Three Longs & Three Shorts

Why Financial Manias Persist

Author: Ben Carlson
Source: A Wealth of Common Sense (

This is not exactly a review of William Bernstein’s recent book “The Delusion of Crowds” but the blog seems to feed off the book’s central theme and a bit more. Ben draws from the book key characteristics that define a financial mania and then applies it to the current context to see if we are in one. However, he cites one big change compared to the bubbles in history i.e, the way information is generated and shared. With the explosion in user generated content or social media, there is disintermediation as well decentralisation of information generation and consumption, which he wonders would rather create many mini-manias as opposed to one big bubble.
Ben starts off by highlighting how several pundits including Nobel laureates have been calling the bubble, now for more than a decade yet there is no denying that we could be in a bubble given human beings’ natural “tendency to go overboard and take things to extremes” citing a passage from Bernstein’s book on why this herd mentality persists:
“Manifestly, man is the ape that imitates, tells stories, seeks status, morally condemns others, and yearns for the good old days, all of which guarantee a human future studded with religious and financial mass manias.”
He then gives the example of the NFT market where “JPEGs of bored apes are selling for millions of dollars.”
“I mean they’re kind of cute and all but 101 of these bored ape NFTs were sold this week at Sotheby’s for more than $24 million. That seems like a lot.
I wouldn’t blame you for calling today’s NFT prices a mania. It sure feels like it.
I won’t get into the debate about art, status symbols and all of that but the biggest NFT platform, OpenSea, did $3.4 billion of volume in August.
This sounds like a lot of money and it is. But it’s also a drop in the ocean when it comes to the world’s hundreds of trillions of dollars in collective wealth.
If NFTs are a bubble it’s relatively contained to a small group of people. Even if they all went to zero tomorrow it’s not like it’s going to spill over into the broader financial system.
…You could make the case that a number of financial assets or markets meet or come darn close to meeting these [Bernstein’s] criteria today.
The difference between today and previous manias is the presence of social media and the instantaneous dissemination of information (and misinformation) which didn’t exist in the past.
We’ve always been a tribal species but the internet has lowered the barriers to entry for getting caught up in crowd psychology. It’s never been easier to imitate, tell stories, seek status, morally condemn others, or yearn for the good old days on a massive scale than it is today.
It’s also never been easier to press the right buttons to take advantage of the tribal instincts that make us susceptible to these human foibles. You could make the case the information age also makes us more susceptible to manias, especially of the financial variety.
I won’t argue with that conclusion but I also think it changes how these manias are disseminated.
Think about it this way — TV used to be 3 channels. You had no choice but to watch whatever was on those 3 channels so the viewership for any show was massive.
Now cable TV has hundreds of stations. Plus we have dozens and dozens of streaming services. And then there are all of the videos available on the internet.
There are simply too many options for any program to matter on a grand scale like it did back in the day.
This increase in choice of what to watch could be a precursor to the way financial manias play out in the future.
There are now so many strategies, funds, securities, financial assets, investment platforms and stuff to invest in that it’s going to be difficult to have a full-fledged mania.
The increase in choice has altered our attention spans.
I will never rule out the possibility of a full-fledged mania because people are still people but I get the feeling there will be more mini-manias.
It’s entirely possible the internet has created an environment in which mini-manias occur more regularly than they did in the past without creating a situation in which everyone collectively loses their minds.
So we could have mini-bubbles that blow and pop without causing as much serious damage as when they were more widespread.
If this is the case, the bubble prognosticators will remain irritated.”