Economic Financial Crisis

AKA: Monetary Crisis.
Context:
- It can (typically) require that Financial Assets lose a large part of their nominal value.
- It can (typically) result in new Financial Regulations.
- It can range from being a National Financial Crisis to being an International Financial Crisis.
- It can (often) be preceded by Excessive Debt Accumulation.
- It can (often) be accompanied by Group Cognitive Dissonance (e.g. this time is different).
- It can include a Banking Crisis.
- It can include a Currency Crisis.
- It can include a Public Debt Crisis.
- It can trigger an Economic Collapse.
- …
Example(s):
Counter-Example(s):
- a Municipal Default.
- a Corporate Bankruptcy.
- a Household Financial Crisis.
See: Monetary Policy, Government Default, Fiscal Crisis.

References

The Economist | Where will the next crisis occur? https://economist.com/news/business-and-finance/21741377-corporate-debt-could-be-culprit-where-will-next-crisis-occur
- QUOTE: Financial crises tend to involve one or more of these three ingredients: excessive borrowing, concentrated bets and a mismatch between assets and liabilities. The crisis of 2008 was so serious because it involved all three — big bets on structured products linked to the housing market, and bank-balance sheets that were both overstretched and dependent on short-term funding. The Asian crisis of the late 1990s was the result of companies borrowing too much in dollars when their revenues were in local currency. The dotcom bubble had less serious consequences than either of these because the concentrated bets were in equities; debt did not play a significant part.

(2014). “The slumps that shaped modern finance.” In: The Economist
- QUOTE: Finance is not merely prone to crises, it is shaped by them. Five historical crises show how aspects of today’s financial system originated — and offer lessons for today’s regulators. …
  … Five devastating slumps — starting with America’s first crash, in 1792, and ending with the world’s biggest, in 1929 — highlight two big trends in financial evolution. The first is that institutions that enhance people’s economic lives, such as central banks, deposit insurance and stock exchanges, are not the products of careful design in calm times, but are cobbled together at the bottom of financial cliffs. Often what starts out as a post-crisis sticking plaster becomes a permanent feature of the system. If history is any guide, decisions taken now will reverberate for decades.
  This makes the second trend more troubling. The response to a crisis follows a familiar pattern. It starts with blame. New parts of the financial system are vilified: a new type of bank, investor or asset is identified as the culprit and is then banned or regulated out of existence. It ends by entrenching public backing for private markets: other parts of finance deemed essential are given more state support. It is an approach that seems sensible and reassuring. But it is corrosive.

http://en.wikipedia.org/wiki/Financial_crisis
- The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.^[1]^[2] Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy.
  Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time.

↑ Charles P. Kindleberger and Robert Aliber (2005), Manias, Panics, and Crashes: A History of Financial Crises, 5th ed. Wiley, ISBN 0-471-46714-6.
↑ Luc Laeven and Fabian Valencia (2008), 'Systemic banking crises: a new database'. International Monetary Fund Working Paper 08/224.

(Reinhart & Rogoff, 2009) ⇒ Carmen M Reinhart, and Kenneth Rogoff. (2009). “This Time is Different: Eight Centuries of Financial Folly." Princeton University Press. ISBN 0691142165
- QUOTE: If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during an boom. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is. Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels, and make banks seem more stable and profitable than they really are. Such large-scale debt buildups pose risks because they make an economy vulnerable to crises of confidence, particularly when debt is short term and needs to be constantly refinanced. Debt-fueled booms all too often provide false affirmation of a government’s policies, a financial institution’s ability to make outsized profits, or a country’s standard of living. Most of these booms end badly. Of course, debt instruments are crucial to all economies, ancient and modern, but balancing the risk and opportunities of debt is always a challenge, a challenge policy makers, investors, and ordinary citizens must never forget.