A Short History of Financial Euphoria

Economist John Kenneth Galbraith looks for what the great speculative manias of the past three centuries have in common. He covers the seventeenth-century tulip craze in Western Europe, the South Sea Bubble in Britain and the eighteenth-century enthusiasm for the joint-stock company, known today as the corporation, and the more recent discovery of leverage through junk bonds. He also explains the new kinds of debt each generation invents and recounts how notorious charlatans talked the public into buying financial ciphers. Galbraith calls the book a hymn of caution, warning that the public will one day cheer another financial wizard. It asks why markets keep swinging from boom to bust despite the expertise of Wall Street.

Howard Marks, co-chairman of Oaktree Capital Management, said it describes very well how the psychology of market participants swings to extremes, though he advised readers to ignore its negative remarks on high yield bonds.