By Eric Tymoigne
While visiting the London School of Economics at the end of 2008, the Queen of England wondered “why did nobody notice it?” In doing so, she echoed a narrative that had been promoted among some prominent economists: the Great Recession (“it”) was an accident, a random extreme event that no-one saw coming. This narrative is false. Quite of few economists saw it coming and it was not an accident. A previous post showed how different theoretical frameworks about financial crises lead to different regulatory responses. This post studies more carefully the mechanics of financial crises and how an economy gets there.
