WEBVTT 00:00:00.000 --> 00:00:03.060 Hello and welcome to the Deep Dive. Glad to be 00:00:03.060 --> 00:00:06.120 here. Yeah. So our mission today, well, today 00:00:06.120 --> 00:00:10.060 we are unpacking a single incredibly potent phrase. 00:00:10.140 --> 00:00:12.259 Just a two -word phrase. Right. A phrase that 00:00:12.259 --> 00:00:14.980 basically redefine modern economic history, market 00:00:14.980 --> 00:00:18.839 trends, and human psychology. The famous phrase. 00:00:19.179 --> 00:00:22.269 Irrational exuberance. There it is. Yeah. We're 00:00:22.269 --> 00:00:24.510 going to unpack the psychology and the actual 00:00:24.510 --> 00:00:26.589 mechanics of financial bubbles. Right. And we 00:00:26.589 --> 00:00:28.550 have a lot of ground to cover. We really do. 00:00:28.769 --> 00:00:31.370 We're looking at the 17th century tulip mania, 00:00:31.510 --> 00:00:34.450 the South Sea bubble, historical gold rushes. 00:00:34.570 --> 00:00:36.810 The dot com crash. Oh, yeah. The dot com crash, 00:00:37.030 --> 00:00:41.369 the 2008 housing bubble, right up to modern cryptocurrency 00:00:41.369 --> 00:00:44.030 frenzies. It's a massive historical sweep. And 00:00:44.030 --> 00:00:46.570 to do this, our primary source today is this 00:00:46.570 --> 00:00:49.210 very comprehensive Wikipedia article detailing 00:00:49.210 --> 00:00:52.880 the concept of irrational It has this amazing, 00:00:53.280 --> 00:00:55.979 extensive historical taxonomy of market panics. 00:00:56.560 --> 00:00:59.119 It does. It lists all of them. And we're going 00:00:59.119 --> 00:01:02.859 to use it to discover how things like systemic 00:01:02.859 --> 00:01:06.299 market optimism, speculative contagion, and this 00:01:06.299 --> 00:01:09.400 linguistic labyrinth known as FedSpeak drive 00:01:09.400 --> 00:01:11.780 the boom and bust cycles of capitalism. Which 00:01:11.780 --> 00:01:14.680 is why this matters directly to you. the listener. 00:01:15.420 --> 00:01:17.840 Exactly. Because whether you are looking at your 00:01:17.840 --> 00:01:20.379 retirement portfolio in the stock market, or 00:01:20.379 --> 00:01:22.500 trying to buy a house in a crazy housing market, 00:01:23.459 --> 00:01:26.780 or just wondering why everyone around you is 00:01:26.780 --> 00:01:29.840 suddenly obsessed with some new tech trend. Like 00:01:29.840 --> 00:01:33.439 crypto or AI. Right. Understanding the mechanics 00:01:33.439 --> 00:01:36.319 of unfounded market optimism. That is basically 00:01:36.319 --> 00:01:39.140 your ultimate shortcut to making sense of financial 00:01:39.140 --> 00:01:41.879 chaos. It's how you protect yourself. OK, let's 00:01:41.879 --> 00:01:43.739 unpack this. We have to start with just the sheer 00:01:43.739 --> 00:01:45.680 absurdity of the premise here. It is pre -wild. 00:01:45.959 --> 00:01:48.599 How did a phrase that was reportedly thought 00:01:48.599 --> 00:01:51.180 up in a bathtub by a famously boring central 00:01:51.180 --> 00:01:54.019 banker manage to immediately crash global stock 00:01:54.019 --> 00:01:56.120 markets? It's basically the ultimate butterfly 00:01:56.120 --> 00:01:59.019 effect in finance. Right. December 5, 1996. Set 00:01:59.019 --> 00:02:02.250 the scene for us. OK, so. Alan Greenspan, who 00:02:02.250 --> 00:02:04.629 is the chairman of the Federal Reserve Board 00:02:04.629 --> 00:02:06.590 at the time. The most powerful central banker 00:02:06.590 --> 00:02:09.169 in the world. Exactly. He's giving a televised 00:02:09.169 --> 00:02:11.050 speech at the American Enterprise Institute. 00:02:11.250 --> 00:02:13.129 And we have to remember the context here. Yeah. 00:02:13.289 --> 00:02:18.449 It's late 1996. The mid 90s dot com bubble is, 00:02:18.590 --> 00:02:21.939 I mean, it's. just starting to inflate aggressively. 