And it all comes crashing down

When the bubble burst in April 1825 commercial failures followed. This coupled with the usual seasonal stress the country banks usually felt lead to the failing of some country banks. The country banks multiplied during the war years, and the over issued notes. Problems began to appear in the autumn, banks started to fail. A run began. Under the strain the country banks turned to their London counterpart. As the strain was passed down the chain, much like an illness spreading, the London banks had little option but to turn to the Bank of England with their hands open.

Sunspot Economics

I sat down to write this blog post initially about the 1929 Wall Street crash and discuss the different events that lead up to it. However I couldn't summon the energy or brain power required to think and condense a large amount of information into a blog post. So I decided to take a little detour again, and I know I shouldn't necessarily do this but sometimes in life you just have to. That coupled with the fact that I get distracted very easily especially by things I find remotely obscure and interesting. Like the topic of this next post.  Sunspots.

In the beginning

There was many crises prior to 1825, including the South Sea Bubble, Mississippi bubble, paper money which allowed countries to simply print their way out of debt with greater ease than debasing the currency, or there was the route of default, like Edward III in the 14th century causing chaos in Italy's financial markets. None of these things affected the economy globally. However in 1825 the aftermath was felt globally.

In 1825 United States was not the financial epicentre of the world like it is today, in fact it was an emerging economy at the time. The role of epicentre in the 19th Century fell to England. In this time the Bank of England wasn't a central bank like it is today, but a commercial one with loyalties to its shareholders, the government and commercial bankers.

Gregor MacGregor and the Republic of Poyais

This post is slightly off topic, it is just something I found interesting.I don't know if it is naivety or nostalgia for the past, but when I think of the 19th Century, fraud is not the first word that springs to mind. I have no reason to assume that fraud did not take place in the 19th Century, it just didn't occur to me. However before I started this blog, when my idea for a topic was just a thought rattling around in my head I was in Waterstones, not looking for finance books but rather an escape from finance when I stumbled upon a book called "Crisis economics" by Nouriel Roubini and Stephen Mihm. Nouriel Roubini was refered to as a number of things including "The seer who saw it coming" (The New York Times) on and "The man known as 'Dr Doom'" (Financial Times). Intrigued I decided to get it.

As I made my way through the book I came across this:

"...the panic of 1825 reverberated around the world. It began in Britain and had all the hallmarks of a classic crisis: easy money (courtesy of the Bank of England), an asset bubble (stocks and bonds linked to investments in the emerging market of Peru), and even widespread fraud (feverish selling of the bonds of a fictitious nation called the Republic of Poyais to credulous investors)." (Roubini & Mihm, 2010)

Hand in Hand

Like cupcakes and sprinkles, or cookies and milk many things go well with financial crises. For example there is usually a bubble; in the most recent crises this was a housing bubble, in the late 1920s the speculative boom with fuelled rises in share prices created a bubble, and there is Japan's economic bubble which saw housing and share prices rise between 1986-1991. During these times the bubble starts to inflate. A vast range of people from banks to ordinary consumers leverage themselves, buying into the belief that prices can only keep rising. There could also be a supply of easy money as credit becomes more readily available. 

An Introduction

The term financial crisis is a broad one. It can be applied to various situations where either institutions or assets lose their value, usually quite a large part. The term covers a mixture of different crises, including but not limited to, banking panics, stock market crashes, bubble bursting etc. However these financial crises are not a modern invention. Reinhart and Rogoff note that "they have been around since the development of money and financial markets." In fact Max Winkler, in his book Foreign Bonds: An Autopsy, traces inflation, with the view to reduce debt, back to Dionysius of Syracuse who was around in the 4th Century BC (Reinhart & Rogoff, 2009) (Winkler, M. p21) One of the first bubbles to burst was the tulip mania in the Netherlands. 


Nor are they are a rare event. If you look back over history you can see records of many different crises dating all the way from the 3rd Century up until the present day. In this blog I will look at various different crises during history and the events leading up to and surrounding them. I will also looking at the similarities between past crises and also looking at similarities between past crises and the most recent crisis, which started in 2007.