Friday, June 12, 2009


I hadn't realized the size of the bailout in these terms before reading...
European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to a European Union document.

The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country�s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros.

...The U.S. government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.

A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80 percent of bank loans in central and eastern Europe come from lenders owned by six western European EU countries, according to Moody�s Investors Service.
While I was prepping my Money and Banking course I taught the last three weeks, I had run across this database of credit crises, last updated in 2003 by the World Bank. �I find myself looking at the size of these numbers and the size of the output losses during, say, the Latin American debt crisis in the early 1980s and wondering whether this will exceed those losses. �In particular I wonder if the output loss, when we finally get around to measuring that, will exceed 10%. �If it did, would we want to call what happened a depression? �Do we use that term to describe what happened in Argentina in 1981-83? �Indonesia 1997-2002? �

I have no good answer to those questions. �But I think the language we use to describe this episode will influence the policies we develop in response to the crisis.

Postscript: �David Strom (whose show I will visit tomorrow at 10am CT on AM1280) argues that the U.S. bailout (he puts it at $15T rather than the $12T in the above article) is symbolic of "lemon socialism". �Question we should ask after looking at the database: Do we see any signs of where the bailout did NOT happen and did it reduce the output loss? �Or is David's pique over who gets the money and who pays?

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