00:02:22.180 --> 00:02:25.180 Tech stocks are going crazy. Capital is flooding 00:02:25.180 --> 00:02:28.020 into the Internet. And Greenspan's speech is 00:02:28.020 --> 00:02:30.740 titled, The Challenge of Central Banking in a 00:02:30.740 --> 00:02:33.319 Democratic Society. Which sounds like a cure 00:02:33.319 --> 00:02:36.560 for insomnia. Truly. Under normal circumstances, 00:02:36.879 --> 00:02:38.319 nobody on a trading floor is paying attention 00:02:38.319 --> 00:02:41.689 to that. But tucked into this super dry academic 00:02:41.689 --> 00:02:44.550 speech about fiat currency and policy frameworks, 00:02:44.710 --> 00:02:47.810 he drops this highly specific observation. And 00:02:47.810 --> 00:02:50.270 he asks this rhetorical question. Right. Here 00:02:50.270 --> 00:02:53.310 is the exact quote from the source. But how do 00:02:53.310 --> 00:02:55.969 we know when irrational exuberance has unduly 00:02:55.969 --> 00:02:59.050 escalated asset values, which then become subject 00:02:59.050 --> 00:03:01.870 to unexpected and prolonged contractions as they 00:03:01.870 --> 00:03:04.590 have in Japan over the past decade? What's fascinating 00:03:04.590 --> 00:03:07.050 here is the market's instantaneous reaction to 00:03:07.050 --> 00:03:10.460 that academics raising. They really did. Because 00:03:10.460 --> 00:03:12.740 Greenspan wasn't announcing a policy change. 00:03:13.259 --> 00:03:15.539 He wasn't saying, hey, we are raising interest 00:03:15.539 --> 00:03:18.500 rates today. He was basically just expressing 00:03:18.500 --> 00:03:22.479 a feeling, an abstract concern about systemic 00:03:22.479 --> 00:03:24.919 overvaluation. But traders don't care about his 00:03:24.919 --> 00:03:27.139 feelings. Right. Traders trade on probability. 00:03:27.900 --> 00:03:29.680 And they heard the chief architect at the US 00:03:29.680 --> 00:03:32.560 economy warning them that stocks were overvalued. 00:03:32.680 --> 00:03:35.659 And because Tokyo is hours ahead of Washington, 00:03:36.520 --> 00:03:40.300 the Nikkei 225 market was actually open and actively 00:03:40.300 --> 00:03:42.159 trading while he was standing at the podium. 00:03:42.439 --> 00:03:45.000 Oh, the timing is just incredible. Within minutes 00:03:45.000 --> 00:03:48.259 of him just saying the words irrational exuberance, 00:03:48.560 --> 00:03:51.400 the Tokyo market just drops. It eventually closed 00:03:51.400 --> 00:03:54.199 down three percent. And then it spread. Yeah. 00:03:54.219 --> 00:03:56.439 As the sun rose, global markets followed suit. 00:03:56.560 --> 00:03:59.300 The contagion just ripped westward. And honestly, 00:03:59.419 --> 00:04:01.659 the logic makes sense from a trader's perspective. 00:04:01.699 --> 00:04:04.620 How so? Well, if the Fed chair thinks asset values 00:04:04.620 --> 00:04:07.780 are unduly escalated, the logical next step is 00:04:07.780 --> 00:04:09.419 that he's going to hike interest rates to cool 00:04:09.419 --> 00:04:11.340 things down. Right. And higher rates mean stocks 00:04:11.340 --> 00:04:13.580 go down. Exactly. So they were front running 00:04:13.580 --> 00:04:16.199 the panic. They liquidated their positions immediately. 00:04:16.399 --> 00:04:19.160 Which brings us to this incredible visual highlighted 00:04:19.160 --> 00:04:22.240 in the sources. Greenspan actually admitted later 00:04:22.240 --> 00:04:24.620 in his 2008 book. The Age of Turbulence, right? 00:04:24.620 --> 00:04:27.879 Yeah. He admitted that this world -shaking, multi 00:04:27.879 --> 00:04:30.480 -billion dollar phrase literally occurred to 00:04:30.480 --> 00:04:32.339 him while he was sitting in the bathtub writing 00:04:32.339 --> 00:04:35.160 the draft. Just a guy in a tub. Yeah. And he 00:04:35.160 --> 00:04:37.740 accidentally triggers a global sell -off. It's 00:04:37.740 --> 00:04:40.560 hilarious, but to really appreciate the irony 00:04:40.560 --> 00:04:43.879 of this we have to talk about how Greenspan usually 00:04:43.879 --> 00:04:46.689 communicated. Oh, this is crucial. Right. Because 00:04:46.689 --> 00:04:48.889 this leads us to the whole concept of Fed speak, 00:04:49.129 --> 00:04:51.810 or green speak, as they called it. He was the 00:04:51.810 --> 00:04:54.490 absolute master of it. He was. The goal of Fed 00:04:54.490 --> 00:04:56.949 speak was intentional obfuscation. He wanted 00:04:56.949 --> 00:04:59.449 to be confusing. Exactly. He would use these 00:04:59.449 --> 00:05:02.949 incredibly long, complex, labyrinthine sentences 00:05:02.949 --> 00:05:06.730 with passive voice and obscure jargon. The goal 00:05:06.730 --> 00:05:09.790 was to intentionally mute any strong market response. 