10 Manias,Panics,and Crashes Wars.There were manias and financial crises in the nineteenth cen- tury that were mostly associated with the failures of banks,often after an extended investment in infrastructure such as canals and railroads. Foreign exchange crises and banking crises were frequent between 1920 and 1940.The percentage increases in stock prices in the last thirty years have been larger than in earlier periods.Bubbles in real estate and in stocks have often occurred together;some countries have experienced a bubble in real estate but not in stocks,while the United States had a stock price bubble in the second half of the 1990s but not one in real estate. Manias are dramatic but they have been infrequent:only two have oc- curred in U.S.stocks in two hundred years.Manias generally have been associated with the expansion phase of the business cycle,in part because the euphoria associated with the mania leads to increases in spending. During the mania the increases in the prices of real estate or stocks or in one or several commodities contribute to increases in consumption and investment spending that in turn lead to accelerations in the rates of eco- nomic growth.The seers in the economy forecast perpetual economic growth and some venturesome ones proclaim no more recessions- the traditional business cycles of the market economies have become obsolete.The increase in the rate of economic growth induces investors and lenders to become more optimistic about the future and asset prices increase more rapidly-at least for a while Manias-especially macro manias-are associated with economic eu phoria;business firms become increasingly up-beat and investment spending surges because credit is plentiful.In the second half of the 1980s Japanese industrial firms could borrow as much as they wanted from their friendly bankers in Tokyo and in Osaka;money seemed 'free' (money always seems free in manias)and the Japanese went on a con sumption spree and an investment spree.The Japanese purchased ten thousand items of French art.A racetrack entrepreneur from Osaka paid S90 million for van Gogh's Portrait of Dr Guichet,at that time the high est price ever paid for a painting.The Mitsui Real Estate Company paid 5625 million for the Exxon Building in New York even though the initial asking price had been $310 million;Mitsui wanted to get in the Guin- ness Book of World Records for paying the highest price ever for an office building.In the second half of the 1990s in the United States newly- established firms in the information technology industry and bio-tech had access to virtually unlimited funds from the venture capitalists who c01 JWBK120/Kindleberger February 13, 2008 14:58 Char Count= 10 Manias, Panics, and Crashes Wars. There were manias and financial crises in the nineteenth cen￾tury that were mostly associated with the failures of banks, often after an extended investment in infrastructure such as canals and railroads. Foreign exchange crises and banking crises were frequent between 1920 and 1940. The percentage increases in stock prices in the last thirty years have been larger than in earlier periods. Bubbles in real estate and in stocks have often occurred together; some countries have experienced a bubble in real estate but not in stocks, while the United States had a stock price bubble in the second half of the 1990s but not one in real estate. Manias are dramatic but they have been infrequent; only two have oc￾curred in U.S. stocks in two hundred years. Manias generally have been associated with the expansion phase of the business cycle, in part because the euphoria associated with the mania leads to increases in spending. During the mania the increases in the prices of real estate or stocks or in one or several commodities contribute to increases in consumption and investment spending that in turn lead to accelerations in the rates of eco￾nomic growth. The seers in the economy forecast perpetual economic growth and some venturesome ones proclaim no more recessions— the traditional business cycles of the market economies have become obsolete. The increase in the rate of economic growth induces investors and lenders to become more optimistic about the future and asset prices increase more rapidly—at least for a while. Manias—especially macro manias—are associated with economic eu￾phoria; business firms become increasingly up-beat and investment spending surges because credit is plentiful. In the second half of the 1980s Japanese industrial firms could borrow as much as they wanted from their friendly bankers in Tokyo and in Osaka; money seemed ‘free’ (money always seems free in manias) and the Japanese went on a con￾sumption spree and an investment spree. The Japanese purchased ten thousand items of French art. A racetrack entrepreneur from Osaka paid $90 million for Van Gogh’s Portrait of Dr Guichet, at that time the high￾est price ever paid for a painting. The Mitsui Real Estate Company paid $625 million for the Exxon Building in New York even though the initial asking price had been $310 million; Mitsui wanted to get in the Guin￾ness Book of World Records for paying the highest price ever for an office building. In the second half of the 1990s in the United States newly￾established firms in the information technology industry and bio-tech had access to virtually unlimited funds from the venture capitalists who