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A Short History of Financial Euphoria (Penguin business) Paperback – 1 Jul 1994

4.8 out of 5 stars 4 customer reviews

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About the Author

John Kenneth Galbraith was born in 1908 in Ontario, Canada. He earned a PhD at the University of California in 1934 and later took a fellowship at Cambridge, where he first encountered Keynesian economics. At different points in his life he taught at both Harvard and Princeton, and wrote more than forty books on an array of economic topics. During World War II he served as deputy head of the Office of Price Administration, charged with preventing inflation from crippling the war efforts, and also served as the US Ambassador to India during the Kennedy administration. He passed away in 2006.

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Product details

  • Reading level: 18+ years
  • Paperback: 128 pages
  • Publisher: Penguin USA; Reprint edition (1 July 1994)
  • Language: English
  • ISBN-10: 0140238565
  • ISBN-13: 978-0140238563
  • Product Dimensions: 13 x 0.8 x 19.8 cm
  • Average Customer Review: 4.8 out of 5 stars  See all reviews (4 customer reviews)
  • Amazon Bestsellers Rank: #46,382 in Books (See Top 100 in Books)
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Format: Paperback Verified Purchase
The book covers brief history of speculative bubbles from seventeenth century onward. The reasons for speculative episodes with devastating effects are covered by one of the great economic minds of 20 th Century. The commentary is authoritative and will remind reader of perils of speculation. The tendency of individuals to overestimate their own financial acumen and to participate in speculation is the main reason for all the speculative episodes of the past. The book is a short essay with around 110 pages and should be read by every businessman, executive and most certainly by an investor. The author being a supporter of Democratic Party is a bit partial towards Democratic administrations.
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An outstanding book on insanity in the financial world.
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By Dr. M on 24 January 2016
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There is nothing better than this if you need to know understand exactly are 'bubbles' and their history.
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Excellent!
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Most Helpful Customer Reviews on Amazon.com (beta) (May include reviews from Early Reviewer Rewards Program)

Amazon.com: 4.1 out of 5 stars 63 reviews
4 of 4 people found the following review helpful
5.0 out of 5 stars Others write about a given crisis, Galbraith explains the crisis habit 7 May 2014
By John R. Holmes, Jr. - Published on Amazon.com
Format: Hardcover Verified Purchase
I loved this book, but if you're looking for specific details about a given crisis, such as the Great Depression, you're going to be disappointed. Galbraith is looking at a bigger picture. He's writing about a pattern of crises -- a gestalt -- where the whole clearly transcends the explanations advanced for each of its parts. Viewed from that perspective, the author reveals an astonishing similarity in how such periods of financial euphoria followed by crisis keep recurring -- and how, after the fact, all the experts come out of the woodwork happy to explain why it happened. That is profound.

Patterns tell a story not recognizable from studying the specific events. As we've all observed in our interpersonal dealings, most people can readily explain their behavior on a given occasion, say, getting in a fistfight, but can't explain their habit of getting in fights. The same applies to history's many wars. A study of the facts and circumstances underlying the "War of the Roses" (1455-1485) may explain who were the good guys and who the bad guys, but it can't explain why mankind keeps getting into wars.

This book explains a historical pattern of booms and busts. In light of the Financial Crisis of 2008, it's arguably more pertinent today than it was when published in 1994. I'm currently reading Matt Taibbi's, "The Divide: American Injustice in the Age of the Wealth Gap" (2014). The author clearly thinks 2008 revealed a huge criminal conspiracy, witness the fact that he uses the word "fraud" at least 100 times. Other books such as Christopher Hayes's "Twilight of the Elites" beat the same drum.

While such demagoguery is appealing, I'm still going with Galbraith: It seems nobody ever sees a crash coming, including the greedy participants at the heart of it. You can say the mortgage bubble was wrong, but it's the same kind of wrong that caused thousands of people to spend crazy amount of money on a single tulip bulb 370 years ago.
3 of 3 people found the following review helpful
4.0 out of 5 stars The Hobo Philosopher 6 September 2012
By Richard E. Noble - Published on Amazon.com
Format: Paperback Verified Purchase
A Short History of Financial Euphoria

John Kenneth Galbraith

Book Review

By Richard E. Noble

This book is indeed a "short" history of Financial Euphoria. I would have liked a much longer and more detailed history by Mr. Galbraith.

