"Devil Take the Hindmost"

"This time is different!"

Edward Chancellor's "Devil Take the Hindmost" is an in-depth study of financial speculation and panics over the last 500 years. The book's 400-plus pages really drive home two messages:

1. In the long run, greed is not good.
2. This time may be different, but probably not in the ways we hope.

The book opens in the 1600s during the height of tulip-mania, when Dutch nobles, merchants, and even commoners exchanged IOUs for next season's tulip bulbs for the cost of one, two, six, a dozen townhomes. Needless to say, this couldn't last: the tulip futures market soon crashed, taking many speculative fortunes with it.

Time and time again, wishful thinking, the exuberance of crowds, and in more than one case a dash of criminal behavior leads to economic ruin. During a bubble, people assume that as today's prospects were better than yesterday's, tomorrow's will look that much brighter still. As Chancellor puts it:

This assumption may be likened to driving a motorcar by looking in the rearview mirror – fine as long as the road continues straight but disastrous when you reach the first corner.

One of the themes that most struck me concerns how bubbles can consume those they touch on the way up, not just on the way down. The "Cowboy Capitalism" chapter chronicles the rise and fall of Michael Milken, junk bond king, who by all accounts was miserable even as he was making hundreds of millions a year:

"Michael is interested in power, dominance, one hundred percent market share. Nothing is good enough for Michael. He is the most unhappy person I know. He never has enough."

The book was published in 1999, a time during which the stock market reached record highs on a near-weekly basis and the U.S. seemed untouchable, but Chancellor nevertheless predicted a collapse. How could new internet e-commerce companies losing millions of dollars a year be worth more than all of their suppliers combined? Just a few years later, the Dotcom crash proved him right.

"Those who cannot remember the past are condemned to repeat it."
—George Santayana

My highly subjective rating: an exhaustive (and sometimes exhausting) account of how overconfidence and greed lead inexorably to ruin. Worth reading for the chapters on tulips, the South Sea Bubble (in which King George I of England lost a fortune), and Michael Milken.