Introduction

This introduction presents an overview of key concepts discussed in the subsequent chapters of this book. The book considers the banking and stock-market crisis in Britain during the first half of the nineteenth century. However, the enthusiasm about the beneficence of the financial system is hardly universal. A financial crisis occurs when a large number of wealth holders attempt to liquidate their assets simultaneously due to the fear that the value of their holdings will depreciate. Market turbulences, in fact, motivated many economists to design models to explain the conditions under which financial markets fail to function efficiently and apply these theories to episodes of boom and crash. Certain financial innovations are merely bets against future market movements, and, as such, move money around without creating much social value. The hedge fund Long-Term Capital Management was saved by a consortium of investment banks and the Federal Reserve System in 1998.