Summary of Extraordinary Popular Delusions and the Madness of Crowds & Confusión de Confusiones

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Extraordinary Popular Delusions and the Madness of Crowds & Confusión de Confusiones book summary
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Even though these two treatises on investor behavior, options trading, derivatives and stock scams debuted in the 17th and 19th centuries they are still valid today. In 1841, journalist Charles Mackay chronicled the frenzy of historical investment crazes like the “South-Sea Bubble” and “tulipomania.” Change the company names to dot-coms and mortgage-backed securities, and you’ll see that human behavior in markets follows immutable patterns. In 1688, businessman Joseph de la Vega recounted the machinations, conspiracies and outright frauds of the Amsterdam stock trading market. getAbstract recommends these two classics of investing and crowd psychology to anyone who’s ever bought or sold a security. If you think you’ve come up with a never-seen-before financial product, innovative investment strategy or surefire way to beat the market, think again. Savor these venerable financial war stories for everything you need to know about markets and investing.

About the Authors

Charles Mackay (1814-1889) was a Scottish journalist, poet and songwriter. Amsterdam merchant Joseph de la Vega – who lived in the 1600s – was a Sephardic Jewish émigré.

 

Summary

“Money Mania”

Desperation leads to all manner of deception, as the French learned in the 1700s, much to their chagrin. In 1716, Scottish banker John Law, a gambler and man-about-town, arrived in Paris with a scheme to save France from economic ruin. The country was reeling from debts incurred by the late, profligate King Louis XIV. A corrupt administration of courtiers and royal sycophants had left the country destitute. The Duke of Orléans – ruling as regent for the seven-year-old heir to the throne – was desperate to find a way out of the economic mess, not the least because the populace was agitating against the ruling classes.

Law’s astute knowledge of mathematics, investing and banking had won him audiences with royals and society doyens across the continent. Wandering Europe for years with such credentials, he left a legacy of gambling debts, broken-hearted ladies he wooed and abandoned, and even a murder. However, the Duke of Orléans welcomed Law’s idea of replacing France’s metal money with paper currency. Since the Duke “disliked business,” he “signed official documents without proper examination and trusted others what he should have undertaken himself.” ...


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