DOCSLIB.ORG

Perspectives

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Perspectives 66 December 2013 THE AFTERMATHS OF CRISES SAVINGS AND SAVINGS BANKS: ELEMENTS OF STABILITY IN TIMES OF CRISES? PERSPECTIVES THE AFTERMATHS OF CRISES SAVINGS AND SAVINGS BANKS: ELEMENTS OF STABILITY IN TIMES OF CRISES? Photo on cover: People queuing outside the premises of the Caisses d’Epargne in Paris, at the announcement of World War I. Source: Fédération Nationale des Caisses d’Epargne (France) The views expressed in this Perspectives are the responsibility of the author and are not to be regarded as representing the views of ESBG Members. The findings, interpretations and conclusions expressed in this paper do not necessarily reflect the views of WSBI (World Savings and Retail Banking Institute) or ESBG (European Savings and Retail Banking Group). Neither WSBI nor ESBG guarantee the accuracy of the data included in this work. The material in this publication is copyrighted. 4 TABLE OF CONTENTS Foreword 7 Introduction 9 Laure de Llamby The role of financial crises in history: Banking and debt crises since the 19th century 11 Johannes Bähr The impact of crises on savings banks institutions in the United Kingdom 29 Richard Roberts The impact of crises on the savings banks institutions in Germany 47 Paul Thomes The crisis and the French savings banks 63 Vincent Tournié The impact of crises on the Savings Banks Institutions in Italy 75 Giovanni Manghetti The savings bank crisis in Spain: when and how? 85 Pablo Martín-Aceña Banks and Crises: Sweden during 150 years 99 Mats Andersson Enrique Rodriguez 5 6 FOREWORD Dear reader, It seems as if the crisis affects the full range of our professional activities. We should of course not forget the heavy toll crises take on well-being and quality of life, but we should also consider them as opportunities to improve things. Regulators and supervisors are working alongside representatives of the industry to repair the damages caused by the worldwide financial crisis. They have done so after each of the various crises that are analyzed on the following pages. Does that mean that history is just the story of people making the same mistakes over and over? I don’t think so. The financial sector has become safer and stronger after every crisis, even if it is still not perfect. The papers in this publication have been written at the occasion of a workshop organized by ESBG, the European Savings and Retail Banking Group in May 2013. The main lobbying objective of our organization is to convince policymakers, regulators, supervisors and all other industry participants that a diversified sector, with a strong retail banking segment ultimately leads to a more stable sector. I hope that this publication gives you food for thought and wish you happy reading. Chris De Noose Managing Director ESBG 7 8 INTRODUCTION Laure de Llamby France’s savings banks, or Caisses d’Epargne, became cooperative banks in 1999. Their particular change of status has no equivalent in Europe. As cooperative banks, the Caisses have been able to maintain their individuality while being governed by ordinary law. The change has also allowed them to join the “family” of cooperatives, whose values they share, while promoting their special identity forged over nearly 200 years of history. The merit of this specific model is apparent during these troubled economic times: its values resonate perfectly with the concerns of the French people in these times of crisis. The Caisses are banks with a local presence; they promote regional development and support businesses in their community. Their strong sales activity enables them to meet the demands of all types of customers – individual, business or institutional – and offer solutions tailored to specific local needs. The Caisses’ longstanding commitment to society is as strong as ever. These savings banks have evolved to better meet today’s urgent needs. They now contribute more than EUR 20 million to support philanthropic causes and local projects and are the number one provider of social microcredit. Their motto, “l’Humain sera toujours une valeur sûre” (“People will always be a sound investment”), reflects the commitments they make to members and customers. An effective, efficient bank supporting regional economic development and social solidarity: this is the kind of bank the Caisses aim to be, and these are the two pillars from which they will address today’s challenges. 