Proposal preview

The Memory of Financial Crises across the Waves of Globalisation

It is usually assumed that financial markets have a short memory: crises are quickly forgotten and excessive risk-taking replaces caution as new business and profit opportunities arise, with the conviction that ‘this time is different’, to use Reinhart’s and Rogoff’s formula. Surprisingly, economists and economic historians have paid little attention to memory in their attempts to explain financial crises. This session is a first attempt to reflect on how and by whom financial crises have been remembered, why some have been remembered and others forgotten, and what use has been made of the memory of financial crises, whether for economic or political purposes. These are crucial questions to understand not only the causes and consequences of financial crises, but more generally how the financial system in which we live has been shaped. The papers in the session will take a broad view of the notion of memory and address a broad range of theoretical and methodological issues. Close attention will be paid to the mechanisms of transmission of memory within groups, from small communities to entire countries, including the impact of the digital revolution, with cases spanning the three main waves of globalisation.

Organizer(s)

  • Youssef Cassis European University Institute, Florence, Italy youssef.cassis@eui.eu Italy
  • Catherine Schenk University of Oxford catherine.schenk@history.ox.ac.uk United Kingdom

Session members

  • Youssef Cassis, European University Institute, Florence
  • Jeffrey Fear, University of Glasgow
  • Kristina Lilja, University of Uppsala
  • Carlos Marichal, Colegio di Mexico
  • Lucy Newton, University of Reading
  • Laure Quennouëlle-Corre, CNRS, Paris, France
  • Catherine Schenk, University of Oxford
  • Korinna Schönhärl, University of Duisburg-Essen
  • Giuseppe Telesca, European University Institute, Florence, Italy
  • Kazuhiko Yago, Waseda University, Tokyo, Japan

Discussant(s)

Papers

Panel abstract

It is usually assumed that financial markets have a short memory: crises are quickly forgotten and excessive risk-taking replaces caution as new business and profit opportunities arise, with the conviction that ‘this time is different’. Surprisingly, little attention has been paid to memory in efforts to explain financial crises. This session is a first attempt to reflect on how and by whom financial crises have been remembered, why some have been remembered and others forgotten, and what use has been made of memory, whether for economic or political purposes. These are crucial questions to understand the causes and consequences of financial crises, and more generally how the financial system in which we live has been shaped. The papers in the session will address a broad range of theoretical and methodological issues, in particular the mechanisms of transmission of memory within groups, with cases spanning the three main waves of globalisation.

1st half

British banks and their Aesop’s fables: organizational memories of the management of financial crisis

Victoria Barnes and Lucy Newton

Victoria Barnes and Lucy Newton Do companies remember past crises, mistakes and failures? If they do, how do they do it? This paper examines the way that British banks have remembered lessons about failure, mania and crisis from the nineteenth century. It focuses on the stories of people, personalities and characters as devices for constructing narratives. We use the concept of active learning memory from Scranton and Fridenson, whereby an organisation actively repeats or retells accounts of business failure or business success. Such retelling teaches lessons about conduct and so that the organisation (in this case British retail banks) can heed lessons and warnings from the past when making decisions in the future. We focus on fables about British banks making safe lending decisions and how key personalities were vital in such narratives. We examine discussions about how (or not) the making of lending decisions were thought to be key...

Victoria Barnes and Lucy Newton Do companies remember past crises, mistakes and failures? If they do, how do they do it? This paper examines the way that British banks have remembered lessons about failure, mania and crisis from the nineteenth century. It focuses on the stories of people, personalities and characters as devices for constructing narratives. We use the concept of active learning memory from Scranton and Fridenson, whereby an organisation actively repeats or retells accounts of business failure or business success. Such retelling teaches lessons about conduct and so that the organisation (in this case British retail banks) can heed lessons and warnings from the past when making decisions in the future. We focus on fables about British banks making safe lending decisions and how key personalities were vital in such narratives. We examine discussions about how (or not) the making of lending decisions were thought to be key in avoiding failure and future crisis and so were passed down to the next generation of bankers.

