History tends to repeat itself, so surely there are lessons for the markets and exchange traded fund (ETF) investors about today’s financial crisis.

In this case, as it happens, we have a host of past events both here and abroad from which we can pick and choose the lessons we can learn.

The historical lessons may be analyzed through the Great Depression, the Panic of 1873, the savings and loan crisis, and Sweden’s banking fallout in the 1990s.  Catherine Rampell for Economix at the New York Times leads us through some of the finer points we should come away with from a paper by the International Monetary Fund.

The paper compares 42 banking crises from 1970-2007, up until today.

  • Speed is of the essence. Steps should be taken asap to resolve problems as soon as a large part of any financial system is insolvent. Establish the scale of problem and take needed steps right away, ensuring adequate capital for financial institutions.
  • Contain the stress on the rest of the economy. Intervention in the form of targeted debt relief programs to households and indebted corporations with safeguards attached should be implemented.

In your eyes, has the Paulson Mega-Bailout Plan addressed the two major factors that need to be tackled – liquidity and solvency?

It also makes one wonder: will we learn from this crisis?

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.