9 The French people have demonstrated that they support our approach. In 2012, they elected Caisse d’Epargne as their “favourite bank” and the bank “most useful to society”. Throughout their history, European savings banks have endured numerous challenges in the financial, economic, political, and social realms, from which they have frequently emerged stronger. In times of crises, they have revealed their resilience and value. In times of difficulty, they have shown their ability to adapt and innovate. In times of trouble, they have built and strengthened the trust of their customers. This trust is an honour and a responsibility for the savings banks in our various countries. This workshop provides an opportunity to highlight the various ways in which savings banks, according to their country of origin, have weathered major national and international shocks and emerged even stronger. Do they differ from so-called traditional banks in their approach to and management of these crises, the adjustments they made, and the solutions they found? In other words, can we define a crisis-proof savings bank model? And if so, can this tried-and-tested model offer one or more solutions to the current recession? May the following presentations shed light on these issues, and may the lessons from our past lead us to a promising future. 10 THE ROLE OF FINANCIAL CRISES IN HISTORY: BANKING AND DEBT CRISES SINCE THE 19TH CENTURY Johannes Bähr At a 2008 hearing before the American Congress, former Chairman of the US Federal Reserve, Alan Greenspan, called the unfolding financial crisis “a once-in-a-century credit tsunami”, meaning that the crisis hit people like a natural disaster.1 It is well known that a tsunami is almost totally unforeseeable, comes with very little warning and is completely unpredictable. And indeed crises of this nature cannot be accounted for in economic models. Warnings were given only by a few experts, which led to much criticism later and references to a “failure of academic economics”.2 But economic history was of great interest to economists; while they could not have predicted tsunamis, they should at least have provided insight into empirical experience. The best known publication on the history of financial crises was produced in 2009 by two prominent US economists, Carmen M. Reinhart and Kenneth S. Rogoff. In their book This Time Is Different, a compendium of the financial crises of the last eight centuries, they list around 320 debt crises and more than 200 banking crises arranged by country.3 Reinhart and Rogoff have now come in for criticism due to errors in their data, but their figures provide impressive evidence that economic and financial crises are not at all unusual and have occurred throughout history. For economic historians this is nothing new, it is actually pretty obvious. 1 Scott Lanman/Steve Matthews, Greenspan Concedes to ‘Flaw’ in His Market Ideology. URL: http://www.bloomberg.com/apps/news, 23.10.2008. 2 David C. Colander et al., The financial crisis and the systematic failure of academic economics, Kiel working paper No. 1489, Kiel 2009; Geoffrey M. Hodgson, The great crash of 2008 and the reform of economics, in: Cambridge Journal of Economics 2009, 33, pp. 1205-1221. 3 Carmen M. Reinhart/Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton 2009. 11 For them crises are a “normal part of the economic process” and essential because they correct the defective trends which occur with every structural change.4 Indeed, there are many indications that crises are the indicators and not the causes of defective trends; in a similar way to fever, which indi-cates an infection and helps eradicate it. Another reason for the success of Reinhart and Rogoff’s book was the evidence they provided to back up the widely held view that for centuries financial crises have followed more or less the same pattern. According to the authors, however well financial systems are regulated they cannot withstand the pressure created by greed and the irrational exuberance that leads to speculative bubbles.5 However, this approach does not take into account the fact that the causes and nature of financial crises over the last few centuries have changed radically time and again. Financial crises should be regarded as an integral part of economic development, and it is precisely for this reason that they change in line with that development. New causes, actors and mechanisms all emerge over time. For historians there is little point in counting up all the crises of the last two hundred years. It is much more useful to try and identify specific underlying patterns and the way they change. We can only learn lessons from the past if we take these changes into account. If we hide them, we end up simply playing unhistorical and unrealistic number games. To illustrate the point, let us take Reinhart and Rogoff’s finding that Spain has experienced thirteen cases of national bankruptcy, more than any other European state. Yet if we take a closer look at the data, it is clear that these debt crises are in no way related to the present. Out of the occasions on which the Spanish government’s coffers ran empty, not one occurred in the 20th century, while six date back to the 16th and 17th centuries and the rest to the 19th century.
Load more

Recommended publications
  • What Is Minsky All About, Anyway?
