Manias, Panics and Crashes Examine the record of history, recollect what has happened within the circle of your own experience, consider with attention what has been the conduct of almost all the great unfortunate, either in private or public life, whom you may have either read of, or heard of, or remember; and you will find that the misfortunes of by far the greater part of them have arisen from their not knowing when they were well, when it was proper for them to sit still and be contented – Adam Smith The Theory of Moral Sentiments Much has been written about panics and manias, much more than with the most outstretched intellect we are able to follow or conceive; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money At intervals, from causes which are not to the present purpose, the money of these people – the blind capital, as we call it, of the country – is particularly large and craving; it seeks for someone to devour it, and there is a ‘plethora’; it finds someone, and there is ‘speculation’; it is devoured, and there is ‘panic.’ – Walter Bagehot ‘Essay on Edward Gibbon’ I permit myself to note in this connection the words said to me by a very high personage of the Republic: ‘I know my country well It is capable of supporting anything with calm except a financial crisis.’ – Raymond Philippe Un point d’histoire: Le drame financier de 1924–28 I can feel it coming, S.E.C or not, a whole new round of disastrous speculation, with all the familiar stages in order – blue-chip boom, then a fad for secondary issues, then an over-thecounter play, then another garbage market in new issues, and finally the inevitable crash I don’t know when it will come, but I can feel it coming, and damn it, I don’t know what to about it – Bernard J Lasker Chairman of the New York Stock Exchange in 1970, quoted in 1972 in John Brooks, The Go-Go Years Manias, Panics and Crashes A History of Financial Crises Sixth Edition Charles P Kindleberger and Robert Z Aliber © Charles P Kindleberger and Robert Z Aliber 2005, 2011 © Charles P Kindleberger 1978, 1989, 1996, 2000 Foreword © Robert M Solow 2005, 2011 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988 First edition published 1978 Second edition published 1989 Third edition published 1996 Fourth edition published 2000 Fifth edition published 2005 Sixth edition published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010 Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN: 978–0–230–57597–4 paperback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin A catalogue record for this book is available from the British Library A catalog record for this book is available from the Library of Congress 10 20 19 18 17 16 15 14 13 12 11 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne Contents Tables Foreword Robert M Solow Financial Crisis: a Hardy Perennial The Anatomy of a Typical Crisis Speculative Manias Fueling the Flames: the Expansion of Credit The Critical Stage – When the Bubble Is About To Pop Euphoria and Paper Wealth Bernie Madoff: Frauds, Swindles, and the Credit Cycle International Contagion 1618–1930 Bubble Contagion: Mexico City to Tokyo to Bangkok to New York, London and Reykjavik 10 Policy Responses: Benign Neglect, Exhortation, and Bank Holidays 11 The Domestic Lender of Last Resort 12 The International Lender of Last Resort 13 The Lehman Panic – An Avoidable Crash 14 The Lessons of History 15 Epilogue 2010–2020 Appendix Notes Index Tables 8.1 Reported failures in the crisis of 1847–48, by cities 12.1 Official finance commitments Appendix: A Stylized Outline of Financial Crises, 1618 to 2008 Foreword Charlie Kindleberger (CPK from now on) was a delightful colleague: perceptive, responsive, curious about everything, full of character, and, above all, lively Those same qualities are everywhere evident in Manias, Panics and Crashes I think that CPK began to work on the book in the spirit of writing a natural history, rather as Darwin must have done at the stage of the Beagle – collecting, examining and classifying interesting specimens Manias, panics, and crashes had the advantage over rodents, birds, and beetles that they were accompanied by the rhetoric of contemporaries, sometimes with insight, sometimes just blather It was CPK’s style as an economic historian to hunt for interesting things to learn, not to pursue a systematic agenda Of course, he was an economist by training and experience, and he soon found patterns and regularities, and causes and effects What caught his eye especially were the irrationalities that seemed so often to enmesh those directly or indirectly enmeshed in the events themselves By itself that