Financial Crisis Case Studies

Europe’s response to the latest energy price shock has a familiar feel. With the escalation of conflict involving Iran, we are again seeing emergency oil reserve releases, discussions about gas price caps, and renewed political defence of the marginal pricing model in electricity markets. The International Energy Agency has brokered a record release of 400 million barrels from strategic reserves. The European Commission is revisiting the idea of price caps when gas sets the power price. State aid may return, albeit on a smaller scale than in 2022. Structural reform of the electricity market design, however, remains off the table. This sense of déjà vu is revealing. First, it underlines how limited the short term policy toolkit remains when Europe is exposed to fossil fuel volatility. Strategic reserves and fiscal support can cushion the blow, but they do not change the underlying dynamics. Second, while Europe has diversified away from Russian pipeline gas towards LNG from the US and Qatar, dependence on imported fossil fuels persists. That exposure continues to transmit geopolitical risk directly into household and industrial energy bills. Third, the countries least affected by price spikes are those with higher shares of renewables and stronger domestic generation. Spain is a case in point. When gas sets the marginal price less frequently, price volatility falls. The strategic conclusion is unchanged from the last crisis. Accelerating electrification, scaling renewables, investing in grids, storage and flexibility, and reducing overall fossil fuel demand are not climate luxuries. They are economic resilience measures. Crisis management can stabilise markets. Only structural transformation can reduce vulnerability. The question for policymakers is whether this episode will once again trigger incremental short term fixes, or finally catalyse faster progress on the long term solution.

My latest in Project Syndicate. I argue that relative to the dot.com era, the productivity upside is more muted this time, and the risks greater: 1. As the dot-com bubble burst, IT was already delivering a visible productivity boom; by contrast, today’s firm-level AI adoption is already slipping. 2. The dot-com boom left durable assets like fiber that still carry traffic, whereas AI depends on rapidly obsolescing chips and servers—creating a capex treadmill that needs constant reinvestment. 3. Unlike the surplus era of the late 1990s, today’s AI boom sits on top of large deficits, rising debt, and heavy interest bills, competing with clean energy, defense, and housing for scarce savings. 4. With a large existing debt stock and positive real rates, interest costs rise quickly, crowding out welfare and public services. If AI’s payoff is slow or modest, more resources flow to bondholders instead of Social Security, health care, and core services, especially in a downturn. 5. The dot-com bust mainly hit equity investors; today’s AI build-out is increasingly credit-financed, so if AI revenues disappoint, stress will show up in credit markets and on bank/insurer balance sheets, raising systemic risk.

Developing Asia and the Pacific’s economic ascent is being severely tested. The conflict in the Middle East is disrupting trade and energy markets. For a region heavily reliant on imported energy, rising prices are feeding inflation and tightening financial conditions.    The impacts remain extremely uncertain and will depend on the duration and trajectory of the conflict. Our latest Asian Development Outlook estimates that growth could slow substantially in the case of a prolonged conflict or further escalation.    The policy response is crucial. Targeted, temporary support can protect vulnerable households and businesses without derailing fiscal health. Clear monetary policy is essential to keep inflation expectations in check. And in this fragile global landscape, deeper regional cooperation is needed more than ever. Strengthening energy connectivity, building more resilient supply chains, and streamlining trade will be critical to reducing vulnerability and unlocking new opportunities. The Asian Development Bank (ADB) strongly supports all such efforts. #ADO2026 sets out these priorities and offers insights to help the region navigate current uncertainty with confidence: https://lnkd.in/gFx9B77r

🏦 𝗛𝗶𝗴𝗵 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗨𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 𝗠𝗮𝘆 𝗧𝗵𝗿𝗲𝗮𝘁𝗲𝗻 𝗚𝗹𝗼𝗯𝗮𝗹 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗦𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆 Global economic uncertainty has been amplified by a confluence of factors, including the COVID-19 pandemic, inflation shocks, escalating geopolitical tensions, rapid technological advancements, and climate-related disasters. According to the recent International Monetary Fund report, high macroeconomic uncertainty can significantly raise downside risks for economic and financial stability, and the relationship may be stronger when macrofinancial vulnerabilities are elevated, or financial market volatility is low. Uncertainty is not as easily measured as traditional indicators like growth or inflation, but economists have built some reliable proxies. ►►To reduce domestic macroeconomic uncertainty and its adverse implications for macrofinancial stability, policymakers are recommended to build credible policy frameworks and improved communication strategies. They are also advised to build resilience against macrofinancial vulnerabilities, particularly when macroeconomic uncertainty is high. The following 𝗽𝗼𝗹𝗶𝗰𝘆 𝗿𝗲𝗰𝗼𝗺𝗺𝗲𝗻𝗱𝗮𝘁𝗶𝗼𝗻𝘀 are highlighted in the report to mitigate the risk:  ►Reducing domestic macroeconomic uncertainty by strengthening the credibility and transparency of frameworks for monetary, fiscal, and financial sector policies and through effective communication strategies. ►Implementing adequate fiscal and macroprudential policies to contain macrofinancial vulnerabilities and build resilience against adverse shocks, particularly when macroeconomic uncertainty is high. ►Building adequate international reserve buffers and allowing exchange rate flexibility to help cushion the adverse spillover effects of an increase in foreign macroeconomic uncertainty. ►Devoting resources to quantifying, managing, and mitigating the risks from rising geopolitical uncertainty on macrofinancial stability. Read more below. Chapter authors: Rafael Barbosa, Yuhua Cai, Mario Catalán (co-lead), Andrea Deghi (co-lead), Li Lin, Tatsushi Okuda, Mustafa Yasin Yenice, Aleksandr Zotov, under the guidance of Mahvash Qureshi, Ian Dew-Becker and Stefano Giglio as external advisors.