In a previous book, "The Great Crash 1929," much of what is in this book has already been expressed. In fact, I think most of this work was excerpted directly from the "The Great Crash" verbatim.

The advantages of this little book are that all these cases of speculative mania and fraud are lumped together in this one volume with updated commentary and some modern day comparisons. The author covers these type incidences up to the crash of 1987 in the later part of the Reagan administration.

The author makes the point that all of these mania, panics or crashes have similar components. They are all based on speculation and leveraging.

The mania is attributed to basic insanity and the misguided notion that because someone is rich he must therefore be wise.

"In the first forward to this volume, I told of my hope that business executives, the inhabitants of the financial world and the citizens of speculative mood, tendency or temptation might be reminded of the way that not only fools but quite a lot of other people are recurrently separated from their money in the moment of speculative euphoria. I am less certain than when I then wrote of the social and personal value of such a warning. Recurrent speculative insanity and the associated financial depravation and larger devastation are, I am persuaded, inherent in the system. Perhaps it is better that this be recognized and accepted."

There are two types of speculators who invariably get involved in these troublesome episodes or "bubbles."

"There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get the maximum reward from the increase as it continues; they will be out before the eventual fall."

He points out that warnings about the temperamental nature of the present boom are never heeded and those who offer them are looked upon with derision.

"In the winter of 1929, Paul M. Warburg, the most respected banker of his time and one of the founding parents of the Federal Reserve System spoke critically of the then current orgy ... and said that if it continued, there would ultimately be a disastrous collapse ... He was held to be obsolete in his views, `he was sandbagging American prosperity.'"

This danger of speaking out against the speculative orgy as it is taking place often makes the bearer of such tidings the accused when the bubble finally bursts. It is a lose/lose situation in Mr. Galbraith's estimation. Yet he points out that he did the same himself in 1986 ... to no avail and much acrimony.

So the speculative bubbles come and go and are endemic to the capitalistic system according to the Professor. He also suggests that they are cyclical. They reoccur every twenty or thirty years. They are directly proportional to the amount of time necessary for the previous fiasco to be forgotten and a new generation of semi-educated fools take their positions in the financial community.

"The circumstances that induce the current lapses into financial dementia have not changed in any truly operative fashion since the Tulipomania of 1636-1637. Individuals and institutions are captured by the wondrous satisfaction from accruing wealth. The associated illusion of insight is protected, in turn, by the oft noted public impression that intelligence, one's own and that of others, marches in close step with the possession of money..."

The mistaken notion that since a person is rich he must be intelligent is emphasized over and over throughout the short text.

So what is Mr. Galbraith's solution?

"The only remedy, in fact, is an enhanced skepticism that would resolutely associate intelligence with the acquisition, the deployment, or, for that matter, the administration of large sums of money ... there is the possibility, even the likelihood, of self-approving and extravagantly error-prone behavior on the part of those closely associated with money ... a further rule is that when a mood of excitement pervades a market or surrounds an investment prospect, when there is a claim of unique opportunity based on special foresight, all sensible people should circle the wagons; it is the time for caution ... Yet beyond a better perception of the speculative tendency and process itself, there probably is not a great deal that can be done. Regulation outlawing financial incredulity or mass euphoria is not a practical possibility."

This conclusion I find very interesting and extremely disappointing. After all his great insight and explanation of the circumstances precipitating these speculative fiascos he closes with: Regulation outlawing financial incredulity or mass euphoria is not a practical possibility.

This conclusion appears somewhat demented also. Mr. Galbraith, it appears, has completely forgotten that in most of these cases a crime was committed and that the euphoria involved was not inclusive of the masses, as he states, but of a select group of people within the masses reigning in the financial community.

The Tulipomania is rather unique. It seems to be the perfect example of innocent mass insanity. But most of the other cases involve crime and criminal personalities not simply a massive delusion. There was swamp land in the 20's in Florida involving everyone's favorite con-man, Charles Ponzi. There were gold mines that didn't exist and were never worked or mined. There were worthless stocks and bonds and real criminals involved in the various scams.

During the course of the book the author mentions that some of these individuals were punished with prison sentences or ostracized, and "justifiably so" says he.

Instead of fraud he now seems to be defining the criminal behavior involved in each of these scandals as "inciting financial incredulity or mass euphoria" which, I agree, would be difficult to prosecute.

Where is his outrage for the crimes and criminals involved?