would have been merely entertaining The story got interesting for CPK with the interaction of behavior and institutions The occurrence of manias, panics, and crashes, and their ultimate scope, also depended very much on the monetary and capital-market institutions of the time CPK could not have known at the start just how hardy a perennial financial crises would turn out to be The quarter-century after the publication of the first edition featured a whole new level of turbulence in national banking systems, exchange-rate volatility and asset-price bubbles There was always new material to be digested in successive editions This history cannot have been merely the result of increasing human irrationality, though CPK would have been charmed by what a German friend of ours called ‘Das Gesetz der Verschlechtigung aller Dinge’ (the Law of the Deterioration of Everything) Increasing wealth, faster and cheaper communication, and the evolution of national and international financial systems also played an indispensable role, as sketched in Chapter 13, added to this edition by Robert Aliber CPK’s effort at economic history found a subject that does not appear to be going out of style The shape of a ‘new financial architecture’ and the possible utility of a lender of last resort – national and/or international – along with the guidelines that ought to govern it were also among CPK’s preoccupations Those who are engaged in reforming (or at least changing) the system would well to ponder the lessons that emerge from this book One of those lessons is very general, and is most applicable in contexts where irrationality may trump sober calculation CPK was a skeptic by nature, just the opposite of doctrinaire He mistrusted iron-clad intellectual systems, whether their proponents were free marketeers or social engineers In fact, he considered clinging to rigid beliefs in the face of disconcerting evidence to be one of the more dangerous forms of irrationality, especially when it is practiced by those in charge The international economy would be a safer place if CPK’s tolerant skepticism were more common among the powers that be I am thinking, in particular, about current discussions of the so-called ‘Washington consensus’, and the pros and cons of both freely floating exchange rates and unfettered capital markets Any reader of this book will come away with the distinct notion that large quantities of liquid capital sloshing around the world should raise the possibility that they will overflow the container One issue omitted in the book – because it is well outside its scope – is the other side of the ledger: What are the social benefits of free capital flow in its various forms, the analogue of gains from trade? CPK, whose specialties as an economist included international trade, international finance and economic development, would have been sensitive to the need for some pragmatic balancing of risks and benefits One can only hope that the continued, up-to-date availability of this book will help to spread his open-minded habit of thought As he carries the sixth edition up to date, Aliber emphasizes the likelihood that the roughly concurrent credit bubbles in a number of different countries are interrelated events, possibly responses to a common disturbance It seems implausible that the appearance of housing-based credit bubbles in the United States, the UK, Ireland, and Spain merely reflects independent rolls of the dice Aliber shows how these events are transmitted internationally through current account imbalances in a world in which capital moves easily across borders CPK, as a specialist in international economics, would probably have cottoned to this account A more complicated question, also surfaced by Aliber, is whether there are successive ‘waves’ of credit bubbles that are causally related If this is so, its has important implications for the design of future regulation, both domestically and internationally We are now well beyond natural history It seems to me that the Aliber version preserves this basic Kindleberger orientation but imposes a little more order on CPK’s occasionally wayward path through his specimen cabinets More manias, panics, and crashes may plague us, but readers of this book will at least have been inoculated Robert M Solow Financial Crisis: a Hardy Perennial The years since the early 1970s are unprecedented in terms of the volatility in the prices of commodities, currencies, real estate, and stocks There have been four waves of financial crises; a large number of banks in three, four, or more countries collapsed at about the same time Each wave was followed by a