Abstract
The mechanism of the financial panic is clarified by the two band model in a simplified capitalist society from statistical mechanics. A financial panic occurs on an occasion of the supercooling process to avoid completing the financial (buy–sell) cycles under the circumstances: extremely high consumption causes enormous bubbles of buy–sell pairs of securities in financial markets, which form the configuration entropy (the Kauzmann entropy) and trigger a chain recession. As society cools down, the dynamical processes of financial panic are governed by universal features such as the Kauzmann entropy crisis and the drastic drop of the dynamical motions (the VTF law), which also cause further recession so that a chain recession occurs. And the financial markets eventually freeze.
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