HOME

TheInfoList



OR:

A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
s coincided with these panics. Other situations that are often called financial crises include stock market crashes and the
bursting Bursting, or burst firing, is an extremely diverse general phenomenon of the activation patterns of neurons in the central nervous system and spinal cord where periods of rapid action potential spiking are followed by quiescent periods much longe ...
of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of
paper wealth Paper wealth means wealth as measured by monetary value, as reflected in price of assets – how much money one's assets could be sold for. Paper wealth is contrasted with real wealth, which refers to one's actual physical assets. For example, if ...
but do not necessarily result in significant changes in the real economy (e.g. the crisis resulting from the famous tulip mania bubble in the 17th century). Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time.


Types


Banking crisis

When a bank suffers a sudden rush of withdrawals by depositors, this is called a ''bank run''. Since banks lend out most of the cash they receive in deposits (see
fractional-reserve banking Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserv ...
), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance. An event in which bank runs are widespread is called a ''systemic banking crisis'' or ''banking panic''. Examples of bank runs include the run on the Bank of the United States in 1931 and the run on Northern Rock in 2007. Banking crises generally occur after periods of risky lending and resulting loan defaults.


Currency crisis

A currency crisis, also called a devaluation crisis, is normally considered as part of a financial crisis. Kaminsky et al. (1998), for instance, define currency crises as occurring when a weighted average of monthly percentage depreciations in the exchange rate and monthly percentage declines in exchange reserves exceeds its mean by more than three standard deviations. Frankel and Rose (1996) define a currency crisis as a nominal depreciation of a currency of at least 25% but it is also defined as at least a 10% increase in the rate of depreciation. In general, a currency crisis can be defined as a situation when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail, causing
speculation In finance, speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline in value.) Many ...
against the peg that hastens the failure and forces a
devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...
.


Speculative bubbles and crashes

A speculative bubble exists in the event of large, sustained overpricing of some class of assets. One factor that frequently contributes to a bubble is the presence of buyers who purchase an asset based solely on the expectation that they can later resell it at a higher price, rather than calculating the income it will generate in the future. If there is a bubble, there is also a risk of a ''crash'' in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to predict whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur. Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the 17th century Dutch tulip mania, the 18th century
South Sea Bubble South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both east and west. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...
, the
Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange coll ...
, the Japanese property bubble of the 1980s, the crash of the United States housing bubble during 2006-2008. The 2000s sparked a real estate bubble where housing prices were increasing significantly as an asset good.


International financial crisis

When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency due to accruing an unsustainable current account deficit, this is called a ''currency crisis'' or ''balance of payments crisis''. When a country fails to pay back its
sovereign debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
, this is called a ''sovereign default''. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight. Several currencies that formed part of the
European Exchange Rate Mechanism The European Exchange Rate Mechanism (ERM II) is a system introduced by the European Economic Community on 1 January 1999 alongside the introduction of a single currency, the euro (replacing ERM 1 and the euro's predecessor, the ECU) as ...
suffered crises in 1992–93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 1997–98. Many Latin American countries defaulted on their debt in the early 1980s. The
1998 Russian financial crisis The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the ruble and defaulting on its debt. The crisis had ...
resulted in a devaluation of the ruble and default on Russian government bonds.


Wider economic crisis

Negative GDP growth lasting two or more quarters is called a ''recession''. An especially prolonged or severe recession may be called a ''depression'', while a long period of slow but not necessarily negative growth is sometimes called economic stagnation. Some economists argue that many recessions have been caused in large part by financial crises. One important example is the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, which was preceded in many countries by bank runs and stock market crashes. The
subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in US home prices after the col ...
and the bursting of other real estate bubbles around the world also led to recession in the U.S. and a number of other countries in late 2008 and 2009. Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular,
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
and Anna Schwartz argued that the initial economic decline associated with the crash of 1929 and the bank panics of the 1930s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve, a position supported by
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Duri ...
.


Causes and consequences


Strategic complementarities in financial markets

It is often observed that successful investment requires each investor in a financial market to guess what other investors will do. George Soros has called this need to guess the intentions of others ' reflexivity'. Similarly,
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
compared financial markets to a beauty contest game in which each participant tries to predict which model ''other'' participants will consider most beautiful. Furthermore, in many cases, investors have incentives to coordinate their choices. For example, someone who thinks other investors want to heavily buy
Japanese yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the ...
may expect the yen to rise in value, and therefore has an incentive to buy yen, too. Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw, too. Economists call an incentive to mimic the strategies of others ''strategic complementarity''. It has been argued that if people or firms have a sufficiently strong incentive to do the same thing they expect others to do, then ''self-fulfilling prophecies'' may occur. For example, if investors expect the value of the yen to rise, this may cause its value to rise; if depositors expect a bank to fail this may cause it to fail. Therefore, financial crises are sometimes viewed as a
vicious circle A vicious circle (or cycle) is a complex chain of events that reinforces itself through a feedback loop, with detrimental results. It is a system with no tendency toward equilibrium (social, economic, ecological, etc.), at least in the shor ...
in which investors shun some institution or asset because they expect others to do so.


