Jolly rich from the rich

The Economist’s latest supplement (15 May 2008) on ‘modern finance under attack’ dubs the finance sector’s critics ‘Barbarians at the vault’. The magazine’s leader writers are confident of their analysis and unequivocal: “Bubbles, excess and calamity are part of the package of Western finance. And still it is worth it.”

In the same issue writers point to research that gives some inkling of the “calamity” that faces households and businesses. In February, America’s Monetary Policy Forum suggested that if American financial institutions were to end up losing $200 billion ($285 billion is already to be written-down for sub-prime-asset-backed securities alone according to some estimates) then “credit to households and companies would contract by a whopping $910 billion. That equates to a drop in real GDP growth of 1.3 percentage points in the following year”.

That to you and me dear readers, means businesses going bankrupt, unemployment rising and people losing their homes. We wait to see how many consider such a calamity brought on by western finance as “worth it”.

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