My postgraduate
Money and Banking class had to set up a blog on a topic of their choosing. There were many interesting blogs created by
my students, but the top Blogger in the class was Berta Kruminaite, who blogged
about the Dutch tulip mania. The Dutch
tulip mania, which occurred in Amsterdam in 1536-7, saw a dramatic reversal in the
price of tulip bulbs. This mania episode
is traditionally regarded as the first famous 'bubble'. However, over the years, economists have
taken different positions as to whether the Dutch tulip mania really was a ‘bubble’. Berta does a great job of presenting these
different views. She even manages to include
a video clip of Newt Gingrich discussing the tulip mania! You can access Berta’s blog here.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of