Keyword: bailouts

This Finance survey examines: (a) September 2023 was the 25th anniversary of the collapse of Long-Term Capital Management (LTCM). In response to LTCM's troubles, the Federal Reserve orchestrated a multi-billion dollar rescue package by a consortium of banks and it cut the Federal funds rate target by 75 basis points within six weeks. The hedge fund sector's contribution to systemic risk is substantially lower today than at the time of LTCM; (b) Financial market participants' expectation that the Fed will aggressively ease monetary policy in response to financial market dislocations is a substantial source of financial instability.

This week’s IGM European Economic Experts Panel statements: A) Breaking the “doom loop” — a negative spiral that can result when banks hold sovereign bonds and governments bail out banks — would increase the stability of European economies in the event of another financial crisis. B) Regulators should try to break the doom loop by assigning positive risk weights — in calculating banks’ capital requirements — to banks’ holdings of domestic and other Eurozone sovereign bonds. C) Breaking the doom loop would impose substantial costs on powerful political constituencies.

This week's IGM European Economic Experts Panel Statements: A) Assuming it exits its third bailout program this summer without an immediate restructuring or other debt relief, Greece is unlikely to default on its sovereign debt in the coming decade. B) Greece would be better off if it had decided to exit the euro between 2011 and 2015. C) If Greece had defaulted on (or restructured) its private debt in 2010, while also staying within the euro, that combination would have been better for Greece than either exiting the euro or proceeding as it has actually done.

This week's European IGM Economic Experts Panel statements: A) Setting the EU rules aside, and assuming it would take 2.5% of Italy’s GDP to recapitalize its banks, the Italian government would improve financial stability in Europe if it injected this amount of public funds into its banks. B) If Italy were to inject public funds into its banks without imposing losses on at least some claimants, an important cost would be the effect on future incentives (economic or political) in Europe.

This week’s IGM Economic Experts Panel statement: The median Greek citizen will be better off if there is a “yes” vote in the July 5 referendum on whether to accept the terms of the bailout package offered by Greece's creditors.

This week’s IGM Economic Experts Panel statement: In 10 years, per capita purchasing power in Greece will be higher if — rather than continuing to service its debts over the next decade and complying with the budget rules currently in place — it refuses to accept a continuation of its current troika program and explicitly defaults on its debt held by the official sector.

This week’s IGM Economic Experts Panel statements: A: By discounting pension liabilities at high interest rates under government accounting standards, many U.S. state and local governments understate their pension liabilities and the costs of providing pensions to public-sector workers. (The experts panel previously voted on this question on October 1, 2012. Those earlier results can be found here.) B: During the next two decades some U.S. states, unless they substantially increase taxes, cut spending, and/or change public-sector pensions, will require a combination of severe austerity budgets, a federal bailout, and/or default. (The experts panel previously voted on this question on October 1, 2012. Those earlier results can be found here.)

This week’s IGM Economic Experts Panel statements: A: Taking into account all of the economic consequences — including the incentives of banks to ensure their own liquidity and solvency in the future — the benefits of bailing out U.S. banks in 2008 will end up exceeding the costs. B: Because GM and Chrysler were bailed out in 2008-09, the U.S. unemployment rate was lower at the end of 2010 than it would it have been if Congress and the executive branch had not intervened. C: Taking into account all of the economic consequences — including effects on corporate managers' incentives and on creditors' expectations of how their claims will be treated in future bankruptcies — the benefits of bailing out GM and Chrysler will end up exceeding the costs.

This week’s IGM Economic Experts Panel statements: A: By discounting pension liabilities at high interest rates under government accounting standards, many U.S. state and local governments understate their pension liabilities and the costs of providing pensions to public-sector workers. B: During the next two decades some U.S. states, unless they substantially increase taxes, cut spending, and/or change public-sector pensions, will require a combination of severe austerity budgets, a federal bailout, and/or default.

This week’s IGM Economic Experts Panel statements: A) Assuming that Germany eventually agrees to backstop the debt of southern European countries, the eurozone as a whole will be better off if that bailout is unconditional, rather than accompanied by the labor market reforms and future budget controls that Germany is demanding of countries in return. B) If Germany fails to bail out the southern tier of Europe, its own economy will be hurt more — because of output and asset losses — than it would be by an unconditional bailout. C) The main reason other eurozone countries need to worry about Greek banks losing access to ECB support is because the ensuing chaos in Greece could trigger bank runs in peripheral countries.