8 ms·

Contrary to what some pundits would like you to believe, this is not new ground. A real estate bubble followed by a balance sheet recession has happened in at l

by theoj 15y ago

Contrary to what some pundits would like you to believe, this is not new ground. A real estate bubble followed by a balance sheet recession has happened in at least 2 other places before: Sweden in 1992 and Japan in 1991. Different choices in these countries led to different outcomes. In Sweden, the government demanded steep losses from equity holders before it took over a large part of the financial system (unlike US officials, the Swedish government officials were not afraid to use their superior bargaining position to get an excellent deal for the government). The upfront cost for recapitalization was 4% of GDP, the net cost in the end was less than 2% of GDP (based on different computation methods some even say 0%). Following asset sales in 1995, the Bank Support Authority went into a dormant role in 1996, 4 years after the crisis. http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html http://www.nytimes.com/2008/09/23/business/worldbusiness/23k... Japan handled things differently and ended up with debt totaling 200% of GDP. See this excellent YouTube video from economist Richard Koo that explains the Japanese experience: http://www.youtube.com/watch?v=HaNxAzLKegU http://www.youtube.com/watch?v=HaNxAzLKegU

TomOfTTB 15y ago
One of my favorite articles ever is Reason.com's "One Reason Why Keynesian Stimuli Aren't Working: They Aren't Keynesian" (http://reason.com/blog/2011/09/07/one-reason-why-keynesian-stimu http://reason.com/blog/2011/09/07/one-reason-why-keynesian-s...).
rkalla 15y ago
This also happened in Iceland recently with a revolt and de-privatization of the banks.
anigbrowl 15y ago
I don't listen to media pundits. I'm asking the grandparent poster for specifics of how s/he intends a reboot of the entire financial sector because I think this is actually a rather hard problem. I have been through a real estate bubble followed by a recession before (in the UK, at the same time as the Swedish one). I think there are some definite upsides to the Swedish approach, but the people who keep bringing it up seem to overlook the fact that Sweden is a) small - <10 million people, not much more than NYC and b) one of the highest-taxed economies in the world, with tax revenues equal to almost 50% of GDP, and c) is regulated out the yin-yang. The idea that we can just lift one bit of regulatory policy from there, apply it to our financial sector, and call our problem solved is not just misguided, it's flat-out magical thinking.
- arethuza 15y ago
  Despite all of that, Sweden has been ranked as the third most competitive economy in the world by the World Economic Forum: http://www.weforum.org/issues/global-competitiveness http://www.weforum.org/issues/global-competitiveness
- jessedhillon 15y ago
  Exactly. Economic/political discussions on HN are painful because people who are capable of generating meaningful insights when the topic is technical are reduced to wishful thinking and trotting out tired, simplistic misrepresentations of economics. Let the country's biggest banks become insolvent, then "reboot" them in a week? When you start proposing that the world's largest economy model itself on theoretical notions only tested in a country 3% it's size, ideologically oriented in a completely different direction, and founded on a radically different social contract, then you are not arguing anymore. It's not an argument, in the sense of debate and intellectual exchange, it's dogma.
- Estragon 15y ago
  > The idea that we can just lift one bit of regulatory policy from > there, apply it to our financial sector, and call our problem solved > is not just misguided, it's flat-out magical thinking. It's also a straw man. He said "we'd be much further along." He didn't say it would be simple or painless. He did imply that it would be less painful overall than what we're doing now, which is not saying much.
crag 15y ago
Lets not forget Argentina. Whose currency collapsed along with their central bank. They survived.
- jessedhillon 15y ago
  What a stupid thing to say. Have you ever read about the currency crisis? This is from a Wikipedia article you could have found in 30 seconds; if you had, perhaps you would have changed your mind about posting, saving us all the pain of knowing that someone on HN is capable of posting such a glib, worthless comment: Several thousand newly homeless and jobless Argentines found work as cartoneros, or cardboard collectors. The 2003 estimation of 30,000 to 40,000 people scavenged the streets for cardboard to eke out a living by selling it to recycling plants. This method accounts for only one of many ways of coping in a country that at the time suffered from an unemployment rate soaring at nearly 25%. _Twenty-five-fucking-percent and people selling cardboard for a living_ Is this the example you crazy people aspire to when you pine about your pure free markets and how the economy should have been allowed to undergo massive correction?
  - ez77 15y ago
    Do you think what happened was Argentina's worst-case scenario, given the magnitude of its crisis? Plenty of knowledgeble people [1] think crag's comment is not a stupid thing to say. [1] http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaround-tango.html http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaro...
    - jessedhillon 15y ago
      Why did you post that? Did you even read it? That opinion piece talks about how Argentina recovered from the crisis, and it definitely does not say that defaulting on their debt was the right step. If anything, it is a resounding endorsement for the Obama plan and a rebuke of austerity in times of crisis. Argentina has regained its prosperity partly out of dumb luck: a commodity price boom has vastly benefitted this soy, corn and wheat producer. The government intervened to keep the value of its currency low, which boosts local industry by making Argentina’s exports cheaper abroad while keeping foreign imports expensive. It then taxed those imports and exports, using the money to pay for a New Deal-like public works binge, increasing government spending to 25 percent of G.D.P. today from 14 percent in 2003. Why have Argentines embraced bigger government? In part because the preceding era showed how poorly austerity measures — the sort now being pushed by conservatives in the United States — promote growth. In the late 1990s, Argentina cut government spending drastically on the order of its lenders at the International Monetary Fund. For one thing, extreme cost-cutting during a stagnant economic period will only inhibit growth. And government spending to promote local industry, pro-job infrastructure programs and unemployment benefits does not turn a country into a kind of Soviet parody. It puts money in the pockets of average citizens, who then spend it and spur the economy.

