Financial crises are not accidents: they are the predictable outcome of a collective euphoria that no generation seems able to learn from the previous one.
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In barely 100 pages, Galbraith distils decades of economic observation into a devastatingly lucid analysis of financial bubbles. He identifies the invariable ingredients of every speculative euphoria: leverage, the belief in the present situation's exceptionalism, "genius" figures who justify the boom, and the inevitable collapse. Written in 1990, it reads as if written about dot-com, 2008 housing, or crypto.
Financial crises are not accidents: they are the predictable outcome of a collective euphoria that no generation seems able to learn from the previous one. That is the central thesis of Galbraith's essay, published in 1990 after decades studying markets. In barely a hundred pages, the American economist identifies the pattern that repeats in every bubble: the discovery of a «new» asset, the mass entry of speculators, the belief that this time the rules have changed, and finally, the collapse. What is remarkable is not the analysis itself but the economy of means with which Galbraith delivers it: no equations, no technical jargon, with a devastating irony that makes the text read almost as satire. The book's weakness is its very brevity: Galbraith diagnoses brilliantly but barely prescribes. Nor does he go deep into the institutional mechanisms that might dampen the cycles. For those seeking practical quantitative tools, this book disappoints. For those who want to understand why humans will keep creating bubbles, it is a reference work that does not age.
For anyone who wants to understand the collective psychology behind financial crises; dispensable for those seeking quantitative valuation models.
FactThe essay was written in 1990, two years after the October 1987 stock market crash (Black Monday), which served as the trigger for its composition.
