Boom and Bust

Boom and Bust: A Global History of Financial Bubbles is a recent book by two finance professors, William Quinn and John D. Turner, from Queens University in Belfast, published by Cambridge University Press. In it, the two give an interesting history of financial market bubbles over the past several centuries. For me, the most interesting part is the detail the book provides about bubble episodes from the 18th and 19th centuries, extracted from financial reporting in those times. Both seem to be observers of contemporary events rather than market participants, so their accounts of current-era bubbles doesn’t have the detail I might have wanted. That’s probably me being too picky, though, because this really is a useful book.

the bubble triangle

Quinn and Turner offer the idea of the bubble triangle as a framework for thinking about possible financial market bubbles. The three sides of the triangle are:




the basic ideas

–bubbles occur during times of easy money,

–changes in marketability (the ease with which buying/selling can happen) can be like throwing gasoline on the fire, and

–the staple activity of the bubble is speculation, or transactions made not because of the intrinsic value of the trade, but with an eye to offloading at a profit to a “greater fool” in short order.

By far the most damaging financial bubbles are those in which the money/credit system become incapacitated, as in the 2007-09 financial crisis. My too-simple summary: back then, corrupt/incompetent bankers issued tons of mortgages to people who had no prayer of being able to repay and packaged them into toxic derivative instruments that they sold to one another. Ratings agencies rubber-stamped these deals–until one day the world woke up and realized that many of these institutions were likely bankrupt. International economic activity came to a dead stop, because no one trusted the banks to act as intermediaries any more. A scary mess.


marketability–several key developments that have increased marketability are: zero-commission trading, trading in fractional shares, app-based trading, and the emergence of Robinhood, which has gamified the stock market and made options trading exceptionally easy

money/credit–the deep economic and public health failings of the Trump administration have blown out the money supply and pushed interest rates in the US to effectively zero. Yes, the banks are solvent, but credit is exceptionally plentiful

speculation–look at Gamestop.

Looks like a bubble to me.

More tomorrow.

2 responses

  1. Definitely seems like a bubble to me. But what should you do when you spot a bubble? guys like Soros run towards them, as have the guys in hoodies.

  2. Hi Joel. I should really be asking you. I’ve always been bad at calling tops. I think I’m much better at figuring out bottoms, although I also know I’m invariably a couple of months early. What I think will be unusual in today’s case is that chances are the bubble will pop because of a return to normal–an uptick in economic activity, not a slowdown. If so, the place to find shelter during the selloff will be in industrials and in non-stay-at-home consumer discretionary. Maybe even Hong Kong or Tokyo stocks. I’m also thinking that we’ve still got some time to go before the music stops, because Washington is only starting now to take the pandemic seriously. Because of sentence 2 I’m confident what I’ve just written is wrong, but I don’t know whether the current market has shorter legs or longer. I also wonder whether the guys in hoodies (not me, although I happen to be wearing a hoodie now) have changed short-selling forever. Dan

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