A growing number of companies are filing for bankruptcy in the UK. In the second quarter of 2023 alone, 6,342 companies were declared bankrupt – the highest level since the global financial crisis. What’s going on? The unsettled, inflationary, post-Brexit economy can’t be helping. But this is also likely a delayed impact from the pandemic, worsened by ever-increasing interest rates. To preserve employment, government subsidies and loans kept many businesses afloat through 2020-21 (as this chart shows). The burden of repaying these loans has resulted in “zombie” companies, and operators and creditors appear to be pulling the plug. As this chart shows, the largest contribution (shown in green) is Creditors’ Voluntary Liquidations, a process that is typically applied when debt-burdened, insolvent companies liquidate their business – but involve their creditors in the process to reduce losses. #macrobond

Almost every great infrastructure revolution in history was funded by people who lost their shirts. This is not a footnote. It is the mechanism. Carlota Perez, in Technological Revolutions and Financial Capital, identified the pattern across two centuries: a transformative technology emerges, financial capital floods in, overbuilding follows, a crash clears the field and then the real economy quietly gets to work on the rubble. The hype was never wrong about the technology. It was wrong about who would profit from it. The railway mania of the 1840s funded the physical backbone of industrial Britain and America. American railroads went bankrupt repeatedly across the nineteenth century, their capital written down in successive reorganisations. JP Morgan consolidated the wreckage. The dot-com bubble funded the fibre optic backbone of the modern internet. Over 90 percent of it sat dark in 2002. Within a few years it was the cheapest and most consequential infrastructure on earth, bought from bankruptcy for cents on the dollar. Others built empires on it. The original investors did not. Hyman Minsky spent his career answering the question: Why does this keep happening? His insight was not that markets go mad. It’s that each stage of the cycle feels entirely rational to the people inside it. Stability breeds instability: good returns attract capital, inflated capital inflates prices, inflated prices attract more capital until the structure collapses. The mania doesn’t announce itself. It is only visible in retrospect, which is precisely why it recurs. Charles Kindleberger, building on Minsky, showed that this is not a quirk of particular circumstances. He documented the same dynamic across five centuries of commercial history. Infrastructure is uniquely vulnerable: high fixed costs, low marginal costs and network effects make every entrant believe they will be the last one standing. The anatomy never changes because human nature never changes. Which brings us to today. The AI infrastructure buildout including data centres, chips, power capacity and cooling systems is running at a scale that makes the fibre bubble look modest. Billions are being spent on this infrastructure, eating large chunks out of the cash flows of the companies that are investing. Every individual decision looks defensible. The infrastructure, once built, is permanent. William Janeway, in Doing Capitalism in the Innovation Economy, makes the argument that speculative excess is not a flaw in the system. It is the only mechanism capitalism has reliably produced for funding infrastructure at the scale transformation demands. It takes a mania. History suggests that the wreckage always comes. The question for the investing companies is not whether you are in a mania. The question is whether you will be positioned to build on what it leaves behind.

What strikes me about the MSME relief being discussed in the context of the West Asia crisis is this: for small businesses, global disruption is never just a macroeconomic story. It very quickly becomes a cash flow story. Rising fuel costs, supply-side uncertainty, logistics disruptions, and tighter liquidity do not play out in abstracts for MSMEs. They show up in day-to-day decisions about inventory, payroll, shipments, and survival. External shocks translate into immediate pressure on business continuity. This is why the measures currently under consideration, including a large credit guarantee of support and the possibility of temporary moratorium relief for some MSME exporters, deserve close attention. At this stage, these are signals of intent, not final announcements. But the direction matters. MSMEs form the backbone of the Indian economy, contributing significantly to GDP, exports, and employment across millions of enterprises. When stress hits this segment, the impact is not isolated. It cascades. Support in moments like this is not merely about financial relief. It is about preserving continuity, giving viable businesses the breathing space to absorb temporary shocks without suffering permanent damage. The real test, however, will be execution. ⮞   Can support reach businesses early enough? ⮞   Can it be targeted to those who are fundamentally sound but temporarily stressed? ⮞   And can it move with the speed that disruption demands? Because for MSMEs, timing is often the difference between recovery and retreat. If policy interventions can align urgency with precision, they can do more than soften the impact of a crisis. They can help ensure that short-term global volatility does not derail long-term entrepreneurial progress. #MSME #BusinessContinuity #CreditAccess #WorkingCapital #EconomicResilience #SmallBusiness #IndiaGrowth Ministry of Micro, Small and Medium Enterprises, Government of India