    DEPARTMENT OF ECONOMICS WORKING PAPER SERIES What is Minsky All About, Anyway? Korkut Ertürk Gökcer Özgür Working Paper No: 2009-08 University of Utah Department of Economics 1645 East Central Campus Dr., Rm. 308 Salt Lake City, UT 84112-9300 Tel: (801) 581-7481 Fax: (801) 585-5649 http://www.econ.utah.edu 1 What is Minsky All About, Anyway? Korkut Ertürk Gökcer Özgür Acknowledgements: We would like to thank Ken Jameson for his helpful comments without implicating him for any possible mistakes there might be. 2 The financial crisis has been billed a “Minsky moment” in the mainstream media, turning Hyman P. Minksy into a household name. One would think that this was at long last Minsky’s moment of posthumous vindication, and in a way it was. But, oddly, a couple of post-Keynesian luminaries would have none of it. Paul Davidson, the Editor of JPKE , and Jan Kregel, senior scholar at the Levy Institute of Bard College where Minksy had spent the last of his years, were both eager to set the record straight: the current financial debacle did not qualify as a Minskyan crisis because how it unfolded differed from Minsky’s depiction of crises in his writings (Davidson 2008, Kregel 2008a). Of course, whether we think Minsky is relevant for the current crisis or not depends on what we make of him. If Minskyan work means solely his own writings and their restatement, then, Davidson and Kregel are probably right – one cannot help but focus on what is different about the current crisis. But, if instead Minksyan refers to an evolving literature that emanate from but transcend his work, their arguments miss their mark.
    [Show full text]
  • The U.S. Banking System Laws, Regulations, and Risk Management the U.S
    Felix I. Lessambo The U.S. Banking System Laws, Regulations, and Risk Management The U.S. Banking System Felix I. Lessambo The U.S. Banking System Laws, Regulations, and Risk Management Felix I. Lessambo School of Business Central Connecticut State University New Britain, CT, USA ISBN 978-3-030-34791-8 ISBN 978-3-030-34792-5 (eBook) https://doi.org/10.1007/978-3-030-34792-5 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifcally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microflms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifc statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made.
    [Show full text]
  • Nonprofit and Mutual Firms in the Development of the U.S. Personal Finance Industry
    Organizational Form and Industry Emergence: Nonprofit and Mutual Firms in the Development of the U.S. Personal Finance Industry R. Daniel Wadhwani Eberhardt School of Business University of the Pacific [email protected] This article examines historical variations in the ownership and governance of firms in the U.S. personal finance industry between the early nineteenth century and the Great Depression. It focuses, in particular, on mutual savings banks and their role in the development of the intermediated market for savings accounts. Economic theories of commercial nonprofits and mutuals usually emphasise the advantages of such ownership and governance structures in reducing agency and monitoring costs in markets that suffer from information asymmetries in exchanges between firms and their customers. While I find some evidence to support these theories, I also find that mutual savings banks predominated in the early years of the industry because the form offered entrepreneurial advantages over investor-owned corporations and because in some states they benefitted from regulatory and political advantages that joint-stock savings banks lacked. Their relative decline by the early twentieth century was the result of increasing competition in the market for savings deposits, the loosening of regulatory barriers to entry, and changes in public policy that reduced the transaction, innovation and regulatory advantages that the mutual savings bank form had once held. The article draws out the theoretical implications for our understanding of the historical role of nonprofit and mutual firms. Keywords: nonprofit; trusteeship; mutual; cooperative; savings banks; governance; ownership; organizational form; entrepreneurship; innovation. 1 Introduction In recent years, business historians have devoted increasing attention to understanding variation in the organizational forms of modern enterprise.
