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History lessons for financial crisis: Act fast, act globally

European leaders call for a new Bretton Woods-type agreement as they meet in Brussels.

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"Mechanisms for cross-border cooperation in Europe exist but they are incomplete," argued Mr. Mandelson, who joined Brown's Cabinet this week. "Internationally, the problem is even more acute...." he says, since coordinating systems are "outdated," with huge stakeholders like China not tied firmly enough into the economic order. "It is 64 years since the Bretton Woods conference put in place the basic machinery.... It is time for a Bretton Woods for this century," he wrote on Oct. 3 in The Guardian, a British newspaper.

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The specter of another Great Depression of the 1920s and '30s has been raised by the speed and scope of this financial crisis. But such fears have been mitigated, for some, because Federal Reserve Chairman Ben Bernanke is himself a student of the Great Depression. He has taken the opposite approach to the Fed's cautionary policy of the '30s, when the Fed tried to slow the economy, increased interest rates, and allowed some 9,000 banks to fail.

By contrast, the Fed's response under Mr. Bernanke is entirely proactive. The Fed has cut interest rates, worked closely with the US Treasury to bail out key private firms like Bear Stearns and AIG, and flooded markets with liquidity.

Still, differences between the 1930s and today are profound, and not easily comparable say economic historians such as Ballard Campbell, author of the recent book "Disaster, Accidents and Crises in American History."

Unlike the stereotyped image of the period, only a tiny number of Americans were invested in Wall Street when it crashed in 1929. In the '30s, there was no mass participation in pension investments such as 401ks or 403bs – such investments didn't exist. The instant market information flows of today were not available, for better or worse.

That's one reason why the pace of government response may be faster today than in the lead up to the Great Depression.

French economist Jean-Paul Fitoussi, director of a research center at Sciences Po in Paris, adds that the size of the US state sector is key, as is individual access to credit. The US government financed 10 percent of the economy in the 30s; today it represents more than 30 percent. But access to credit by individuals today creates greater ties between finance and the "real economy," he notes.

"There are so many new imponderables that it is unclear if a prolonged systemic depression can repeat itself," says Mr. Campbell, at Northeastern University in Boston. On balance, he doesn't think it will happen. "The cherishing of lifestyles ... the mentality of the West today ... is something that won't allow government to do what it did before – sit back and fold its hands."

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