This paper examines "Manias, Panics, and Crashes" by Charles P. Kindleberger and evaluates the concepts presented within.
Written in 2009; 3,980 words; 0 sources; $ 108.95
Paper Summary:
The work by Professor Emeritus Charles P. Kindleberger, "Manias, Panics and Crashes" is an influential piece of economic literature examining the many financial crashes that have occurred in the modern banking world since the 18th century. In his work Kindleberger looks for a basic pattern behind financial crashes and examines the framework in its historical context. This paper examines Kindleberger's book and evaluates the concepts he presents in the work. The paper also presents the writer's conclusions regarding the validity of the theories and concepts propounded by Kindleberger.
From the Paper:
"Much the same situation occurred in the housing bubble. Minsky's idea that bubbles are largely created by an expansion of credit is significant in that event. Housing prices were already subject to increases, and this brought an increasing amount of buyers into the market. Supply was constrained by availability of land in key locations, and by the time and labor required to build more homes. As Minsky/Kindleberger propose, this in and of itself would have not resulted in a mania. Enter subprime mortgages. The model requires easy access to credit to work. Subprime represented that access, and this allowed new entrants to the market who would not otherwise be there. The model worked perfectly, and two key things happened. First, supply outstripped demand. Even with dirt cheap mortgages, housing prices in many markets skyrocketed to the point where legitimate purchasers were flushed out of the market. The reduction in demand, coupled with the continuous increase in speculative buying with cheap and easy credit, resulted in the financial distress."
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