I find it interesting to note that if a man robs a corner store with a gun and steals one hundred dollars, he will most likely end up in prison. The man or the men who rob millions of innocent people of their assets through fraud and other criminal shenanigans are given an indifferent shrug by Mr. Galbraith. "Oh dear, what to do?" seems to be the gist of it.

In our last scandal that nearly collapsed the economy of the entire world we clearly had criminal fraud, falsifying of documents, false testimony, false accounting procedures and figures and basic embezzlement.

Most of us were victims yet not participants in the speculative mass euphoria - just as in 1929 and in other of these big financial calamities.

We bought nothing and sold nothing. Yet when the final tabulations were given we lost tens of thousands, and some of us hundreds of thousands on our home equity and life savings. Our retirement pensions were looted.

A property that was estimated before the euphoria at $125,000 may now be estimated at $50,000 or less.

Because of the indulgences of the speculative euphoria in the financial and real estate sector we are all made to suffer and pay dearly. And the bandits are not even being pursued by a posse.

It seems that this was the mindset of those involved. They knew they were acting criminally but made the calculation that as long as the majority in their industry participated in the crime, they would be in effect "too many to be prosecuted."

It now appears that they were correct. We have an obvious case here of "Crime and No Punishment."

This indicates to me that this criminal behavior is far from over. The thief who is successful in his thievery is encouraged to rob again. The next massive robbery seems to me to be just a matter of time and manipulation.

At the beginning of this review I pointed out that Mr. Galbraith suggested that all of this business is inherent in the capitalist system - it is not only systemic but endemic. And now we find that it is also incurable and beyond regulation and justice.

So then we are to sit back and periodically - every twenty years or so - let our wealthier sector rob us of all or part of whatever it is we thought to be our little nest egg or share in this great society. Crime on the part of certain groups among us is inevitable and any type of preventative attempt on the part of us or society is futile.

If that is the reality of the capitalistic system, then maybe it is time to take a closer look at this capitalist system.

This is like saying: Men will rape women. So girls, ready yourselves for the event and get used to it.

This is very poor logic coming from a very intelligent man.
I need a better solution than what the good Professor is offering here.

Unfortunately, Mr. Galbraith died before this last economic disaster. I wish he lived to tell us his thoughts on this situation.

Richard Edward Noble is a writer and author of: "Bloggin' Be My Life."
4.0 out of 5 stars Compact and insightful 4 September 2016
By Jarix - Published on Amazon.com
Format: Kindle Edition Verified Purchase
I chose to read the book since it was so short despite the topic. I also appreciated the age of the book to see how the author's views hold after some time has passed since publishing it. And certainly those do hold. I enjoyed the insightful and entertaining history of speculation and financial crises and how the author well identified the underlying fallacies boosting speculation. If only we all would remember these learnings during "good" economic times. History repeats itself since people don't change so much.

If you are interested in the topic, but not certain do you want to read a brick-sized book about it, A Short History of Financial Euphoria is for you. Recommended.
6 of 6 people found the following review helpful
4.0 out of 5 stars The capturing of the snark 19 December 2010
By Harry Eagar - Published on Amazon.com
Format: Paperback Verified Purchase
Money makes people stupid, but other people assume the possession of money means the pessessors are smart. There's a good deal of evidence for this proposition, which is repeated over and over in this essay, but in "A Short History of Financial Euphoria," John Galbraith was not interested in providing evidence. (You can find plenty in Edward Chancellor's "Devil Take the Hindmost.") Galbraith was just jeering.

Jeering is a worthy exercise, especially if the targets are the morons who run American and world finance. Galbraith has much fun tweaking the self-described geniuses (at Citibank, especially) for taking the deposits of the Arab sheiks after the oil shocks and handing them over to the deadbeats of Latin America. Even when he wrote this long essay, in 1990, most people had forgotten that.

The bankers certainly had, since they soon repeated it.

We are always being told that business should be given its head, but Galbraith is not too impressed. In his view (matched by my own experience as a news reporter covering business), most managers are more or less incompetent or stupid, and success in business is mostly a matter of luck.

The underlying message of "A Short History" is unsupervised markets fail.

Galbraith notes that when markets do fail, there is always a circling of the wagons to protect the myth of the market and to lay the blame on some exogenous event. This sometimes goes to absurd lengths. After the '29 crash, exculpators tried to say that it was foretold by a mild dip in industrial production in the summer; and more recently rightwing and free-market publicists have settled on blaming the Federal Reserve for a slight increase in the discount rate, avowedly meant to curb speculation, that year.