Leverage

''Leverage'', which means borrowing to finance investments, is frequently cited as a contributor to financial crises. When a financial institution (or an individual) only invests its own money, it can, in the very worst case, lose its own money. But when it borrows in order to invest more, it can potentially earn more from its investment, but it can also lose more than all it has. Therefore, leverage magnifies the potential returns from investment, but also creates a risk of
bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...
. Since bankruptcy means that a firm fails to honor all its promised payments to other firms, it may spread financial troubles from one firm to another (see 'Contagion' below). The average degree of leverage in the economy often rises prior to a financial crisis. For example, borrowing to finance investment in the
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...
(" margin buying") became increasingly common prior to the
Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange coll ...
.


Asset-liability mismatch

Another factor believed to contribute to financial crises is ''asset-liability mismatch'', a situation in which the risks associated with an institution's debts and assets are not appropriately aligned. For example, commercial banks offer deposit accounts that can be withdrawn at any time and they use the proceeds to make long-term loans to businesses and homeowners. The mismatch between the banks' short-term liabilities (its deposits) and its long-term assets (its loans) is seen as one of the reasons
bank run A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
s occur (when depositors panic and decide to withdraw their funds more quickly than the bank can get back the proceeds of its loans). Likewise,
Bear Stearns The Bear Stearns Companies, Inc. was a New York-based global investment bank, securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession, and was subsequently sold to JPMorgan Chase. The com ...
failed in 2007–08 because it was unable to renew the
short-term debt The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compon ...
it used to finance long-term investments in mortgage securities. In an international context, many emerging market governments are unable to sell bonds denominated in their own currencies, and therefore sell bonds denominated in US dollars instead. This generates a mismatch between the currency denomination of their liabilities (their bonds) and their assets (their local tax revenues), so that they run a risk of sovereign default due to fluctuations in exchange rates.


Uncertainty and herd behavior

Many analyses of financial crises emphasize the role of investment mistakes caused by lack of knowledge or the imperfections of human reasoning.
Behavioural finance Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...
studies errors in economic and quantitative reasoning. Psychologist Torbjorn K A Eliazon has also analyzed failures of economic reasoning in his concept of 'œcopathy'. Historians, notably Charles P. Kindleberger, have pointed out that crises often follow soon after major financial or technical innovations that present investors with new types of financial opportunities, which he called "displacements" of investors' expectations. Early examples include the
South Sea Bubble South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both east and west. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...
and Mississippi Bubble of 1720, which occurred when the notion of investment in shares of company
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
was itself new and unfamiliar, and the Crash of 1929, which followed the introduction of new electrical and transportation technologies. More recently, many financial crises followed changes in the investment environment brought about by financial
deregulation Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...
, and the crash of the
dot com bubble The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Com ...
in 2001 arguably began with "irrational exuberance" about Internet technology. Unfamiliarity with recent technical and financial innovations may help explain how investors sometimes grossly overestimate asset values. Also, if the first investors in a new class of assets (for example, stock in "dot com" companies) profit from rising asset values as other investors learn about the innovation (in our example, as others learn about the potential of the Internet), then still more others may follow their example, driving the price even higher as they rush to buy in hopes of similar profits. If such "herd behaviour" causes prices to spiral up far above the true value of the assets, a crash may become inevitable. If for any reason the price briefly falls, so that investors realize that further gains are not assured, then the spiral may go into reverse, with price decreases causing a rush of sales, reinforcing the decrease in prices.


Regulatory failures

Governments have attempted to eliminate or mitigate financial crises by regulating the financial sector. One major goal of regulation is transparency: making institutions' financial situations publicly known by requiring regular reporting under standardized accounting procedures. Another goal of regulation is making sure institutions have sufficient assets to meet their contractual obligations, through
reserve requirement Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the centra ...
s,
capital requirement A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ...
s, and other limits on leverage. Some financial crises have been blamed on insufficient regulation, and have led to changes in regulation in order to avoid a repeat. For example, the former Managing Director of the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
, Dominique Strauss-Kahn, has blamed the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of ...
on 'regulatory failure to guard against excessive risk-taking in the financial system, especially in the US'. Likewise, the New York Times singled out the deregulation of credit default swaps as a cause of the crisis. However, excessive regulation has also been cited as a possible cause of financial crises. In particular, the Basel II Accord has been criticized for requiring banks to increase their capital when risks rise, which might cause them to decrease lending precisely when capital is scarce, potentially aggravating a financial crisis. International regulatory convergence has been interpreted in terms of regulatory herding, deepening market herding (discussed above) and so increasing systemic risk. From this perspective, maintaining diverse regulatory regimes would be a safeguard. Fraud has played a role in the collapse of some financial institutions, when companies have attracted depositors with misleading claims about their investment strategies, or have embezzled the resulting income. Examples include
Charles Ponzi Charles Ponzi (, ; born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi; March 3, 1882 – January 15, 1949) was an Italian swindler and con artist who operated in the U.S. and Canada. His aliases included ''Charles Ponci'', ''Carlo'', and ''Cha ...
's scam in early 20th century Boston, the collapse of the MMM investment fund in Russia in 1994, the scams that led to the Albanian Lottery Uprising of 1997, and the collapse of Madoff Investment Securities in 2008. Many rogue traders that have caused large losses at financial institutions have been accused of acting fraudulently in order to hide their trades. Fraud in mortgage financing has also been cited as one possible cause of the 2008
subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in US home prices after the col ...
; government officials stated on 23 September 2008 that the FBI was looking into possible fraud by mortgage financing companies
Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...
and
Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.Lehman Brothers Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, ...
, and insurer
American International Group American International Group, Inc. (AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. , AIG companies employed 49,600 people.https://www.aig.com/content/dam/aig/amer ...
. Likewise it has been argued that many financial companies failed in the recent crisis because their managers failed to carry out their fiduciary duties.


