What caused the Great Crash of 2008? The proximate cause was the collapse of house prices. Why did house prices collapse? There is an interesting post over at Freakonomics which suggests that the collapse in US house prices was triggered by the large increase in gas (petrol) prices in 2006-7, which dramatically increased the cost of commuting from the suburbs. The full paper is available here. However, the increase in gas prices was only a trigger, and it cannot explain the extent of the fall in house prices in the USA, Ireland, UK, and other economies.
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.