The culprit, says Galbraith, is always speculation leading to insanity. Further, he asserts that it is a feature, not a bug; it's built in and there's nothing that can be done about it.

This is too pessimistic. Obviously, something can be done, since there were no crashes between the imposition of New Deal measures in the mid-'30s and 1987, shortly after the abandonment of New Deal circuitbreaker measures (either legally or in regulatory practice). In all the rest of American financial history, before and since, crashes have come every 20 years, which Galbraith ascribes to the forgetting time. Also, the passage of a couple of decades provides for the incursion of a new flock of ignorant fools who discover leverage and are persuaded that not only is it the way to easy riches, but that nobody ever thought of it before.

My experience of 40 years watching businesses confirms all this.

Another thing Galbraith and I agree about is the mystery of bubbles. History - he starts with the Tulipomania of 1736 - shows that anything can be bubblized. But what prevents some high-valued asset - think Picasso daubs - from bubblizing? Neither Galbraith nor I can say.

While I find Galbraith amusing, a little goes a long way. Even the little in this volume is more than enough for me.

Galbraith wrote this little book in 1990, which allowed him much fun at the expense of Michael Milken and Donald Trump. This demonstrates, I suppose, that even market skeptics are unable to predict the future. Trump is still with us.

About the time Galbraith wrote, Salomon Brothers (remember them?) predicted that the overbuilding caused by the savings and loan bubble had left New York City with so much empty office space that it would not be absorbed for 46 years. Forty-six months was more like it, at the cost of, since then, three more crashes.

I wouldn't care if only the plungers got hurt.
16 of 17 people found the following review helpful
5.0 out of 5 stars Delicious Little Book on the Idiocy of the Get-Rich-Quick Mindset! 31 July 2006
By Odysseus - Published on Amazon.com
Format: Paperback Verified Purchase
Galbraith's wonderful little book (Only 110 pages) is a quick guided tour -- with pithy analysis interspersed throughout -- of get-rich-quick movements, and, more importantly, the foolish thinking BEHIND such phenomena. Galbraith takes the reader on brief tours of some of the more notorious financial booms-gone-bad, such as the "Tulip Craze" in Holland and the Banque Royale bust in France in the 1600's, the South Seas "Bubble" of the 1700's, and, more importantly, the numerous episodes throughout American financial history, from Colonial times through the busts of 1819, 1837, 1857, 1873, 1907, 1929 -- and 1987 (Galbraith's book was first published in 1990 -- ten years before the dot-com bust....). The source of these rush-to-riches-gone-sour, argues Galbraith, rests on several ever-consistent, historically re-occurring causes: First, the quest for leverage (i.e. generating more funds than having the means to actually support them) and lavish debt spending; Second, the pathological, recurrent inability of the financial world to learn from the past; Third, the silly notion that the possession of wealth is directly equal to a persons' intelligence (Wealthy individuals, contends Galbraith, are not rich because of brains, but more often through chance and circumstance -- a fact the public ignores at their own peril); Fourth, the incessant human desire to become affluent by the easiest means possible; Fifth, the 'religious' quality Americans consistently perscribe to "the market," i.e. that free enterprise is 'perfect' -- Corruption, loss, and falling markets are due only to "outside forces" (Like 'evil CEO's' or 'government intervention') -- rather than the public's endless supply of gullibility, culpability, and simple greed. The financial world, Galbraith brilliantly contends, is rooted in a quasi-theological outlook: Successful Wall Street moguls are treated as divine shamans; dogmatic faith in the latest financial hoopla is considered a virtue; critics are readily condemned as heretics; and once the bubble bursts, there exists a curious religious playing-out of "Sin-Fall-Guilt-Punishment," whereby the men who we once revered as financial geniuses are quickly strung-up in the court of public opinion -- sacrificial lambs for the public's own short-sightedness. Galbraith warns his readers that money-making innovations in the world of finance are simply worn-out re-workings of very, very old schemes. New bubbles emerge under new guises and fanciful terminology -- but the game remains forever the same. Once one crisis has passed, a new financial rush soon emerges, and the vicious cycle of irrationality and idiocy (Galbraith's terms) begin again. In the end, Galbraith warns his readers to be very wary of those who promise you easy wealth, and should you jump on the latest money-making bandwagon -- and most likely end up losing in the end -- don't blame anyone or anything except............YOURSELF. Excellent book!!