Contagion

'' Contagion'' refers to the idea that financial crises may spread from one institution to another, as when a bank run spreads from a few banks to many others, or from one country to another, as when currency crises, sovereign defaults, or stock market crashes spread across countries. When the failure of one particular financial institution threatens the stability of many other institutions, this is called ''systemic risk''. One widely cited example of contagion was the spread of the Thai crisis in 1997 to other countries like
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
. However, economists often debate whether observing crises in many countries around the same time is truly caused by contagion from one market to another, or whether it is instead caused by similar underlying problems that would have affected each country individually even in the absence of international linkages.


Recessionary effects

Some financial crises have little effect outside of the financial sector, like the Wall Street crash of 1987, but other crises are believed to have played a role in decreasing growth in the rest of the economy. There are many theories why a financial crisis could have a recessionary effect on the rest of the economy. These theoretical ideas include the ' financial accelerator', '
flight to quality A flight-to-quality, or flight-to-safety, is a financial market phenomenon occurring when investors sell what they perceive to be higher- risk investments and purchase safer investments, such as gold and other precious metals. This is considered a ...
' and ' flight to liquidity', and the Kiyotaki-Moore model. Some 'third generation' models of currency crises explore how currency crises and banking crises together can cause recessions.


Theories


Austrian theories

Austrian School The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian scho ...
economists Ludwig von Mises and Friedrich Hayek discussed the business cycle starting with Mises' ''Theory of Money and Credit'', published in 1912.


Marxist theories

Recurrent major depressions in the world economy at the pace of 20 and 50 years have been the subject of studies since Jean Charles Léonard de Sismondi (1773–1842) provided the first theory of crisis in a critique of classical political economy's assumption of equilibrium between supply and demand. Developing an economic crisis theory became the central recurring concept throughout
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
's mature work. Marx's law of the tendency for the rate of profit to fall borrowed many features of the presentation of
John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873) was an English philosopher, political economist, Member of Parliament (MP) and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to ...
's discussion ''Of the Tendency of Profits to a Minimum'' (Principles of Political Economy Book IV Chapter IV). The theory is a corollary of the ''Tendency towards the Centralization of Profits''. In a capitalist system, successfully-operating businesses return less money to their workers (in the form of wages) than the value of the goods produced by those workers (i.e. the amount of money the products are sold for). This
profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...
first goes towards covering the initial investment in the business. In the long-run, however, when one considers the combined economic activity of all successfully-operating business, it is clear that less money (in the form of wages) is being returned to the mass of the population (the workers) than is available to them to buy all of these goods being produced. Furthermore, the expansion of businesses in the process of competing for markets leads to an abundance of goods and a general fall in their prices, further exacerbating ''the tendency for the rate of profit to fall''. The viability of this theory depends upon two main factors: firstly, the degree to which profit is taxed by government and returned to the mass of people in the form of welfare, family benefits and health and education spending; and secondly, the proportion of the population who are workers rather than investors/business owners. Given the extraordinary capital expenditure required to enter modern economic sectors like airline transport, the military industry, or chemical production, these sectors are extremely difficult for new businesses to enter and are being concentrated in fewer and fewer hands. Empirical and econometric research continues especially in the
world systems theory World-systems theory (also known as world-systems analysis or the world-systems perspective)Immanuel Wallerstein, (2004), "World-systems Analysis." In ''World System History'', ed. George Modelski, in ''Encyclopedia of Life Support Systems'' (E ...
and in the debate about Nikolai Kondratiev and the so-called 50-years Kondratiev waves. Major figures of world systems theory, like
Andre Gunder Frank Andre Gunder Frank (February 24, 1929 – April 25, 2005) was a German-American sociologist and economic historian who promoted dependency theory after 1970 and world-systems theory after 1984. He employed some Marxian concepts on politi ...
and
Immanuel Wallerstein Immanuel Maurice Wallerstein (; September 28, 1930 – August 31, 2019) was an American sociologist and economic historian. He is perhaps best known for his development of the general approach in sociology which led to the emergence of his wo ...
, consistently warned about the crash that the world economy is now facing. World systems scholars and Kondratiev cycle researchers always implied that
Washington Consensus The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Mone ...
oriented economists never understood the dangers and perils, which leading industrial nations will be facing and are now facing at the end of the long economic cycle which began after the oil crisis of 1973.


