“Wall Street people learn nothing and forget everything" - Benjamin Graham

In his book Crisis Economics, Nouriel Roubini in the very first chapter describes a financial crisis.

Then came the crash, and as it echoed up and down in the canyons of Wall Street, venerable institutions tottered, besieged by fearful creditors. During lulls in the storm, some declared that the worst had passed, but then condition worsened. Financial firms slid towards the abyss, and though a few investment banks - most notably Goldman Sachs - managed to escape the conflagration, other firms collapsed overnight. Lines of credit evaporated, and the financial system's elaborate machinery of borrowing and lending seized up, leaving otherwise creditworthy companies scrambling to refinance their debts.

As the stock market crashed, foreclosures mounted, firms failed, and consumers stopped spending. Vast Ponzi schemes came to light, as did evidence of wise spread fraud and collusion throughout the financial industry.

Quote by Aldous Huxley

As I read this I thought it was about the most recent financial crisis. In fact it was about the Wall Street Crash of 1929 and the Great Depression, but in reality it could have been about any crash.  Change a couple of variables and it could have been about England in 1825. Or perhaps it could have been about 1873 or the panic of 1907. Or could have been about Edward III defaulting in the 14th Century which caused Italian banks to fail and threw the Italian economy in to disarray.  You get my point, it could have been about many different crises.

In the past we had the Bretton Woods system, which had an impressive track record. While it was in place there was no crisis for 27 years which is pretty impressive. There were still booms and recessions, that is the natural business life cycle and to be expected, but there were no financial crashes. Maybe Bretton Woods II would be the answer.

Greenspan saw fit to deregulate the place, and although in line with his beliefs that the government should stay out of banking, it was probably not the best idea. Letting the banks do what they saw fit is a bit like feeding a child lots of sweets and coke, sending it into a toy store and telling it not to touch anything. Money was also easy to come by. Safety features such as deposit insurance and lender of last resort allowed banks to get by with a little help from their friends. It lead to the belief that they were "too big/interconnected to fail", it provided the hypothetical safety net they needed when the going got tough. It added all the fuel required to encourage moral hazard.

I am not saying one size fits all. Not every crisis is a global one, not every crisis will be as bad as the one before, not every crisis will follow the same pattern. But some things never change, financial crises are not something we can simply ignore. With so many different theories on how they occur and how best to handle them maybe we should be looking to history for answer or guidance.


With so many different schools of economists with all their different theories as to why crashes happen and how best to regulate them, you can maybe understand why those put in charge to preside over events sometimes get confused as to what is the best course of action to take. Keyensian, Monetarist and Austrian are the three different views I have come across. Perhaps the answer could be to marry the three together and find an ideal balance.

One thing is for sure, we cannot assume after every financial/banking/economic crisis that "this time is different." In my opinion that is a slightly naive view to have. History has a nasty habit of repeating itself, so maybe when it comes to the world of finance, and all the fancy regulation that goes along with it, we should take a second glance in the rear-view mirror and make sure we haven't missed something in our blind spot. After all, that would just lead to a nasty accident and a large insurance claim, not something everyone can afford.