I'm very pleased to participate in this conference honoring my good friend Mervyn King. As Mervyn noted in a recent speech in New York, we had adjoining offices at MIT as young academics and never imagined that 30 years later we still would be colleagues--as central bankers.1 Now, as then, I value his advice and insight. The topic of this session is lessons learned from the financial crisis. For me, perhaps the central insight is that the recent crisis, despite its many exotic features, was in fact a classic financial panic--a systemwide run of "hot money" away from assets whose values suddenly became uncertain. ... (full story)