Financial History’s False Lessons

TOULOUSE – If history punishes those who fail to learn from it, financial history does its punishing with a sadistic twist – it also punishes those who learn from it too enthusiastically. Time and again, financial crises have reflected the weaknesses of regulatory systems founded on the lessons learned from previous crises. Today’s crisis is no exception; nor will the next one be.

The post-war system of financial regulation was founded on three supposed lessons from the 1930’s. First, we thought that the main reason why banks fail is that depositors panic, not that the main reason depositors panic is that banks are in danger of failing.