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.