Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis

Richard Baldwin, Barry Eichengreen,

Date Published

Thu, 10/09/2008

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http://www.voxeu.org/index.php?q=node/2327

Edited by Barry Eichengreen and Richard Baldwin

Published 9 October 2008

Tags
subprime crisis, rescuing jobs and savings

What Europe should do in the shadow of the financial meltdown

Michael Burda 09 October 2008

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As Europe’s financial markets spin down into the vortex created by the US credit crisis, every new day will contain new surprises. Only a few months ago, the real economy looked solid, with the euro providing an impressive shield from financial disruption (imagine last year without the ECB!).

Now Europe is in negative play despite its solid fundamentals. What can Europe do to change this?

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Topics:  Financial markets

Tags:  rescuing jobs and savings

The wrong financial crisis

J. Bradford DeLong 10 October 2008

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All of us from Lawrence Summers to John Taylor were expecting a very different financial crisis. We were expecting the ‘Balance of Financial Terror’ between Asia and America to collapse and produce chaos. We are not having that financial crisis. Instead we are having a very different financial crisis. Catastrophic failures of risk management throughout the entire banking sector caused a relatively minor collapse in housing prices to freeze up global finance to a degree that has not been seen since the Great Depression.

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Topics:  Financial markets

Tags:  rescuing jobs and savings

An efficient rescue plan

Roger Craine 09 October 2008

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Financial events moved like a firestorm during the last three weeks, easily jumping the firebreaks put in place by the Federal Reserve and US Treasury. Saving most financial institutions requires a quick and decisive responsive programme that strikes at the source of the financial implosion.

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Topics:  Financial markets

Tags:  rescuing jobs and savings

Governments should buy straight preferred stock in their banks

Charles W Calomiris 09 October 2008

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The G7 needs to follow the UK's plan, and do so on a coordinated basis. That plan has two parts. First, the governments must work together to share the burden of standing behind interbank borrowing in the LIBOR market for a brief time (probably not to exceed a month), and also continue to support the commercial paper market. This burden sharing follows from the fact that these banks are international entities. But this is not a long-term solution, and without a long-term solution this kind of support could encourage very risky behavior by the banks.

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Topics:  Financial markets

Tags:  rescuing jobs and savings

A proposal to tackle the crisis in Europe

Luigi Guiso, Marco Pagano 09 October 2008

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While the US is trying to attack the bank solvency crisis with the Paulson Plan, no comparably comprehensive response is emerging in Europe. No single political institution in Europe can enact a comprehensive rescue package comparable to that of the US. European governments are proceeding in a piecemeal, disorderly way to attack the problem at a national level, while its scale far exceeds that of their national boundaries.

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Topics:  Financial markets

Tags:  rescuing jobs and savings

Why government responses need to be comprehensive and coordinated

Charles Wyplosz 09 October 2008

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The Lehman Brothers story has shown two things – banks cannot be simply allowed to go bankrupt and a piecemeal approach will not bring banking systems back into minimal functioning condition. The lesson is that there will have to be a bailout. The contagion from the US to Europe and now to most other parts of the world further shows that the bailout will have to be global. The question is how to do it and who will bear the cost.

Four measures are jointly necessary to clean up the financial mess:

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Topics:  Financial markets

Tags:  rescuing jobs and savings

The content of coordination

Barry Eichengreen 09 October 2008

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If the events of the last week have a silver lining, it is that they have driven home the fact that we are all in this together. The crisis is global. We will sink or swim together. The hurried decision of G7/8 finance ministers to meet in Washington on Friday is belated recognition of this fact.

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Topics:  Financial markets

Tags:  rescuing jobs and savings

The need for a comprehensive and global solution

Stijn Claessens 09 October 2008

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We are facing a global financial crisis and bold steps by policy makers gathering this week in Washington are urgently needed. It has become clear that the policy interventions to date have not restored confidence in markets. Rather, at times, by being ad-hoc, interventions have actually created more turmoil. A comprehensive and global approach is needed.

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Topics:  Financial markets

Tags:  rescuing jobs and savings

A strategy emerges: The right policies to deal with the crisis

Richard Portes 09 October 2008

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The acute phase of the crisis was triggered by the failure of Lehman Brothers. This and the associated confusion in the markets about government policies caused a sharp rise in perceived counterparty risk, which completely blocked the short-and medium-term money markets. The pervasive uncertainty brought a widespread realisation that many commercial banks are undercapitalised and that further dumping of assets at fire-sale prices, with associated marking-to-market, would eliminate their capital base.1

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Topics:  Financial markets

Tags:  rescuing jobs and savings

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