The Rationality of Panic by Steve Coll, The New Yorker |
| Published: October 10, 2008, 7:32 am |
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The Rationality of PanicBetween the industrial revolution and the nineteen-thirties, financial panics occurred regularly in America. Busted speculative bubbles usually caused them. The asset on which people speculated varied; often, it had something to do with land, but later, financiers promoted magical thinking about railroads, too. As the years passed and the financial system grew more robust, investors could borrow more money to speculate when certain assets became fashionable and rose in price, and this additional leverage amplified the booms and busts, making them more consequential to the real economy. When speculative investors using enormous amounts of borrowed money produced the stock market crash of 1929, which was then followed by the failure of policymakers to respond with needed rescue measures, we had the Great Depression.The financial regulatory system that emerged from the New Deal was meant to protect us from the recurrence of such a catastrophe by reducing the [ Full article ] |
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