Monday, May 4, 2020

Boom and Bust by Quinn and Turner

This book’s full title is Boom and Bust: A global History of Financial Bubbles by William Quinn and John D. Turner. Since there are no reviews that I can find, I will proceed differently on this review than on others that I have made. I was given an advance copy of this book in PDF form to read.

You can find information on William Quinn here. Information on John D. Turner is here. Neither seems to have any presence online in the form of videos. Both are on Twitter. William Quinn is found here and John Turner is on found here.

Reading about the problems that Britain had in 1825, you have to wonder if governments and their agencies have learned anything from past crisis. It would appear not. Britain’s handling of the banking crisis and the damage to Latin America was awful in the instability it caused for a long time. Yes, the crisis changed some things, but similar things are still happening.

This book has been written at a good time. The basic cause of the severe 1930 Depression was that people stopped spending. You got to wonder if this will happen once Covid 19 restrictions are lifted. A lot of people have suffered with job losses and lack of money. Who knows what this flu will do in the future and what he government reaction will be? We might have a severe depression if people are reluctant to spend money and to go out when the restrictions are lifted.

I am interested in investing. I do it for a living now, but I have been investing for some time and love reading books on economics and history. This book about economic history is the sort that does appeal to me. That is why I accepted a copy in return for a review. I agreed to read this book and if I like it, I would put a review on my blog and on Good Reads.

One of the things they talk about is market speculation. It would seem that a number of times people have treated the stock market as a casino. I invest for the long term, but I belong to some investment clubs and some do talk about speculation and others talk about investing. Some in the investment clubs, especially the one via meetup are doing day trading. This must be the ultimate in stock market speculation.

We probably all remember the real estate bubble in the US. The real estate bubble also affected Spain and England. You can read about this bubble in this book as it will make most of it understandable to people who are not interested in economics. We can still see the aftermath of that bubble. There is a news item on YouTube that talks about abandoned houses in USA. Here is another video on abandoned houses on YouTube in USA. There is an article about abandoned places in Spain on Quartz.

Most of the bubble situations talked about in the book I had heard of before, including the UK Railway Mania. But I have always been fascinated by UK Railway Mania bubble. Whenever I have read about the building of railways, it seems that shareholder did not make any money from investing in them. I live in Canada, and when it was decided we could not afford to build one railway from coast to coast, we decided to build two. Yes, I know how this sounds, but this is Canada and Canadian history. Our main railways of today, Canadian National and Canadian Pacific, are currently doing just fine for their shareholders. Some things do change.

I believe the first Railways were built in England. I know that problems can arise when you are the first to use new technology. But according to the author, a bubble is started by politics and/or technology. Also, the authors say to have a bubble you need Speculation, Marketability and Money Credit. Then you have a bubble triangle. The authors also talked about why some bubbles caused economic problems and why others did not.

There certainly was speculation going on with the Railway Mania in England. There was lot of excitement because of the building of railways. Lots of petitions to parliament to authorize the building of different railway lines. As the share prices rose, it attracted lots of money, not only from the upper classes, but from the middle and lower classes. The media also had their hand in building excitement for railway shares. Speculators hoped to flip their shares before more capital was called up by the railways.

Marketability has to do, in the case of the Railway Mania case, the granting of corporate charters and the trading of shares. Parliament became more liberal in granting corporate charters to railway companies. The MPs had an electoral incentive to promote the interest of their local constituency. During the mania 15 new stock exchanges opened. So, it was very easy for people to buy and sell shares in the companies.

The last of the bubble triangle is Money Credit. There did not seemed to be much in the way of investors borrowing to buy shares. They really did not need to as investor were issued share certificates. They put some money down and were expected to answer future calls for capital. The down payment on the shares was at first 10% and then it was lowered to 5%. So really, leverage was built into the buying of shares.

So, there you have it. The Railway Mania in England provided all the ingredients for a bubble to form. Now you can get the book and see why this particular bubble caused economic problems for Britain.

An index of the books I have reviewed are on my website at Books. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

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