The housing bubble began in 2001 and exploded in 2008. But look around today, fully five years later, and the victims are everywhere, even in your own town or neighborhood. People who bought at the top, convinced that they would win this game, were left feeling like chumps. Meanwhile, many people who bought at the bottom and sold came away feeling like geniuses.

Is this the way markets are supposed to work? Is it really just an unrelenting series of bubbles and explosions? History is dotted with such things. We might be in the middle of several bubbles now (education, for example, and a bond bubble generally). We’ll know when the winners and losers start to sort themselves out.

Timing is everything, and always has been. Tracing the cause and course of the typical bubble, Doug French, in his book Early Speculative Bubbles, has gone back in time to examine three of the earliest and most famous bubbles: Tulipmania, the Mississippi Bubble, and the South Sea Bubble. Each case was different, but they all had something in common: they were accompanied by increases in the supply of money. This is the air in the bubble.

Speculative bubbles have common features: a continuous sharp increase in the price of a particular asset, leading to further price increases driven by new speculators seeking profits through even-higher prices. Most often, these manias come to abrupt and dramatic endings. This monetary intervention creates situations that manifest themselves in malinvestment, i.e., speculative bubbles. What then follows is the required period of readjustment, i.e., crash and depression.”

French's research is original, done under the supervision Murray Rothbard. Most historians attribute bubbles to human frailty. French shows that they are due to bad banking policy and the crazy view that prosperity can be created by creating more money.

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