“Unfortunately we are bankrupt”. The remembrance of the Greek bankruptcy of 1893 during the World Economic Crisis 2010/11 in Greece and Germany

Korinna Schönhärl

In 1893 Greece went bankrupt for the third time in its history as an independent nation state. Five years later the country was forced to accept international financial control with the aim of re-paying its foreign debt. Although living conditions in Greece were very poor and emigration was high, this commission worked well from the perspective of the creditors and transferred about one-third of the entire Greek budget abroad. The commission served Greek foreign liabilities with a short break during the World Economic Crisis of the 1930s until 1941, when Greece was occupied by the Germans. The crisis, however, was firmly anchored in the collective memory of the Greeks. Throughout the entire 20th century it was used as an argument against foreign intervention in Greek domestic affairs – inferring that there were plenty of occasions for the subject to be discussed. After briefly reviewing the crisis of 1893 and the...

In 1893 Greece went bankrupt for the third time in its history as an independent nation state. Five years later the country was forced to accept international financial control with the aim of re-paying its foreign debt. Although living conditions in Greece were very poor and emigration was high, this commission worked well from the perspective of the creditors and transferred about one-third of the entire Greek budget abroad. The commission served Greek foreign liabilities with a short break during the World Economic Crisis of the 1930s until 1941, when Greece was occupied by the Germans. The crisis, however, was firmly anchored in the collective memory of the Greeks. Throughout the entire 20th century it was used as an argument against foreign intervention in Greek domestic affairs – inferring that there were plenty of occasions for the subject to be discussed. After briefly reviewing the crisis of 1893 and the history of its reception, this paper focuses on remembrance of the crisis during the World Economic Crisis 2010/11 in Greece and in Germany. Whereas in Greece the crisis was used as an argument to protest against European and especially German paternalism, in Germany it was exploited to demonstrate the reputed notorious inability of the Greeks to serve their liabilities properly. The paper focuses on newspaper coverage as source. Who remembered the crisis, why, and who benefited from this remembrance?

Jeffrey Fear

Making Capitalism Respectable after Financial Crisis: The Language of German and American Corporate Governance after 1873

While the effect of financial crises on forming financial policy is well studied, less attention has been paid to how they produce “game changing” turns that reinvent the context for regulatory reform, institutional design, and acceptable future conduct. These crises rupture conventional understandings; they often come as surprises. Yet how contemporaries assess the reasons for the financial crisis during and immediate aftermath is an exercise in interpretation, debate, and narrative-building. Seeking solutions to the crisis, contemporaries rely on their accounts of the crisis, underlying mental constructs expressed in the rhetoric of regulation then help mould a new financial architecture that appears to solve those identified problems, especially to reduce the power of the "villains" in the crisis story. We examine in comparative perspective the contemporary interpretation and memory of the "Panic" or "Founders Crisis" of 1873 in the U.S. and Germany--notably the crisis is named differently--that caused a contagion effect...

While the effect of financial crises on forming financial policy is well studied, less attention has been paid to how they produce “game changing” turns that reinvent the context for regulatory reform, institutional design, and acceptable future conduct. These crises rupture conventional understandings; they often come as surprises. Yet how contemporaries assess the reasons for the financial crisis during and immediate aftermath is an exercise in interpretation, debate, and narrative-building. Seeking solutions to the crisis, contemporaries rely on their accounts of the crisis, underlying mental constructs expressed in the rhetoric of regulation then help mould a new financial architecture that appears to solve those identified problems, especially to reduce the power of the "villains" in the crisis story. We examine in comparative perspective the contemporary interpretation and memory of the "Panic" or "Founders Crisis" of 1873 in the U.S. and Germany--notably the crisis is named differently--that caused a contagion effect in both countries and which, in part, had common transatlantic roots in the collapse of Jay Cooke's Northern Pacific railroad. It led to a first so-called "Great Depression" that was really a period of slow growth and deflation. Yet the solutions to a wave of corporate bankruptcies in both countries could not have been more different. We examine why the interpretation and memory of the crisis led to fundamentally different reforms (or lack thereof) in the U.S. and Germany. We stress how the different language of legislation following the 1873 crisis reshaped long-term regulatory norms.

The Memory of Financial Crises: the Great Depression and the Global Financial Crisis of 2008

Youssef Cassis

The paper considers how the financial crises of the Great Depression (the Wall Street crash of 1929 and the various banking crises that broke out in Europe and the United States between 1931 and 1934) have been both remembered and discussed in terms of lesson-drawing since the end of the Second World War, especially at the time of significant anniversaries (twenty-fifth, fiftieth, seventy-fifth) and outbreaks of meaningful financial crises (1974, 1982, 1987, 1997, 2008). The collective memory of financial crises is analysed through the leading newspapers, the archives of the major banks (reports, memos, etc.) and the memoirs, when available, of some of the main actors, in Britain, France, Germany, and the United States. Particular attention is paid to the fading and changing of memory and its replacement by historical and economic analysis; to the ephemeral role of the Great Depression as a warning signal, and its different use by...

