Boombustology

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.

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 Overconfidence Policy-Driven Distortions Epidemics and Emergence Conclusions 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