Everything is Everything Ep 119: Financial Crises: Why They Happen, How They Unfold, What to Do
Oct 3, 2025
Ajay Shah, an esteemed economist with decades of experience in financial crises, joins to unravel their complexities. He explains how crises impair financial functions and categorizes them into five types, from banking to securities-market crises. Delving into historical examples like India's 1991 crisis and the 2008 global turmoil, he discusses the role of state intervention and regulatory challenges. Ajay also promotes essential reforms, advocating for a robust financial resolution framework and improved data infrastructure to better prepare for future disruptions.
AI Snips
Chapters
Books
Transcript
Episode notes
Finance As The Economy's Brain
- Finance is the brain of the economy: it makes prices, allocates resources, and solves financing problems.
- A financial crisis is a sudden non-linear impairment of these functions that harms the whole economy.
1929 Crash To Global Depression
- The 1929 US stock crash triggered positive feedback loops that turned a market fall into the Great Depression.
- Bank failures, deflation and a collapsing money supply amplified the shock worldwide.
Capital Flows Drive Current Account Deficits
- Current account deficits reflect the gap between investment and savings, not merely trade balances.
- Fragile capital inflow channels and large fiscal deficits caused India's 1991 balance-of-payments crisis.
