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Writing in 1942, Joseph Schumpeter observed that it was in the nature of capitalism to make progress by means of “creative destruction.” There has been much destruction in the financial sector over the past year: of asset prices, of banks and of confidence. It is not yet widely recognised that this has been part of a creative process, but there is good reason to think that it is.
Asset prices were overvalued, banks were poorly managed and confidence turned out to be complacency in disguise. The time was ripe for a Schumpeterian mutation.
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