Manias, panics and crashes by charles p. kindleberger, chapters 1 and 2 - “financial crisis: a hardy perennial” and “anatomy of a typical crisis”.

Modern and Contemporary History

Essay on text 10
Manias, Panics and Crashes by Charles P. Kindleberger, chapters 1 and 2 - “Financial Crisis: a Hardy Perennial” and “Anatomy of a Typical Crisis”.

Working group:

Alexandra Sangreman Ferreira – 11712

Maria Moreira da Cruz – 11536

Miguel Duarte Ferreira – 11689

The following essay is an analysis of the book Manias, Panics and Crashes by Charles P. Kindleberger, chapters 1 and 2 - “Financial Crisis: a Hardy Perennial” and “Anatomy of a Typical Crisis, respectively.
The author analyses several crises over the last few decades and tries to find common aspects between them to try to understand better financial crises in general, regardless the particularities of each one.
To achieve his goal, Kindleberger focuses his analysis on periods of economic booms, followed by downturns and tries to explain those throughout Hyman Minsky’s model, considering this one as the better general model to explain a financial crisis in a market economy.
The author observed that most financial crises appear as a consequence of the existence of an exogenous shock that changes the scenario for potential investors bringing potential profit opportunities. Investors assume an irrational speculative behaviour leading to higher levels of consumption, investment and GDP. During a time in which “credit was plentiful” and “money seemed ‘free’”, investors were able to finance their investments given a low interest rate, so they kept on investing, expecting continuous escalating prices. It was a “consumption spree and investment spree”. This speculation caused a non-sustainable inflation by creating a speculative “bubble” - term used to describe the rapid increase in asset prices. Investors expected to obtain short-term capital gains and were interested to hold his assets for a relative short period of time. It’s speculative. Investors expected to obtain capital gains from the increases in prices rather than from the