It’s not all bad: the costs and benefits of financial crises

Inside of a ring or out, ain’t nothing wrong with going down. It’s staying down that’s wrong.

Muhammad Ali

Robert Zoellick of the World Bank has warned that financial crisis will lead to ‘a risk of a great human and social crisis, with major political implications’.1 Unfortunately, the news will continue to be grim for some time.

Recessions caused by financial crises are typically more acute than normal recessions, and last longer. Problems in loans in normal recessions appear well after the economic downturn has begun, and in some cases signal that it is near an end. Financial crises, on the other hand, start with credit problems; the rejection of credit then leads to a ...

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