The obvious features of the speculative episode are manifestly clear.
Some development, seemingly new and desirable captures the financial mind.
The price of the object of speculation goes up. This increase and the prospect attract new buyers who assure a further increase.
There are 2 basis attitudes of the participation.
1) Those who are persuaded that some new price-enhancing circumstance is in control. A new world, of ever increasing returns.
2) Those who , superficially more astute and generally fewer in number,
who believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave.
Their particular genius, they are convinced, will allow them to get out before the speculation runs its course.
Built into this situation is the eventual and inevitable fall. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape.
Something - it doesn't matter what - triggers the ultimate reversal.
Those who thought the increase would be forever find their illusion destroyed abruptly and the episode ends not with a whimper but a bang.
It is, nonetheless, an extremely plausible phenomenon. Those involved with the speculation are experiencing an increase in wealth.
No one wishes to believe that this is luck or undeserved; all wish to think that it is the result of their own superior insight.
The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation moves up the intelligence of those involved.
But the errors of vanity of those who think they will beat the speculative game are also thus reinforced.
Condemnation is directed at those who express doubt. It is said, they are unable, because of defective imagination or other mental inadequacy, to grasp the new and rewarding circumstances that sustain and secure the increase in values.
Conclusion:
- all this
we will see in nearly invariant form occurring again and again in the future, because it is formed out of the genetic psychological predisposition of men
- financial memory is extremely short. Financial disaster is quickly forgotten even when the same circumstances occur again and again.
It is hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world.
- past experience is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present new world.
1990. JK Galbraith. "A short history of financial euphoria".
Maar who cares, right?