There is a saying among economists that goes as follows: "throughout history there have only been four kinds of economies in the world: advanced, developing, Japan, and Argentina". Around 1900 Argentina was among the top five countries in the world in terms of income per capita. Today, Argentina is close to the average country in the world, with income per capita at only 40% of the 12 core EU countries! What has happened? Why this sudden reversal of fortune? Argentina is unique in that it started relatively rich and has ended up being comparatively poor. What explains the Argentina paradox? This is the question addressed by Alan Taylor in a recent NBER paper. He argues that there isn't a monocasual explanation for this reversal and that economists really need to grapple with the Argentina paradox.
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