Monday, June 22, 2009

Contrarian, my dear

Peter Tasker has written a must-read essay for the Financial Times on the negative lessons one can draw from the bursting of stockmarket and real estate Bubble in 1989.

The payoff line is spectacular:

The reality is that historically significant financial crises are caused by the collapse of historically significant asset bubbles, and asset bubbles have occurred throughout history under many economic systems. You don’t need huge bonuses for investment bankers, stock options for managements, Ayn Rand devotees at the central bank, weak-kneed rating agencies, and so on. We know this because Japan's Godzilla-sized 1980s bubble lacked all these features...
It is both frustrating and thrilling to see someone else hammer out a fundamental truth one could sense but could never find the words to describe.


Matt at AnarchyJapan said...

So I guess you disagree tuplip mania was related to money supply?

The Dutch Monetary Environment During Tulip Mania:

On a more serious note, Christopher Woods who wrote extensively about the Japanese bubble had a really interesting article in the WSJ a while back. You might want to read that as well. His punch line is this:

The catalyst will be foreign creditors fleeing the dollar for gold. That will in turn lead to global recognition of the need for a vastly more disciplined global financial system and one where gold, the "barbarous relic" scorned by most modern central bankers, may well play a part.

Here is the link:

Chris ( said...

Matt, I may be missing something, but isn't that's exactly the point Tasker is making - Dutch tulip mania occurred sans investment banks, stock options, and all the other paraphernalia of the most recent credit bubble - and in targeting them we simply learn how not to create the same bubble again, rather than learn anything about the prevention of bubbles in general?

Matt at AnarchyJapan said...


Every instance of a phenomena is certainly unique, but what we seek to understand is if there is anything universal at work. It may be frustrating to have to hash through all the various theories. I admit we each bring our own hang ups and biases to the process. I'm an ardent free marketer and certainly that colors my thoughts. I'm certainly biased.

But shouldn't we at least try to understand what went wrong? What's Tasker saying, these things just happen and there's nothing we can do about it. That strikes me as gomakashi.

Putting forth my own free market biases, I'd suggest that a bubble of this size and proportion could only have come about because of the Fed, which is a basically a central planning agency for currency. Certainly policy and greed along with numerous other factors affected the direction of where the excess money went, but if there was not excess money to begin with, how could there have been a bubble of this size and proportion? I could go on, but this probably isn't the right place to debate this.

Christopher Woods strikes me as at least attempting an explanation. He did write the book on Japan's bubble, so he's worth listening to.

By the way you have an excellent blog. Breathtaking pictures, I look forward to spending more time there soon.

Matt at Anarchyjapan said...

For the record, when I say gomakashi, I don't really mean Tasker himself, but people like Greenspan who suggest this is just a once in a century like storm, thereby absolving himself from any sense of responsibility. I don't necessarily hold Greenspan as a culprit, per se, as much as the institution he lead, but comments in this vain seem irresponsible.