The Secret Life of Booms and Busts

How they Build, Break, and Reshape the World

“There is no theory of the spark. Only of the combustible material.” — Charles Kindleberger

In March 2023, Silicon Valley Bank insisted it was safe. By nightfall, depositors had withdrawn $42 billion—the fastest bank run in U.S. history. Another $100 billion was queued for the morning.

The speed was new. The story was not.

From Tulip Mania in the 1630s to the global financial crisis of 2008, long booms have always ended in sudden collapse. Crises follow a familiar arc: optimism, euphoria, fragility, panic, crash. Governments rush to intervene, and the system staggers forward—patched, but weaker than before.

Economist Hyman Minsky captured this cycle in his “financial instability hypothesis.” Calm invites risk-taking, memories of disaster fade, and borrowers and lenders stretch further. Finance shifts from hedge (safe) to speculative to Ponzi, until the structure buckles. Stability breeds instability.

Through this lens, today’s calm is not reassurance but warning. Beneath the surface, combustible material is piling higher and higher—awaiting only a spark.

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Human beings are wired to chase what feels good in the moment. Rising asset prices, booming markets, and the illusion of effortless wealth feel like progress. What goes unseen—or is deliberately ignored—are the distortions and hidden incentives, conflicts of interest, and moral compromises that rot beneath the surface.

The quick fixes in the system’s architecture are the fuel. As it accumulates, optimism shades into denial, denial into delusion. The system grows. So does its fragility. And the people inside it grow more narcissistic, more reckless, more willing to bend rules in service of their own gain.

Consider the case of Sam Bankman-Fried and FTX: once celebrated as a tech wunderkind, he leveraged customer funds recklessly, exploiting the opacity of crypto markets and ultimately collapsing under the weight of his own hubris. Such scandals reveal how moral compromise often travels hand-in-hand with financial excess.

In the 1980s, Japan’s real estate bubble swelled until the land beneath Tokyo’s Imperial Palace was said to be worth more than all of California. In the 1990s and 2000s, U.S. housing soared on a tide of easy credit and exotic mortgages. Each episode felt like prosperity—until it didn’t. Only a few prepared: John Paulson, who shorted mortgage securities in 2008, or Japanese households that quietly hoarded cash while their banks drowned in bad loans. The majority mistook a bubble for progress.

Economists Carmen Reinhart and Kenneth Rogoff distilled this self-deception in This Time Is Different. Each generation believes it has cracked the code—that past crashes were born of mistakes more primitive than our own. Charles Kindleberger, in Manias, Panics, and Crashes, mapped the anatomy of delusion: displacement, credit expansion, euphoria, distress, revulsion. Each stage feels rational from the inside—until the spell breaks.

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Today’s delusion wears the optimism of technology. The mantra is that “AI will change everything.” Perhaps it will. But today’s boom rests on debt-financed data centers and ravenous energy consumption—an investment binge that resembles defying gravity in the natural world.

Already, power grids are straining, electricity costs are rising, and some of the largest AI ventures are burning billions without a clear path to profitability. If demand falters, what now looks like visionary investment may be revealed as leverage on a fragile foundation. Growth itself accelerates the combustible material.

Even insiders acknowledge it. Sam Altman warns: “When bubbles happen, smart people get overexcited about a kernel of truth.” OpenAI remains unprofitable and may need as much as $40 billion more to fund its build-out. Data centers already consumed about 4.4% of U.S. electricity in 2023, a share expected to triple by 2028, driving up electricity prices, straining infrastructure, and testing regulatory limits. Utilities are scrambling, but the strain is mounting.

Beyond financial strain, this surge in energy demand carries environmental consequences—higher emissions, accelerated climate risks, and pressure on communities dependent on local power grids—and political consequences, as state and federal regulators face increasing pressure to manage both energy reliability and equity.

Markets are flashing warnings. CoreWeave, a flagship AI infrastructure play, reported booming demand—but also widening losses and mounting debt. Its stock plunged 18% after earnings. Analysts increasingly liken it to a speculative bubble poised to pop.

Finance has become an iceberg: visible banks above the waterline, a vast web of shadow finance below. What looks solid is brittle. Pressure builds unseen—until it snaps.

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Crises rarely begin with a grand event. A minor shock, in an overstretched system, can set off a chain reaction. In 1997, Thailand’s currency devaluation triggered a regional meltdown. In 2007, two obscure hedge funds exposed cracks that soon toppled Wall Street giants. In 2020, a handful of virus reports became a global liquidation.

As Kindleberger warned, what matters is not the spark but the fuel: leverage, overconfidence, and hesitation by policymakers. The collapse feels sudden, but it has been years in the making.

Once confidence breaks, fear moves faster than fire. Depositors and investors stampede for the exits, each hoping to escape first. In 2008, Lehman’s fall froze global credit. In 2023, Silicon Valley Bank lost $42 billion in a single day. Runs today unfold at digital speed. Insiders run first. Households arrive last, trapped in frozen deposits and falling portfolios. Runs are races, and small investors always lose.

