Financial Bubbles, Crashes and Crises

Introduksjon

The objective of this course is twofold. First, it provides basic knowledge about the financial system, and explores theories, concepts, and historical cases relevant to the understanding of financial bubbles, crashes, and crises. Second, it develops students' analytical writing skills through systematic exercises, teaching them to plan, structure, and produce cogent texts. By doing that, the course – hopefully – also equips students with tools to maintain a critical and sensible approach to AI-generated content.

Background and course content

According to an estimate from the International Monetary Fund (IMF), between 1970 and 2011 alone, the world experienced no less than 147 systemic banking crises, 218 currency crises and 66 sovereign debt crises. Such financial crises often have devastating effects on the operation of the general economy: they cause decline in investment spending, reductions in business profits, and an increase the number of bankruptcies. They also increase unemployment levels and reduce overall household income. According to figures from The US Bureau of Labor Statistics, unemployment rates in USA more than doubled in the years immediately following the financial crisis of 2008. This crisis – often termed The Great Recession or The Subprime Crisis – spread globally and caused, according to one estimate, an increase in global unemployment of about 50 million and an increase in the number of people living in extreme poverty of about 200 million.[1] 

In March 2023 a major banking panic again erupted in the United States. By mid-May the panic had caused the second, third and fourth largest banking failures in US history. The panic also spread to Europe, where the downfall of Credit Suisse in April became the single largest bank failure in the world, ever.[2] In the fall of 2025, increasing concerns erupted around the possibilities that a financial bubble was building up within the rapidly expanding AI industry, particularly in relation to massive, increasingly loan-financed investments in data centres. The pricing of shares in the US market – measured by the S&P 500's Shiller P/E Ratio – reached a level in November 2025 that we have only seen once before in the period for which we have figures (going back to 1871!), namely in August 2001, just before the collapse of the dot com bubble.[3] Strong fluctuations – and periodic sharp increases – in the pricing of new types of digital/crypto assets such as Bitcoin have also been a source of growing concern in financial markets. 

What are the fundamental characteristics of financial bubbles and crises? How do the various institutions of the financial system function and what are their roles in the development and handling of financial bubbles, crashes, and crises? What are the main theories of the causes of financial bubbles and crises and what are the main strengths and weaknesses of these theories? How have existing financial crises been solved historically and what – if anything – can be done to prevent them in the future?  These are some of the questions we ask, discuss, and try to answer in this course. As the students will experience, there exist many different and often competing theories about the causes and effects of financial crisis and how to deal with them. This course provides an overview of these approaches. In addition, it introduces the students to several historical case studies of financial bubbles, crashes and crises. The idea is that by investigating past experiences of financial crises we can recognize patterns in how the crises evolved and evaluate how they were handled. Such historical knowledge may in turn help shed light on how to deal with and assessing future risks of crisis in the economy and how to deal with such crisis.

Besides regular lectures, video lectures and group work the teaching of this class will be conducted through the systematic use of writing exercises. The course will thus provide the students both with knowledge about a fundamental part of the market economy (the financial sector) – and how and why this sector historically has experienced repeated and severe crises – and improve their skills in writing analytical texts. The rise of AI has called into question the importance of developing students' analytical writing skills. This course insists that writing skills remain fundamental in themselves and are also a crucial skill for training students' analytical competence and ability to think critically and independently, and to develop a sensible approach to AI-generated content.

[1] J.E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy, New York: WW Norton, 2010, p. 346.        

[2] Andrew Metrick, “The Failure of Silicon Valley Bank and the Panic of 2023”, Journal of Economic Perspectives, 38.1, 2024.

[3] Servaas Storm, “The U.S. Is Betting the Economy on ‘Scaling’ AI: Where Is the Intelligence When One Needs It?”, Working paper no. 244, Institute for New Economic Thinking, December 2025.

Kursets innhold

The course will be divided in a conceptual/institutional part, a theoretical part and a historical part.

The conceptual/institutional part will:

• Present several basic concepts necessary to understand the development of financial crisis.
• Describe the most important institutions within the financial system, including money, banks, main financial markets, central banks and regulatory agencies.

The theoretical part will:

• Present, compare and analyse a selected set of theories of financial crises.

The historical part will:

• Present selected historical cases of financial crises
• Compare similarities and differences between the historical cases.

Forbehold

Dette er et utdrag fra den komplette kursbeskrivelsen for kurset. Dersom du er aktiv student på BI, kan du finne de komplette kursbeskrivelsene med informasjon om bl.a. læringsmål, læreprosess, pensum og eksamen på portal.bi.no. Vi tar forbehold om endringer i denne beskrivelsen.