Our essay on financial crises, published this week, considers five crises, dating back to 1792, that shaped the modern financial system. Some of them, such as the 1929 slump, are well known; others are less famous, such as the 1825 Latin American crisis.
The five crises were chosen not because they were the biggest, but because their consequences are still visible today. The 1825 crisis led, for example, to a consolidation in British banking, and created the ancestors of today’s “too big to fail” megabucks.
But how do these five crises compare in the long history of financial disasters? The chart below shows the peak-to-trough fall in stockmarket valuations, in Britain and America, for a selection of crises, including our chosen five.
The South Sea bubble of 1720 hit British equities harder than any other crisis; the 1929 crash was America’s worst.