Online Economic Seminars



Financial Crises: 1636 - 2000




Recommended Readings


Miscellaneous Reading


Instructor's Notes (PowerPoint)      




Course Abstract


It has been said that each happy marriage is happy in the same way, but each unhappy marriage is unhappy in its own way. The same might be said of good and bad times in financial markets. Good times share strong economies, low inflation, and buoyant spirits; bad times have different triggers and different destabilizing processes. But there are some general lessons to be learned from financial tailspins.


The goal of this course is to examine the context and characteristics of past financial crises. We will review the history of financial crises, focusing on several prototypical examples and isolating some important characteristics of those events. We hope to see in what ways each is the same, and also how they differ. Previous knowledge of economics or finance is not necessary. Our focus is on three types of crises: crises arising purely from psychology, crises arising from banking problems, and crises arising from financial innovation gone awry.


Our example of the first type is the Dutch Tulip Mania of 1636, one of the first documented examples of the mania of crowds. We will then discuss early crises arising from financial innovations: the French “Mississippi Bubble” of 1720, and the related English South Sea Bubble of 1720. After this we move on to classic banking crises: The Crime of 1873 and its consequence, the Panic of 1893; the Panic of 1907, which led to the formation of the Federal Reserve System, and the banking crises of 1931-33, which led to significant banking and security market regulation. Finally we cover more recent examples of financial engineering problems: The 1987 stock market crash, Long-Term Capital Management (1998), the Enron Debacle (2001), and the Subprime crisis (2007).


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            Peter Fortune received his B.A. in economics from Indiana University (1967) and his Ph.D. in economics from Harvard University (1972). He was a member of the faculties at Harvard (1973-77) and at Tufts University (1977-1995). At Tufts he served as chairman of the economics department. From 1995 until his retirement in 2005 he served as Senior Economist and Advisor to the Director of Research at the Federal Reserve Bank of Boston. In the Fall of 2007 he taught The Development of Economic Ideas for Beacon Hills Seminars.