Resident Fellow Alex J. Pollock

Sir, Katrina vanden Heuvel (Letters, March 31) quotes Nicholas von Hoffman, following the purchase of Bear Stearns, that "we are in unknown territory facing situations that have never arisen before."

Well, no. In fact, our most recent housing bubble and current bust display all the classic patterns of recurring credit over-expansions and their painful aftermaths, as colourfully described by Walter Bagehot, Charles Kindleberger and Hyman Minsky. These include a funding panic, government interventions, the fall of the previously esteemed, the search for the guilty, and the inevitable political over-reactions.

In booms it is proclaimed that we are in a "new era"--in busts that we have "unprecedented problems". This is merely the egocentricity of the present. It can be corrected, although it usually isn't, by observing the patterns of financial history. As James Grant said in Money of the Mind: "Progress is cumulative in science and engineering, but cyclical in finance." The tendency of financial markets to have to relearn the same lessons about once a decade is one of the most intriguing things about them.

Alex J. Pollock is resident fellow at AEI.