Boombustology: Spotting Financial Bubbles before They Burst

Boombustology: Spotting Financial Bubbles before They Burst

by Vikram Mansharamani, David F. Swensen


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Boombustology: Spotting Financial Bubbles before They Burst by Vikram Mansharamani, David F. Swensen

A multi-disciplinary framework through which to spot financialbubbles before they burst.

Based on a popular undergraduate seminar, entitled FinancialBooms & Busts, taught by the author at Yale University,Boombustology presents a multi-disciplinary framework foridentifying unsustainable booms and forthcoming busts.

The magnitude of our recent financial crisis mandates a firmunderstanding of this phenomenon before the next crisis occurs.Boombustology provides an in-depth look at several majorbooms and busts and offers a solid framework for thinking aboutfuture occurrences.

  • Examines why booms and busts are not random and can thereforebe identified
  • Focuses upon various theoretical and disciplinary lenses usefulin the study of booms and busts
  • Contains a framework for thinking about and identifyingforthcoming financial bubbles including several tell-taleindicators of a forthcoming bust.
  • Illustrates the framework in action by evaluating China as apotential bubble in the making. 

If you want to make better decisions in today’s turbulentinvestment environment, understanding the dynamics of booms andbusts is the best place the start.  Boombustology canhelp you achieve this elusive goal.

Vikram Mansharamani is a Lecturer at Yale University and aglobal equity investor.

Product Details

ISBN-13: 9781119086864
Publisher: Wiley
Publication date: 02/28/2011
Pages: 288
Product dimensions: 5.90(w) x 9.00(h) x 0.70(d)

About the Author

VIKRAM MANSHARAMANI is an experienced global equity investor and a Lecturer at Yale University, where he teaches a seminar called "Financial Booms and Busts." Mansharamani has a PhD and MS from the MIT Sloan School of Management, an MS in political science from the MIT Security Studies Program, and a BA from Yale University. He lives in Brookline, Massachusetts.

Table of Contents

Foreword xi

Preface Is There a Bubble in Boom–Bust Books? xvii

Acknowledgments xxiii

Introduction The Study of Financial Extremes: One-Armed Analysts, Secrets, Mysteries 1

Secrets versus Mysteries

Different Problems Necessitate Different Approaches

Financial Booms and Busts as Mysteries

Part I Five Lenses

Chapter 1 Microeconomic Perspectives: To Equilibrium or Not? 9
"Random Walks" and Accurate Prices: The Efficient Market Hypothesis
Constant Instability and Inefficiency: The Theory of Reflexivity
Reconciling Efficiency and Reflexivity

Chapter 2 Macroeconomic Perspectives: The Impact of Debt and Deflation on Asset Markets and Prices 23
The Magnifying Power of Leverage
Collateral Rates and Debt Dynamics
Hyman Minsky’s Financial Instability Hypothesis
Debt Defl ation and Asset Prices
The Austrian Business Cycle Theory
Integrating the Macro Lenses

Chapter 3 The Psychology Lens: Homo economicus Meets Homo sapiens 45
The Study of Irrationality Is Born
Heuristics Gone Wild: How Rules of Thumb Lead Us Astray
Our Flawed Brains: Other Cognitive Issues
The Certainty of Uncertainty

Chapter 4 Political Foundations: Evaluating Property Rights, Price Mechanisms, and Political Distortions 69
Can Anyone Own Anything?
Prices: To Guide or Be Guided?
Political Distortions of Property and Price

Chapter 5 Biological Frameworks: Epidemiology and Emergence 85
Revealing the Maturity of an Unsustainable Boom
How Micro Simplicity Drives Macro Complexity
Emergent Behavior in Human Swarms
The Blind Leading the Blind

Part II Historical Case Studies

Chapter 6 Tulipomania: A Bubble in Seventeenth-Century Holland 103
The Uniqueness of Tulips
Fertile Soil for Bubble Formation
The Boombustology of Tulipomania
The Multilens Look

Chapter 7 The Great Depression: From Roaring Twenties to Yawning Thirties 117
Castles in the Sand
From Booming Twenties to Busted Thirties
The Boombustology of the Great Depression
The Multilens Look

Chapter 8 The Japanese Boom and Bust: A Credit-Fueled Bubble Economy 137
Japan(ese) as Different
An Overview of the Bubble Economy
The Boombustology of the Japanese Boom and Bust
The Multilens Look

Chapter 9 The Asian Financial Crisis: The Mirage of a Miracle 155
Boom Times in East Asia
Thailand Catches the Flu
The Boombustology of the Asian Financial Crisis
The Multilens Look

Chapter 10 The U.S. Housing Boom and Bust: The Homeowner’s Society Creates the People’s Panic 173
"Safe as Houses"
The Music Stops
The Boombustology of the U.S. Housing Boom and Bust
The Multilens Look

Part III Looking Ahead

Chapter 11 Spotting Bubbles before They Burst: A Method for Identifying Unsustainable Booms 193
Reflexivity and Self-Fulfi lling Dynamics
Leverage, Financial Innovation, and Cheap Money
Policy-Driven Distortions
Epidemics and Emergence

Chapter 12 Boombustology in Action: Is China Next? 217
Tendencies toward Equilibrium
Leverage, Cheap Money, and Potential Defl ation
Conspicuous Consumption and Overconfi dence
Rights, Moral Hazard, and Political Distortion
Consensus, Silent Leadership, and Epidemics
The Unsustainable Chinese Story

Conclusion Hedgehogs, Foxes, and the Dangers of Making Predictions 243

Notes 247

About the Author 265

Index 267

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