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Flashback The more things change ...

October 12, 2008

“We now have global markets, but we don't have an appropriate international mechanism for regulating them. It's carrying the belief in markets to an extreme which is today, very, very dangerous.”
George Soros (1999)

The story playing out so painfully on today's front pages can trace its lineage back at least to the 1630s, when a hyper-inflated market in tulips collapsed spectacularly in Holland and sent economies all over Europe into dizzying free fall.

For those who have seen their savings or pension funds decimated in a matter of weeks, the oft-told tale of the tulips may not afford much consolation. It does, however, offer some lessons that homo economicus has been very slow to learn. Over time, the same chain of events has recurred with dismaying frequency -- a sector of the economy overheats, investors flood the zone; fortunes are made and caution thrown to the winds, until inevitably the bubble bursts, with disastrous consequences, and government must decide whether and how to respond.

While FRONTLINE missed the tulip story by a couple of centuries, it was on the case in 1998, when a rolling financial panic tumbled markets around the world and caused the Dow to drop 20 percent in two weeks. These excerpts from the film, called The Crash, begin with the great boom that preceded the bust, and end with predictions that have proved to be right on the money.

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