recession, and the economic slowdown that began in 2008 was the most severe and the most global since the Great Depression of the 1930s The first crisis wave was in the early 1980s when Mexico, Brazil, Argentina, and ten other developing countries defaulted on their $800 billion of US dollar-denominated loans The second wave occurred in the early 1990s and engulfed Japan and three of the Nordic countries – Finland, Norway, and Sweden The Asian Financial Crisis that began in mid-1997 was the third wave; Thailand, Malaysia, and Indonesia were involved initially and subsequently South Korea, Russia, Brazil, and Argentina tumbled In retrospect the financial crisis that impacted Mexico during its presidential transition at the end of 1994 was the forerunner for the crisis in Southeast Asia thirty months later The fourth wave began in 2007 and was triggered by declines in the prices of real estate in the United States, Britain, Spain, Ireland, and Iceland – and then by declines in the prices of the bonds of the Greek, Portuguese, and Spanish governments Each wave of crises followed a wave of credit bubbles, when the indebtedness of similarly placed groups of borrowers increased at a rate two or three times higher than the interest rate for three, four, or more years Usually these borrowers used the money to buy real estate – homes and commercial properties However, the first wave of credit bubbles involved rapid growth in the loans from the major international banks to the governments and to government-owned firms in Mexico and other developing countries that continued for nearly ten years Japan was the key country in the second wave of bubbles, real estate prices and stock prices increased by a factor of five to six in the 1980s At about the same time the prices of both types of assets surged in Finland, Norway, and Sweden The third wave of bubbles initially was centered on Thailand and some of its neighbors in Southeast Asia The fourth wave of bubbles primarily was in the real estate markets in the United States, Britain, Spain, Ireland, and Iceland Each of these waves of credit bubbles involved cross-border flows of money, which induced large increases in the values of the currencies and increases in the prices of real estate or stocks in the countries receiving the money Bubbles always implode, since by definition they involve non-sustainable increases in the indebtedness of a group of borrowers or non-sustainable increases in the prices of stocks Debt can increase much more rapidly than income for two or three or a few more years, but debt cannot grow more rapidly than income for an extended period When debt increases at 20 to 30 percent a year, the borrowers have an impeccable record for paying the scheduled interest in a timely way Eventually the rate of growth of their indebtedness slows, and the ‘day of reckoning occurs’ when there isn’t enough cash from new loans to pay the interest on outstanding loans Then the prices of real estate and of stocks decline Moreover when the rate of growth of indebtedness slows, the currencies depreciate, and often very sharply non-interference 191–3 crony capitalism 126, 253 Countrywide Financial 4, 86, 262–3, 270 currency board arrangements 98 currency crises 4, 11, 231 see also individual countries Currency School on money supply 19, 65ff Currie & Co 207 Darmstäder und Nationalbank (Danatbank) 142, 168, 244 Davillier, J.-C 204 Dawes Plan/loan (1924) 45, 55, 168, 242 day traders 181 DeNeufville Brothers 58, 66, 73, 96, 152, 160 debt 2, 8, 22, 30, 71, 90, 93, 131 in developing countries 30, 31, 35, 50, 98 Mexican debt crisis, 1982 5, ratio of 73–4 see also credit; loans debt conversion 19, 54 debt-deflation cycles 104–5, 232 defalcation see swindles/fraud Defoe, Daniel 138, 145 Denfert-Rocherau, J 151 deposit insurance 23, 65, 87, 103, 104 depressions 20, 250 see also crises; Great Depression deregulation 18, 51, 56, 113–14, 127, 193, 194, 302n3 of financial institutions 56, 127, 284–5 destabilization by cobweb responses 48 credit expansion and 78–83, 84–5 by speculation 18, 19, 20, 47–54, 57, 241–2 Dickens, Charles 152 Discount Guarantee Association, Hamburg 205 ‘discredit’ concept 18, 33, 91 ‘displacement’ concept 18, 27, 53–6 definition 48 manias and 48–51 war as 28, 53 Disraeli, Benjamin 228 Dodd-Frank Act 299, 300–1 dollar (US) 68, 180, 185, 255–6 conversion into gold 54–5 Dollfuss, Jean 204 dot.com stocks see technology stocks Douglas, Heron & Co 58 Dow Jones Industrial Average 20, 56–7, 183 dragon economies Dreiser, Theodore 146, 153 Drexel Burnham Lambert 70–1, 128, 129 Duesenberry effect 42–3, 49 Dutch East India Company 66, 110, 320n21 East