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Bank panic called key to understanding crisis

Understanding what happened in September and October 2008, when the repurchase and other credit markets were overcome with panic, is the “indispensable beginning” to understanding the new form that financial markets have taken in recent decades – what some call the shadow banking system – and how they might be made safer and less prone to crisis, economic journalist David Warsh said in his Economic Principals blog Sunday.

That’s not all we need to know, he said, but it’s where we have to start.

His reading of the newly released report from the Financial Crisis Inquiry Commission and his recent viewing of American Madness, a 1932 Frank Capra movie about a banking panic, reinforced his conviction that “the really interesting thing that happened in September 2008 was the worldwide panic in the banking system – financial institutions running on each other behind the scenes,” he wrote.

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