How Often Should We Expect a Financial Crisis?

In a recent WSJ OpEd, Elizabeth Warren chairman of the TARP Congressional Oversight Panel, states “J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.” He is wrong.”

I agree with the point that Dimon overstates the case — but Warren makes a market history error when claiming “laws that came out of the Great Depression ended 150 years of boom-and-bust cycles and gave us 50 years with virtually no financial meltdowns.”

I am a fan of Preofessor Warren’s, but she is factually incorrect when she claims “virtually no financial meltdowns” over that time period.

Market wise, as the 1968-82 period showed us, we had 5 major boom and bust cycles in the 1970s alone.

And as Jim Bianco points out, there is a long list of financial meltdowns from the 1970s forward:

• Franklin National Bank Failure on 1974
• Penn Square Failure of the early 1980s
• Gold bubble in 1980
• The Nifty Fifty stock market boom on the early 1970s
• The 1958 bond carry trade
• The Steel Tariffs of 1962
• The Stock Market Crash of 1987
• The S&L crisis of the 1980s
• The RTC
• The bond carry trade of 1994
• Mexican Debt crisis of 1982
• Mexican Debt Crisis on 1994
• The Asian Financial Crisis on 1997
• LTCM of 1998
• The Tech Bubble on 2000
• The Credit Crisis of 2006

The history of the 20th century is a tale of many meltdowns. And as we have learned, they have grown increasingly more expensive and dangerous as we have become complacent. We are getting used to collapses, and each one makes us fear the nex a little less . . . Until the big one hit.

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