    [Show full text]
  • The Socialization of Investment, from Keynes to Minsky and Beyond
    Working Paper No. 822 The Socialization of Investment, from Keynes to Minsky and Beyond by Riccardo Bellofiore* University of Bergamo December 2014 * [email protected] This paper was prepared for the project “Financing Innovation: An Application of a Keynes-Schumpeter- Minsky Synthesis,” funded in part by the Institute for New Economic Thinking, INET grant no. IN012-00036, administered through the Levy Economics Institute of Bard College. Co-principal investigators: Mariana Mazzucato (Science Policy Research Unit, University of Sussex) and L. Randall Wray (Levy Institute). The author thanks INET and the Levy Institute for support of this research. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad. Levy Economics Institute P.O. Box 5000 Annandale-on-Hudson, NY 12504-5000 http://www.levyinstitute.org Copyright © Levy Economics Institute 2014 All rights reserved ISSN 1547-366X Abstract An understanding of, and an intervention into, the present capitalist reality requires that we put together the insights of Karl Marx on labor, as well as those of Hyman Minsky on finance. The best way to do this is within a longer-term perspective, looking at the different stages through which capitalism evolves.
    [Show full text]
  • Friday, June 21, 2013 the Failures That Ignited America's Financial
    Friday, June 21, 2013 The Failures that Ignited America’s Financial Panics: A Clinical Survey Hugh Rockoff Department of Economics Rutgers University, 75 Hamilton Street New Brunswick NJ 08901 [email protected] Preliminary. Please do not cite without permission. 1 Abstract This paper surveys the key failures that ignited the major peacetime financial panics in the United States, beginning with the Panic of 1819 and ending with the Panic of 2008. In a few cases panics were triggered by the failure of a single firm, but typically panics resulted from a cluster of failures. In every case “shadow banks” were the source of the panic or a prominent member of the cluster. The firms that failed had excellent reputations prior to their failure. But they had made long-term investments concentrated in one sector of the economy, and financed those investments with short-term liabilities. Real estate, canals and railroads (real estate at one remove), mining, and cotton were the major problems. The panic of 2008, at least in these ways, was a repetition of earlier panics in the United States. 2 “Such accidental events are of the most various nature: a bad harvest, an apprehension of foreign invasion, the sudden failure of a great firm which everybody trusted, and many other similar events, have all caused a sudden demand for cash” (Walter Bagehot 1924 [1873], 118). 1. The Role of Famous Failures1 The failure of a famous financial firm features prominently in the narrative histories of most U.S. financial panics.2 In this respect the most recent panic is typical: Lehman brothers failed on September 15, 2008: and … all hell broke loose.
    [Show full text]
  • The Origins and Development of Financial Markets and Institutions: from the Seventeenth Century to the Present
    This page intentionally left blank The Origins and Development of Financial Markets and Institutions Collectively, mankind has never had it so good despite periodic economic crises of which the current sub-prime crisis is merely the latest example. Much of this success is attributable to the increasing efficiency of the world’s financial institutions as finance has proved to be one of the most important causal factors in economic performance. In a series of original essays, leading financial and economic historians examine how financial innovations from the seventeenth century to the present have continually challenged established institutional arr- angements forcing change and adaptation by governments, financial intermediaries, and financial markets. Where these have been success- ful, wealth creation and growth have followed. When they failed, growth slowed and sometimes economic decline has followed. These essays illustrate the difficulties of coordinating financial innovations in order to sustain their benefits for the wider economy, a theme that will be of interest to policy makers as well as economic historians. JEREMY ATACK is Professor of Economics and Professor of History at Vanderbilt University. He is also a research associate with the National Bureau of Economic Research (NBER) and has served as co-editor of the Journal of Economic History. He is co-author of A New Economic View of American History (1994). LARRY NEAL is Emeritus Professor of Economics at the University of Illinois at Urbana-Champaign, where he was founding director of the European Union Center. He is a visiting professor at the London School of Economics and a research associate with the National Bureau of Economic Research (NBER).