Minsky's theory

Hyman Minsky Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research ...
has proposed a
post-Keynesian Post-Keynesian economics is a school of economic thought with its origins in '' The General Theory'' of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney ...
explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
. High fragility leads to a higher risk of a financial crisis. To facilitate his analysis, Minsky defines three approaches to financing firms may choose, according to their tolerance of risk. They are hedge finance, speculative finance, and Ponzi finance. Ponzi finance leads to the most fragility. * for hedge finance, income flows are expected to meet financial obligations in every period, including both the principal and the interest on loans. * for speculative finance, a firm must roll over debt because income flows are expected to only cover interest costs. None of the principal is paid off. * for Ponzi finance, expected income flows will not even cover interest cost, so the firm must borrow more or sell off assets simply to service its debt. The hope is that either the market value of assets or income will rise enough to pay off interest and principal. Financial fragility levels move together with the
business cycle Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examin ...
. After a
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
, firms have lost much financing and choose only hedge, the safest. As the economy grows and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case, they know that profits will not cover all the
interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...
all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment, and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore, they are ready to lend to firms without full guarantees of success. Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way, the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many, and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession, firms start to hedge again, and the cycle is closed.


Coordination games

Mathematical approaches to modeling financial crises have emphasized that there is often
positive feedback Positive feedback (exacerbating feedback, self-reinforcing feedback) is a process that occurs in a feedback loop which exacerbates the effects of a small disturbance. That is, the effects of a perturbation on a system include an increase in th ...
between market participants' decisions (see strategic complementarity). Positive feedback implies that there may be dramatic changes in asset values in response to small changes in economic fundamentals. For example, some models of currency crises (including that of
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was t ...
) imply that a fixed exchange rate may be stable for a long period of time, but will collapse suddenly in an avalanche of currency sales in response to a sufficient deterioration of government finances or underlying economic conditions. According to some theories, positive feedback implies that the economy can have more than one equilibrium. There may be an equilibrium in which market participants invest heavily in asset markets because they expect assets to be valuable. This is the type of argument underlying Diamond and Dybvig's model of
bank run A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
s, in which savers withdraw their assets from the bank because they expect others to withdraw too. Likewise, in Obstfeld's model of currency crises, when economic conditions are neither too bad nor too good, there are two possible outcomes: speculators may or may not decide to attack the currency depending on what they expect other speculators to do.


Herding models and learning models

A variety of models have been developed in which asset values may spiral excessively up or down as investors learn from each other. In these models, asset purchases by a few agents encourage others to buy too, not because the true value of the asset increases when many buy (which is called "strategic complementarity"), but because investors come to believe the true asset value is high when they observe others buying. In "herding" models, it is assumed that investors are fully rational, but only have partial information about the economy. In these models, when a few investors buy some type of asset, this reveals that they have some positive information about that asset, which increases the rational incentive of others to buy the asset too. Even though this is a fully rational decision, it may sometimes lead to mistakenly high asset values (implying, eventually, a crash) since the first investors may, by chance, have been mistaken. Herding models, based on Complexity Science, indicate that it is the internal structure of the market, not external influences, which is primarily responsible for crashes. In "adaptive learning" or "adaptive expectations" models, investors are assumed to be imperfectly rational, basing their reasoning only on recent experience. In such models, if the price of a given asset rises for some period of time, investors may begin to believe that its price always rises, which increases their tendency to buy and thus drives the price up further. Likewise, observing a few price decreases may give rise to a downward price spiral, so in models of this type large fluctuations in asset prices may occur.
Agent-based models An agent-based model (ABM) is a computational models, computational model for computer simulation, simulating the actions and interactions of autonomous agents (both individual or collective entities such as organizations or groups) in order to un ...
of financial markets often assume investors act on the basis of adaptive learning or adaptive expectations.


Global financial crisis

As the most recent and most damaging financial crisis event, the Global financial crisis, deserves special attention, as its causes, effects, response, and lessons are most applicable to the current
financial system A financial system is a system that allows the exchange of funds between financial market participants such as lenders, investors, and borrowers. Financial systems operate at national and global levels. Financial institutions consist of complex, c ...
.


History

A noted survey of financial crises is ''This Time is Different: Eight Centuries of Financial Folly'' , by economists Carmen Reinhart and Kenneth Rogoff, who are regarded as among the foremost historians of financial crises. In this survey, they trace the history of financial crisis back to sovereign defaults – default on ''public'' debt, – which were the form of crisis prior to the 18th century and continue, then and now causing private bank failures; crises since the 18th century feature both public debt default and private debt default. Reinhart and Rogoff also class debasement of currency and
hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...
as being forms of financial crisis, broadly speaking, because they lead to unilateral reduction (repudiation) of debt.


