The document discusses the recurring phenomenon of speculative bubbles in financial markets. It presents perspectives from several experts and analysts who note that bubbles often form around new technologies due to over-optimism about future growth. While regulation can temper bubbles to some degree, optimism and speculation are intrinsic to human nature and difficult to regulate away completely. The analysts also acknowledge that inefficiency in markets creates opportunities for innovation, so bubbles may be an inevitable part of economic progress despite their risks.

1. The dot.com bubble
The bubbles of today
Narrator
People are intrinsically fascinated and excited by the shock of the new, and technological
revolutions create a fervour that often leads to a bubble.
Martin Wolf
‘If we get some huge breakthrough in life sciences, and some company comes forward and
says we’ve got the drug that guarantees that everybody will live for five hundred years, I can
assure you that there will be another bubble. Everybody will want to buy the shares of
companies like that.’
Michael Jackson ‘One of the things that we’re seeing at the moment is the green
bubble. If you come along with a half good green idea, there’s a good chance in technology
that you’d get funded. I suspect that there’s a bit of fad there. A little mini bubble which might
need looking at.’
Narrator
The thought that we can out-guess others or even the market – hubris – plays a part in the
creation of all bubbles
James Montier
‘We have these sort of delusions of our own abilities and those really do feed bubbles,
because bubbles at heart are all about over-optimism.’
Larry Elliot
‘People just do assume that they have discovered the one little secret that will actually make
what went wrong last time, right this time. It’s a bit like a golfer who goes out there and shoots
90 but thinks actually, there’s one little thing I do to my swing will turn me into Tiger Woods.
And all I really need to do is just tweak a few things and we’ll get things absolutely right. And
that’s what people think in the markets.’
Howard Davies
‘I don’t think that you can regulate away optimism and animal spirits, if you like, and that I
think is almost bound to mean that there will be, from time to time, some over shooting on the
upside and some over shooting on the downside.’
James Montier
‘The four most dangerous words in investing are “This time it’s different” and it never is.’
Larry Elliot
‘People forget. They know that there has been massive boom bust. They know there have
been gigantic speculative bubbles. People forget.’
James Montier
‘If we lived in a perfectly efficient world, or indeed, a massively regulated one, the chances
are that you’d stifle any hope of innovation.
So it’s probably just as well we have inefficient markets, because, as always, the inefficiency
creates the opportunity.’
Narrator
‘It seems that where human nature and money collide – speculation will always exist whether
we like it or not.’

2. David Llewellyn
‘Can I just draw one simple analogy? Take the programme “Strictly Come Dancing”.
Now, you might be asked who do you think is the worst dancer? Who do you think should be
withdrawn?
Now, if you were asked that question, you will make your own judgment that dancer x is the
one that should withdraw.
But now let us put the question a different way.
Will you bet 10,000 pounds on who you think will be forced to withdraw?
Now in that case, because there is money at stake, the decision that you make is not so much
who you believe should go, but who you believe all the other voters will believe should go,
and therefore your bet or your decision is based not on your view but on the view you have
about everybody else’s view.
It’s very complicated.’