After the devastating U.S. stock market crash of 1929, the United States introduced the Glass-Steagall Act in 1933 to prevent it from ever happening again. The law separated the activities of retail and investment banks, drawing a hard line between customer deposits and speculative trading activity in the markets. This separation, coupled with the constraints imposed by the Bretton Woods system that emerged after World War II, resulted in a long period uninterrupted by major financial shocks.
But international flows of capital loosened once again in the 1970s with the end of the Bretton Woods system. The creation of the eurodollar market in London in the 1960s also helped remove constraints on capital movement, increasing cross-Atlantic money flows and transforming London into an important financial hub. Since then, the financial cycle has become more pronounced in the United States, with higher highs and lower lows....
