Financial Crises: Understanding the Postwar U.S. Experience

The period since 1986, when the first edition of this book was published, has been a turbulent time for the financial system. Stock markets crashed around the world; the junk-bond and commercial real estate markets collapsed; large commercial banks failed in record numbers; savings and loan associations were rescued in a massive government bailout; foreign-exchange speculation severely disrupted plans for a single European currency. So with this revised edition, I welcome the opportunity to bring the story of financial crises in the United States up to date.

A new chapter (chapter 10) has been written that recounts in detail the recent crises. The figures and tables from the first edition have been completely revised and updated through the third quarter of 1993, and more than a dozen new ones have been added to this new edition. The chapter on evaluating the business-cycle model (chapter 12) has been thoroughly revised to take account of the new data.

However, it is not sufficient to simply recount the events since 1986. The objective of the book always has been to put economic events into a framework of understanding, to provide a theoretical overview for seemingly disparate phenomena. The framework for the first edition was the business cycle: the theory attempted to demonstrate why developments over the course of the business‐ cycle expansion made financial crises likely at the cycle's peak. This framework, I would contend, is still useful and important; but the events since 1986 have clearly pointed to the need for an explanation for financial crises that do not occur at the business-cycle peak. Accordingly, two new chapters (chapters 13 and 14) explore noncyclical theories of financial crises and develop significantly the analysis of institutional change only hinted at in the first edition.

The first edition closed with the suggestion that perhaps 1982 was a transition point between two different financial structures. The current edition attempts to give some substance to that suggestion by tracing the changes in the financial structure since the 1930s, in particular those affecting commercial banks and thrift institutions. Hopefully the result is greater clarity on why the financial landscape since 1986 has been so especially turbulent.

-xiii-