The paper considers how the financial crises of the Great Depression (the Wall Street crash of 1929 and the various banking crises that broke out in Europe and the United States between 1931 and 1934) have been both remembered and discussed in terms of lesson-drawing since the end of the Second World War, especially at the time of significant anniversaries (twenty-fifth, fiftieth, seventy-fifth) and outbreaks of meaningful financial crises (1974, 1982, 1987, 1997, 2008). The collective memory of financial crises is analysed through the leading newspapers, the archives of the major banks (reports, memos, etc.) and the memoirs, when available, of some of the main actors, in Britain, France, Germany, and the United States. Particular attention is paid to the fading and changing of memory and its replacement by historical and economic analysis; to the ephemeral role of the Great Depression as a warning signal, and its different use by bankers and policymakers.

Memory as Myth. The crises of the pound and the political use of the memory of 1931 in Britain

Giuseppe Telesca

“The treatment of devaluation as if it were tantamount to hauling down the flag is really very silly”, wrote the Westminster Bank’s economic advisor, R.J. Clark in 1968. Yet, one cannot escape the impression that, on the occasion of the different currency crises that, since the 1931 abandonment of the gold standard, invested the British economy, the debate went well beyond the decision to produce “a change in the price of sterling in terms of other currencies. A technical change made for technical reasons”. In September 1931, when the pound abandoned the gold standard, the Labour Prime Minister Ramsay MacDonald and his Chancellor of the Exchequer, Philip Snowden, were at the helm of a newly established National Government, which enjoyed the support of Conservatives, Liberals, and (only) twelve Labour MPs. In August 1931 the rest of the party had turned its back to MacDonald and Snowden, who were determined to...

“The treatment of devaluation as if it were tantamount to hauling down the flag is really very silly”, wrote the Westminster Bank’s economic advisor, R.J. Clark in 1968. Yet, one cannot escape the impression that, on the occasion of the different currency crises that, since the 1931 abandonment of the gold standard, invested the British economy, the debate went well beyond the decision to produce “a change in the price of sterling in terms of other currencies. A technical change made for technical reasons”. In September 1931, when the pound abandoned the gold standard, the Labour Prime Minister Ramsay MacDonald and his Chancellor of the Exchequer, Philip Snowden, were at the helm of a newly established National Government, which enjoyed the support of Conservatives, Liberals, and (only) twelve Labour MPs. In August 1931 the rest of the party had turned its back to MacDonald and Snowden, who were determined to maintain the sterling’s parity at any rate. The facts of 1931 generated two contradictory myths: on the one hand the myth of betrayal of the Labour’s principles by a leadership either cynical, or lacking the courage to challenge the status quo; on the other hand the myth of economic incompetence of the Labour party, endemically unable to manage a sound currency. Both myths were reiterated, by different actors and with different degrees of intensity, on the occasion of the other predicaments of the pound that will form the object of this paper: the two devaluations of 1949 and 1967, the turbulences related to the 1976 IMF loan, and the withdrawal from the Exchange Rate Mechanism in 1992 (‘Black Wednesday’). Which was the role that the myths of 1931 played on the occasion of the crises under scrutiny? How did the Conservatives make use of the memory of 1931 to discredit the Labour Party? How was the Labour party’s internal debate affected by these myths, not only on the occasion of the devaluations, but also when the devaluation was procrastinated, as in 1964, or avoided, as in 1972? Was the memory of 1931 turned against the Conservatives on the occasion of ‘Black Wednesday’ in 1992? This paper maintains that a myth represents: “an impressing of the past into the service of a particular reading of the present”. The word myth will not be used here as synonym of a reading of the past necessarily untrue, but rather as a shared story about the past, which helps to shape a certain understanding of the present. The paper is not particularly interested in debunking the two myths related to 1931. Whether these myths have some foundation or are completely false, in fact, is less interesting than understanding the origins of these myths, finding out whether the memory of 1931 played any role in their construction, and analysing the use of these myths during the historical junctures explored in this paper. The paper will make use of coeval newspapers, magazines and other media sources, original documents gathered in banking archives, the National Archives, and the Conservative and Labour Party archives, to address these points.

