"Real" assets include land and the property built on it,
machinery, and other tangibles. "Financial" assets include anything
that stores value and can serve as means of exchange - from cash to
securities. Even tulip bulbs will do.
In 1634, in what later came o be known as "tulipmania", tulip bulbs
were traded in a special marketplace in Amsterdam, the scene of a
rabid speculative frenzy. Some rare black tulip bulbs changed hands
for the price of a big mansion house. For four feverish years it
seemed like the craze would last forever. But the bubble burst in
1637. In a matter of a few days, the price of tulip bulbs was
slashed by 96%!
Uniquely, tulipmania was not an organized scam with an identifiable
group of movers and shakers, which controlled and directed it. Nor
has anyone made explicit promises to investors regarding guaranteed
future profits. The hysteria was evenly distributed and fed on
itself. Subsequent investment fiddles were different, though.
Modern dodges entangle a large number of victims. Their size and
all-pervasiveness sometimes threaten the national economy and the
very fabric of society and incur grave political and social costs.
There are two types of bubbles.
Asset bubbles of the first type are run or fanned by financial
intermediaries such as banks or brokerage houses.
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