Boom and Bust

A Global History of Financial Bubbles

William Quinn & John D. Turner

The Fire Analogy

The authors argue that a financial bubble is exactly like a fire. It cannot start spontaneously. For a fire to burn, it needs fuel, oxygen, and heat. For a financial market to bubble and bust, it requires three specific economic elements happening at the exact same time.

The Bubble Triangle

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1. Marketability

The Fuel

How easily can the asset be bought and sold? A bubble requires high liquidity. If an asset is hard to trade, a bubble can't form.

Example: The invention of the joint-stock company, or modern zero-fee trading apps.

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2. Money & Credit

More Fuel

Is there an abundance of cheap capital? Bubbles inflate when banks lend freely, interest rates are abnormally low, or participants are using heavy margin/leverage.

Example: Near-zero interest rates or loose mortgage lending standards.

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3. Speculation

The Spark

Are people buying the asset for its fundamental value, or simply because they believe they can sell it to a "greater fool" tomorrow for a higher price?

Example: The belief that "the internet changes everything" (Dot-Com) or "housing prices never fall" (2008).

🌬️ The Hidden Catalyst: Political Oxygen

The authors note that the largest bubbles are almost always actively encouraged by governments. Politicians supply the "oxygen" by deregulating markets, subsidizing industries, or bailing out early failures because a booming market makes them look good.