Manias Panics And Crashes Quotes

Money is a public good; as such, it lends itself to private exploitation.

This book is an essay in what is derogatorily called "literary economics," as opposed to mathematical economics, econometrics, or (embracing them both) the "new economic history." A man does what he can, and in the more elegant - one is tempted to say "fancier" - techniques I am, as one who received his formation in the 1930s, untutored. A colleague has offered to provide a mathematical model to decorate the work. It might be useful to some readers, but not to me. Catastrophe mathematics, dealing with such events as falling off a height, is a new branch of the discipline, I am told, which has yet to demonstrate its rigor or usefulness. I had better wait. Econometricians among my friends tell me that rare events such as panics cannot be dealt with by the normal techniques of regression, but have to be introduced exogenously as "dummy variables." The real choice open to me was whether to follow relatively simple statistical procedures, with an abundance of charts and tables, or not. In the event, I decided against it. For those who yearn for numbers, standard series on bank reserves, foreign trade, commodity prices, money supply, security prices, rate of interest, and the like are fairly readily available in the historical statistics.

In Chapter 5 we consider swindles and defalcations. It happens that crashes and panics often are precipitated by the revelation of some misfeasance, malfeasance, or malversation (the corruption of officials) engendered during the mania. It seems clear from the historical record that swindles are a response to the greedy appetite for wealth stimulated by the boom. And as the monetary system gets stretched, institutions lose liquidity, and unsuccessful swindles are about to be revealed, the temptation to take the money and run becomes virtually irresistible. It is difficult to write on this subject without permitting the typewriter to drip with irony. An attempt will be made.

But most investors do capitulate eventually. They simply run out of the resolve needed to hold out. Once the asset has doubled or tripled in price on the way up — or halved on the way down — many people feel so stupid and wrong, and are so envious of those who’ve profited from the fad or side-stepped the decline, that they lose the will to resist further. My favorite quote on this subject is from Charles Kindleberger: “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich” (Manias, Panics, and Crashes: A History of Financial Crises, 1989). Market participants are pained by the money that others have made and they’ve missed out on, and they’re afraid the trend (and the pain) will continue further. They conclude that joining the herd will stop the pain, so they surrender. Eventually they buy the asset well into its rise or sell after it has fallen a great deal. In other words, after failing to do the right thing in stage one, they compound the error by taking that action in stage three, when it has become the wrong thing to do. That’s capitulation. It’s a highly destructive aspect of investor behavior during cycles, and a great example of psychology-induced error at its worst.

And he felt it. Rogal Dorn had been feeling it for days, weeks, building up, up, up, rising over him like a black fog, dragging at his limbs, clogging his mind, making him question every decision he made, every order he gave. He hadn’t had any respite at all, of any kind, for three months. Three months! His sharpness was going now, his reactions were slower. A billion functionaries depending on him for everything, reaching out to him, suffocating him with their endless demands, pleas for help, for guidance. A billion eyes, on him, all the time. And he’d fought, too. He’d fought. He’d fought primarchs, brothers he’d once thought of as equals or betters. He’d seen the hatred in Perturabo’s eyes, the mania in Fulgrim’s, stabbing at him, poisoning him. Every duel, every brief foray into combat, had chipped a bit more off, had weakened the foundations a little further. Fulgrim had been the worst. His brother’s old form, so pleasing to the eye, had gone, replaced by bodily corruption so deep he scarcely had the words for it. That degradation repulsed him almost more than anything else. It showed just how far you could fall, if you lost your footing in reality completely. You couldn’t show that repulsion. You couldn’t betray the doubt, or give away the fatigue. You couldn’t give away so much as a flicker of weakness, or the game was up, so Dorn’s face remained just as it always had been – static, flinty, curt. He kept his shoulders back, spine straight. He hid the fevers that raged behind his eyes, the bone-deep weariness that throbbed through every muscle, all for show, all to give those who looked up to him something to cling on to, to believe in. The Emperor, his father, was gone, silent, locked in His own unimaginable agonies, and so everything else had crashed onto his shoulders. The weight of the entire species, all their frailties and imperfections, wrapped tight around his mouth and throat and nostrils, choking him, drowning him, making him want to cry out loud, to cower away from it, something he would never do, could never do, and so he remained where he was, caught between the infinite weight of Horus’ malice and the infinite demands of the Emperor’s will, and it would break him, he knew, break him open like the walls themselves, which were about to break now too, despite all he had done, but had it been enough, yes it had, no it could not have been, they would break, they must not break… He clenched his fist, curling the fingers up tight. His mind was racing again. He was on the edge, slipping into a fugue state, the paralysis he dreaded. It came from within. It came from without. Something – something – was making the entire structure around him panic, weaken, fail in resolve. He was not immune. He was the pinnacle – when the base was corrupted, he, too, eventually, would shatter.

Charles Kindleberger’s 1978 classic, Manias, Panics, and Crashes.