No crisis burns out on its own. Governments and central banks improvise lifelines: deposit guarantees, emergency loans, bailouts. Roosevelt declared a bank holiday in 1933. The U.S. launched TARP in 2008. Mario Draghi pledged to do “whatever it takes” in 2012. Rescues restore confidence—but at a cost. Losses are shifted onto public balance sheets, while the largest institutions emerge intact. Money never disappears. It migrates—from households to those with collateral and influence. Confidence returns, but wealth concentrates.

When the panic subsides, societies face the wreckage. Who bears the losses? Sweden in the 1990s forced recognition of bad loans, wiped out shareholders, and rebuilt quickly. Japan chose denial, propping up “zombie” firms and drifting into decades of stagnation. For investors, this is the cruelest phase. Conditioned to “buy the dip,” many mistake structural stagnation for a temporary setback, bleeding wealth slowly while stronger hands accumulate assets at bargain prices. Crises do not destroy money. They transfer it.

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Today, everything appears calm. Bond volatility is low. Headlines tout “soft landings.” The narrative is carefully curated, much like the posters in George Orwell’s 1984 proclaiming, “War is Peace. Freedom is Slavery. Ignorance is Strength.” Yet beneath this placid surface, combustible material keeps accumulating, unseen and unheeded.

Runnable liabilities: $7 trillion in U.S. money-market funds and $250 billion in stablecoins—cash that can vanish in an instant. Like Winston noticing the cracks in the Party’s propaganda, the slightest tremor could ignite a mass flight from perceived safety, exposing the fragility lurking just below the surface.

Bank losses: Nearly half a trillion in unrealized losses remain on balance sheets. Hidden deficits, invisible to the casual observer, echo Orwell’s Ministry of Truth, where inconvenient facts are rewritten—or ignored—until they vanish entirely from public consciousness. The calm is deceptive; the danger exists even where it cannot be seen.

Stretched households: Housing is historically unaffordable, and household debt-to-income ratios hover near record highs—a strain markets prefer to ignore until it snaps. Ordinary citizens are lulled into complacency by the illusion of stability, much like the citizens of Oceania, who accepted scarcity and repression as normal, unquestioned conditions.

Corporate leverage: Many firms have taken on historically high levels of debt to fund buybacks and expansion, leaving them exposed if interest rates rise or revenue falters. Debt is masked by glossy earnings reports, a carefully constructed facade reminiscent of the Party’s manipulation of reality. The numbers appear solid—until they are not.

Private credit & shadow banking: Trillions in loans and derivatives exist outside traditional banking oversight, creating blind spots for regulators. In the shadows, risk accumulates unnoticed—like Big Brother’s surveillance, invisible yet omnipresent, shaping outcomes without public awareness. The system’s hidden corners are breeding grounds for unexpected shocks.

Policy buffers: Regulators have new liquidity rules and FDIC reserves—but digital-age panics and high-frequency trading may outrun them. Safety mechanisms are only effective if the system recognizes danger in time; otherwise, they are theater, not protection. Preparedness on paper does not always translate to resilience in practice.

Asset price distortions: Equity, real estate, and tech valuations are increasingly disconnected from underlying earnings, masking underlying fragility. Market participants repeat comforting slogans: “Everything is fine,” much like citizens repeating Party propaganda to suppress doubt. The louder the reassurance, the greater the warning it may conceal.

Central banks: Quietly accumulating gold, hedging against the reset they know is possible. Preparation happens in whispers and secret rooms—calm on the surface, but awareness of impending shifts lies beneath, a silent acknowledgment of risk that the broader world refuses to see.

Geopolitical and supply-chain risks: Energy security, semiconductor bottlenecks, and international debt exposure can trigger shocks that ripple across interconnected markets. Complexity amplifies fragility; a single disruption can cascade, unseen until it erupts, leaving a trail of consequences that no one anticipated.

Market complacency: Implied volatility indices are unusually low, reflecting overconfidence and the underpricing of tail risk. Collective denial mirrors the populace of Oceania, trusting the Party’s narrative even as contradictions mount. Financial doublethink prevails: investors cheer stability while ignoring the very signs of instability accumulating around them.

The warning signs are invisible until the unraveling has already begun. Stability itself is the greatest risk—a deceptive calm that masks the storm gathering beneath. Every crisis unfolds the same way: first, a slow buildup; then, an abrupt collapse; and finally, a long, uneven aftermath that leaves scars for decades. The question is not whether it will happen—it will. The question is whether we confront the losses honestly, rebuild the system stronger, and learn—or paper over the cracks until the next collapse, weaker still.

The history of finance teaches one brutal truth: booms do not end well. They burn out, their ash returns to the earth, and those who ignored the warnings are left counting the cost. In the calm, they believed the system eternal, as citizens of Orwell’s world believed Big Brother invincible—until the illusion shattered. And when it does, reality asserts itself with merciless clarity.

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