringing forward computer spending in order to deal with Y2K compliance. We also know that the brief '87 recession was caused in large part by a large tax increase. And we know that there is a political business cycle triggered by the actions of politicians in election years that often results in a dip the following year.
None of this enters in to Galbraith's analysis, because he's still dealing with the same analytic tools he was taught in the 1920s. So read this book for the historical perspective, and for an insight into how a 19th Century economist would have viewed times of economic boom and bust- but don't think for a moment that it has anything to do with post-1960 economic analysis.
Summary: A must read for financial markets people
Date: 2007-03-23 - 
Comment: The real value of this book is that it will hopefully serve as a reminder to the person who has read it when that person happens to find himself in a state of financial euphoria. In that sense, it's indespensible and could be life-saver. It's a usefule piece of wisdom. But in another sense, Galbraith's analyses of various financial run-ups and crashes is a bit too tidy. Obviously at the most general level, extreme market behavior can be thematicized, so to speak, so that genearl qualities can be shown to be shared by extreme markets. And this is where Galbraith makes his point and spreads it on thick, albeit in overly stuffy tone for an economist!
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