Financial innovation often precedes periods of excessive speculation from "summary" of A Short History of Financial Euphoria by John Kenneth Galbraith
Financial innovation, that is, the development of new financial instruments, arrangements, or techniques, tends to occur in the early stages of a speculative episode. This innovation is often a key driver of the euphoria that characterizes periods of excessive speculation. As financial innovation takes hold, new markets are created, and new opportunities for profit emerge. Investors, eager to capitalize on these opportunities, flock to these new markets in search of quick and easy gains. This influx of capital fuels the speculative frenzy, driving prices to unsustainable levels. In many cases, the financial instruments that are at the heart of the innovation are complex and poorly understood. This lack of understanding can lead investors to underestimate the risks inherent in these instruments, further fueling the speculative bubble. As...Similar Posts
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