What Causes Financial Crashes

And the Implications for Financial Regulation
  • Avinash D. Persaud


Financial crashes ought to be occasions of great learning and introspection. Crashes occur as a result of being largely unanticipated. Those who had warned of an unsustainable boom had long before been ridiculed or beaten into submission. Furthermore, crises appear to be such multifaceted and complex affairs that all and sundry can point to an aspect of the crisis they had predicted. Positions can become entrenched rather than open to reassessment. Authority figures who had dismissed the warning signs characterize the root causes as unknowable and suggest the crisis merits fundamental changes to our understanding of economics, institutional arrangements, and legal regimes. When banks are bailed out to the tune of trillions and social security net0073 are cut back in response, the regulatory debate, traditionally carried out in dimly lit corridors, is suddenly bathed in the bright light of political intrigue. Politics sends the debate down a parochial and partisan chute that produces recycled proposals often harbored for decades by one side or the other. The aftermath of financial crises creates a situation of numerous solutions in search of a problem.


Financial Cycle Bank Failure Asian Financial Crisis Black Swan Credit Growth 
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Copyright information

© Avinash D. Persaud 2015

Authors and Affiliations

  • Avinash D. Persaud
    • 1
  1. 1.St. MichaelBarbados

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