Asia, economic development 177–8 see also individual countries East India Company (GB) 58, 139, 159 Ebbers, Bernie 132–4 economic booms 49, 58, 164 financial crises and 21 in Minsky’s model 28–9 political change and 53 real estate prices and 111–15 see also euphoria The Economist 89, 145, 216, 238 Edwards, E Watkins 141 embezzlement see swindles/fraud England see Great Britain Enron 22, 23, 118–19, 129–30, 131–4 Erdman, Paul 241 Esdailes, Grenfell, Thomas & Company 206 Estes, Billie Sol 122, 131 euphoria 12–13, 84, 91 asset price bubbles and 107–16 causes of 29 effects of 30 international 31–2 Hyman Minsky on 43 swindles/fraud and 140–1 see also economic booms; manias Eurocurrency market 64, 65, 69 European Union 3, 256 Evans, D Morier 163 excessive leverage concept 30 exchange rates 2, 293 floating 2, 165, 178, 186, 187, 229, 250, 279, 291 pegged 2, 6, 16, 17, 98, 168, 190, 229, 244, 246, 250, 277, 291 see also foreign exchange Exchequer bills 197, 200, 210–12 expectations adaptive 39–40 rational/irrational 39–40, 84–5 fallacy of composition 42, 213, 231 Fannie Mae 24, 87, 195, 263, 299, 300 Fastow, Andrew and Lea 132 Fauntleroy, Henry 141 Federal Deposit Insurance Corporation (FDIC) 65, 127, 210, 251, 262, 265, 270 Federal Reserve Act 1913 (US) 65, 224 Federal Reserve Bank of New York 82, 168, 208, 223, 227, 245, 246, 249, 252 Great Depression and 78–9, 99, 104, 167–8, 223 Federal Reserve Board 19, 77, 168, 183, 223, 227 Federal Reserve System 20, 65, 89, 91, 203, 251 Volcker shock, 1979 284 Federal Savings and Loan Insurance Corporation (FSLIC) 24, 127, 210 Fidelity group 104 financial deepening 259 financial distress 84–5, 90–4, 162, 166 swindles/fraud and 144 financial liberalization see deregulation financial regulation 174 bank regulation/supervision 193–4 Finland 121, 157, 280, 285 First Bank of the United States 219 First Jersey Securities 47, 138 First Republic Bank of Dallas 210 First World War see World War I Fisher, Irving 18, 27, 44 Fisk, Jim 46, 139, 165 Fordyce, Alexander 58, 96, 142 foreign exchange 1, 2, 35, 120, 148 see also exchange rates foreign exchange crises 2, 3, 6–7, 250 Foxwell, H.S 101–2, 226 France 55, 63, 92 1825 crisis 235–6 1826–32 speculation 49–50 1836–39 crisis 89, 162 1857 crisis 89 1882 crash 74–5, 97 Alsace crisis, 1827–28 161, 204 Paris vs London 239–40 see also Bank of France; French Revolution Franco-Prussian indemnity 54, 165 Franklin National Bank, New York 3, 44, 103, 251 fraud see swindles/fraud Freddie Mac 24, 87, 195, 263, 299, 300 Frederick II of Prussia 54, 160, 200 French Revolution, 1789–95 53–4, 96 Friedman, Milton 41, 197, 209 on Great Depression 78–9, 81, 154–5, 215 G-5 256 G-7 252, 256 gambling 59, 60, 89, 140 see also swindles/fraud Garber, Peter M 111 Garnier-Pagès, Louis Antoine 213 Genoa Conference, 1922 77 Germany 157–8, 165–6 1925 depression 21, 50, 53, 167–8 Berlin 112, 145, 160, 165, 237 Berlin crisis, 1763 200 Cologne 3, 163–4, 251, 278 Dawes loan to, 1924 242 Hamburg see Hamburg Maklerbanken 63 the mark 77, 78, 241 Reichsbank 91, 93, 224, 238 see also Prussia Gibbons, James S 94, 150 Glass-Steagall Act 1932 (US) 91, 144, 150–1, 168–9, 194, 298 Global Crossing 119 Glyn, Mills & Co 207 Goddefroy, Gustav 144 gold 3, 4, 14, 31, 43–4, 48, 63, 82, 91, 93, 164, 168, 230, 235, 238–9, 242, 245, 246, 247, 275 exchange standard 77–8, 83, 154 panic, 1869 46, 165 standard 66, 73, 79, 242, 243 gold agio, in US 46, 155, 165 gold discoveries 48–9, 60, 164 gold parity 2, 43 gold prices 1869 panic 46, 165 1970s surge 43–4 gold-exchange standard 77–8, 83, 154 Goldman Sachs 120, 270 Goldschmidt, Jacob 217, 244 Gould, Jay 46, 165 grain prices see corn prices Granger movement 101 Grasso, Richard 135 Great Britain 1636 bubble 11 1772 crisis 96 1810 crisis 160 1825 crash and panic 88, 92, 105 1864 crisis 97 1872–73 financial distress 238 1886 crisis 73 1907 financial distress 94, 119, 167–8 1931 crisis 244, 246 Cabinet Committee on Economic Information 243 Glorious Revolution, 1688 53 railway booms 45, 225 Scotland 81, 224 see also Bank of England Great Depression, 1928–33 causes of 21, 63, 76, 78–80, 89, 154, 167–9, 240–6 credit expansion and 78ff as international 167–9 Keynesian view of 79–80 lenders of last resort and 227, 228 monetarist view of 79–80 Greece 170, 171, 274, 275, 287 Greenspan, Alan 10, 19–20, 29, 90, 99, 183, 186, 191, 223, 227 Grill, Carlos and Claes 72 Grubman, Jack 22, 119, 137, 139 guarantee of liabilities 206–8 Guinness, Arthur and Co 49 Guy, Thomas 100 Hamburg 50–1, 160 1836–39 crisis 236 1857 crisis 205–6, 236–7 Hansen, Alvin H 35, 78 Harrison, George 223, 227 Hatry, Clarence 142 Hawtrey, R.G 103, 162, 242–3 on IMF 330n44 