Embedded in the macroeconomic data, we tend to lose the ability to surprise ourselves when we hear the big numbers; 1 billion of USD here another 50bn there. When it comes to bailouts and bank mergers, it is especially hard to have a reference. Oxfam’s Head of Research Duncan Green puts the US financial sector’s bailout into perspective:
- Would clear the accumulated debt of the 49 poorest countries in the world ($375bn) twice over
- Is almost 5 times the annual amount of extra aid needed to achieve all the Millennium Development Goals on poverty, health, education etc ($150bn a year)
- Is about 7 years of current global aid levels ($104bn in 2007)
- Is enough to eradicate all world poverty for over two years (UNDP calculates it would take $300bn to get the entire world population over the $1 a day poverty line).
On the other hand it’s
- only a quarter of the cost of the Iraq war ($3 trillion on Joseph Stiglitz’ calculation )
- a half of annual global military spending ($1339 bn)
To keep calculating, don’t forget that the estimated martket value gone right after the House rejected the bail-out plan was much more thant the package itself (about $1.5 trillion).
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When economic and financial analyst, politicians and savvy bankers are still trying to understand what went wrong, the United States´House of Representatives voted today to reject the $700-billion rescue of the financial markets. As evidenced by the events in Washington, the decision is influenced more by the political situation rather than by a thorough economic assessment.
If you want to build a more educated guess about the future consequences of the debate of whom the financial rescue would benefit, then google Fobrapoa Mexico, 1994-2006. The difference in the Mexican case is that the bail-out package was approved and the rescue implemented. What will happen in the US? It seems like 1) bailout and controlled crisis or 2) no-bailout and the end of the world as we know it.
In the meantime this is the market’s reaction to the vote:
And (as reported by the BBC):
- Wachovia, the fourth-largest US bank, was bought by larger rival Citigroup in a rescue deal backed by US authorities
- Benelux banking giant Fortis was partially nationalised by the Dutch, Belgian and Luxembourg governments to ensure its survival
- The UK government announced it was nationalising the Bradford & Bingley bank
- Global shares fell sharply – France’s key index lost 5%, Germany’s main market dropped 4% while US shares plunged after the vote result was announced.
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