by theoj 15y ago

TomOfTTB 15y ago

One of my favorite articles ever is Reason.com's "One Reason Why Keynesian Stimuli Aren't Working: They Aren't Keynesian" (http://reason.com/blog/2011/09/07/one-reason-why-keynesian-stimu http://reason.com/blog/2011/09/07/one-reason-why-keynesian-s...).

rkalla 15y ago

This also happened in Iceland recently with a revolt and de-privatization of the banks.

anigbrowl 15y ago

I don't listen to media pundits. I'm asking the grandparent poster for specifics of how s/he intends a reboot of the entire financial sector because I think this is actually a rather hard problem. I have been through a real estate bubble followed by a recession before (in the UK, at the same time as the Swedish one). I think there are some definite upsides to the Swedish approach, but the people who keep bringing it up seem to overlook the fact that Sweden is a) small - <10 million people, not much more than NYC and b) one of the highest-taxed economies in the world, with tax revenues equal to almost 50% of GDP, and c) is regulated out the yin-yang. The idea that we can just lift one bit of regulatory policy from there, apply it to our financial sector, and call our problem solved is not just misguided, it's flat-out magical thinking.

arethuza 15y ago
Despite all of that, Sweden has been ranked as the third most competitive economy in the world by the World Economic Forum: http://www.weforum.org/issues/global-competitiveness http://www.weforum.org/issues/global-competitiveness
jessedhillon 15y ago
Exactly. Economic/political discussions on HN are painful because people who are capable of generating meaningful insights when the topic is technical are reduced to wishful thinking and trotting out tired, simplistic misrepresentations of economics. Let the country's biggest banks become insolvent, then "reboot" them in a week? When you start proposing that the world's largest economy model itself on theoretical notions only tested in a country 3% it's size, ideologically oriented in a completely different direction, and founded on a radically different social contract, then you are not arguing anymore. It's not an argument, in the sense of debate and intellectual exchange, it's dogma.
Estragon 15y ago
> The idea that we can just lift one bit of regulatory policy from > there, apply it to our financial sector, and call our problem solved > is not just misguided, it's flat-out magical thinking. It's also a straw man. He said "we'd be much further along." He didn't say it would be simple or painless. He did imply that it would be less painful overall than what we're doing now, which is not saying much.

crag 15y ago

Lets not forget Argentina. Whose currency collapsed along with their central bank. They survived.

jessedhillon 15y ago
What a stupid thing to say. Have you ever read about the currency crisis? This is from a Wikipedia article you could have found in 30 seconds; if you had, perhaps you would have changed your mind about posting, saving us all the pain of knowing that someone on HN is capable of posting such a glib, worthless comment: Several thousand newly homeless and jobless Argentines found work as cartoneros, or cardboard collectors. The 2003 estimation of 30,000 to 40,000 people scavenged the streets for cardboard to eke out a living by selling it to recycling plants. This method accounts for only one of many ways of coping in a country that at the time suffered from an unemployment rate soaring at nearly 25%. _Twenty-five-fucking-percent and people selling cardboard for a living_ Is this the example you crazy people aspire to when you pine about your pure free markets and how the economy should have been allowed to undergo massive correction?
- ez77 15y ago
  Do you think what happened was Argentina's worst-case scenario, given the magnitude of its crisis? Plenty of knowledgeble people [1] think crag's comment is not a stupid thing to say. [1] http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaround-tango.html http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaro...
  - jessedhillon 15y ago
    Why did you post that? Did you even read it? That opinion piece talks about how Argentina recovered from the crisis, and it definitely does not say that defaulting on their debt was the right step. If anything, it is a resounding endorsement for the Obama plan and a rebuke of austerity in times of crisis. Argentina has regained its prosperity partly out of dumb luck: a commodity price boom has vastly benefitted this soy, corn and wheat producer. The government intervened to keep the value of its currency low, which boosts local industry by making Argentina’s exports cheaper abroad while keeping foreign imports expensive. It then taxed those imports and exports, using the money to pay for a New Deal-like public works binge, increasing government spending to 25 percent of G.D.P. today from 14 percent in 2003. Why have Argentines embraced bigger government? In part because the preceding era showed how poorly austerity measures — the sort now being pushed by conservatives in the United States — promote growth. In the late 1990s, Argentina cut government spending drastically on the order of its lenders at the International Monetary Fund. For one thing, extreme cost-cutting during a stagnant economic period will only inhibit growth. And government spending to promote local industry, pro-job infrastructure programs and unemployment benefits does not turn a country into a kind of Soviet parody. It puts money in the pockets of average citizens, who then spend it and spur the economy.