00:05:09.889 --> 00:05:11.810 Right. Because if he was clear, the market would 00:05:11.810 --> 00:05:14.959 react and the Fed hates volatility. But this 00:05:14.959 --> 00:05:18.160 era of him trying to be as boring and confusing 00:05:18.160 --> 00:05:20.899 as possible, it collided with a massive change 00:05:20.899 --> 00:05:23.899 in the media. The rise of financial TV. Yes. 00:05:24.139 --> 00:05:27.000 The 1990s saw the explosion of channels like 00:05:27.000 --> 00:05:31.000 CNBC. 247 financial media. Right. So this raises 00:05:31.000 --> 00:05:33.519 an important question about how the medium changes 00:05:33.519 --> 00:05:36.670 the message. Right. You have the Fed chair. actively 00:05:36.670 --> 00:05:39.730 trying to give zero useful information to the 00:05:39.730 --> 00:05:42.009 market. And on the other hand, you have live 00:05:42.009 --> 00:05:44.850 television and thousands of traders dissecting 00:05:44.850 --> 00:05:47.250 every single syllable he utters in real time. 00:05:47.290 --> 00:05:49.810 They were desperate for any edge. So when he 00:05:49.810 --> 00:05:53.050 drops a phrase like irrational exuberance into 00:05:53.050 --> 00:05:55.910 that hyper scrutinized environment, it just completely 00:05:55.910 --> 00:05:58.730 bypassed all his usual linguistic defenses. It 00:05:58.730 --> 00:06:00.769 was emotional language. It wasn't clinical. He 00:06:00.769 --> 00:06:02.930 accused the market of acting like gamblers. I 00:06:02.930 --> 00:06:04.589 mean, think about the pressure of that, having 00:06:04.589 --> 00:06:07.079 your every complex sentence scrutinized by millions 00:06:07.079 --> 00:06:09.540 of people just looking for an excuse to buy or 00:06:09.540 --> 00:06:11.740 sell? It's a profound burden. But here's where 00:06:11.740 --> 00:06:14.439 it gets really interesting. Greenspan might not 00:06:14.439 --> 00:06:16.779 have actually invented this phrase entirely on 00:06:16.779 --> 00:06:19.839 his own. The plot thickens. Right. Our source 00:06:19.839 --> 00:06:22.399 points to a very specific connection with Robert 00:06:22.399 --> 00:06:25.120 J. Schiller. The Yale professor and Nobel laureate. 00:06:25.240 --> 00:06:28.199 Yeah. So Schiller was reportedly Greenspan's 00:06:28.199 --> 00:06:30.220 source. There's this story about a lunch they 00:06:30.220 --> 00:06:32.939 had together. Right, before the 1996 speech. 00:06:33.019 --> 00:06:36.000 Yeah. And apparently during this lunch, Schiller 00:06:36.000 --> 00:06:38.279 was the one who contributed the word irrational 00:06:38.279 --> 00:06:41.040 to describe the market. And Greenspan had already 00:06:41.040 --> 00:06:44.160 been using the word exuberant to describe the 00:06:44.160 --> 00:06:47.019 economic expansion. So Greenspan actually coined 00:06:47.019 --> 00:06:49.240 the exact pairing of the two words, but it was 00:06:49.240 --> 00:06:51.480 a collaborative effort. And Schiller really ran 00:06:51.480 --> 00:06:53.600 with it. He published a seminal book in the year 00:06:53.600 --> 00:06:57.600 2000, literally titled Irrational Exuberance. 