2nd half

To remember or forget – financial crises and regulatory regimes in Sweden

Mats Larsson and Kristina Lilja

Sweden was in the early 1990s deeply affected by the deregulation of the financial sector in the 1980s. During the US sub-prime crises, experiences from the Swedish 1990s crises have been lifted up as important to understand the handling of the crises effects. The paper focuses on these two financial crises. It discusses the role of regulations and governmental policy as carriers of information and norms about financial crises. Our analysis is based on interviews with representatives from the financial sector and politicians, and archival material from the Swedish National Bank, commercial banks and the Financial Inspection Board. Our results show that memories from the 1990s crisis led to more discretion in the expansion in engagements in the financial sector in Sweden during the period up to the crisis in 2007–2008. The conclusion is that regulating the financial sector is a way to administer the collective memory of crises.

Sweden was in the early 1990s deeply affected by the deregulation of the financial sector in the 1980s. During the US sub-prime crises, experiences from the Swedish 1990s crises have been lifted up as important to understand the handling of the crises effects. The paper focuses on these two financial crises. It discusses the role of regulations and governmental policy as carriers of information and norms about financial crises. Our analysis is based on interviews with representatives from the financial sector and politicians, and archival material from the Swedish National Bank, commercial banks and the Financial Inspection Board. Our results show that memories from the 1990s crisis led to more discretion in the expansion in engagements in the financial sector in Sweden during the period up to the crisis in 2007–2008. The conclusion is that regulating the financial sector is a way to administer the collective memory of crises.

Learning from Crisis in London 1974-1986: from Lifeboat to Big Bang

Catherine Schenk

At times of crisis, or when change is on the horizon, it is often assumed that policy-makers invoke past episodes and experience to guide their actions. Thus, when the global financial crisis struck in 2008/8, the Great Depression of the 1930s was widely discussed both in public discourse and behind the scenes as policy-makers strove to develop emergency responses. The solution in that case was drawn directly from Friedman and Schwartz’s magisterial Monetary History of the United States (1963) which blamed the 1930s US depression on the failure of the Federal Reserve to pursue an expansionary monetary policy. But what evidence is there about how is the past used in less serious turning points? This paper begins by reviewing the literature on the Treasury Historical Section (1957-76) and the rather limited impact of a major investment to develop in house administrative histories to support decision-making. This confirms an awareness of...

At times of crisis, or when change is on the horizon, it is often assumed that policy-makers invoke past episodes and experience to guide their actions. Thus, when the global financial crisis struck in 2008/8, the Great Depression of the 1930s was widely discussed both in public discourse and behind the scenes as policy-makers strove to develop emergency responses. The solution in that case was drawn directly from Friedman and Schwartz’s magisterial Monetary History of the United States (1963) which blamed the 1930s US depression on the failure of the Federal Reserve to pursue an expansionary monetary policy. But what evidence is there about how is the past used in less serious turning points? This paper begins by reviewing the literature on the Treasury Historical Section (1957-76) and the rather limited impact of a major investment to develop in house administrative histories to support decision-making. This confirms an awareness of the challenges of rapid staff turnover for continuity of institutional memory but also a suspicion and reluctance to digest specialized historical treatments on the part of civil servants. In 1974-5 there was a rash of bank scandals and some bank collapses as the market was rocked by new sources of instability. This prompted the creation of the Basel Committee on Banking Supervision in 1975, which has overwhelmingly been associated with the collapse of Bankhaus Herstatt. But this paper argues that the early discussions and actions of the committee were aimed more at the lessons learned from other, now ‘forgotten’ bank collapses that pointed to the failures in governance and gaps in the supervision of international operations of banks. The paper next examines an episode in which historical ‘lessons’ were developed in anticipation of crisis; particularly the 1982-84 sovereign debt crisis. The paper then turns to London’s Big Bang as an example where the past was mostly forgotten in the planning for a major regulatory change.

The 1987 stock exchange crash: a denied crisis?

Laure Quennouëlle-Corre

The paper aims at exploring the different faces of the collective memory of the 1987 crash, which represented an unprecedented collapse of the prices on the global stock markets. Two periods can be identified, one just after the crash (1987-1989) where lots of reports and analyses concluded to multiple and complex origins of the collapse. After the 2007 crisis, a new series of testimonies and writings came back to the event and re-build a new story of the crash, blaming deregulation and uncontrolled markets. Meanwhile, the perception of the investors’ behaviors shifted inside the academic literature thanks to studies developed following the crash (Robert Shiller). The study will primarily explore the US academic literature and official reports. It concludes that the collective memory of the crash is changing and plural. Considering the Black Monday denial for decades leads to a broader interrogation on the mainstream academic thought in economics.