Earlier this week I shared an early snapshot of our research into how the dotcom bubble may have permanently damaged the UK's appetite for investing. Now I'm excited to share the full report. One of the most important insights isn’t just what happened after the dotcom crash - but why it has lasted for so long. Behavioural science helps to explain it. Experiencing a major market downturn can leave a lasting imprint on how people think about risk. Those who live through periods of poor returns are often less willing to invest in future - and that caution can persist for decades, even when markets recover. Availability bias and loss aversion converge to ensure that people are terrified of repeating past investment mistakes. In other words, the dotcom crash didn’t just affect portfolios at the time: it may have reshaped confidence in investing for a generation (potentially even echoing into the next). We also see how this plays out in practice: 👉 Many people step out of the market during downturns 👉 Fewer return once conditions improve 👉 And over time, that can have a much bigger impact than the downturn itself At the same time, there’s a clear paradox in the UK: those who do invest tend to be confident and forward-looking - but too many people never start, or don’t come back after a setback. That’s why this moment matters. With growing momentum behind initiatives like the The Investment Association’s Invest for the Future campaign, and a renewed focus on financial resilience, there is a real opportunity to rebuild confidence and participation in investing. As we say in the report, the question now isn’t whether the benefits of investing exist: it’s whether more people feel able to access them. You can read the full report here: https://lnkd.in/e65TCmFz A huge thank you to the many Fidelity International colleagues who contributed particularly our superb design team: Steve Gardner, Oliver Godwin-Brown and Mark. And another big thank you to Trevor Igasta for sharing his superb behavioural science expertise on this subject. #Investing #BehaviouralFinance #PersonalFinance #InvestForTheFuture

Twenty-five years ago, I gave a lecture warning that the Internet hadn’t changed business; it had merely exposed its fundamentals. The title was “Naked Business Models.” It was August 2000. The dot-com bubble had just begun to burst. I argued that companies were spending vast sums to attract customers with no credible path to profit. Now, a quarter century later, I’m seeing the same pattern unfold with artificial intelligence. The metrics have shifted from “eyeballs” and “clicks” to “tokens” and “model queries,” but the mindset remains familiar: growth first, value later. Cheap capital, boundless optimism, and seductive storytelling are once again distorting our perception of technology. The lesson from 2000 still applies: innovation doesn’t repeal economic laws. In this article, I reflect on what the dot-com crash taught us, and why AI’s extraordinary promise will only endure if we remember what truly creates value. #AI #Innovation #Entrepreneurship #Technology #Startups #BusinessStrategy #DigitalTransformation #HigherEducation

Day 23 of the conflict. Oil prices are up more than 40% since the war began.   At moments like this, it feels like the scale of the problem is bigger than the tools we have. But this is exactly when sustainability thinking matters most; not as an aspiration, but as a practical framework for building resilience.   The pathway forward looks different depending on where you are.   For 𝗱𝗲𝘃𝗲𝗹𝗼𝗽𝗲𝗱 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗲𝘀, the priority is accelerating what is already in motion: faster permitting for renewables, grid modernisation, energy efficiency at scale, and strategic storage investment. The tools exist. The crisis has made the case for using them clearer than ever.   For 𝗱𝗲𝘃𝗲𝗹𝗼𝗽𝗶𝗻𝗴 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗲𝘀, the transition requires targeted concessional funding, technology transfer, and South-South cooperation on solar and distributed energy. Getting this right means ensuring the transition is equitable, not just fast.   Across both contexts, a few principles from sustainability thinking apply:   🔹 𝗗𝗶𝘃𝗲𝗿𝘀𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 reduces fragility. Every economy that has invested in a broader energy mix, whether through renewables, nuclear, efficiency, or storage, is more resilient to what is happening right now. This is not theoretical. It is visible in real time.   🔹 𝗟𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝘁𝗵𝗶𝗻𝗸𝗶𝗻𝗴 pays dividends that short-term crisis management cannot. The countries and companies that made transition investments years ago are in a structurally different position today than those that deferred them.   🔹 𝗦𝘆𝘀𝘁𝗲𝗺𝗶𝗰 𝗿𝗶𝘀𝗸 requires systemic responses. The current crisis is a reminder that 𝘦𝘯𝘦𝘳𝘨𝘺 𝘴𝘦𝘤𝘶𝘳𝘪𝘵𝘺, 𝘧𝘰𝘰𝘥 𝘴𝘦𝘤𝘶𝘳𝘪𝘵𝘺, 𝘢𝘯𝘥 𝘦𝘤𝘰𝘯𝘰𝘮𝘪𝘤 𝘴𝘵𝘢𝘣𝘪𝘭𝘪𝘵𝘺 are not separate issues. Sustainability frameworks that integrate these dependencies, rather than treating them in silos, are better equipped to identify vulnerabilities before they become crises.   The disruption we are living through is painful and the immediate human cost is real. But it also demonstrates why the transition matters and why the time to invest in it is not after the crisis, but right now. #sustainability #climateresilience #energytransition