00:06:57.759 --> 00:06:59.920 Great timing, right at the peak of the dot com 00:06:59.920 --> 00:07:02.600 bubble. The best timing imaginable. And in that 00:07:02.600 --> 00:07:05.079 book, he provides the actual academic definition 00:07:05.079 --> 00:07:07.379 for a speculative bubble. Let's hear it. He defines 00:07:07.379 --> 00:07:10.339 it as a situation in which news of price increases 00:07:10.339 --> 00:07:14.459 spurs investor enthusiasm, which spreads by psychological 00:07:14.480 --> 00:07:17.339 contagion from person to person. Psychological 00:07:17.339 --> 00:07:19.980 contagion. Yes. So if you are listening to this 00:07:19.980 --> 00:07:22.399 right now, the easiest way to translate that 00:07:22.399 --> 00:07:25.620 academic jargon is one simple acronym, FOMO. 00:07:26.139 --> 00:07:29.060 Fear of missing out. Exactly. It's the ultimate 00:07:29.060 --> 00:07:33.040 academic definition of FOMO. And Schiller breaks 00:07:33.040 --> 00:07:35.779 down the components so well. First, you have 00:07:35.779 --> 00:07:38.620 the initial news of a price jump. Someone gets 00:07:38.620 --> 00:07:41.879 rich quick. Right. Then that news spreads person 00:07:41.879 --> 00:07:44.800 to person. And it amplifies stories that are 00:07:44.800 --> 00:07:47.500 used to justify the crazy prices. People start 00:07:47.500 --> 00:07:49.560 saying, oh, it's a new paradigm. The old rules 00:07:49.560 --> 00:07:52.040 don't apply anymore. Exactly. And that draws 00:07:52.040 --> 00:07:54.600 in new investors who maybe even doubt the real 00:07:54.600 --> 00:07:57.740 value of the asset. But they are pulled in any 00:07:57.740 --> 00:08:00.540 way by what Schiller calls envy of other successes. 00:08:00.740 --> 00:08:02.720 And the gambler's excitement. Right. It operates 00:08:02.720 --> 00:08:05.180 exactly like an epidemiological virus. And Schiller 00:08:05.180 --> 00:08:07.360 is famous for building mathematical models to 00:08:07.360 --> 00:08:10.000 track this very human irrationality. Yes, the 00:08:10.000 --> 00:08:12.459 Cape -E ratio. The cyclically adjusted price 00:08:12.459 --> 00:08:14.740 -to -earnings ratio. He also co -created the 00:08:14.740 --> 00:08:16.899 Case -Schiller Home Price Index. You wanted to 00:08:16.899 --> 00:08:19.439 quantify the madness. Yeah. So what does this 00:08:19.439 --> 00:08:22.509 all mean? If we have this solid definition of 00:08:22.509 --> 00:08:26.149 psychological contagion and FOMO, how often does 00:08:26.149 --> 00:08:28.689 humanity actually fall for this? According to 00:08:28.689 --> 00:08:31.470 the source taxonomy. Yeah. Constantly. It's honestly 00:08:31.470 --> 00:08:33.950 mind blowing. The source provides this massive 00:08:33.950 --> 00:08:36.750 list of economic bubbles spanning centuries. 00:08:36.929 --> 00:08:38.929 It's the rhythm of history. Let's walk through 00:08:38.929 --> 00:08:41.769 this historical taxonomy, because the phrase 00:08:41.769 --> 00:08:44.889 is linked to any financial asset bubble or social 00:08:44.889 --> 00:08:47.750 frenzy going all the way back to the 17th century. 00:08:47.889 --> 00:08:52.490 The Dutch tulip mania. Right. 1634 to 1637. People 00:08:52.490 --> 00:08:54.649 always think of it as just trading physical flowers, 00:08:54.690 --> 00:08:57.129 but it was so much more than that. It was early 00:08:57.129 --> 00:08:59.809 derivatives, forward contracts on tulip bulbs 00:08:59.809 --> 00:09:01.250 that hadn't even been pulled out of the dirt 00:09:01.250 --> 00:09:03.789 yet. They called it the wind trade because no 00:09:03.789 --> 00:09:06.909 physical asset changed hands, just paper and 00:09:06.909 --> 00:09:09.610 leverage. And the amplifying story there was 00:09:09.610 --> 00:09:12.789 the rarity of specific petal patterns, which 00:09:12.789 --> 00:09:14.750 were actually just caused by a plant virus. But 00:09:14.750 --> 00:09:16.690 the contagion drove the price of a single bulb 00:09:16.690 --> 00:09:19.070 to the cost of a mansion in Amsterdam. And then 00:09:19.070 --> 00:09:22.000 pop. The buyers refused to honor the contracts 00:09:22.000 --> 00:09:24.039 and the whole thing collapsed. If we connect 00:09:24.039 --> 00:09:26.679 this to the bigger picture, it shows that humans 00:09:26.679 --> 00:09:29.200 have been experiencing irrational exuberance 00:09:29.200 --> 00:09:31.879 long before the internet or CNBC ever existed. 