Financial Crises, 1929 to the Present

Financial Crises, 1929 to the Present

Sara Hsu

This fascinating volume offers a comprehensive synthesis of the events, causes and outcomes of the major financial crises from 1929 to the present day. Beginning with an overview of the global financial system, Sara Hsu presents both theoretical and empirical evidence to explain the roots of financial crises in general. She then provides a thorough breakdown of a number of major crises of the past century, both in the United States and around the world.

Chapter 1: The financial system and roots of crisis

Sara Hsu

Subjects: economics and finance, economic psychology, financial economics and regulation


Financial crises have occurred for centuries, and after the Great Recession of 2008 which began in the US and spread globally, both economists and policy makers have realized that economically developed countries are not immune from such phenomena. After the Asian financial crisis that began in 1997, much literature was generated which sought to decrease the volatility of capital flows, but in most studies, these short-term flows were seen as problematic only in combination with underdeveloped financial systems. Yet at this point, we have witnessed the final death knell of the efficient markets hypothesis (according to reasonable economists) which holds that prices immediately reflect all available information. We have also watched a key economic figurehead, former US Federal Reserve Chairman Alan Greenspan, admit that he was wrong in approaching monetary policy from a free market ideology. Free market ideology, in which markets are viewed as self-correcting and symmetric, remains prevalent in the United States, but cracks in the system can no longer be ignored. As history has shown, rather than reaching equilibrium, markets can descend into stagnation without active policy maneuvers. The correct policies are still subjects of sharp debate.

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