Hayek, Friedrich 81 HealthSouth 119, 135, 152 hedge finance 29, 69 hedge funds 20, 55–6, 74, 86, 95, 121, 136–7, 150, 199, 262 see also Long-Term Capital Management (US) Herstatt AG, Cologne 3, 251, 278 Holland (the Netherlands) 59, 62 1763 crisis 235 Amsterdam see Amsterdam tulipmania, 1636 11, 17, 59, 109–11 home-equity credit 68–9 Hong Kong 85, 178, 233 Hoover, Herbert 154, 167, 195–6 Howson, Susan 242, 225 Hoyt, Homer 111–2 Hudson, George 147 Hungary 165, 242 Hunt, Bunker 94 Huskisson, William 211–12 Hyndman, H.M 305n33 Iceland 4, 10, 20, 28, 36–7, 121, 154, 186, 187, 287 ImClone 135 India 54, 130, 139, 164 Indonesia, 1990s asset price bubble 1, 6, 8, 11, 24, 104, 126, 180, 253 inflation in 1970s 81, 282–3 hyperinflation 98, 241 in US 282–3 inflation rates 4–5, 181, 282–6 inflation targeting 115 information availability 303n10 ING (bank) initial public offerings (IPOs) 56, 181 Innovation financial 51, 55–6, in credit expansion 62–5, 66, 69–77, 131 technological 18, 27, 56, 181 insiders see outsiders/insiders insider trading 120 installment credit 63, 69 Insull, Samuel 148 interest rates 44, 174, 284 on international loans 35–6 on junk bonds 71 panics and 49–50, 54–5, 82, 106 in Ponzi finance 29 International Bank for Reconstruction and Development (IBRD) see World Bank International Monetary Fund (IMF) 104, 202, 247–8 General Arrangements to Borrow 248 R.G Hawtrey on 330n44 as lender of last resort 16, 25, 198, 231, 234, 248, 296 internet 147 investment banks 4, 9, 23, 56, 74, 119, 120–1, 130, 138, 149, 151, 174, 181–2, 183, 194, 208, 257ff, 298, 299, 300 invisible hand theory 293 Ireland 274, 275, 287 irrational exuberance concept 13, 90, 180, 183, 273 irrationality see rationality Israel, Jonathan 111 Istituto Per la Ricostruzione Industriale (IRI) 23 Italy 165 1907 crisis 23, 25, 167 Jackson, Andrew 91, 154 Janssen, Sir Theodore 158 Japan 1985–89 asset price bubble 1, 3, 4, 7, 8, 9, 17–18, 23, 36, 113, 125, 173–7, 176, 285, 251 1990s crisis 5, 24, 98, 176–7, 199 banking system 174–5, 175, 176 deregulation 56, 114, 174–5, 176, 285 real estate and share prices see 1985–89 asset price bubble above Tokyo 94–5, 175 Jellico, Charles 216 ‘jingle mail’ 93, 261 Johnson, Harry G 40, 46 Johnson, Paul 196 Joplin, Thomas 16 Joseph, Arend 152, 196 journalism, as unethical 145–7 Juglar, Clement 155 Juglar cycle of investment 26 junk bonds 2, 20, 70–1, 128–9, 152 Kahn, Herman 104, 128 Kaminsky, Graciela 74 Kauffman Brothers, Hamburg 194 Kaufman, Henry 64 Keating, Charles 174 Kennedy, Joseph P (Sr) 89 Kenyon, Cox & Co 44 Keynes, John Maynard (Lord Keynes) 227 Keynesians 30, 229 on Great Depression 72–3 Kindelberger, C.P 13 King, W.T.C 86 Kipper- und Wipperzeit mania, 1619–22 17, 54, 157–8 Kitchin inventory cycle 21 van Klavaren, Jacob 161–2 Knickerbocker Trust Company 87 Knight, Robert 173 Koechlin, Nicholas 186 Kopper, Michael 155 Korea see South Korea Kozlowski, Dennis 157, 163 Kreuger, Ivar 170, 173 Kuhn, Loeb & Co 80, 216 Kuwaiti Souk al-Manakh 57 Kuznets cycle 21 Laffitte, Jacques 48, 168, 186, 199, 207 de Lamartine, Alphonse 79 Lamont, Thomas, W 223 land see real estate Lasker, Eduard 79–80, 167 Latin America 17, 42, 44, 45, 113, 120, 270n33 see also individual countries Lautenbach, Wilhelm 295n52 Law, John 51, 53, 55, 86, 110–11, 164–5, 272n73 Lay, Kenneth 155 Lazard Frères 64 LeBon, Gustave 37 LeClerc bank, Geneva 173 League of Nations 70–1, 212, 223, 225 Lebeck, Jonathan 169 Leeson, Nick 13, 146–7 Leeuw, David 111 Lehman Brothers 24, 25, 37, 74, 85–8, 132, 155, 192, 200, 223, 257–72, 287, 297 lender of last resort amounts loaned 208–9 Bagehot on 196–7, 205, 208, 221 Bretton Woods system and 228–34 choice of 198–205 crisis management by 19–20, 180–1, 195–210 domestic 195–210, 212, 214–15, 240, 254 function 13, 19–20, 28–9, 195–210, 211–38, 253–5 in Great Depression 13, 208, 209 IMF as 13, 20, 180–1, 212–13, 216, 229–34, 255 international 13, 19–20, 211–38, 240, 253–5 liquidity provision 28–9, 254 monetarists on 209 monetary stability and 20 origin of concept 196–8 World War I, effects of 13, 222–8 rules for 214, 215 timing of loans 209–10 Levine, Dennis 174 Lévy-Leboyer, Maurice 186 liability management 56–7, 188–90 ‘liars’ loans’ 260 Lidderdale, William 182, 188–9, 220 lifeboat operations 23 Lindau, Paul 168 liquidation 28 liquidity 33, 195–6 Liverpool, Lord (Roberts Banks Jenkinson) 88, 199–200 loans 55, 114, 174 Bretton Woods system 246ff Dawes Plan, 1924 45, 55, 168, 242 to developing countries 35, 50, see also individual countries international 164, 168 Silberzug, 1857 237 Thiers rente 55 Young Plan, 1930 244 see also credit; debt; lender of last resort London as financial center 