00:09:32.139 --> 00:09:34.679 Oh, absolutely. Moving from the commercial era 00:09:34.679 --> 00:09:37.279 to the first industrial revolution, the source 00:09:37.279 --> 00:09:39.720 lists the Mississippi bubble and the South Sea 00:09:39.720 --> 00:09:42.960 bubble. both peaking around 1720. Those involved 00:09:42.960 --> 00:09:45.559 actual sovereign debt and royal decrees. Yeah, 00:09:45.679 --> 00:09:48.259 John Law in France basically printing paper money 00:09:48.259 --> 00:09:51.159 backed by fake stories of gold in Louisiana. 00:09:51.620 --> 00:09:53.539 Even Isaac Newton lost a fortune in the South 00:09:53.539 --> 00:09:57.019 Sea bubble. Wait, really? The gravity guy? Yes. 00:09:57.240 --> 00:09:59.360 He famously said he could calculate the motions 00:09:59.360 --> 00:10:01.940 of heavenly bodies, but not the madness of crowds. 00:10:02.340 --> 00:10:04.600 That perfectly sums up Schiller's point. Intelligence 00:10:04.600 --> 00:10:06.679 doesn't protect you from psychological contagion. 00:10:06.759 --> 00:10:09.389 Not at all. And then we move into infrastructure. 00:10:10.049 --> 00:10:13.909 The 1790s canal mania. And the 1840s railway 00:10:13.909 --> 00:10:16.190 mania in the UK. People buying railway shares 00:10:16.190 --> 00:10:18.769 on margin, completely over capitalizing the industry. 00:10:18.950 --> 00:10:22.029 And I just marvel at the sheer volume of rushes 00:10:22.029 --> 00:10:24.389 and booms listed in this source. I mean, the 00:10:24.389 --> 00:10:26.779 gold and silver rushes. There are so many. The 00:10:26.779 --> 00:10:29.179 California Gold Rush, the Colorado Gold Rush, 00:10:29.299 --> 00:10:32.480 the Klondike. It paints this picture of humanity 00:10:32.480 --> 00:10:35.379 as a species that is just constantly running 00:10:35.379 --> 00:10:38.519 full speed toward the next shiny object. Literally 00:10:38.519 --> 00:10:41.220 shiny, in the case of gold. Right. And then moving 00:10:41.220 --> 00:10:43.360 into the Second Industrial Revolution and the 00:10:43.360 --> 00:10:46.500 interwar period, you've got the Indiana gas boom, 00:10:47.279 --> 00:10:51.399 the Texas oil boom. And a fascinating one. the 00:10:51.399 --> 00:10:54.299 1920s Florida land boom. Oh, the swamp land. 00:10:54.600 --> 00:10:57.059 Yes. People were using what they called binders, 00:10:57.360 --> 00:10:59.659 putting down a 10 % deposit on a piece of land, 00:10:59.779 --> 00:11:01.860 just planning to flip the contract before the 00:11:01.860 --> 00:11:04.000 rest of the money was due. Total leverage. And 00:11:04.000 --> 00:11:05.919 driven entirely by the story that everyone was 00:11:05.919 --> 00:11:08.320 going to move to Florida. until the buyers dried 00:11:08.320 --> 00:11:10.860 up and a hurricane hit. It's all the exact same 00:11:10.860 --> 00:11:12.940 contagion Schiller described. The only thing 00:11:12.940 --> 00:11:15.419 that changes is the speed of information. That's 00:11:15.419 --> 00:11:18.120 a great point. In the 1800s, contagion moved 00:11:18.120 --> 00:11:20.659 at the speed of sailing ships and early telegraphs. 00:11:21.039 --> 00:11:23.879 Today, it's instantaneous. Which brings us perfectly 00:11:23.879 --> 00:11:26.799 to the modern era of bubbles where Greenspan's 00:11:26.799 --> 00:11:29.100 phrase actually became a defining historical 00:11:29.100 --> 00:11:32.080 marker. The dot com crash. The dot com bubble 00:11:32.080 --> 00:11:35.679 from 1995 to 2000. The exact phenomenon he was 00:11:35.679 --> 00:11:38.759 trying to warn about in that 1996 speech. The 00:11:38.759 --> 00:11:41.460 source lists this massive graveyard of companies. 00:11:41.620 --> 00:11:43.639 You've got your famous ones like Pets .com and 00:11:43.639 --> 00:11:46.419 Webvan. Companies that had basically zero revenue 00:11:46.419 --> 00:11:48.960 but astronomical market caps. Because they measured 00:11:48.960 --> 00:11:51.779 success in eyeballs and clicks instead of actual 00:11:51.779 --> 00:11:54.600 cash flow. And then some wilder names mentioned 00:11:54.600 --> 00:11:58.279 in the source too, like Flooz .com. No. Cosmo 00:11:58.279 --> 00:12:02.220 .com. Cyber Rebate. They are like monuments to 00:12:02.220 --> 00:12:04.659 that specific era's gambler's excitement. And 00:12:04.659 --> 00:12:06.820 we also have to mention the severe corporate 00:12:06.820 --> 00:12:09.080 governance failures tied to this exuberance. 