Krugman: Panics will happen; the question is how they are contained.

[pampango]

Apropos something I’m working on, there’s a very widespread belief on the right that banking crises only happen because either the Fed or Barney Frank cause them; go back to a gold standard, and there would be no need for financial regulation or anything like that.

This is, of course, nonsense; Walter Bagehot knew all about financial crises, which have been a constant feature of modern economies since at least the early 19th century. Just to drive the point home, I thought it might be worth posting Gary Gorton’s chart (pdf) of “panics” before the Fed went into operation:



Panics will happen; the question is how they are contained.

http://krugman.blogs.nytimes.com/2012/05/13/panics-happen/