Synopses & Reviews
Praise for BoomBustology
"Asset class bubbles are by far the most important events in the life of both stock markets and economies. Boombustology is a comprehensive, informative, and entertaining look into how bubbles form, what really constitutes a bubble, and, critically, the causes and circumstances of bubbles breaking. It is essential reading for any bubbliophile."
—Jeremy Grantham, Co-founder and Chief Investment Strategist, GMO
"Imaginative, accessible, and blessedly concise, Boombustology is a Baedeker for these boomy and busty times."
—James Grant, Grant's Interest Rate Observer
"If there's one thing that cleaves Wall Street's winners from its losers, it's the ability to say, 'I've seen this movie, and I know how it ends.' VikramMansharamani's Boombustology will entertain readers with an entire film festival of past, present, and future investment disaster flicks that willmake them laugh, make them cry, and save their bacon."
—William J. Bernstein, bestselling author of The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between
"Investors are attracted to bubbles. To paraphrase Orwell, they find themselves playing with fire without even knowing that fire is hot. Vikram Mansharamani's highly readable book will set them right. It provides a sound intellectual framework for identifying bubbles before they burst. If you buy only one investment book this year, make it Boombustology."
—Edward Chancellor, author of Devil Take the Hindmost: A History of Financial Speculation
"Through an artful and accessible melding of theoretical frame works and historical cases, Boombustology provides the essential tools to identify and navigate the financial booms and busts that can be so hazardous to one's portfolio. Required reading for all investors."
—Paul A. Reeder, President, PAR Capital Management
"Who is the better investor: the generalist or the expert specialist? In this spirited book, Vikram Mansharamani brings to life five famous boom-bust episodes and argues for a multidisciplinary, generalist approach. Boombustology is an engaging read for specialists and generalists alike."
—John Geanakoplos, James Tobin Professor of Economics at Yale University; External Professor, the Santa Fe Institute; and Partner, Ellington Capital Management
"The book makes an argument that booms and busts are not random and can therefore be identified. It's structured similarly to how the course at Yale by Mansharamani has been taught. The first third of the book focuses upon various theoretical and disciplinary lenses useful in the study of booms and busts. The second third of the book evaluates historical cases of financial booms and busts via those lenses. The final third of the book summarizes the findings from part two and develops a profile for a typical financial bubble. The book concludes with a framework for thinking about and identifying forthcoming financial extremes and a discussion of various candidates for the "next bubble.""--
A multi-disciplinary framework through which to spot financial bubbles before they burst.
Based on a popular undergraduate seminar, entitled Financial Booms & Busts, taught by the author at Yale University, Boombustology presents a multi-disciplinary framework for identifying unsustainable booms and forthcoming busts.
The magnitude of our recent financial crisis mandates a firm understanding of this phenomenon before the next crisis occurs. Boombustology provides an in-depth look at several major booms and busts and offers a solid framework for thinking about future occurrences.
- Examines why booms and busts are not random and can therefore be identified
- Focuses upon various theoretical and disciplinary lenses useful in the study of booms and busts
- Contains a framework for thinking about and identifying forthcoming financial bubbles including several tell-tale indicators of a forthcoming bust.
- Illustrates the framework in action by evaluating China as a potential bubble in the making.
If you want to make better decisions in today’s turbulent investment environment, understanding the dynamics of booms and busts is the best place the start. Boombustology can help you achieve this elusive goal.
Vikram Mansharamani is a Lecturer at Yale University and a global equity investor.
THE WORLD IS in the midst of an accelerating sequence of booms and busts, and despite these developments, no organized multidisciplinary framework exists for thinking about them.
With the increased complexity and volatility surrounding financial bubbles, we need a more effective way to spot, and understand, these events. Based on his popular seminar at Yale University, Boombustology presents Vikram Mansharamani's multi-lens framework fore valuating the extremely elaborate social phenomenon of financial market booms and busts.
Unlike other finance books—which discuss making day-to-day investment decisions or the optimal strategy for a particular market—Boombustology will help you identify the "needle-moving" extremes that have the potential to render many traditional investment approaches useless.
- Divided into three comprehensive parts, this reliable resource: Develops five lenses—based upon the findings of various disciplines, from economics and psychology to politics and biology—that can be combined to evaluate financial extremes
- Examines the power of the multi-lens framework by applying it to five historical cases—Tulipomania, the Great Depression, the Japanese "Bubble Economy," the Asian Financial Crisis, and the U.S. Housing Boom and Bust—and demonstrates how the multidisciplinary approach might have helped to better understand these events as they took place
- Illustrates the framework in action by evaluating China as being in the midst of a potentially unsustainable boom
The framework found within these pages offers a robust understanding of the dynamics that precede, fuel, and ultimately reverse financial market extremes. Regardless of your economic or financial background, Boombustology will put you in a better position to spot financial bubbles before they burst.
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 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
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
About the Author 265