Is the financial system prone to crisis?

He believed that markets work well on the whole, but occasionally get overwhelmed and need help, in particular to prevent severe damage to the wider economy.  

At such times central banks and governments have a roll to intervene, was his thesis.

Hardly controversial today, yet at the time this was regarded as a provocative challenge to those who believed that bubbles and manias should be allowed to run their course – let bubbles burst and from the ashes a new upswing will emerge if you just let nature take its course.

In 1987 Mr Kindleberger's view began to take hold when a young Alan Greenspan arrived to head up the US Federal Reserve just three months before The Crash.

After the markets closed on Black Monday he publicly announced that the Fed was ready to pump money into the economy to stop the Wall Street rout. He was publicly minded to save not just the economy, but also the stock market.

Other than uttering those words, he didn’t need to do a huge amount more in the coming days – markets quickly recovered their poise.

If Mr Kindleberger was here today I think he would be highlighting the mantra of his contemporary, the economist Hyman Minsky – stability breeds instability.

It was what he did in subsequent years which laid the foundation for the fragile world in which we now find ourselves.

Until he resigned in 2006 (good timing!) he went on a mission. He no longer needed to save the world as in 1987.

His mission was to put the US economy (and by extension much of the world) on steroids – at least it is difficult to reach another conclusion from the facts.

For example, he cut rates 11 times in the 18 months following the end of the 1990 to 1991 recession, building a launch pad for the dot com bubble.

He came to the market's rescue time and time again. With record rates of 1 per cent in 2003 to 2004 he provided the hot air for a series of bubbles, in the US and beyond, which were to bring the world to its knees in 2008.

The Greenspan mantle was passed to Ben Bernanke, and then Janet Yellen. Neither acknowledged the need to take action to deal with bubbles in US equities or bonds, which persisted.

In 2017, the then chairwoman of the US Federal Reserve Janet Yellen proclaimed: “I don’t believe we will see another crisis in our lifetime.” 

In July 2005 Mr Bernanke said a housing bubble “is a pretty unlikely possibility”.  And Mr Greenspan denies responsibility for everything - has spent most of the past 10 years telling anyone who will listen that whatever happened wasn’t his fault.

The intervention which Mr Kindleberger encouraged is art – it is never to be presumed, and always to be in doubt, otherwise investors assume they will always be bailed out, and so would take bigger risks and get into more debt. Yet this is precisely the environment which Mr Greenspan created, and his successors have sustained.  

Here we are on the 10th anniversary of the Great Financial Crisis, and the debt pile is greater, the quality is worse, and the US stock market is markedly more over-valued.

If Mr Kindleberger was here today I think he would be highlighting the mantra of his contemporary, the economist Hyman Minsky – stability breeds instability.  

He believed periods of prosperity, inflated by debt and financial innovation and speculation, give way to financial instability.  

He went further and said that the financial system is inherently unstable, fragile, and prone to crisis.  

Don’t stray too far from the emergency exit.

Brian Dennehy is managing director of FundExpert.co.uk