There are no atheists in foxholes and no ideologues in financial crises.
—Ben Bernanke, quoted in Peter Baker, “Administration Is Seeking $700 Billion for Wall St.”
ALTHOUGH BUBBLE EXPECTATIONS are important for generating the public and private sector behavior that leads to financial crises, there is another more important source of the beliefs that influence the government response to the bubble and its collapse: ideology. An ideology is a set of basic beliefs about how the world works and about what is right or wrong. We distinguish ideologies from bubble expectations primarily in terms of the rigidity of the beliefs. Because they are deeply held and often rooted in basic principles, ideological beliefs are much less responsive ...