[jm__87]

I'm not sure I agree. Any valuation for an asset is going to be expressed in terms of other assets. If lowering interest rates to near zero causes a dramatic rise in prices for a number of assets like we have seen in the past year, this doesn't necessarily mean the assets are priced unfairly in relative terms. Same goes for any regulation which creates a favorable environment for a rise in a particular type of asset - that asset may be fairly priced given the context.

Usually bubbles by definition have some level of irrationality. The price of asset(s) far exceed what is rational given the context. For example tulip mania, dot com bubble. I guess we do refer to the 2008 housing bubble and I would agree with you there that was driven just as much by systemic issues as opposed to just irrationality.

[jl2718]

I’ve struggled to find an explanation for tulip mania, but there are some hints at it.

It’s important to realize that the Dutch monarchy was spending themselves into incredible debt for these explorations, and the lenders expected them to return with huge amounts of gold and silver like the Spanish. They came up empty on that, so the monarchy and the financiers had to find a way to convince the world that what they did have was even more valuable, and an efficient mechanism to offload the debt. They created the most advanced financial system the world had ever seen, including a futures market that allowed for cash-free asset purchases without violating usury laws of the church. The asset was a new technology by which one could replicate precious minerals in their own garden, and of course selective breeding would eventually discover a way to mass-produce petals of gold. The alchemists had it all wrong, killing themselves with dangerous chemicals. And you didn’t even need any money to participate. All you needed to do was ‘buy’ a lucky bulb future, and then sell it to somebody else before the bill came due. The church blesses it, and the king demands it.

I had some early beanie babies. They were cheap, well-made, and safe toys for toddlers, a real hit. Then Ty cut supply and the first free market for collectibles ever, opened on this mysterious technology called the Internet. Normal people sold their baby toys for double (still a shipping loss) to new parents, and then double again to eBay reselling businesses, then speculators and criminals blowing their PayPal, a new self-sovereign internet currency that was air-dropped to any new email address, and only a tiny fraction going to the weirdo collectors featured in magazines.

There will always be people that will bet more than they have, if you let them. If casinos started offering loans, would we call it a blackjack chip bubble?

[mbg721]

The Beanie Baby case is interesting; I think it represents a turning point where gamified artificial scarcity in entertainment started to become more aggressive. (The pog craze and the first wave of collectible card games happened around the same time.) Ty went crazy making different beanie babies of various rarities, and even after the bubble had become obvious, there were people still compulsively buying them all (although I think you always knew which one you were buying). Before that, it seemed like mixing in intentionally rare items was just confined to baseball cards.