In early May 1970, a long-standing wage dispute between Irelands banks and their employees unions finally came to a head. The staff walked out, and to the nations horror virtually the whole of Irelands banking system shut up shop. Wage negotiations dragged on into the summer, and then through the autumn. In the end, it was November before the banks reopened. For six and a half months, Irish companies and individuals had to survive without access to the facilities of the modern monetary system: no bank accounts; no clearing of cheques; no withdrawals of cash; no wire transfers; and so on.End of Moneyby David Wolman Buy it from the Guardian bookshopSearch the Guardian bookshop Most people, when they hear this story, assume that its effects on the economy must have been catastrophic. The reaction at the time was no different. A contemporary newspaper warned darkly of “a rapidly growing paralysis… spreading through the economy because of the banks dispute”. The reality was very different. The Irish Central Bank concluded in its official review of the episode not only that “the Irish economy continued to function for a reasonably long period of time with its main clearing banks closed for business”, but even that “the level of economic activity continued to increase”. In the absence of the official banking system, people and companies simply resorted to using private IOUs to settle payments. Few people would have believed that such a widespread and successful ad hoc monetary system could spring up and spontaneously replace the official version. But in the breach, it did – and it worked.
Archive for the ‘Financial Crisis’ Category
The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard Poor’s. The next rescue could be about a trillion dollars costlier, the credit rating agency warned.
SP put policymakers on notice, saying there’s “at least a one-in-three” chance that the U.S. government may lose its coveted AAA credit rating. Various risks could lead the agency to downgrade the Treasury’s credit worthiness, including policymakers’ penchant for rescuing bankers and traders from their failures.
“The potential for further extraordinary official assistance to large players in the U.S. financial sector poses a negative risk to the government’s credit rating,” SP said in its Monday report.
But, the agency’s analysts warned, “we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.”
Because of the increased risk, SP forecasts the potential initial cost to taxpayers of the next crisis cleanup to approach 34 percent of the nation’s annual economic output, or gross domestic product. In 2007, the agency’s analysts estimated it could cost 26 percent of GDP.
Last year, U.S. output neared $14.7 trillion, according to the Commerce Department. By SP’s estimate, that means taxpayers could be hit with $5 trillion in costs in the event of another financial collapse.
Experts said that while the cost estimate seems unusually high, there’s little dispute that when the next crisis hits, it will not be anticipated — and it will likely hurt the economy more than the last financial crisis.