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.
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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
Preface Is There a Bubble in Boom–Bust Books? xvii
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 HypothesisConstant Instability and Inefficiency: The Theory of ReflexivityReconciling Efficiency and Reflexivity
Chapter 2 Macroeconomic Perspectives: The Impact of Debt and Deflation on Asset Markets and Prices 23The Magnifying Power of LeverageCollateral Rates and Debt DynamicsHyman Minsky’s Financial Instability HypothesisDebt Defl ation and Asset PricesThe Austrian Business Cycle TheoryIntegrating the Macro Lenses
Chapter 3 The Psychology Lens: Homo economicus Meets Homo sapiens 45The Study of Irrationality Is BornHeuristics Gone Wild: How Rules of Thumb Lead Us AstrayOur Flawed Brains: Other Cognitive IssuesThe Certainty of Uncertainty
Chapter 4 Political Foundations: Evaluating Property Rights, Price Mechanisms, and Political Distortions 69Can Anyone Own Anything?Prices: To Guide or Be Guided?Political Distortions of Property and Price
Chapter 5 Biological Frameworks: Epidemiology and Emergence 85Revealing the Maturity of an Unsustainable BoomHow Micro Simplicity Drives Macro ComplexityEmergent Behavior in Human SwarmsThe Blind Leading the Blind
Part II Historical Case Studies
Chapter 6 Tulipomania: A Bubble in Seventeenth-Century Holland 103The Uniqueness of TulipsFertile Soil for Bubble FormationThe Boombustology of TulipomaniaThe Multilens Look
Chapter 7 The Great Depression: From Roaring Twenties to Yawning Thirties 117Castles in the SandFrom Booming Twenties to Busted ThirtiesThe Boombustology of the Great DepressionThe Multilens Look
Chapter 8 The Japanese Boom and Bust: A Credit-Fueled Bubble Economy 137Japan(ese) as DifferentAn Overview of the Bubble EconomyThe Boombustology of the Japanese Boom and BustThe Multilens Look
Chapter 9 The Asian Financial Crisis: The Mirage of a Miracle 155Boom Times in East AsiaThailand Catches the FluThe Boombustology of the Asian Financial CrisisThe 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 StopsThe Boombustology of the U.S. Housing Boom and BustThe Multilens Look
Part III Looking Ahead
Chapter 11 Spotting Bubbles before They Burst: A Method for Identifying Unsustainable Booms 193Reflexivity and Self-Fulfi lling DynamicsLeverage, Financial Innovation, and Cheap MoneyOverconfidencePolicy-Driven DistortionsEpidemics and EmergenceConclusions
Chapter 12 Boombustology in Action: Is China Next? 217Tendencies toward EquilibriumLeverage, Cheap Money, and Potential Defl ationConspicuous Consumption and Overconfi denceRights, Moral Hazard, and Political DistortionConsensus, Silent Leadership, and EpidemicsThe Unsustainable Chinese Story
Conclusion Hedgehogs, Foxes, and the Dangers of Making Predictions 243
About the Author 265
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