00:12:09.279 --> 00:12:12.220 Enron and Worldcom. Right. The exuberance masked 00:12:12.220 --> 00:12:15.519 systemic accounting fraud. So the NASDQ implodes. 00:12:15.820 --> 00:12:18.019 Trillions of dollars in wealth just vaporized. 00:12:18.080 --> 00:12:20.460 But then, according to the taxonomy, the losses 00:12:20.460 --> 00:12:22.289 from the tech crash were quickly recouped. by 00:12:22.289 --> 00:12:24.710 capital shifting into two new areas in the mid 00:12:24.710 --> 00:12:27.070 to late 2000s. The commodities boom. And the 00:12:27.070 --> 00:12:29.570 United States housing bubble from 2002 to 2006. 00:12:29.950 --> 00:12:32.110 Right. Investors got burned by intangible tech 00:12:32.110 --> 00:12:34.529 stocks. So they poured all their money into something 00:12:34.529 --> 00:12:38.370 physical. Houses. Which leads to the 2007 recession 00:12:38.370 --> 00:12:41.029 that wiped out all those gains. The Great Recession. 00:12:41.210 --> 00:12:44.070 And that crash is what brought the phrase irrational 00:12:44.070 --> 00:12:46.649 exuberance sharply back into the public eye. 00:12:46.850 --> 00:12:49.549 It became the defining label for the excesses 00:12:49.549 --> 00:12:52.409 of that whole era. It had a huge cultural footprint, 00:12:52.690 --> 00:12:54.929 too. I mean, Jon Stewart's final episode of The 00:12:54.929 --> 00:12:57.889 Daily Show before Greenspan stepped down in 2006 00:12:57.889 --> 00:13:01.549 was literally titled An Irrationally Exuberant 00:13:01.549 --> 00:13:04.250 Tribute to Alan Greenspan. That really shows 00:13:04.250 --> 00:13:07.490 how deeply an academic economic concept permeated 00:13:07.490 --> 00:13:10.049 pop culture. But it also brought a lot of criticism 00:13:10.049 --> 00:13:13.120 onto Greenspan. Spann himself. Yes. And we need 00:13:13.120 --> 00:13:15.700 to be very careful here to stick strictly to 00:13:15.700 --> 00:13:18.019 our sources and remain impartial. Absolutely. 00:13:18.360 --> 00:13:20.240 We are not taking sides on whether Greenspan 00:13:20.240 --> 00:13:22.039 was a hero or a villain. We're just reporting 00:13:22.039 --> 00:13:24.620 with the taxonomy and the historical debate highlight. 00:13:25.220 --> 00:13:27.700 Right. So the debate essentially centers on whether 00:13:27.700 --> 00:13:30.340 he did enough to contain those two major bubbles, 00:13:30.559 --> 00:13:32.940 the dot com bubble and the housing bubble. Because 00:13:32.940 --> 00:13:35.120 he was the chairman during the inflation of both 00:13:35.120 --> 00:13:39.309 of them. Exactly. Critics argue that his policies, 00:13:39.750 --> 00:13:42.250 specifically keeping interest rates very low 00:13:42.250 --> 00:13:45.870 and pushing deregulation, created a moral hazard. 00:13:46.110 --> 00:13:48.129 They say he created the very conditions that 00:13:48.129 --> 00:13:50.789 allowed the irrational exuberance to run wild. 00:13:50.990 --> 00:13:53.129 On the other hand, defenders argue he was dealing 00:13:53.129 --> 00:13:56.690 with unprecedented global shifts like the internet 00:13:56.690 --> 00:13:59.610 boom and that it's not the Fed's job to pop bubbles 00:13:59.610 --> 00:14:01.970 only to clean up the mess afterward. And the 00:14:01.970 --> 00:14:03.830 source points out that this ties into a much 00:14:03.830 --> 00:14:07.419 broader ongoing argument about capitalism itself. 00:14:08.120 --> 00:14:10.620 Are free markets actually rational and self -correcting? 