239–40 see also Great Britain London Interbank Offer Rate (LIBOR) 35 Long-Term Capital Management (US) 6, 74, 94, 95, 150, 184, 208, 223, 227, 278–9 Louisiana Purchase, 1803 161 Louvre Agreement, 1987 256 Love, Robert 216 Madoff, Bernie 20, 117–18 Maison Hottinguer bank 162, 214, 218 Maklerbanken (Germany) 63 Malaysia, 1990s asset price bubble 1, 3, 6, 20, 22, 107, 126, 171, 177, 179, 189, 190, 229, 254 Malthus, Thomas Robert 51 management see crisis management; liability management manias (speculative excess) causes of 12–13, 17, 18, 19, 39–61 credit expansion and 12, 13, 14, 28, 44–5, 62–83 as cyclical 13, 26, 31 definition 15, 30, 39 development of 44–6 displacements and 48, 53–6, 57 Kipper- und Wipperzeit, 1619–22 17, 54, 157–8 monetarist view of 17 monetary expansion and 18 national differences in 59–61 objects of speculation 57–9 policy issues on 15–18 pseudo-manias 17 psychology of 42–4 as rational/irrational 39–61 swindles perpetrated during 20–1, 46–7 in technology stocks 1, 7, 15, 17, 20, 181, 183 see also bubbles; crises Marcus, Bernard K 44 mark (Germany) 2, 41, 78, 241, 248, 250, 275, 279, 283, 284, 290, 291, 292 market prices irrationality in 42–61 rationality in 39–42 Marshall, Alfred 27, 42, 78, 217, 246, 310n21, 326n16 Martin’s Bank 207 Massachusetts Financial Services 137 Matthews, R.C.O 226 Mayer, Martin 150 McCartney, R Ray 166 McCulloch, W.R 88 McDonough, William 208 MCIWorldCom 20, 22–3, 119, 120, 132, 133, 134, 152 McKay, Charles 159 McKesson, Robbins scandal 121–2 Meeker, Mary 119, 137 Mellon, Andrew 195 Merrill Lynch 4, 23, 128, 130, 138, 139, 146, 151, 208, 268, 270 Mexico 1, 5–6, 45, 50, 130, 146, 171ff, 178 1982 crisis 22, 190, 252, 284, 286, 289 1990–93 bubble 178, 179, 188, 290 1994–95 crisis 170, 184, 231–2, 235, 243, 254, 286 Mieno, Yasuki 114 Milken, Michael 70–1, 128, 129, 152, 153 Mill, John Stuart 18, 27, 49, 68, 78 Minsky, Hyman 18, 26–7 on corporate debt 69, 70, 71 on euphoria 43 Minsky model 26ff, 290–1 criticism of 33–4 international crises in 31–3 purpose 26–7 relevance 35–8 three-part taxonomy in 29 validity 33–4 Mintz, Ilse 45 Mississippi Bubble, 1720 11, 17, 57, 58, 142, 158–9 international contagion of 158–9 Mississippi Company 57 Mitchell, Charles E 144, 148 Mitsubishi Real Estate 174 Mitsui 12, 113, 174 mob psychology 423 Mollien, Franỗois Nicholas 213 monetarists (Chicago School) on crisis management 199 on Great Depression 78–9, 80 on lenders of last resort 227 liberalist doctrine 51 on manias 17, 18–19 monetary expansion 62, 64 limits to 65–6 see also credit expansion money definition 67–8 substitutes for 19, 64–5, 67 types of 19 velocity of 67 money management 19, 64–5, 67 money movements 156–8, 185–6 see also capital flows money supply 19, 54, 62, 63, 65, 79, 195, 214–15, 216 Banking School on 65, 66–7, 215–16 fixed 66–7 measurement of 67 uncontrolled 81 monopolies/cartels 51 Moody’s 149 moral hazard 23, 192, 195, 213, 253, 264 moratoriums 202 Morgan, E.V 214 J P Morgan/JPMorganChase 24, 86, 130, 200, 204, 222, 224, 241, 252, 263, 266–7, 270 Morgan Stanley 56, 137, 139, 270 Morgenstern, Oskar 60, 155, 166, 240 mortgage-backed securities (MBSs) 74, 86, 149, 259, 262 MSNBC television 147 mutual funds 20, 23, 104, 128, 136–7, 151, 175, 177, 286 Mutualité Industrielle (Belgium) 89 Napoleon III 89 NASDAQ stocks, 1990s bubble in 6–7, 15, 17, 32, 183, 184 National Association of Security Dealers (NASD) 139 National Australia Bank, Sydney 124 National Bank of Austria-Hungary 82 National City Bank 148 National Trust Company of New York 197 Navigation Acts (GB) 164 negative carry concept 36 neo-Austrian School 81 Netherlands see Holland new economy 181, 182 New York City 221, 222 New York Clearing House 221 New York Stock Exchange 6–7, 23, 32, 77, 104, 135, 183, 184, 201–2, 204 New York Warehouse and Security Company 50 New Zealand 157 Newton, Sir Isaac 47 Nikkei stock market index 24, 113, 123–4 Nordic countries, asset price bubble, 1985–89 1, Nordwolle (Norddeutsche-Wolkämmerei) 244 Norman, G.W 91 Norman, Montagu 77, 91, 245 North American Free Trade Agreement (NAFTA) 5, 24, 178, 189, 253 Northern Pacific railroad 44, 50, 166 Northern Rock 4, 86, 192, 263, 264 Norway 1, 4, 5, 157, 278 NOW accounts 69 Nurkse, Ragnar 41 Ohio Life Insurance and Trust Company 142, 164, 203 oil prices 2, 4, 13, 14, 278 Open Market Investment Committee, Federal Reserve Bank 227 Organization of Petroleum Exporting Countries (OPEC) 51 d’Ormesson, Wladimir 89 outsiders/insiders 23, 46–8 Overend, Gurney & Co 41, 97, 141, 165 overshooting/undershooting concept 3, 35, 230, 231, 232, 279 Overstone, Lord (Samuel Jones-Loyd) 84, 91, 102, 194–5, 215 overtrading concept 