In 2008, as Lehman Brothers collapsed and global markets tumbled, economists and policymakers expressed shock. How could this happen? Yet anyone familiar with the Dutch Tulip Mania of 1637, the South Sea Bubble of 1720, or the Great Depression knew the answer: it always happens this way.

Financial crises follow a remarkably consistent pattern across centuries and continents. The assets change—tulips, railway stocks, real estate, cryptocurrencies—but the human behaviors driving boom and bust remain identical. Understanding this script doesn't just explain history. It reveals why we keep making the same mistakes despite knowing better.

Every major financial bubble begins with something genuinely new and exciting. Dutch tulips were exotic flowers from the Ottoman Empire, unlike anything Europeans had seen. Railway stocks in the 1840s promised to revolutionize transportation. Internet companies in the 1990s would transform commerce forever. Each innovation carried real potential—which made the subsequent mania feel rational.

The pattern is remarkably consistent. Early investors make genuine fortunes, which attracts attention. Success stories spread. Suddenly everyone knows someone who doubled their money. The fear of missing out overwhelms caution. In 1636 Amsterdam, craftsmen sold their tools to buy tulip bulbs. In 2021, people took out mortgages to buy Bitcoin. The specific madness changes; the underlying psychology doesn't.

What makes speculation fever so predictable is how it transforms thinking. During bubbles, warnings from skeptics sound like pessimism from people who 'don't get it.' New metrics emerge to justify astronomical prices—tulip bulbs measured by weight, tech companies valued by 'eyeballs' rather than profits. The belief that this time is different isn't stupidity. It's a collective conviction that feels completely reasonable while it's happening.

Takeaway

Bubbles feel rational from inside them because genuine innovation provides the initial justification. The danger isn't recognizing obviously bad investments—it's recognizing when good investments have become dangerously overpriced.

Before every crash, someone sounds the alarm. Economist Irving Fisher warned about stock market speculation before 1929. Brooksley Born tried to regulate derivatives before 2008. Michael Burry predicted the housing collapse years in advance. They weren't visionaries with special powers—they simply read the data honestly while everyone else preferred comfortable narratives.

The pattern of ignored warnings reveals something uncomfortable about how societies process information. During booms, pessimists face social and professional costs. Financial advisors who urged caution in 2006 lost clients to competitors promising higher returns. Regulators who pushed for oversight faced well-funded lobbying campaigns. Being early is indistinguishable from being wrong—until suddenly it isn't.

History shows that warning signs aren't subtle. Before the 1929 crash, stock prices had risen 400% in less than a decade while wages stagnated. Before 2008, home prices had completely decoupled from incomes and rental values. The data was available. Reports were written. The problem was never information—it was incentives. Too many powerful people benefited from the boom continuing.

Takeaway

Societies don't ignore warning signs from ignorance. They ignore them because acknowledging danger would require painful changes—and those benefiting most from the bubble have the loudest voices.

What happens after crashes follows its own reliable script. First comes shock and blame—investigations, congressional hearings, public outrage at bankers and speculators. Then come reforms: the Securities and Exchange Commission after 1929, Dodd-Frank after 2008. Politicians promise it will never happen again. For a while, caution prevails.

But recovery contains the seeds of the next crisis. As memories fade, regulations get watered down. The generation that lived through the crash retires, replaced by people who know it only as history. Financial innovations emerge that technically comply with old rules while recreating old risks. The forty-year gap between major American financial crises isn't coincidental—it's roughly how long institutional memory lasts.

Perhaps most predictably, recovery eventually produces voices arguing that this time we've learned our lesson. Sophisticated risk models will prevent future collapses. Modern central banks can manage any crisis. Technology makes markets more efficient. These claims aren't entirely wrong—we do get better at some things. But the core dynamic of human greed meeting human fear remains unchanged across centuries.

Takeaway

Each generation believes its financial innovations have finally solved the problems of the past. This belief itself becomes part of the cycle, creating the overconfidence that enables the next bubble.

The script of financial crises persists not because we lack knowledge but because we lack the institutional will to act on it. Booms benefit powerful interests. Reforms face constant erosion. And human psychology—our susceptibility to greed, our fear of missing out, our preference for good news—remains unchanged across centuries.

Knowing this history won't prevent future crashes. But it might help us recognize where we are in the cycle, question narratives that feel too optimistic, and understand that the confident voices dismissing warnings have predecessors who said the same things in 1929, 1987, and 2007.