00:14:10.779 --> 00:14:14.059 Or are they structurally prone to these devastating 00:14:14.059 --> 00:14:16.879 irrational panics? It's a debate that remains 00:14:16.879 --> 00:14:19.139 completely unresolved. We are just presenting 00:14:19.139 --> 00:14:21.159 the fact that the man who coined the warning 00:14:21.159 --> 00:14:23.379 is now deeply scrutinized for the events that 00:14:23.379 --> 00:14:25.159 followed. It's quite the paradox, but we've looked 00:14:25.159 --> 00:14:27.100 at the past. What about the bubbles we might 00:14:27.100 --> 00:14:29.220 be sitting inside right now? The information 00:14:29.220 --> 00:14:31.620 age. Yeah, let's look at the modern era taxonomy. 00:14:31.929 --> 00:14:35.169 In 2017, Robert Schiller, the FOMO expert himself, 00:14:35.570 --> 00:14:38.029 called Bitcoin the best current example of a 00:14:38.029 --> 00:14:41.029 speculative bubble. And the source taxonomy backs 00:14:41.029 --> 00:14:44.049 that up with a whole list of modern potential 00:14:44.049 --> 00:14:46.330 bubbles. We have the cryptocurrency bubble starting 00:14:46.330 --> 00:14:49.870 in 2011. The everything bubble of 2020 and 2021. 00:14:50.149 --> 00:14:53.210 The AI bubble starting in 2022. Plus the unicorn 00:14:53.210 --> 00:14:55.070 bubble, the carbon bubble, the green mobile. 00:14:55.129 --> 00:14:57.509 The social media stock bubble and even the U 00:14:57.509 --> 00:15:00.350 .S. higher education bubble. If you synthesize 00:15:00.350 --> 00:15:03.610 this list, a really striking pattern emerges 00:15:03.610 --> 00:15:05.830 about where we are today. What's the pattern? 00:15:06.090 --> 00:15:08.870 We are living in an era where the underlying 00:15:08.870 --> 00:15:11.190 asset of the bubble doesn't even have to be physical 00:15:11.190 --> 00:15:14.450 anymore. Like real estate or gold. Exactly. And 00:15:14.450 --> 00:15:16.210 it doesn't even have to be a traditional company 00:15:16.210 --> 00:15:18.490 like the dotcoms were. Right. It can just be 00:15:18.490 --> 00:15:20.909 an algorithm. Or a decentralized cryptocurrency 00:15:20.909 --> 00:15:25.009 ledger. or totally abstract concepts like unicorns, 00:15:25.110 --> 00:15:27.190 which are just private startups valued over a 00:15:27.190 --> 00:15:29.049 billion dollars based on nothing but venture 00:15:29.049 --> 00:15:31.669 capital hype. Or social media clout. It's the 00:15:31.669 --> 00:15:34.029 total abstraction of value. And if you, the listener, 00:15:34.269 --> 00:15:36.919 want to maintain a level head, in an information 00:15:36.919 --> 00:15:39.759 age that is literally engineered to induce this 00:15:39.759 --> 00:15:42.200 exuberance, you have to recognize these patterns. 00:15:42.559 --> 00:15:45.019 You have to see the envy. You have to see the 00:15:45.019 --> 00:15:47.360 contagion. And the media amplification. Right, 00:15:47.399 --> 00:15:49.580 because if you don't, you will get swept up in 00:15:49.580 --> 00:15:51.519 it. I also want to mention some of the academic 00:15:51.519 --> 00:15:53.960 terms, the source lists under the business and 00:15:53.960 --> 00:15:56.399 credit cycle topics, because they describe the 00:15:56.399 --> 00:15:58.899 ugly end of these modern bubbles. Hit me. They 00:15:58.899 --> 00:16:00.840 talk about the Minsky moment. Which is what? 00:16:01.000 --> 00:16:03.740 It's the sudden. catastrophic collapse of asset 00:16:03.740 --> 00:16:06.940 prices when debt and leverage finally overwhelm 00:16:06.940 --> 00:16:10.500 the system. It's the exact moment when systemic 00:16:10.500 --> 00:16:13.259 greed turns into systemic panic. And the source 00:16:13.259 --> 00:16:15.940 also mentions the paradox of thrift, right? Yes. 00:16:16.340 --> 00:16:19.100 That's the deflationary aftermath. When the panic 00:16:19.100 --> 00:16:22.200 hits, everyone individually does the rational 00:16:22.200 --> 00:16:25.059 thing. Yeah. They stop spending and start saving 00:16:25.059 --> 00:16:27.120 to protect themselves. But if everyone stops 00:16:27.120 --> 00:16:29.580 spending at the exact same time, the whole economy 00:16:29.580 --> 00:16:32.610 grinds to a halt. The rational individual choice 00:16:32.610 --> 00:16:35.129 creates a destructive macroeconomic outcome. 