A Primer On Financial System Meltdown: The Economists' View

The views on financial crises reviewed in this paper suggest that modern financial markets may have a lot in common with nuclear power stations. Both are capable of working for the good of humanity. Both work particularly well in times of no or little stress. Both can be made more resilient through innovation and technical progress. Both need effective regulation and oversight to make sure that systemic risk remains low. However, both will remain vulnerable to large adverse shocks at all times, even up to the extent to which shocks may activate a core melt accident throwing the world as we know it into ultimate chaos.