Gary Gorton provides a good history of financial crises in the US financial system from the free banking period to the Great Financial Crisis. These crises are not one-off events but are inherent in our financial system. There will be credit booms and busts, and our history is filled with them. What is unusual is that we had a long period from the Great Depression to the 1980s when there were no crises. Innovations that change the financial landscape, moral hazard issues, too-big-to-fail, and shortages of bank capital all contribute to liquidity crises and contraction of credit. Through following economic history, we can see how the seeds of crises are sown. Gorton does a good job in this short book of providing the history and theory for why we should always be concerned about the possibility of a financial crisis.
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