History, Politics and Economics
Edited by Joëlle Leclaire, Tae-Hee Jo and Jane Knodell
Chapter 3: Those Who Forget the Past are Condemned to Repeat it: Lessons Learned from Past Financial Crises that were Ignored by the Deregulators of the Past 15 Years
Robert W. Dimand and Robert H. Koehn But consider what happens when the downward change in the money value of assets exceeds the amount of the conventional ‘margin’ over a large part of the assets against which money has been borrowed. The horrible possibilities to the banks are immediately obvious. (John Maynard Keynes, 1931, p. 172) INTRODUCTION ‘What Went Wrong with Economics?’ inquires The Economist (2009a) in the leading article of an issue whose cover shows a book melting, labeled Modern Economic Theory. ‘How did economists get It so wrong?’ inquires the most recent Nobel laureate in economics on the cover of the New York Times Magazine (Krugman, 2009). The ‘Minsky question’ – ‘Can IT Happen Again?’ (Minsky, 1982) – has been answered in the affirmative, to the consternation of many mainstream economists, who thought only developing countries had financial crises (Mexico in 1994, Indonesia, South Korea, Malaysia and Thailand in 1997, Russia in 1998, Brazil in 1999, Argentina in 2001) and that depressions were a thing of the past (an opinion also held in the 1920s). The IMF projection that global writedowns of loans and investments in the financial crisis that began in August 2007 will be US$3.4 trillion is reported as good news because that is 15 percent less than the IMF’s previous US$4 trillion estimate (Homan and Rastello, 2009). But as Kindleberger (1989) noted, financial manias, panics and crashes happened before, ever since the South Sea and Mississippi bubbles of 1719–20, and past...
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