Zakaria: Capital Manifesto
Fareed Zakaria’s contrarian view on past looming financial crises:
Each crisis convinced observers that it signaled the end of some new, dangerous feature of the economic landscape. But often that novelty accelerated in the years that followed.
The 1987 crash was said to be the product of computer trading, which has, of course, expanded dramatically since then.
The East Asian crisis was meant to end the happy talk about “emerging markets,” which are now at the center of world growth.
The collapse of Long-Term Capital Management in 1998—which then–Treasury secretary Robert Rubin described as “the worst financial crisis in 50 years”—was meant to be the end of hedge funds, which then massively expanded.
The technology bubble’s bursting in 2000 was supposed to put an end to the dreams of oddball Internet startups. Goodbye, Pets.com; hello, Twitter.
Now we hear that this crisis is the end of derivatives. Let’s see. Robert Shiller, one of the few who predicted this crash almost exactly—and the dotcom bust as well—argues that in fact we need more derivatives to make markets more stable.