00:16:35.470 --> 00:16:37.870 A liquidity crisis. Exactly. But what's crucial 00:16:37.870 --> 00:16:40.509 to remember is that no matter how clinical or 00:16:40.509 --> 00:16:43.309 academic these economic terms get, Minsky moment, 00:16:43.509 --> 00:16:46.429 liquidity trap, whatever. They are all just masks 00:16:46.429 --> 00:16:50.029 for human emotion. Pure human psychology. Fear 00:16:50.029 --> 00:16:53.679 and greed. Wow. OK, we have covered a massive 00:16:53.679 --> 00:16:55.820 amount of ground today on this deep dive. We 00:16:55.820 --> 00:16:58.299 really went from the 1600s to tomorrow. Yeah, 00:16:58.399 --> 00:17:00.799 we summarized the journey of a single phrase 00:17:00.799 --> 00:17:05.059 from Greenspan's bathtub epiphany to a global 00:17:05.059 --> 00:17:08.140 market crash. We explored Schiller's psychological 00:17:08.140 --> 00:17:11.400 contagion and the TPE ratio. We tracked centuries 00:17:11.400 --> 00:17:15.099 of historical manias. Tulips, gold, railways, 00:17:15.400 --> 00:17:18.460 real estate, dot coms. And finally, the modern 00:17:18.460 --> 00:17:21.000 AI and crypto frenzies of the everything bubble. 00:17:21.660 --> 00:17:23.660 But before we side off, I know you had a final 00:17:23.660 --> 00:17:25.519 provocative thought you wanted to leave the listener 00:17:25.519 --> 00:17:28.180 with to mull over. Something that builds on these 00:17:28.180 --> 00:17:31.099 sources but looks ahead. I do. And it ties directly 00:17:31.099 --> 00:17:33.599 to the suggested AI bubble currently on the taxonomy 00:17:33.599 --> 00:17:35.839 list. OK, let's hear it. We have spent this entire 00:17:35.839 --> 00:17:38.279 international looking at a vast history of human 00:17:38.279 --> 00:17:42.680 panics, rushes, and booms. And all of them. Every 00:17:42.680 --> 00:17:44.740 single one was driven by human psychological 00:17:44.740 --> 00:17:47.900 contagion. Envy, fear, fed -speak, gambler's 00:17:47.900 --> 00:17:50.440 excitement. Right. Human flaws. But looking ahead, 00:17:50.500 --> 00:17:52.619 what happens when artificial intelligence becomes 00:17:52.619 --> 00:17:55.390 the primary driver of market trends? We are talking 00:17:55.390 --> 00:17:58.630 about entities entirely devoid of human emotion. 00:17:59.250 --> 00:18:01.730 They don't feel envy. They don't get the gambler's 00:18:01.730 --> 00:18:04.190 excitement. They just process data. Right. There 00:18:04.190 --> 00:18:06.990 are cold calculators. So the question is, will 00:18:06.990 --> 00:18:11.250 AI finally cure the market of irrational exuberance 00:18:11.250 --> 00:18:14.309 because it strictly adheres to the math? That 00:18:14.309 --> 00:18:16.769 would be the optimistic view. But here is the 00:18:16.769 --> 00:18:20.279 darker possibility. What if AI algorithms simply 00:18:20.279 --> 00:18:23.259 learn to mimic and exploit our human contagions 00:18:23.259 --> 00:18:27.619 at lightning speed? What if the AI realizes that 00:18:27.619 --> 00:18:30.420 human FOMO is the most predictable data set on 00:18:30.420 --> 00:18:33.509 Earth? and it engineers the ultimate automated 00:18:33.509 --> 00:18:36.789 bubble just to extract capital from our irrationality. 00:18:36.950 --> 00:18:39.170 So instead of curing the disease, it weaponizes 00:18:39.170 --> 00:18:41.549 it. Exactly. It's something to seriously consider 00:18:41.549 --> 00:18:43.650 as these technologies take over our financial 00:18:43.650 --> 00:18:46.049 systems. That is a terrifying and fascinating 00:18:46.049 --> 00:18:48.089 thought to end on. Thank you to everyone listening 00:18:48.089 --> 00:18:50.009 for joining us on this deep dive. It's been a 00:18:50.009 --> 00:18:51.970 great conversation. As always, keep questioning 00:18:51.970 --> 00:18:53.849 the world around you, keep an eye out for that 00:18:53.849 --> 00:18:56.349 psychological contagion, and we will catch you 00:18:56.349 --> 00:18:56.829 next time.