1. The dot.com bubble
What are economic bubbles?
Narrator
Bubbles in modern Western capitalism, speculation, expectation and ignorance often collide
to create a perfect storm of irrational financial exuberance – an economic ‘bubble’.
David Llewellyn A bubble is simply where prices continue to rise beyond the true value of
what it is that we are talking about.
People buy simply because they believe that everybody else is going to buy.
Mariana
‘During bubbles we know that you have these mechanisms of herd behaviour where I value a
firm, not really because I know its underlying profits and earnings, but I think that you’re
valuing it highly and I don’t wanna lose out by not getting involved in the game.’
Narrator
The economist John Maynard Keynes recognised that all finance involved a gamble on the
future.
David Llewellyn
‘The one thing that we know about the future is that we don’t know what the future’s going to
be like, and therefore we have to base our decisions on an expectation.’
Narrator
Keynes believed that because we can’t know the future, we are guided instead by our ‘animal
spirits’.
James Montier
‘The herd mentality drives a lot of the bubble-like behaviour that we see. That unwillingness to
stand alone from the crowd is undoubtedly the major extender of all bubbles.’
City Uncovered
David Gross, Historian of Financial Bubbles
‘I liken it to a group of dogs that I saw at a circus once, these big sheepdogs. And they’re
slobbering and jumping all over each other and they all run in one direction until they pile up
in the corner, then they’d get up and start going in another direction full speed until they crash
into that. And I think there’s a degree to which markets work like that.’
Narrator
One of the biggest bubbles of the past century was the late ’90’s dot-com boom.
Mark Goodson
‘It was an insane market. You didn’t have to know anything, you didn’t have to do any
research. You just bought what everyone else was buying and it went up. It was ridiculous. All
logic went out the window.’
John Coates
‘The adjectives we usually use to describe bubbles are manic – there is an element of insanity
– delusional, euphoric, over-confident, and that’s what people look like when they’re caught
up in bubbles.’

2. Michael Jackson
‘We all thought, God we’re going to be rich and we bloody well would have been rich, but it
was a completely unsustainable business model. It was just totally mad. It was a blood bath.’
Narrator
Bubbles are sometimes compared to fads – meaning they don’t last forever, but when an
economic bubble bursts, the consequences can be catastrophic.
Greg Hadfield
‘I think the knock-on effect of bubbles does impact on ordinary people. It’s the ordinary people
who suffer from the petrol prices and the unemployment and the lack of investment in public
services.’
Narrator
If they can cause such damage, is there a way to regulate against bubbles or must we leave
markets to find their own level?
Either way, it’s clear that in a fast-moving economy, what seemed to be a one-way bet – a
guaranteed winning hand – can quickly become a busted flush.