Financial Risk Management For Dummies

Chapter 21

Ten Days that Shook the (Financial) World

In This Chapter

Misreading causes and effects

Countering conventional wisdom

History is written by the victors.’ So said Winston Churchill. Er, not quite. Churchill actually said in a debate with Prime Minister Stanley Baldwin that he was confident history would find Baldwin in the wrong, ‘because I shall write that history’. So, what’s the point? The point is: don’t believe everything you read. Survivors write accounts of financial disasters; financial risk managers have more need to understand the decisions taken by the losers. Here are ten, mostly one-day financial disasters whose popular accounts misstate the financial risk management lesson.

If you have a serious interest in financial risk management, I urge you to do in-depth research on all these episodes. The capsule summaries in this chapter have been simplified to a high degree. Mulling over the complex ins-and-outs, the might-have-beens and the variety of people and motivations involved can help you gain the nuanced perspective necessary to make forward-looking risk judgements.

3 February 1637: Tulipmania

Conventional wisdom: Holland went crazy in a frenzy of speculative trading and bid the price of tulip bulbs to unsustainable levels.

The popular account of Tulipmania ...