Several proposals made for re-architecturing the international financial system are fraught with moral hazard and could thereby raise the probability of future crises occurring, although their immediate containment may be easier. This paper examines alternative ways in which financial crises are analytically represented, where explanations based on the fickleness of sentiment and of the panic that ensues compete with explanations based on the real economy antecedents and underpinnings of the crisis. Possible responses during a crisis are studied and measures for crisis prevention analysed. The implications of this for the new international financial architecture are discussed.
