Modeling a Typical Financial Crisis

Last week, I came across someone mentioning Bagehot’s law, which is essentially “Lend without limit, to solvent firms, against good collateral, at a penalty rate”. Bagehot was most well known in his time for being the editor of the Economist, a newspaper Lenin called “a journal which speaks for British millionaires”. But I think that we should not dismiss him for his class position. He was worried about the same things we’re worried about in the material well being of the country. He wrote this in the shadow of the panic of 1873, which led to what is known as the Long Depression or…