    [Show full text]
  • History of Financial Turbulence and Crises Prof
    History of Financial Turbulence and Crises Prof. Michalis M. Psalidopoulos Spring term 2011 Course description: The outbreak of the 2008 financial crisis has rekindled academic interest in the history of fi‐ nancial turbulence and crises – their causes and consequences, their interpretations by eco‐ nomic actors and theorists, and the policy responses they stimulated. In this course, we use the analytical tools of economic history, the history of economic policy‐ making and the history of economic thought, to study episodes of financial turbulence and crisis spanning the last three centuries. This broad historical canvas offers such diverse his‐ torical examples as the Dutch tulip mania of the late 17th century, the German hyperinflation of 1923, the Great Crash of 1929, the Mexican Peso crisis of 1994/5 and the most recent sub‐ prime mortgage crisis in the US. The purpose of this historical journey is twofold: On the one hand, we will explore the prin‐ cipal causes of a variety of different manias, panics and crises, as well as their consequences – both national and international. On the other hand, we shall focus on the way economic ac‐ tors, economic theorists and policy‐makers responded to these phenomena. Thus, we will also discuss bailouts, sovereign debt crises and bankruptcies, hyperinflations and global re‐ cessions, including the most recent financial crisis of 2008 and the policy measures used to address it. What is more, emphasis shall be placed on the theoretical framework with which contemporary economists sought to conceptualize each crisis, its interplay with policy‐ making, as well as the possible changes in theoretical perspective that may have been precipi‐ tated by the experience of the crises themselves.
    [Show full text]
  • Managing Technological Change by Committee: Adoption of Computers in Spanish and British Savings Banks (Circa 1960-1988)
    MPRA Munich Personal RePEc Archive Managing technological change by committee: Adoption of computers in Spanish and British savings banks (circa 1960-1988) Batiz-Lazo, Bernardo and Maixe-Altes, J. Carles Bangor Business School, Universidad A Coru~na (Spain) June 2009 Online at http://mpra.ub.uni-muenchen.de/27086/ MPRA Paper No. 27086, posted 29. November 2010 / 09:02 MANAGING TECHNOLOGICAL CHANGE BY COMMITTEE: ADOPTION OF COMPUTERS IN SPANISH AND BRITISH SAVINGS BANKS (circa 1960-1988) Bernardo Bátiz-Lazo is Professor of Business History and Bank Management at Bangor Business School, Bangor University, College Road, Bangor Gwynedd LL57 2DG, United Kingdom (tel +44 (0)1248 382277; e-mail: [email protected]. J. Carles Maixé-Altés is Profesor Titular de Universidad, Economic History at the Department of Applied Economics I - University of A Coruña, Campus de Elviña s/n, 15071 A Coruña, Spain (ph. +34 981 167000 ext. 2569; fax +34 981 167070); e-mail: [email protected] 1 MANAGING TECHNOLOGICAL CHANGE BY COMMITTEE: ADOPTION OF COMPUTERS IN SPANISH AND BRITISH SAVINGS BANKS (circa 1960-1988) Abstract - This article explores how savings banks managed the process of computerization through ad hoc management committees articulated under the aegis of national associations (with an emphasis on developments in Spain). The combination of cash payments (and low penetration of cheques) in the Spanish retail sector together with increasing administrative costs, acted as incentives for Spanish savings banks embracing applications of computer technology (and specifically data processing infrastructure) to articulate viable solutions for cost reductions, offer alternative payment systems to cash and facilitate greater diversification of their business portfolio within retail banking.
    [Show full text]
  • The Limits of Minsky's Financial Instability Hypothesis As an Explanation of the Crisis
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Palley, Thomas I. Working Paper The Limits of Minsky's Financial Instability Hypothesis as an Explanation of the Crisis IMK Working Paper, No. 11/2009 Provided in Cooperation with: Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation Suggested Citation: Palley, Thomas I. (2009) : The Limits of Minsky's Financial Instability Hypothesis as an Explanation of the Crisis, IMK Working Paper, No. 11/2009, Hans-Böckler- Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK), Düsseldorf, http://nbn-resolving.de/urn:nbn:de:101:1-201101312750 This Version is available at: http://hdl.handle.net/10419/105923 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have
    [Show full text]
  • Financial Crises: International Dissemination and Consequences in Historical Perspective Editors Mats Larsson and Jan Ottosson
    UPPSALA PAPERS IN BUSINESS AND FINANCIAL HISTORY, 2018, NO. 22 Financial crises: International dissemination and consequences in historical perspective Editors Mats Larsson and Jan Ottosson 1 © UPFBH och författarna ISSN 1104-0726 ISRN UU-EKHI-R— 14— SE Editor: Mats Larsson 2 Title Financial crises: International dissemination and consequences in historical perspective Editors Mats Larsson and Jan Ottosson CONTACT DETAILS Mats Larsson & Jan Ottosson Department of Economic History, Uppsala University Box 513 751 20 Uppsala, Sweden Email: [email protected], jan [email protected] 3 Table of contents INTRODUCTION ...................................................................................................................... 5 Introductory remarks .......................................................................................................... 8 Two centuries of international financial crises — Crises types, patterns and significance....................................................................................................................... 9 Prudential supervision and international cooperation on the financial market since 1965 and its consequences for debt crises ............................... 16 The development of international financial centres and financial crises ...................................................................................................................................................... 27 Comments and discussion .............................................................................................