Prior to 19th century

Reinhart and Rogoff trace inflation (to reduce debt) to Dionysius I rule in
Syracuse Syracuse may refer to: Places Italy * Syracuse, Sicily, or spelled as ''Siracusa'' * Province of Syracuse United States *Syracuse, New York **East Syracuse, New York ** North Syracuse, New York * Syracuse, Indiana *Syracuse, Kansas *Syracuse, M ...
and begin their "eight centuries" in 1258; debasement of currency also occurred under the
Roman Empire The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Roman Republic, Republican period of ancient Rome. As a polity, it included large territorial holdings aro ...
and
Byzantine Empire The Byzantine Empire, also referred to as the Eastern Roman Empire or Byzantium, was the continuation of the Roman Empire primarily in its eastern provinces during Late Antiquity and the Middle Ages, when its capital city was Constantinopl ...
. A financial crisis in 33 A.D. caused by a contraction of money supply had been recorded by several Roman historians. Among the earliest crises Reinhart and Rogoff study is the 1340 default of England, due to setbacks in its war with France (the
Hundred Years' War The Hundred Years' War (; 1337–1453) was a series of armed conflicts between the kingdoms of England and France during the Late Middle Ages. It originated from disputed claims to the French throne between the English House of Plantagen ...
; see details). Further early sovereign defaults include seven defaults by the
Spanish Empire The Spanish Empire ( es, link=no, Imperio español), also known as the Hispanic Monarchy ( es, link=no, Monarquía Hispánica) or the Catholic Monarchy ( es, link=no, Monarquía Católica) was a colonial empire governed by Spain and its prede ...
, four under Philip II, three under his successors. Other global and national financial mania since the 17th century include: * 1637: Bursting of tulip mania in the Netherlands – while tulip mania is popularly reported as an example of a financial crisis, and was a speculative bubble, modern scholarship holds that its broader economic impact was limited to negligible, and that it did not precipitate a financial crisis. * 1720: Bursting of
South Sea Bubble South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both east and west. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...
(Great Britain) and Mississippi Bubble (France) – earliest of modern financial crises; in both cases the company assumed the national debt of the country (80–85% in Great Britain, 100% in France), and thereupon the bubble burst. The resulting crisis of confidence probably had a deep impact on the financial and political development of France. * Crisis of 1763 - started in Amsterdam, begun by the collapse of
Johann Ernst Gotzkowsky Johann Ernst Gotzkowsky (21 November 1710 – 9 August 1775) was a Prussian merchant with a successful trade in trinkets, silk, taft, porcelain, grain and bills of exchange. Moreover, he acted as a diplomat and important art dealer. His paint ...
and Leendert Pieter de Neufville's bank, spread to Germany and Scandinavia. * Crisis of 1772 – in London and Amsterdam. 20 important banks in London went bankrupt after one banking house defaulted (bankers Neal, James, Fordyce and Down) * France's Financial and Debt Crisis (1783–1788)- France severe financial crisis due to the immense debt accrued through the French involvement in the Seven Years' War (1756–1763) and the American Revolution (1775-1783). *
Panic of 1792 The Panic of 1792 was a financial credit crisis that occurred during the months of March and April 1792, precipitated by the expansion of credit by the newly formed Bank of the United States as well as by rampant speculation on the part of Will ...
– run on banks in US precipitated by the expansion of credit by the newly formed Bank of the United States *
Panic of 1796–1797 The Panic of 1796–1797 was a series of downturns in credit markets in both Great Britain and the newly established United States in 1796 that led to broader commercial downturns. In the United States, problems first emerged when a land specul ...
– British and US credit crisis caused by land speculation bubble


19th century

* Danish state bankruptcy of 1813 * Financial Crisis of 1818 - in England caused banks to call in loans and curtail new lending, draining specie out of the U.S. * Panic of 1819: pervasive USA economic recession w/ bank failures; culmination of U.S.'s 1st boom-to-bust economic cycle * Panic of 1825: pervasive British economic recession in which many British banks failed, & Bank of England nearly failed *
Panic of 1837 The Panic of 1837 was a financial crisis in the United States that touched off a major depression, which lasted until the mid-1840s. Profits, prices, and wages went down, westward expansion was stalled, unemployment went up, and pessimism abound ...
: pervasive USA economic recession w/ bank failures; a 5-year ''depression'' ensued * Panic of 1847: a collapse of British financial markets associated with the end of the 1840s
railway Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in tracks. In contrast to road transport, where the vehicles run on a p ...
boom. Also see Bank Charter Act of 1844 *
Panic of 1857 The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy. Because of the invention of the telegraph by Samuel F. Morse in 1844, the Panic of 1857 was ...
: pervasive USA economic recession w/ bank failures *
Panic of 1866 The Panic of 1866 was an international financial downturn that accompanied the failure of Overend, Gurney and Company in London, and the ''corso forzoso'' abandonment of the silver standard in Italy. In Britain, the economic impacts are hel ...
: the Overend Gurney crisis (primarily British) * Black Friday (1869): aka Gold Panic of 1869 * Panic of 1873: pervasive USA economic recession w/ bank failures, known then as the 5 year ''Great Depression'' & now as the Long Depression *
Panic of 1884 The Panic of 1884 was an economic panic during the Depression of 1882–1885. It was unusual in that it struck at the end rather than the beginning of the recession. The panic created a credit shortage that led to a significant economic decline in ...
: a panic in the United States centred on New York banks * Panic of 1890: aka Baring Crisis; near-failure of a major London bank led to corresponding South American financial crises *
Panic of 1893 The Panic of 1893 was an economic depression in the United States that began in 1893 and ended in 1897. It deeply affected every sector of the economy, and produced political upheaval that led to the political realignment of 1896 and the pres ...
: a panic in the United States marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures * Australian banking crisis of 1893 * Panic of 1896: an acute
economic depression An economic depression is a period of carried long-term economical downturn that is result of lowered economic activity in one major or more national economies. Economic depression maybe related to one specific country were there is some economic ...
in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
precipitated by a drop in silver reserves and market concerns on the effects it would have on the
gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from th ...


