Reading about Italy’s ejection of Silvio Berlusconi in favour of economist Mario Monti, and in particular Mr Berlusconi’s reported mutterings that we would yet see that he was still in charge really through his supporters in the Italian parliament, I turned back to one of the best books about banking crises. That is Liaquat Ahamed’s brilliant history of the role of banking in the Great Depression, [amazon_link id=”009949308X” target=”_blank” ]Lords of Finance[/amazon_link]. As he notes in the introduction to the paperback edition I have, “Nothing brings home the fragility of the banking system or the potency of a financial crisis more vividly than writing about these issues from the eye of the storm.” He continues:

“Watching the world’s central bankers and finance officials grappling with the current situation – trying one thing after another to restore confidence, throwing everything they have at the problem, coping daily with unexpected and startling shifts in market sentiment – reinforces the lesson that there is no magic bullet or simple formula for dealing with financial panics. In trying to calm anxious investors and soothe skittish markets, central bankers are called upon to wrestle with some of the most elemental and unpredictable forces of mass psychology.”

The other lesson is that those who do not have the public interest at heart can fan those unpredictable forces of mass psychology too, in an adverse way. Mr Berlusconi still has the capacity to damage Italy and the euro, even out of office.

[amazon_image id=”009949308X” link=”true” target=”_blank” size=”medium” ]Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World[/amazon_image]