Relevant, but difficult to read
There is a wealth of great information and insight in this book, but it is organized in a manner that reduces interest and readability. The authors make points and then provide examples from several financial crises, with the result that almost every single page covers multiple events but you never really get a full picture of those events. It is incredibly relevant to the current (2008) crisis, so it is unfortunate the book isn't organized better.

Relevant but hard to read
I am no economist and just an interested general reader. I expected to read narratives about past financial crises and how they played out. But this book is not organized that way. It doesn't tell any story from start to finish. Instead it references lots of different crises in a kind of shorthand way, without giving the background or the overall narrative.

Many of the references are pretty darn obscure, at least to me. So fine, if he's talking about how a certain phenomenon works and he says, "as in 1932," or "as in the S&L crisis," I'm with him. But when he says, "just as in the 1762 case in Belgium" (made up example)--well, my eyes start to glaze over, because he hasn't told me the story of 1762 Belgium, but referenced it as if it should be as familiar to me as the Great Depression in the US.

I also think there's something wrong with the writing style. He seems not to start out with topic sentences that show us where he's going, or to end with a summing up of the significance of what he's just said. Certain details recur within a few pages of each other. The effect is pretty scatter-shot, as if it was not carefully edited and made to flow.

There is plenty of raw material here for anyone watching our current economic crisis and wondering how it happened, but you have to work for it. What I get from it is that in certain circumstances, if everyone does what seems best to him or her in the market, the end result will be disaster for all. It's not really irrational to buy when prices are increasing by the day, because huge profits can indeed be made. But the more people that make that individually rational choice, the more irrational the whole thing becomes.

Maybe I could compare it to a stampede to an exit door in a fire. Each person's individual best choice is to get out as quickly as possible. But if you allow that psychological reality to play out, you might have people trampled to death at the door who then block everyone else from escaping.

Reading this was like listening to a rather elderly professor of history who is intimately familiar with many obscure incidents, but doesn't provide the context for his young students to follow his train of thought.

Manias, Panics, and Crashes
I gave this book to my grandson who is majoring at UCSD in economics. He has not had any course yet covering the history of financial crashes, etc. and finds it fascinating to compare past times with the present economic slowdown. Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics)

Presents a correct analysis but should have devoted some more time to the warnings of Smith and Keynes-4 .5 stars
Kindleberger does a great job of demonstrating what the root cause of economic downturns is.The process starts as bubbles of speculation on a sea of enterprise and entrepreneurship as pointed out by Keynes.However,as time passes the bankers decide to shift loans to speculators as well as starting to engage in speculation themselves.The situation changes as one observes a sea of speculation with few bubbles of enterprise floating on top.This sets the stage for the bubble to start growing with the finance coming from the bankers who fuel the expansion in the bubble.This leads to the mania stage.All it takes here is for some tiny liquidity disruption to set off a panic of selling which leads to the Crash as various participants discover that their paper wealth has evaporated ,leaving them with crushing debt loans as their debt leveraging and margin account financing now becomes an albatross around their necks.The end result is various bankruptcies and defaults and a recession or depression.


Kindleberger shows how this pattern occurs over and over again in history.Unfortunately,Kindleberger fails to provide the reader with a simplified summary from the earlier work of Adam Smith and J M Keynes that explains the crucial steps involved in inflating,but not creating, the bubble-(a)loans from the commercial bankers to loanees whom the bank knows for certain are going to be engaged in speculative behavior and (b)the decision by the banks themselves to enter the market as active speculators.It is true that the bubbles themseves start irrespective of the banking system since individuals are free to engage in speculative finance with their own money and assets.However,the bubbles could not grow and expand over time if the bankers refused to allow the speculators to leverage their debt position by obtaining extensive lines of credit from the bankers to expand their debt positions.