20th century

* Panic of 1901: limited to crashing of the New York Stock Exchange *
Panic of 1907 The Panic of 1907, also known as the 1907 Bankers' Panic or Knickerbocker Crisis, was a financial crisis that took place in the United States over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% fro ...
: pervasive USA economic recession w/ bank failures *
Panic of 1910–1911 The Panic of 1910–1911 was a minor economic depression that followed the enforcement of the Sherman Antitrust Act, which regulates the competition among enterprises, trying to avoid monopolies and, generally speaking, a failure of the market itsel ...
*1910: Shanghai rubber stock market crisis *1914: The Great Financial Crisis (see Aldrich-Vreeland Act) *
Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange coll ...
, followed by the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
: the largest and most important economic depression in the 20th century * 1937-1938: an economic downturn that occurred during the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
. * 1973:
1973 oil crisis The 1973 oil crisis or first oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC), led by Saudi Arabia, proclaimed an oil embargo. The embargo was targeted at nations that had su ...
– oil prices soared, causing the
1973–1974 stock market crash The 1973–1974 stock market crash caused a bear market between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom, it was one of the worst stock market downturns since the Great ...
* Secondary banking crisis of 1973–1975: United Kingdom * 1980s:
Latin American debt crisis The Latin American debt crisis ( es, Crisis de la deuda latinoamericana; pt, Crise da dívida latino-americana) was a financial crisis that originated in the early 1980s (and for some countries starting in the 1970s), often known as ''La Déca ...
– beginning in Mexico in 1982 with the
Mexican Weekend The Mexican Weekend marked the beginning of the Latin American debt crisis. In August 1982, Mexican Secretary of Finance Jesús Silva Herzog Flores flew to Washington, D.C., to declare Mexico's foreign debt unmanageable, and announce that his c ...
* 1980s-1990: Savings and loan crisis * Bank stock crisis (Israel 1983) * 1987:
Black Monday (1987) Black Monday is the name commonly given to the global, sudden, severe, and largely unexpected stock market crash on Monday, October 19, 1987. In Australia and New Zealand, the day is also referred to as ''Black Tuesday'' because of the time z ...
– the largest one-day percentage decline in stock market history * 1988–1992 Norwegian banking crisis * 1989–1991: United States Savings & Loan crisis * 1990:
Japanese asset price bubble The was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and Japan's economy stagnated. The bubble was characterized by rapid acceleration of ...
collapsed * Early 1990s: Scandinavian banking crisis, Swedish banking crisis, Finnish banking crisis of 1990s *
Early 1990s recession The early 1990s recession describes the period of economic downturn affecting much of the Western world in the early 1990s. The impacts of the recession contributed in part to the 1992 U.S. presidential election victory of Bill Clinton over incu ...
* 1992–1993:
Black Wednesday Black Wednesday (or the 1992 Sterling crisis) occurred on 16 September 1992 when the UK Government was forced to withdraw sterling from the European Exchange Rate Mechanism (ERM), after a failed attempt to keep its exchange rate above the ...
– speculative attacks on currencies in the
European Exchange Rate Mechanism The European Exchange Rate Mechanism (ERM II) is a system introduced by the European Economic Community on 1 January 1999 alongside the introduction of a single currency, the euro (replacing ERM 1 and the euro's predecessor, the ECU) as ...
* 1994–1995: Economic crisis in Mexico – speculative attack and default on Mexican debt * 1997–1998:
1997 Asian Financial Crisis The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998– ...
– devaluations and banking crises across Asia * 1998: Russian financial crisis


21st century

* 2000–2001: 2001 Turkish economic crisis * 2000: Early 2000s recession * 1999–2002: Argentine economic crisis (1999-2002) * 2001: Bursting of
dot-com bubble The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Comp ...
* 2007–2008: Global financial crisis of 2007–2008 * 2008–2011:
Icelandic financial crisis Icelandic refers to anything of, from, or related to Iceland and may refer to: *Icelandic people *Icelandic language *Icelandic alphabet *Icelandic cuisine See also * Icelander (disambiguation) * Icelandic Airlines, a predecessor of Icelandair * ...
* 2008–2014: Spanish financial crisis * 2009-2010:
European debt crisis The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone me ...
* 2010-2018: Greek government-debt crisis * 2013-: Ongoing Venezuelan economic crisis * 2014-2016: Russian financial crisis * 2018–: Turkish currency and debt crisis * 2019–: Sri Lankan currency and debt crisis * 2019-: Lebanese liquidity crisis * 2020:
2020 stock market crash On 20 February 2020, stock markets across the world suddenly crashed after growing instability due to the COVID-19 pandemic. It ended on 7 April 2020. Beginning on 13 May 2019, the yield curve on U.S. Treasury securities inverted, and rem ...
(especially
Black Monday Black Monday refers to specific Mondays when undesirable or turbulent events have occurred. It has been used to designate massacres, military battles, and stock market crashes. Historic events *1209, Dublin – when a group of 500 recently arriv ...
and Black Thursday) * 2022: Russian financial crisis


