A Short History of Financial Euphoria - John Kenneth Galbraith (Penguin Books, 1994)

A look at three hundred and fifty years of speculative bubbles and the common characteristics of the major events.  The same dynamic, the same belief in something new appears in surprisingly short cycles.  "The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version."  [332.645]

This very slim volume (113 pages) is written with Galbraith's wit and sharp insight.  During speculative periods one may note the belief that either some new asset has arisen which can be expected to rise in price for an extended time or that others may be fooled, but it will be possible for the shrewd individual to know when to get off the ride, and that doubters are to be condemned.  Common to the rise of bubbles are the shortness of financial memory (previous episodes are forgotten) and the specious association of money with financial genius.  Unfortunately, the financial innovation that arises is usually some variation on leverage which works wonderfully in rising markets and extracts a terrible price in falling ones.  Those enjoying the benefits of leverage are hailed as financial geniuses.  When the crash comes, something other than greed or stupidity is blamed.  In the past, crashes have been blamed on program trading systems, or government reports, or small changes in GDP.  Certainly, the market cannot be at fault because that would violate the central tenet of the faith in the perfect market.  The last crisis covered is the 1987 savings and loan fiasco and the market collapse.  What gives credit to Galbraith's analysis of the common factors in crashes is that the reader can see the same factors and reactions in the dot com bust and in the great collapse of 2008.   

The author then follows major speculative bubbles from the Tulip mania (a review of another, better work on this will appear here eventually) and the South Sea Bubble through the 1929 crash and the 1987 Meltdown.  Because he is trying to cover 350 years in so few pages, the descriptions are useful only as a reminder of other works one might read of these events.  That becomes the weakest part of the book.  The book's real value lies in the common threads it finds.

This book is recommended with the caution noted above.