by Bob Hoye
Some financial writers have claimed that stock market crashes such as followed the 2007 Bubble are unpredictable and rare, calling them “Black Swan” events. More recently, the Covid-19 health threat has been described as a “Black Swan” event. Making the two together about as “Black Swanny” as it gets. However, a review of history suggests that severe financial crashes have always followed great financial bubbles. The transitions to busts have had much in common and the methodical pattern strongly suggests that even the greatest of crashes since the first in 1720 have predictable characteristics. Therefore, severe financial panics cannot be considered as “Black Swan” events.
And contagious diseases from epidemic to pandemic have been around for so long that while providing nasty periods, they may not be “Black Swan” events. What about now, when the financial crash has been accompanied by a disease scare? It has happened before. In the mid-1500s Antwerp was the financial and commercial capital of the world. The brilliant trader, Thomas Gresham was the financial advisor to Elizabeth’s government (A Biography of Sir Thomas Gresham). He assisted the Crown considerably during booms and busts. On one of the latter, Spain, the leading power at the time, defaulted on its debats.