Book Review | Manias, Panics and Crashes - A History of Financial Crises by Robert Solow
"Manias, Panics, and Crashes" by Robert Solow is a captivating exploration of financial crises and the impact on economies around the globe. Solow's insightful analysis delves into historical events, from the Tulip Mania to the 2008 global financial crisis.
While the book can be somewhat dry at times diving deep into economic theory, Solow does weave in several anecdotes to lighten the complex concepts, making it easier to comprehend. However, it’s not just economic theory, Solow sheds light on the behavioural aspect of financial markets and the contribution they have during the crisis’ before turning to key moments where some events could have been avoided through quick and decisive action.
The book won’t be for everyone, but it does provide timeless lessons about the cyclical nature of financial markets and the necessity of prudent regulation.
- Nearly every banking crisis in the last thirty years has been associated with a decline in cross border investment inflows that led to a decline in the price of a country’s currency. Every country that experienced a banking crisis had previously experienced an economic boom. These booms morphed into busts when the investment inflows slowed.
- Virtually every banking crisis has followed two, three or more years when the rates of growth of the borrowers indebtedness exceeded 20 percent a year – rates of growth that were too high to be sustainable for an extended period.
- Water flows downhill in response to gravity, investment flows across national borders toward higher anticipated rates of return. Perhaps there are example where the “law of gravity” has been repealed or suspended and water flows uphill. His business career has not all been a success. There have been some major mistakes along the way. This book by American sportswriter Brian Windhorst does a great job analysing many of the individual deals that have been made over the past 20 years.
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