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StrategyDriven Editorial Perspective – Good Intentions, Bad Results: Learning from the Panic of 1826

Strategy Driven

This combination of high yield and seemingly low risk sparked a credit boom. “The judge the lawyer the doctor the clergy the widow the trustee of orphans all fell into the common vortex of investing in these bonds,” Life and Fire Insurance Company director Jacob Barker wrote in a letter in 1827.

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The Downside of the Fed’s Increasingly Complicated Expectations Game

Harvard Business Review

And in fact the prices of the particular financial assets that the Fed announced that it will buy less of, Treasury bonds and mortgage-backed securities, did drop slightly on the news Wednesday. But stocks didn’t. When you view this reaction in terms of expectations, it makes a bit more sense. But I think the man is on to something.

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What Alan Greenspan Has Learned Since 2008

Harvard Business Review

In fact I think the evidence probably is conclusive that a necessary and sufficient condition for a bubble is a prolonged period of economic stability, stable prices, and therefore low risk spreads, credit-risk spreads. Well the question is, do you quash the bubbles? Obviously they’re more costly to issue.