The paper aims at exploring the different faces of the collective memory of the 1987 crash, which represented an unprecedented collapse of the prices on the global stock markets. Two periods can be identified, one just after the crash (1987-1989) where lots of reports and analyses concluded to multiple and complex origins of the collapse. After the 2007 crisis, a new series of testimonies and writings came back to the event and re-build a new story of the crash, blaming deregulation and uncontrolled markets. Meanwhile, the perception of the investors’ behaviors shifted inside the academic literature thanks to studies developed following the crash (Robert Shiller). The study will primarily explore the US academic literature and official reports. It concludes that the collective memory of the crash is changing and plural. Considering the Black Monday denial for decades leads to a broader interrogation on the mainstream academic thought in economics.

The Memory of Deflation: the Japanese Experience in a Global Context

Kazuhiko Yago

Many of us remember the memorial home run of Barry Bonds on August 7, 2007 when he surpassed Hank Aaron for first place in career home runs, though few could tell you the name of the pitcher and the opponent team that day. Two days after Bonds’ home run, BNP Paribas in the UK blocked withdrawals from three hedge funds, which raised the curtain on the sub-prime financial crisis. The process and the outcomes of the sub-prime crisis are still clear in our memory, but we didn’t know (and still don’t know) the cause of the crisis from a long-term perspective. Our memory of one shot is clear, at least subjectively, but the background and the key facts are often forgotten. Our paper aims to explore “background memory” in relation to the memories of financial crises from historical perspectives. Of all the various background stories, we take up one simple...

Many of us remember the memorial home run of Barry Bonds on August 7, 2007 when he surpassed Hank Aaron for first place in career home runs, though few could tell you the name of the pitcher and the opponent team that day. Two days after Bonds’ home run, BNP Paribas in the UK blocked withdrawals from three hedge funds, which raised the curtain on the sub-prime financial crisis. The process and the outcomes of the sub-prime crisis are still clear in our memory, but we didn’t know (and still don’t know) the cause of the crisis from a long-term perspective. Our memory of one shot is clear, at least subjectively, but the background and the key facts are often forgotten. Our paper aims to explore “background memory” in relation to the memories of financial crises from historical perspectives. Of all the various background stories, we take up one simple but obscure phenomenon which has historically preceded a financial crisis: deflation. In the short term, inflation heats up the economy until there is a sudden crash. However, over the long term, deflation has paved the way for a serious financial crisis as has been the case for the crises in 1907, 1929, 1957, 2007 and after. As a case study, we refer to the Japanese experience, either remembered or forgotten, from the late-19th century up to the present in comparison to the global context, to answer the following questions: 1. Could we remember the crisis along with its background? Could we identify one particular background for the crisis? Does a contemporary view on the system as a whole, e.g. the gold standard, construct the “background memory”? 2. What are the indexes that explain the background? Was this information available for contemporary players? What role did the long term indexes, e.g. productivity and population growth, play in forming the “background memory”? 3. Was there any difference in perception between inflation and deflation?

The Causes of the Global Financial Crisis of 2008-2009: the official investigations seen as historical document

Carlos Marichal

The major financial crises of the past have frequently spurred official enquiries and reports. These documents generally address the issue of the causes of collapse of bank and capital markets but also shed light on regulations proposed at different points in time to improve financial stability. As such, they are also major historical documents of great interest for financial history but inevitably require critical analysis. In this paper we begin with summary reference to extensive hearings and official reports, following the financial crises of 1873, 1907 and 1929, but our interest is focused on the global financial crisis that exploded in September, 2008, which has produced the greatest outpouring of these types of publications. Our argument is that one important avenue for a historical understanding of the great financial debacles of the recent past consists in a careful evaluation of official literature and documents that can complement the theoretical approaches...

The major financial crises of the past have frequently spurred official enquiries and reports. These documents generally address the issue of the causes of collapse of bank and capital markets but also shed light on regulations proposed at different points in time to improve financial stability. As such, they are also major historical documents of great interest for financial history but inevitably require critical analysis. In this paper we begin with summary reference to extensive hearings and official reports, following the financial crises of 1873, 1907 and 1929, but our interest is focused on the global financial crisis that exploded in September, 2008, which has produced the greatest outpouring of these types of publications. Our argument is that one important avenue for a historical understanding of the great financial debacles of the recent past consists in a careful evaluation of official literature and documents that can complement the theoretical approaches of economists in search of explanations for these events.