[COPY] A Primer on Financial Crises, Part II

On policy responses, and where we are

I meant to publish this at 6:30 ET, but posted it at 6:30 Italy time instead. So reposting now.

Last week I posted Part I of a primer on financial crises. Although the post was motivated by the wild market action after Donald Trump unveiled his Rose Garden tariffs, it was getting too long, so I promised to address current events today. To be honest, I was also hoping that the situation would become clearer after a week.

It hasn’t. We seem to have stepped back a bit from the ledge, largely because Trump scrapped his original tariff plan and replaced it with something markets perceived — wrongly — as less extreme. But things remain deeply unsettled.

Rather than wait for a resolution that may be a long time coming, however, let me continue the primer by talking about how policy interventions can sometimes act as circuit breakers that help avoid financial crisis. I’ll follow that with an attempt to make sense of where we are now and discuss what the future may hold.