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12 Oct 2008 09:07 pm
Have We Done Enough Yet?
The critical question on the credit crisis.
[H]istory teaches an important lesson: that big banking crises
are ultimately solved by throwing in large dollops of public money, and
that early and decisive government action, whether to recapitalise
banks or take on troubled debts, can minimise the cost to the taxpayer
and the damage to the economy.
For example, Sweden quickly took over
its failed banks after a property bust in the early 1990s and recovered
relatively fast. By contrast, Japan took a decade to recover from a
financial bust that ultimately cost its taxpayers a sum equivalent to
24% of GDP.
All in all, America’s government has put some 7% of GDP on the
line, a vast amount of money but well below the 16% of GDP that the
average systemic banking crisis (if there is such a thing) ultimately
costs the public purse.
Falling oil prices, China's growth and bank recapitalization will help.
I hope we re-regulate that which needs re-regulating but don't go
overboard in squelching markets. They remain the worst way of
organizing economies - apart from all the others.
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