Everyone who reads this book should also read pp.290-340 of The Wealth of Nations[1776;Modern Library(Cannan)edition]and chapters 12 and 22 of The General Theory of Employment,Interest and Money(1936).Keynes proves mathematically that it is uncertainty and speculation(the speculative demand for money) that cause involuntary unemployment in chapter 21 on pp.305-306.The neoclassical(monetarism,rational expectations,real business cycles,etc.) schools must,therefore ,deny that there is anything called uncertainty or ignorance;there is only risk, which is represented by the standard deviation sigma.Similarly ,they must deny that there is any significant speculative demand for money;there is only a transactions demand for money.Kindleberger essentially demonstates that the neoclassical schools have absolutely no historical support.This also means that there would be no statistical support for their claims that the normal probability distribution is applicable to a wide range of industrial and financial markets.Kindleberger, as well as the new coauthors of this latest edition, overlooked the immense support that Kindleberger could have used to buttress his overwhelming historical evidence that has been madee available by Benoit Mandelbrot. Benoit Mandelbrot has presented massive amounts of statistical evidence, for over 50 years ,demonstrating that the neoclassical school's claims about the normal distribution do not have a shred of evidence to support them.It should not be surprising to discover that NO neoclassical economist in the 20th or 21st century has ever done a single goodness of fit test on the various time series data sets in order to supply support for their claims that price changes in all markets are normally distributed over time.



I recommend this book .It will allow a reader to understand the negatives that could very well happen in the 2008-2010 time period.Ben Bernanke's 1.2 trillion dollar banker and Wall Street bailout,from August,2007-May,2008, has merely delayed the inevitable while creating massive new bubbles in oil and commodities and driving the value of the dollar to new lows.Bernanke has merely substituted future stagflation for recession.

Timely and yet enduring
As I write this review, we are waiting to see if the Fed's somewhat drastic cut in the federal funds rate will stop the slide into recession. Bank of America is acquiring Countrywide mortgage lenders. UAE has bought an $7.5 billion worth of junk bonds from Citigroup in a manner similar to the late Dr. Kindleberger's lender of last resort. So we have an event going here as I write.

As a Southern California homeowner, I am certainly not surprised at what is happening. Houses constructed and first sold for $30,000 in the late 1950's were selling for $600,000 and up a year ago. I would go to lunch and all anyone would talk about was real estate. I got a lot of crazy advice ("sell your home, move out to the desert, and live off the interest.") I would turn on the TV and watch Jim Cramer screaming "They're not making any more land out there!!!!!" How could that last? I decided it was time to read this book.

Manias, Panics, and Crashes is a scholarly work of Economic History. It sets up a model of a crash or panic and then explores each phase in succession. He writes narratives of events, such as the South Sea Island Bubble, and how the events transpired. Dr. Kindleberger examines the mania or bubble phase, the critical stage, and then examines two ways in which it ends. The two ways to end the panic are either to let it burn itself out or through a lender of last resort. He focuses on the economic more than the psychological factors that make up these cycles.

Kindleberger favors the lender of last resort solution as it cuts the duration of the crisis. He notes that the Great Depression could have been stanched more quickly had there been a lender of last resort. But, I think he presents opposing ideas to his in a fair and gentlemanly manner.

Yes, this book is not an easy book to read. Few books in economics are easy to read. No it doesn't give advice on profiting from a panic. The Late Harry Browne used to write such books before he began running for President. Those books are useless generally; by the time you want to read them, its already too late. Gold, foreign currencies, and the like will be at all time highs, as they are currently.

I recommend this book because this is a recurrent phenomena that is part of human nature. Optimism is a good thing. But if you are channel surfing late night television and an infomercial comes on with guys sitting in lounge chairs around a pool sipping margaritas and telling stories about how they became millionaires while working 2 hours a week, it's time to read Dr. Kindleberger's book.

Update: Last weekend, the Fed arranged a deal where JP Morgan-Chase acquired Bear Stearns for $2 per share to forestall a panic. There are many critics of this deal. Some say the corporate headquarters alone was worth many more times than what Morgan paid for the company. Most of the press gave the credit for the deal to Ben Bernanke, but Robert Novak in the Washington Post gives the credit to Timothy Geithiner, President of the NY Federal Reserve Bank.

So, the Fed is following the Kindleberger strategy of finding the buyer of last resort rather than the Milton Friedman strategy of letting the fire burn itself out. I suspect we will know in a month or so whether this strategy has succeeded or not.


I am reviewing and recommending the edition of this book released in 2000.