John Kay wrote a fascinating piece for the FT yesterday.

He argued that the last 12 or so years have seen three major crises, and all were related.

First off, there was the Asia crisis of ’97. Then the dotcom crash and then the bursting of the debt bubble. He argued all three crises have the same thing in common. Banks and other financial institutions messed up. They thought they had found some wonderful new idea, and herd behaviour led to an unsustainable boom, followed by crash.

First off, the view that the so called Tiger economies could carry on growing indefinitely seduced banks. Then they were sucked in by the lure of the Internet, then the new wonder product became mortgage securitisation.

He concluded on a scary note. What will be next, he asked?

It was a good piece, but we think the argument runs deeper.

It is probably true that the boom of the last few years was built on something of an illusion. Debt levels had probably reached unsuitable levels at the end of the last century.

The likes of Alan Greenspan and Gordon Brown tried to manipulate the economic cycle. In reality they probably delayed the inevitable, which in turn made the inevitable more serious.

Gordon Brown promised to end boom and bust, but maybe bust is essential. Bust enables the economic system to purge itself of the bad ideas. This never happened. Banks were bailed out by cheaper interest rates. When Long Term Capital Management went belly up in 1988, it seemed as if the entire banking system was close to collapse, but Alan Greenspan made a call here, a call there and rescued it. The result, banks didn’t learn their lesson.

But there is another point, too.

The Internet and the power of modern computers must not be ignored.

Long Term Capital Management failed because winners of the Nobel Prize for Economics mistakenly thought they had found an algorithm which could eliminate risk. Putting this algorithm into practice was only possible thanks to computers.

The dotcom boom and bust was directly related to misplaced hope over the Internet.

Then we have mortgage securitisation and the credit crunch. The Internet was essential in enabling the market for CDOs and other instruments of mass financial destruction to evolve. The Internet means information was transmitted around the world at lighting pace, which in turn may have accelerated the pace of the crisis.

The fact is, we are new to computers, the Internet and the instantaneous transmission of highly complex information. We are learning, and mistakes are inevitable.

It is possible modern technology was the real common denominator to the three big crises that have descended upon us over the last 12 years.

Alan Greenspan was wrong when he called the credit crunch a once in a hundred years financial tsunami. The Internet meant a crisis along the lines of what we experienced was inevitable.

But this does not mean computers and the ‘Net are bad. It works both ways. They are also transforming productivity, charging globalisation and accelerating the pace of innovation.

If you like this article, you may be interested in the author’s book, to be published in the next few days. Click here: www.bubblesandwisdom.com