On August 14, David Viniar, the chief financial officer of Goldman, Sachs & Co., struggled to explain why two hedge funds managed by his firm had suffered severe losses during the first few hectic days of the month. He came up with the rationale that the markets had been hit by a rare "25 standard deviation event." In other words, an occurrence so rare that a person living since the dawn of time would be lucky to have witnessed it. The comment was, of course, far-fetched. History shows that financial crises are as inevitable as death and taxes. Viniar's comment appears particularly off the mark given the euphoric behavior of the financial markets in the years leading up to this summer's credit crunch. This euphoria was initially induced by a period of low interest rates that followed the collapse of the technology bubble at the turn of the century. That...