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Common features of financial crises, and why we don’t see them coming

’Tis surprising to see how rapidly a panic will sometimes run through a country. All nations and ages have been subject to them.

Tom Paine, The American Crisis, 1776

Some features are common to every financial crisis. They appear so often they have come to define financial crises everywhere. Every crisis suffers withdrawal of credit, sudden falls in asset prices, requests for assistance from the central bank, or government, and funding problems. Inevitably, early symptoms of widespread losses among banks lead to later and profound effects on the wider economy. Bankruptcies and unemployment rise, spending and investment fall. These symptoms were present in the US and ...

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