See also

*
Bailout A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy. A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sys ...
*
Bank run A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
*
Credit crunch A credit crunch (also known as a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit cr ...
* Financial stability *
Flight-to-liquidity A flight-to-liquidity is a financial market phenomenon occurring when investors sell what they perceive to be less liquid or higher risk investments, and purchase more liquid investments instead, such as US Treasuries. Usually, flight-to-liquidi ...
*
Global debt levels Global means of or referring to a globe and may also refer to: Entertainment * ''Global'' (Paul van Dyk album), 2003 * ''Global'' (Bunji Garlin album), 2007 * ''Global'' (Humanoid album), 1989 * ''Global'' (Todd Rundgren album), 2015 * Bruno ...
* Kondratiev waves * Lender of last resort * Liquidity crisis *
Macroprudential policy Macroprudential regulation is the approach to financial regulation that aims to mitigate risk to the financial system as a whole (or " systemic risk"). In the aftermath of the late-2000s financial crisis, there is a growing consensus among policym ...
* Nikolai Kondratiev *
Real estate bubble A real-estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real-estate markets, and typically follow a land boom. A land boom is the rapid increa ...
Specific: * 2000s energy crisis * 2007–2008 world food price crisis *
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
*
Subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in US home prices after the col ...
* ''
America's Great Depression ''America's Great Depression'' is a 1963 treatise on the 1930s Great Depression and its root causes, written by Austrian School economist and author Murray Rothbard. The fifth edition was released in 2000. Brief summary Rothbard holds the inte ...
'' *
Great Trade Collapse The Great Trade Collapse, a consequence of the 2008 financial crisis, occurred between the third quarter of 2008 and the second quarter of 2009. During this time, world GDP dropped by 1% and world trade dropped by 10%. This drop in global trade was ...


Literature


General perspectives

* Walter Bagehot (1873), '' Lombard Street: A Description of the Money Market''. * Charles P. Kindleberger and Robert Aliber (2005), ''Manias, Panics, and Crashes: A History of Financial Crises'' (Palgrave Macmillan, 2005 ). * Gernot Kohler and Emilio José Chaves (Editors) "Globalization: Critical Perspectives" Hauppauge, New York
Nova Science Publishers
. With contributions by Samir Amin, Christopher Chase Dunn,
Andre Gunder Frank Andre Gunder Frank (February 24, 1929 – April 25, 2005) was a German-American sociologist and economic historian who promoted dependency theory after 1970 and world-systems theory after 1984. He employed some Marxian concepts on politi ...
,
Immanuel Wallerstein Immanuel Maurice Wallerstein (; September 28, 1930 – August 31, 2019) was an American sociologist and economic historian. He is perhaps best known for his development of the general approach in sociology which led to the emergence of his wo ...
*
Hyman P. Minsky Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research at ...
(1986, 2008), ''Stabilizing an Unstable Economy''. * * * Joachim Vogt (2014),
Fear, Folly, and Financial Crises – Some Policy Lessons from History
', UBS Center Public Papers, Issue 2, UBS International Center of Economics in Society, Zurich.


Banking crises

* * Franklin Allen and Douglas Gale (2007), ''Understanding Financial Crises''. * Charles W. Calomiris and Stephen H. Haber (2014), ''Fragile by Design: The Political Origins of Banking Crises and Scarce Credit'', Princeton, NJ:
Princeton University Press Princeton University Press is an independent publisher with close connections to Princeton University. Its mission is to disseminate scholarship within academia and society at large. The press was founded by Whitney Darrow, with the financial ...
. * Jean-Charles Rochet (2008), ''Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation''. * R. Glenn Hubbard, ed., (1991) ''Financial Markets and Financial Crises''. * * Luc Laeven and Fabian Valencia (2008)
'Systemic banking crises: a new database'
International Monetary Fund Working Paper 08/224. * Thomas Marois (2012), States, Banks and Crisis: Emerging Finance Capitalism in Mexico and Turkey, Edward Elgar Publishing Limited, Cheltenham, UK.


