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Economic History: Major Financial Crises

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From Tulip Mania to the 2008 crash: history's biggest financial crises.

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Tulip Mania (1637)

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  1. 1Tulip Mania (1637)
    First recorded speculative bubble in Dutch Republic; tulip bulb prices skyrocketed then crashed; considered earliest example of asset bubble and crash
  2. 2South Sea Bubble (1720)
    British stock market bubble involving South Sea Company; shares rose 1000% then collapsed; ruined many investors including Isaac Newton
  3. 3Panic of 1837 (USA)
    Bank failures, speculative lending, cotton price collapse; followed Andrew Jackson's policies against Second Bank; led to 5-year depression
  4. 4Panic of 1873
    Global depression triggered by Vienna Stock Exchange crash and railroad speculation collapse; lasted 6 years in USA ('Long Depression')
  5. 5Panic of 1907
    Run on banks and trust companies in NYC; stock market crash; resolved by J.P. Morgan organizing private bailout; led to creation of Federal Reserve (1913)
  6. 6Great Depression (1929)
    Stock market crash October 1929 ('Black Tuesday'); over-speculation, margin buying, wealth inequality, weak banking system; lasted until WWII
  7. 7Effects of the Great Depression
    25% unemployment (USA), bank failures, deflation, global trade collapse, political instability leading to WWII; deepest/longest economic downturn in modern history
  8. 81973 Oil Crisis
    OPEC oil embargo against nations supporting Israel; quadrupled oil prices; caused stagflation (high inflation + stagnation) in Western economies
  9. 9What is stagflation and when did it occur?
    Simultaneous high inflation and high unemployment; occurred 1970s; challenged Keynesian economics which assumed inverse relationship (Phillips Curve)
  10. 10Latin American Debt Crisis (1980s)
    Heavy foreign borrowing, rising interest rates, oil prices, falling commodity prices; Mexico defaulted 1982; 'Lost Decade' of economic stagnation
  11. 11Black Monday (October 19, 1987)
    Dow Jones fell 22.6% in single day - largest one-day percentage drop in history; global stock market crash; cause debated (program trading, overvaluation)
  12. 12Japanese Asset Price Bubble (1986-1991)
    Real estate and stock market bubble in Japan; Nikkei peaked at 38,916; collapse led to 'Lost Decades' of economic stagnation
  13. 131997 Asian Financial Crisis
    Currency speculation, excessive debt, weak financial sectors in Thailand, Indonesia, South Korea; currencies collapsed; IMF bailouts; contagion across Asia
  14. 14Dot-com Bubble (1995-2000)
    Internet company stock speculation; valuations based on potential not profits; NASDAQ peaked March 2000, then crashed 78%; many companies failed
  15. 15Argentine Economic Crisis (1999-2002)
    Currency board collapse, debt default ($100B+), banking crisis, political instability; peso devaluation, 20%+ unemployment, poverty surge
  16. 162008 Global Financial Crisis
    Subprime mortgage collapse (USA), housing bubble burst, complex derivatives (CDOs, MBS), overleveraged banks; Lehman Brothers bankruptcy September 2008
  17. 17Effects of the 2008 Financial Crisis
    Great Recession, bank bailouts (TARP), 10% unemployment (USA), global GDP contraction, housing foreclosures, sovereign debt crises in Europe
  18. 18Subprime mortgages and why were they problematic
    Loans to borrowers with poor credit; packaged into mortgage-backed securities (MBS); rated AAA despite risk; defaults caused chain reaction through financial system
  19. 19European Sovereign Debt Crisis (2009-2012)
    Greece, Ireland, Portugal, Spain unable to repay debt; bailouts from EU/IMF; austerity measures; threatened Euro stability; contagion fears
  20. 20Greek Debt Crisis
    Hidden government debt, weak tax collection, high spending, corruption; revealed after 2008 crisis; required multiple bailouts, severe austerity
  21. 212010 Flash Crash
    May 6, 2010: Dow Jones dropped ~1000 points in minutes then mostly recovered; caused by high-frequency trading and algorithms; raised systemic risk concerns
  22. 222015 Chinese Stock Market Crash
    Shanghai Composite fell 43% June-August; caused by margin debt bubble, government intervention failure; global markets affected
  23. 232020 COVID-19 Economic Crisis
    Global pandemic lockdowns; fastest stock market crash (March 2020), 14.7% US unemployment, massive government stimulus, supply chain disruptions
  24. 24What monetary policy tools were used in 2008 and 2020 crises?
    Near-zero interest rates, quantitative easing (QE), asset purchases, central bank liquidity provision; unprecedented scale in both crises
  25. 25What is quantitative easing (QE)?
    Central bank buys government bonds/assets to inject money into economy, lower interest rates, stimulate lending; used extensively post-2008
  26. 26What is moral hazard in financial crises?
    When bailouts encourage risky behavior by banks/firms assuming they'll be rescued ('too big to fail'); major concern after 2008
  27. 27What is contagion in economic crises?
    Crisis spreading from one country/market to others through trade, finance, psychology; seen in 1997 Asia, 2008 global, 2010 Europe
  28. 28What is systemic risk?
    Risk of entire financial system collapse rather than individual institutions; interconnected banks/markets can cause cascading failures
  29. 29What regulatory changes followed the 2008 crisis?
    Dodd-Frank Act (USA), Basel III (capital requirements), stress tests, Volcker Rule (limiting proprietary trading), enhanced supervision
  30. 30What common patterns emerge across financial crises?
    Excessive leverage, asset bubbles, regulatory failure, herd behavior, 'irrational exuberance,' underestimated risk, contagion effects, need for government intervention

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