30, 33, 35, 57, 84, 160, 161, 167, 226 Panama Canal bonds 219 panics 1906–7 21, 82–3, 97, 167–8, 222, 238–9 causes of 25, 33, 104–5 definition 103 interest rates and 50, 54–5, 82, 106, 168 swindles perpetrated during 23–4 see also bubbles; crises Paris, as financial center 239–40 see also France Parmalat 138 Pedersen, Jørgen 242 Peel, Sir Robert 222–3 Pereire brothers 218 Plaza Agreement, 1985 256 Poland 51–2 Ponzi, Charles 29, 51, 52, 117, 118, 141 Ponzi finance 14–15, 20, 29–30, 52, 70, 71, 109, 117, 118, 125, 137, 140, 143, 148, 288 Popper, Karl 40 Portugal 287 pound sterling 16, 54, 63, 73, 77–8, 93–4, 159, 168, 226, 241–2, 245–6, 248–9, 275 Powell, Ellis T 207 price volatility 1, 30–1 prices see asset prices; commodity prices; market prices privatization 28, 52, 98, 157, 177, 189, 290 Prussia 54, 55, 165 Franco-Prussian indemnity 54, 165–6 lender of last resort in 218 see also Germany Prussian Bank 164, 165, 218 Prussian Seehandlung 164, 218 psychology of contagion 156–7 Maginot line effect 51 of the mob 43–5 of rationality 43–5 of swindlers 140, 151 pyramid schemes 14–15 quality of debt 69–71 Quantum Fund (George Soros) 303n8 Quattrone, Frank 152 Radcliffe Commission (GB) 67 railroads 96, 97, 101, 162, 164, 166, 147 1830/1840s booms in 45, 92, 162, 225 ratio of debt 73–4 rational expectations theory 39–40, 84–5 rationality of individuals 39–40, 42–53, 84–5, 304n22; irrationality 48–50, 54 of markets 33–6; irrationality 42–53 psychology of 42–3 real bills doctrine 67 real estate stock markets and 1, 12, 30, 32, 59, 64, 111–15, 173–4 speculation in 44–5, 55–6, 57, 64, 188–9 Real Estate Investment Trusts (REITs) 55–6, 113, 202 real estate prices 31, 90, 176, 185–6 economic booms and 5, 108, 111–15 in Japan see Japan in US 180–1 recessions see crises recoinage 54 regulation see bank regulation/supervision; deregulation Reichsbank (Germany) 91, 93, 224, 238, 244 Reinhart, Carmen 81 reportage system 63 reports see call money repression, financial 51 Resolution Trust Corporation (RTC) (US) 94, 210 revulsion concept 18, 33, 34, 91, 154 Ricardo, David 214–15 Richardson, William A 219 Rigas family 134–5, 152 Riksbank (Sweden) 66 Rite-Aid 152 rogue traders see swindles/fraud Rohatyn, Felix 71 Rosenberg, Hans 55, 145, 164 Rothbard, Murray 196, 214 Rothschild family 51, 55, 77, 195, 207, 218, 235, 236, 237, 241 Royal African Company 161–2, 168 Royal Bank of Scotland 4, 120, 192 Rusnak, John 124 Russia 1772 crisis 235 1998 ruble crisis 6, 95, 234, 280 Baring crisis, 1890 and 206–7 IMF and 234 see also Soviet Union (former) Sadleir, John 151 Salomon Smith Barney 22, 130, 138 Savary, Charles 146, 152 savings, flow of 185, 285 Sayers, Richard S 238 Scandinavia see Denmark; Norway; Sweden Schaaffhausen, Abraham 163–4 Schäffle, Albert E.F 73 Schama, Simon 110 Schiff, Jacob H 203–4, 221 Schuyler, Robert 147–8 Schwab, Charles 181 Schwartz, Anna 78–9, 154, 155, 215, 227 on Great Depression 78–9, 154, 155 Scrushy, Richard 135 Second Bank of the United States 91, 160–1, 219 Second World War see World War II Securities and Exchange Commission 46, 77, 120, 131, 136–7, 140, 147, 149, 194, 266 securitization 149, 258–60 Selgin, George 81 Sepoy Mutiny, 1857 (India) 54 Shell Oil 136 Sherman Silver Act 1890 (US) 54 shutdown, of stock markets 201–2 Silberzug loan, 1857 106, 206, 237 silver 19, 54, 62–3, 64, 94, 104, 105, 160, 161, 164, 200, 205, 206, 235–6, 237 Simons, Henry 80 Sinclair, Sir John 211 Sindona, Michele 44 Singapore 16, 123, 124, 178, 180 Skilling, Jeffrey 132 Smart, William 160, 212 Smith, Adam 18, 30, 73 on South Sea Bubble 41–2 Smithsonian Agreement, 1972 2, 250 Snyder, Harold Russell 148 Società Bancaria Italiana 21, 167, 222 Soros, George 254 South Africa 8, 21, 37, 51, 164 South Korea 1, 6, 24, 31, 85, 178, 179, 253, 255 South Sea Bubble, 1720 17, 41–2, 43, 47, 53, 57–8, 62, 88, 96, 100, 140, 142, 143, 144, 145, 152, 153, 158–9, 200, 273 Adam Smith on 41–2 Bank of England and 104, 200 Bubble Act 1720 53, 57, 88 international contagion of 158–9 as a swindle 142, 143 South Sea Company 47, 53, 57, 62, 88, 93, 104, 140, 142, 143, 144, 151, 152, 153, 200, 305n33 Soviet Union (former) 51 see also Russia Spain 120, 170, 186, 260 Holland and 110, 163 special financing facilities/vehicles (SFVs) 131 speculation 12–15, 30, 32, 35, 44–5, 57–9, 74–7 as destabilizing 41, 46–53, 57–9 national differences in 59–60 overtrading 14, 25–8, 51 in real estate 49–50, 176–77 in technology stocks 6–7, 12, 28, 181, 182, 281 see also euphoria; manias speculative finance 29, 69–70 Spencer, Herbert 214 spinning, of share allocations 183 Sprague, O.M.W 97, 105, 144, 203, 219–20 Standard and Poor’s 500 futures 77 Standard