Bubbles and crashes

* Dutton, Roy (2010),'' Financial Meltdown 2010 (Hardback)''. Infodial. * Charles Mackay (1841), ''
Extraordinary Popular Delusions and the Madness of Crowds ''Extraordinary Popular Delusions and the Madness of Crowds'' is an early study of crowd psychology by Scottish journalist Charles Mackay, first published in 1841 under the title ''Memoirs of Extraordinary Popular Delusions''. The book was pub ...
'' * Didier Sornette (2003), ''Why Stock Markets Crash'', Princeton University Press. * Robert J. Shiller (1999, 2006), ''Irrational Exuberance''. *
Markus Brunnermeier Markus Konrad Brunnermeier (born March 22, 1969) is an economist, who is the Edwards S. Sanford Professor of Economics at Princeton University, and a nonresident senior fellow at the Peterson Institute for International Economics. He is a facult ...
(2008), 'Bubbles', ''New Palgrave Dictionary of Economics'', 2nd ed. * Douglas French (2009)
Early Speculative Bubbles and Increases in the Supply of Money
' * Markus K. Brunnermeier (2001), ''Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding'', Oxford University Press. .


International financial crises

* Acocella, N. Di Bartolomeo, G. and Hughes Hallett, A.
012 012 may refer to: * Tyrrell 012, a Formula One racing car * The dialing code for Pretoria, South Africa See also * 12 (disambiguation) Twelve or 12 may refer to: * 12 (number) * December, the twelfth and final month of the year Years * 12 BC ...
‘''Central banks and economic policy after the crisis: what have we learned?''’, ch. 5 in: Baker, H.K. and Riddick, L.A. (eds.), ‘''Survey of International Finance''’, Oxford University Press. * Paul Krugman (1995), ''Currencies and Crises''. * Craig Burnside,
Martin Eichenbaum Martin Stewart Eichenbaum (born August 23, 1954) is the Charles Moskos professor of economics at Northwestern University, and the co-director of the Center for International Economics and Development. His research focuses on macroeconomics, int ...
, and Sergio Rebelo (2008), 'Currency crisis models', ''New Palgrave Dictionary of Economics'', 2nd ed. * Maurice Obstfeld (1996), 'Models of currency crises with self-fulfilling features'. ''European Economic Review'' 40. * Stephen Morris and Hyun Song Shin (1998), 'Unique equilibrium in a model of self-fulfilling currency attacks'. ''American Economic Review'' 88 (3). * Barry Eichengreen (2004), ''Capital Flows and Crises''. * Charles Goodhart and P. Delargy (1998), 'Financial crises: plus ça change, plus c'est la même chose'. ''International Finance'' 1 (2), pp. 261–87. * Jean Tirole (2002), ''Financial Crises, Liquidity, and the International Monetary System''. * Guillermo Calvo (2005), ''Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?'' * Barry Eichengreen (2002), ''Financial Crises: And What to Do about Them''. * Charles Calomiris (1998)
'Blueprints for a new global financial architecture'


The Great Depression and earlier banking crises

* Murray Rothbard (1962), '' The Panic of 1819'' * Murray Rothbard (1963),
America`s Great Depression
'. * Milton Friedman and Anna Schwartz (1971), ''A Monetary History of the United States''. * Ben S. Bernanke (2000), ''Essays on the Great Depression''. * Robert F. Bruner (2007), ''The Panic of 1907. Lessons Learned from the Market's Perfect Storm''.


Recent international financial crises

* Barry Eichengreen and Peter Lindert, eds., (1992), ''The International Debt Crisis in Historical Perspective''. * Lessons from the Asian financial crisis / edited by Richard Carney. New York, NY : Routledge, 2009. (hardback) (hardback) (ebook) (ebook) * Robertson, Justin, 1972– US-Asia economic relations : a political economy of crisis and the rise of new business actors / Justin Robertson. Abingdon, Oxon ; New York, NY : Routledge, 2008. (hbk.) (ebook)


2007–2012 financial crisis

* Robert J. Shiller (2008), ''The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do About It''. . *
JC Coffee John C. Coffee Jr. (born November 15, 1944) is the Adolf A. Berle Professor of Law and director of the Center on Corporate Governance at Columbia Law School. Education Coffee grew up in Manhasset, New York. He is of Irish descent. He attended ...
, ‘What went wrong? An initial inquiry into the causes of the 2008 financial crisis’ (2009) 9(1) Journal of Corporate Law Studies 1 * * Markus Brunnermeier (2009), 'Deciphering the liquidity and credit crunch 2007–2008'. ''Journal of Economic Perspectives'' 23 (1), pp. 77–100. *
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was t ...
(2008), '' The Return of Depression Economics and the Crisis of 2008''. .
"The myths about the economic crisis, the reformist left and economic democracy"
by Takis Fotopoulos, The International Journal of Inclusive Democracy, vol 4, no 4, Oct. 2008. * United States. Congress. House. Committee on the Judiciary. Subcommittee on Commercial and Administrative Law. Working families in financial crisis :
medical debt Medical debt refers to debt incurred by individuals due to health care costs and related expenses. Medical debt is different from other forms of debt, because it is usually incurred accidentally or faultlessly. People do not plan to fall ill or ...
and bankruptcy : hearing before the Subcommittee on Commercial and Administrative Law of the Committee on the Judiciary, House of Representatives, One Hundred Tenth Congress, first session, 17 July 2007. Washington : U.S. G.P.O. : For sale by the Supt. of Docs., U.S. G.P.O., 2008. 277 p. :

* *


References


External links


Financial Crises: Lessons from History
BBC. {{Authority control Crisis Systemic risk Economic bubbles