Criteria to spotting the next financial crisis – Minneapolis Star Tribune

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Man, I didn’t see that coming. Ever said that before? I have. September 2008. Right after AIG went down ­— and this was six months after Lehman Brothers’ bankruptcy, so I should have at least been on notice. The S&P 500 stock index touched 666 the following March (today, the S&P stands at 2,450).

Could I have seen it coming? Could I have predicted the crisis? Can anyone? I think the answer is broadly “yes.” So how does one go about crisis spotting?

Before we begin we need to define a crisis. I define it as pronounced and perhaps sudden economic downturn caused by problems with liquidity, credit, currency and/or employment, although this is not an exhaustive list. Although a recession or moderate economic downturn is not a crisis per se, your spotting mechanism should still pick this up.

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