Oil Company 97 State Bank of Russia 207 Stead, Christina 46, 153, 314n36 Stewart, Martha 23, 135, 152 stocks see bonds Stringher, Bonaldo 167, 222 Strong, Benjamin 99, 223 Strong Funds 137 Strousberg, Bethel Henry 144, 145 subprime mortgages 25, 93, 261 Suez Canal 75, 166 Sullivan, Scott 133 Sumitomo Corp./Bank 124, 125, 174 Swartz, Mark 124 Sweden 1, 4, 5, 72, 157, 205, 229, 278, 285, 288 Riksbank 66 Swift, Jonathan, on the South Sea Bubble 144 swindles/fraud 20, 88–9, 117–153 bucket/boiler shops 46, 47, 138 historical survey 117–153 see also gambling Sword Blade Bank (GB) 57, 62, 104, 200, 201 Taiwan 179 technological innovation 18, 27, 28, 56, 181 technology stocks, speculation in 6–7, 12, 28, 181, 182, 281 Temin, Peter 79 Thailand, 1990s asset price bubble 1, 2, 6, 22, 126, 170, 177, 181 Thayer, Paul 146 Thiers, Louis Adolphe 217, 236 Thiers rente 55 Third World countries see developing countries Thomson, J Poulett 88 Thornton, Henry 211, 214 Timberlake, Richard 81 Tokyo Stock Exchange 113, 284 ‘too big to fail’ 24, 87, 192, 195, 209, 261, 266–70, 297 and moral hazard 270–2 Tooke, Thomas 92, 196 Transparency International (corruption index) 121 trekschuit 110–11 Trollope, Anthony 142, 152 Troubled Assets Relief Program (TARP) 267 tulipmania, 1636 17, 109–11, 273 Tyco 134, 141 Union Générale, Paris 74–7, 97, 142, 145, 155, 166, 218, 224 Union Pacific railroad 97, 139 United States 16, 45, 60, 64 1819 crisis 160–1 1857 crisis 105–6, 142 1870s depression 165–6 1873 crisis 166, 197–8 1893 crisis 54–5, 104 1907 crisis 21, 82–3, 97–8 1929 crisis see Great Depression 1973–74 crisis 1987 crisis 77 1990s asset price bubble 1, 6, 7, 9, 15, 17, 32, 102, 170–1, 180–5 central bank, early lack of 82–3 Chicago 46, 77, 111–12 China and 62 Comptroller of the Currency 194 Dawes Plan/loan, 1924 45, 91, 168, 242 the dollar see dollar gold agio 155, 165 gold discoveries 48, 63, 164 Great Britain and 55, 218 as lender of last resort, domestic 218–23; international 16, 219, 296 housing bubble, 2000s 45–6, 74, 86, 258–64 Mexico, financial assistance to 234, 296 monetary policy 292 NASDAQ stocks see 1990s asset price bubble above real estate prices 180–1 swindles perpetrated in 20–1, 117–153 thrift institutions 3, 71, 126–7 trade deficit 255 Volcker shock, 1979 284 Y2K problem in 99, 102, 185, 223 United States Treasury 4, 24, 87, 91, 95, 114, 127, 128, 181, 200, 210, 219, 221, 228, 252, 253, 262, 263, 267–8, 269, 270, 285, 287, 296, 299, 300 ‘upside-down’ mortgages 93, 261 Uruguay 157, 168 de Vallée, O 89 Van Vleck, George, W 147–8, 239 Vanderlip, Frank 167, 221 Vaubel, Roland 81 vendor financing 28, 71–2 venture capital (VC) 12, 56, 181–2, 183 Vesco, Robert 152 Vienna Stock Exchange 202 Viner, Jacob 65–6, 236 Vogel, Ezra (Japan as Number One) 5, 27, 108 Volcker shock, 1979 (US) 284 de Vries, Jan 110, 315n4 ‘W banks’ (Wiggins, Wildes and Wilson) 103, 200, 226 Waksal, Sam 135, 152 Wall Street Journal 135, 146 war 53, 59, 66, 110, 158, 159–60, 164–5, 201, 239–40 displacement concept and 53 expenditure on 58, 235 see also specific wars Warburg family 20, 89, 235 warnings of crises 88–90 Wasserman, Jacob 142 Wasserman, Oskar 244 Watson, Overend & Company 141 Weill, Sandy 138 Welles, Samuel 162, 225 wheat prices see corn prices White, Lawrence 81 Wicksell, Knut 18, 27, 44 Wiggins, Albert 144, 148 Wigmore, Barry 148 Wilson, Charles 50, 58, 160, 235, 302n22 Wimmer, Larry 46 Winans, R Foster 146 Winch, Donald 242, 243 Winnick, Gary 135 Wirth, Max 74, 82, 145, 165, 212 Wisselbank (Holland) 66 Wisselruiti (Holland) 62, 66, 159 Withers, Hartley 239 Wolter, Johann 163 Wood, Elmer 82, 216 World Bank 108, 172, 177, 202, 247, 248, 254, 256 World Economic Conference, 1933 243 World Trade Center, attack on, 2001 201 World War I, 1914–18 boom following 49, 167–8 lender of last resort after 16, 240–6 World War II, 1939–45 63, 80, 113, 120, 231, 246, 248 Y2K problem 99, 102, 185, 223 Yeager, Leland 81 yen (Japan) 2, 22, 113, 115, 157, 173, 177, 188–9, 190, 199, 284–5, 288, 289, 292–3 Young Plan, 1930 242, 244 Zola, Emile 145 ... with a railroad mania or an orgy of land speculation, or a bubble in real estate and in stocks at the same time The monetary dimensions of both manias and panics are analyzed in Chapter The occasions... Years Manias, Panics and Crashes A History of Financial Crises Sixth Edition Charles P Kindleberger and Robert Z Aliber © Charles P Kindleberger and Robert Z Aliber 2005, 2011 © Charles P Kindleberger. .. The Asian Financial Crisis that began in mid-1997 was the third wave; Thailand, Malaysia, and Indonesia were involved initially and subsequently South Korea, Russia, Brazil, and Argentina tumbled