M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, March 3, 2010

Historical Perspectives on the Financial Crisis

OK, I'm a sucker for financial history.  Here's a new essay from Frank Partnoy (USD), Historical Perspectives on the Financial Crisis, that ties the "Match King" scandals of the 1920s directly to the Financial Crisis of 2008.  Here's to unintended consequences! 

Abstract:  This Essay discusses two historical parallels between the current financial crisis and the financial crisis of the late 1920s and 1930s. First, financial innovation was at the core of both crises. In particular, the machinations of Ivar Kreuger illuminate how financial innovation tends to outstrip the ability, and perhaps the willingness, of investors and intermediaries to process information. Second, reliance on credit ratings began as a response to the 1929 crash and became a primary cause of the recent crisis. During the 1930s, regulators developed rules based on credit ratings; those rules are the ancestors of today‚Äôs widespread regulatory reliance on ratings. Without financial innovation and overreliance on credit ratings, the recent crisis likely would not have occurred, and certainly would not have been as deep.



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