Control in an Economic System
As we have seen in the example of the 1857 panic, bank panics occur in a common pattern. There is a price disequilibrium in a capital asset market, created by speculators’ reflexivity about future prices and their use of excessive leverage—increasing prices unto a financial bubble which grows and finally bursts. Then the banks which funded the speculation suffer bank runs, as their assets fall in the “debt deflation” from the bubble. And before 2007, this pattern had been identified in the economic writings of Fisher, Keynes, Minsky, and Soros. So why was this pattern a surprise again in 2007?
KeywordsEthical Leadership Commercial Bank Chief Executive Officer Hedge Fund Credit Default Swap
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