This time is different. An all too common phrase that has plagued the thoughts and philosophies of many people. A syndrome seen not only amongst the thinkers, leaders and policy makers in our generation; but one which has long prevailed in history amidst the naivety of individuals who have - time and time again - failed to take heed of the very lessons history has taught us. The false ideology that “financial crises are something that happen to other people in other countries at other times1” has been the central reason for economic history being side-lined and economic signals for upcoming downturns being pigeonholed as false flags. The current global recession that we are in the midst of has been the subject to much debate. Her Majesty the Queen is not the only one to have expressed disbelief for the apparent lack of foresight to the events that began to unfold in 2008. Alan Greenspan, former Federal Reserve chairman is quoted to have said “It was a call I never expected to receive”2 when referring to unprecedented actions being discussed with senior U.S. Federal Reserve officials as a result of the turmoil which seemingly evolved on Wall Street overnight.
What happened in 2008 was not a unique occurrence in history. Documented reactions, of those who many deem responsible, give the impression that what happened in 2008 was an unprecedented series of events. However, many journals and works of academia have shined light upon similarities with past crashes that suggest otherwise. There are many approaches we could take to evaluate Hegel’s dictum in an economic and financial context. In this paper we will be focussing on similarities with past crises to emphasise that the 2008-09 crisis could have been foreseen if attention was paid to economic history. This would thus establish that his dictum is vindicated.
The current financial crisis can be pinpointed to have originated from three interlinked areas; the presence of a real estate bubble; an influx of cheap foreign capital; and an ever more permissive regulatory policy that allowed the two previously mentioned factors to excel. It is not the first time in recent modern capitalist history let alone extended and non-capitalist history that the phenomena of bubble formations and crashes have been ever present. Speculative bubbles in modern capitalist history date back as far as the 1630s Tulips Mania in Holland. Since then they have been of regular occurrence. There are three types of speculative bubbles discussed in Kindleberger’s Manias, Panics, and Crashes (1978, 2011), the third being based on a pattern first identified by Hyman Minsky in 1972. It is of interest for us to realise that all three patterns that are laid out by Kindleberger share commonalities with the financial crisis of 2008-09.
The first type of bubble is when prices rise in an almost exponential manner at an accelerating rate before going onto crashing abruptly upon reaching the peak. The ever accelerating rate can be explained by investors requiring a higher risk premium resulting from adaptive expectations of the ever increasing probability of a crash. In the argument for this type of bubble it is said that speculative bubbles are self-fulfilling prophecies. An outside shock occurs which stops this continuous rise in price; this could be in the form of a change in monetary supply conditions.