The recapitalisation aspects of the October rescue packages have been widely analysed by the world’s most effective think-tank in this crisis – the blogosphere. Here finance professors from LBS and NYU evaluate the rescue packages’ loan guarantees. The UK scheme has the flavour of a small tax, and is partly market-reliant; The US plan has the flavour of a $50 billion subsidy, and is almost fully government-reliant. Which scheme works better may depend upon the depth of the coming recession.
Viral Acharya, Raghu Sundaram, 26 October 2008
Tito Boeri, Willem Buiter, Daniel Gros, Klaus F. Zimmermann, Guido Tabellini, Stefano Micossi, Charles Wyplosz, Richard Baldwin, Alberto Alesina, Francesco Giavazzi, 01 October 2008
This is a once-in-a-lifetime crisis. Trust among financial institutions is disappearing; fear may spread. Last week’s US experience showed that saving one bank at a time won’t work. A systemic response is needed and in Europe this means an EU-led initiative to recapitalise the banking sector. Unless European leaders immediately unite to address this crisis before it spirals out of control, they may find themselves fighting over how best to salvage the aftermath.