    [Show full text]
  • Is Our Current International Economic Environment Unusually Crisis Prone?
    Is Our Current International Economic Environment Unusually Crisis Prone? Michael Bordo and Barry Eichengreen1 August 1999 1. Introduction From popular accounts one would gain the impression that our current international economic environment is unusually crisis prone. The European of 1992-3, the Mexican crisis of 1994-5, the Asian crisis of 1997-8, and the other currency and banking crises that peppered the 1980s and 1990s dominate journalistic accounts of recent decades. This “crisis problem” is seen as perhaps the single most distinctive financial characteristic of our age. Is it? Even a cursory review of financial history reveals that the problem is not new. One classic reference, O.M.W. Sprague’s History of Crises Under the National Banking System (1910), while concerned with just one country, the United States, contains chapters on the crisis of 1873, the panic of 1884, the stringency of 1890, the crisis of 1893, and the crisis of 1907. One can ask (as does Schwartz 1986) whether it is appropriate to think of these episodes as crises — that is, whether they significantly disrupted the operation of the financial system and impaired the health of the nonfinancial economy — but precisely the same question can be asked of certain recent crises.2 In what follows we revisit this history with an eye toward establishing what is new and 1 Rutgers University and University of California at Berkeley, respectively. This paper is prepared for the Reserve Bank of Australia Conference on Private Capital Flows, Sydney, 9-10 August 1999. It builds on an earlier paper prepared for the Brookings Trade Policy Forum (Bordo, Eichengreen and Irwin 1999); we thank Doug Irwin for his collaboration and support.
    [Show full text]
  • Remedies for Financial Crises in the Classical and Neoclassical Literature.*
    REMEDIES FOR FINANCIAL CRISES IN THE CLASSICAL AND NEOCLASSICAL LITERATURE.* by David Laidler *The paper is a revised version of a lecture given at the University of Frankfurt on May 22, 2000, and was mainly written during the author’s tenure as Stiftungsprofessur Deutsche Bundesbank at die Freie Universität Berlin. It draws heavily on earlier works of the author (Laidler 1991, 1999 and 2000) where much more extensive documentation for the positions it takes than can be incorporated here is to be found. This version owes much to conversations and/or correspondence with Charles Goodhart, Andreas Hauskrecht and Michael Parkin, who nevertheless bear no responsibility for its shortcomings.. Modern Financial Crises and their Predecessors There are, no doubt, important differences between the financial crises of the late 1990s and those that occurred in the years between the Bullionist Controversy and the Keynesian Revolution, but certain themes that played a prominent role in the Classical and Neoclassical literature on these matters also run through modern discussions.1 The first of these is the interdependence of international and domestic aspects of financial instability, and the fact that they seem to require the simultaneous application of opposing monetary remedies, stringency to right the balance of payments, and the provision of ample liquidity to restore domestic confidence. The second is whether this policy dilemma is better addressed in a monetary system guided by rules than in one subject to discretionary policy. These two issues were systematically discussed from the very beginning of the 19th century onwards, and have found a new lease of life in the 1990s when, as in earlier times, the typical financial crisis has tended to develop out of private sector excesses, rather than government profligacy.
    [Show full text]