Could things get worse?
By: Myles, July 20th, 2008
Here’s the potential $2.8 trillion dollar question. In a revealing article in the New York Times, they investigate the question of how bad could things get? Since World War II, there have been 18 banking crises in industrial countries. The worst five were caused by changing lending standards or real estate bubbles (often both) and cost at least 6 to 20 percent of G.D.P.; the U.S. equivalent of $850 billion to $2.8 trillion.
These are the worst five in history:
But Can Past Banking Crises Tell Us Anything About What’s Next?
In a startling revelation, in the four years leading up to the current crisis, home prices behaved much as they did in the worst crises of the past, according to a study by economists at the Univerity of Maryland and Harvard, entitled: Is the 2007 U.S. Sub-Prime Financial Crisis So Different?
If the trend holds, prices will fall an additional 15 percent in the next three years.But, how does the current downturn compare with past U.S. recessions?
There are signs, but no one knows what the future holds for sure. What we can say is that we continue to track current events and are zealous about analyzing history to see if there are any tell-tale signs to guide our readers and clients moving forward. These reports many not be fully dispositive, but they are instructive, nonetheless. History often comes close to repeating itself. Will this time be different?
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