There have been financial crises for 175 years, at least. At first they had national origin and reach but even in the nineteenth century their shocks were transmitted across countries. By the end of that century, the TransAtlantic cable had been laid and as a result, Britain, France, Holland, Germany and the USA had interlinked financial markets, which moved in parallel, especially at times of crises. At the end of the twentieth century, the Asian crisis of the summer of 1997 brought us back to that world. That crisis originated in Thailand and after spreading across Indonesia, Malaysia, South Korea, leapt across to Russia, threatened to hit Brazil and caused the spectacular troubles 1 at Long-Term Capital Management (LTCM) in the summer of 1998. That was the first crisis of the recent phase of globalisation. It led in its turn to demands for 'new financial architecture' and much activity by the IMF/World Bank and G7 leaders in the summer of 1998 was directed towards coping with the global crisis. 2 As it happened (and this is my reading of the events of October 1998), a small number of interest rate cuts by the Federal Reserve (Fed) calmed the markets and resolved the crisis. While some new institutions such as the Forum on Financial Stability were introduced, the global financial system has escaped any drastic structural adjustment or reform.
In the new century, stock markets in G7 countries again witnessed a prolonged decline with widespread failures in the dot.com sector. Events of September 11, 2001 had less impact than the news of accounting malpractice at Enron and World.com. While during the 1990s there was talk of a new paradigm and abolition of the business cycle (as indeed happens in every long boom), by 2002 there was a widespread fear of a double-dip recession in the USA or even a depression. The business cycle was back with us, alive and well.
The questions raised during the Asian crisis in those fifteen months between June 1997 and October 1998 and indeed since then in the most recent recession show that the issue of crises and cycles will not go away. After the euphoria of the first phase of explosive growth in financial markets during the 1990s, questions are being raised about the tendency of markets towards excess volatility and persistent bubbles, which take too long to burst. 3 Thus, the political economy of financial markets, of their tendency towards crises and cycles, still requires some