Introduction
Financial crises are not accidental; they are the result of a recurring cycle. Linda Yueh’s model describes this dynamic through three phases: euphoria, credibility, and aftermath. Understanding these mechanisms reveals how a systematic overproduction of optimism leads to collapses that test the foundations of the state. This article analyzes why public institutions must intervene to halt panic and how various economic models—from Israel to Poland—cope with economic trauma.
Linda Yueh: Euphoria as Risk Blindness
The euphoria phase is characterized by a distortion of rationality: the future becomes merely an optimistic extrapolation of the present. Asset prices decouple from real productivity, and the herd effect degrades individual risk assessment. Debt ceases to be a constraint, becoming a tool to amplify profits. When the bubble bursts, institutional credibility halts market panic. Consistency between legal norms and resources is crucial here—where the state fails, as in Japan during the "lost decade," the lack of restructuring for "zombie banks" leads to stagnation.
However, an effective state response carries a side effect: saving markets generates the risk of another bubble through what is known as moral hazard. Investors, believing in the state safety net, are more willing to take excessive risks in the next cycle. In this context, a flexible exchange rate cushions shocks, allowing the economy to adapt more smoothly to external jolts.
The Dot-com Bubble vs. 2008: From Stocks to Mortgages
Crises differ in structure. The dot-com bubble involved the stock market and was characterized by "creative destruction." In contrast, the 2008 crisis was an amplification of risks through mortgage securitization and shadow banking, which froze the global system. In Europe, a doom loop emerged, where indebted governments and banks dragged each other down. The aftermath phase is an economics of memory: the system either learns from its mistakes (like Asia accumulating reserves after 1997) or suppresses them.
Models of capitalism determine resilience to shocks. Israel and France represent two poles: Israel’s venture capital culture accepts risk and failure as part of the game, while French statism seeks stability through public institutions. Today, the global financial system is entering an era of permanent shocks, where crises are treated as seasonal phenomena requiring constant institutional readiness.
Convergence Euphoria: Poland’s Race to Catch the West
Poland experienced convergence euphoria—the belief that growth following EU accession was automatic, which fueled, among other things, the boom in Swiss franc mortgages. However, during the 2008 global crash, domestic demand shielded Poland from recession, making it a "green island." This success bolstered the state's credibility but also generated excessive optimism.
The COVID-19 pandemic is testing the credibility of the NBP and the government through unprecedented fiscal shields. While these saved the labor market, the delayed response to double-digit inflation strained trust in monetary policy. Fiscal risks are currently mounting: rising fixed expenditures on defense and social programs alongside a high deficit could become the spark for the next test of the Polish economy's credibility.
Normative Credibility Builds Market Trust
Technical efficiency in extinguishing fires is not enough. For a system to be stable, normative credibility is essential—the social conviction that crisis costs are distributed fairly. Without an ethical foundation, state interventions will be perceived as bailing out elites at the expense of the public, undermining the legitimacy of the market economy. True resilience, therefore, requires not only efficient central banks but, above all, social trust.
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