The loon is a large acquatic bird of the northern part of North America whose distinctive call will echo loudly across the otherwise silent waters of northern lakes. The call of the loon sounds like the hysterical laughing of a person not in his or her right mind--hence, loon is used to describe somebody as hysterically crazy.
The common loon.
The loon is also engraved on the Canadian one dollar coin, which is known as the looney. The use of the term is so common that when Canadian news readers are comparing the relative value of the Canadian and U.S. dollars, they will say: "The looney reached a value of 86 cents U.S. today." (--just to provide an example)
The reverse of a Canadian dollar coin, showing the image of a loon.
The idea of hysterical laughter has also suggested itself to one of the most successful entertainment ventures in the history of film. That would be Warner Brothers' Looney Tunes series of animated cartoons which were made between 1930 and 1969. Bugs Bunny is probably the most well-known of the Looney Tunes characters, but many of them have become known around the world.