Can It Happen Again? Was Written in 1982 by Nobel Laureate Hyman Minsky. in This Book

"Can It Happen Again?" -- was written in 1982 by Nobel Laureate Hyman Minsky. In this book, he described the seven stages of a financial bubble. They are:"

Stage 1: A financial shock wave "A crisis begins when a financial disturbance alters the current economic status quo. It could be a war, low interest rates, or new technology, as was the case in the dot-com boom."

Stage 2: Acceleration "Not all financial shocks turn into booms. What's required is fuel to get the fire going. After 9/11, I believe the fuel in the real estate market was a panic as the stock market crashed and interest rates fell. Billions of dollars flooded into the system from banks and the stock market, and the biggest real estate boom in history took place."

Stage 3: Euphoria "We have all missed booms. A wise investor knows to wait for the next boom, rather than jump in if they've missed the current one. But when acceleration turns to euphoria, the greater fools rush in."

"By 2003, every fool was getting into real estate. The checkout girl at my local supermarket handed me her newly printed real estate agent business card." good lord... was he shopping in Sonoma, Home of the Clerk turned Wannabe Real Estate Tycoon?

"The housing market became the hot topic for discussion at parties. "Flipping" became the buzzword at PTA meetings. (ah yes, the land of the housewife turned real estate maven.) Homes became ATM machines as credit-card debtors took long-term loans to pay off short-term debt."

"Mortgage companies advertised repeatedly, wooing people to borrow more money. Financial planners, tired of explaining to their clients why their retirement plans had lost money, jumped ship to become mortgage brokers. During this euphoric period, amateurs believed they were real estate geniuses. They would tell anyone who would listen about how much money they had made and how smart they were." (my favorite, mechanics, bartenders and firemen the new junior Warren Buffets)

Stage 4: Financial distress "Insiders sell to outsiders. The greater fools are now streaming into the trap. The last fools are the ones who stood on the sidelines for years, watching the prices go up, terrified of jumping in. Finally, the euphoria and stories of friends and neighbors making a killing in the market gets to them. The latecomers, skeptics, amateurs, and the timid are finally overcome by greed and rush into the trap, cash in hand."

"It's not long before reality and distress sets in. The greater fools realize that they're in trouble. Terror sets in, and they begin to sell. They begin to hate the asset they once loved, regardless of whether it's a stock, bond, mutual fund, real estate, or precious metals."

Stage 5: The market reverses, and the boom turns into a bust "The amateurs begin to realize that prices don't always go up. They may notice that the professionals have sold and are no longer buying. Buyers turn into sellers, and prices begin to drop, causing banks to tighten up."

Stage 6: The panic begins "Amateurs now hate their asset. They start to dump it as prices fall and banks stop lending. The panic accelerates. The boom is now officially a bust. At this time, controls might be installed to slow the fall, as is often the case with the stock market. If the tumble continues, people begin looking for a lender of last resort to save us all. Often, this is the central bank. The good news is that at this stage, the professional investors wake up from their slumber and get excited again. They're like a hibernating bear waking after a long sleep and finding a row of garbage cans, filled with expensive food and champagne from the party the night before, positioned right outside their den."

Stage 7: The White Knight rides in "Occasionally, the bust really explodes, and the government must step in -- as it did in the 1990s after the last real estate bust when it set up an agency known as the Resolution Trust Corporation, often referred to as the RTC. As it often seems, when the government does anything, incompetence is at its peak. The RTC began selling billions of dollars of unbelievable real estate for pennies on the dollar. These government bureaucrats had no idea what real estate is worth."