Econ: The Forecast is...?

[notyoueither]

It is often said that European banks are more leveraged than American banks, even while being knee-deep in dodgy US mortgage securities -- which continue to decline, by the way. However, I have not seen the relevant comparable numbers to this effect. Just anecdotal stuff.

If it is true, then the European banks are well and truly screwed given that over half of our biggest banks are understood by all to be unsound.

It strikes me as likely that this crisis is hitting different European countries different ways. Maybe that's why it is difficult to craft a consensus policy. F.e., Germany may not have a banking crisis or a real estate bubble hangover, but it is overly reliant on exports that are plummeting. The UK is experiencing a banking crisis and a real estate bubble hangover, but is not very reliant on exports. And so on.

There is also their own home grown mortgage fiasco with Eastern Europe in hock up to the gills in Western currency, but with economies and currencies melting down around them.

The next bang? That's why I'd like to hear from some of them.

[DanS]

I cross-edited you with regard to Austria, etc.

[notyoueither]

Is it just Austrian banks? I'd read Italian, Swedish, Greek, etc...

[DanS]

I thought that the Austrians were the most involved -- to an astonishing degree, as I recall. That's why I mentioned it. Haven't heard much about the Swedes, Greeks, etc.

[DanS]

It's going to be a long eight years...

What? This money hole is shovel-ready.

[Victor Galis]

As a side note, doesn't Obama's proposed budget confirm my pre-election belief that he would govern as a European-style social-democrat?

I'm not that optimistic

[notyoueither]

I thought that the Austrians were the most involved -- to an astonishing degree, as I recall. That's why I mentioned it. Haven't heard much about the Swedes, Greeks, etc.

Perhaps I was a bit muddled. Austrian banks are the ones I've read about being in the 'enviable' position of having borrowed from Swiss banks to float mortgages to East Europeans in Swiss Francs.

Banks from other countries operate a lot in the East though, so the exposure is not just in Austria.

[Naked Gents Rut]

I did some more research for you, NYE.

Looking at all of the events from our 34-country history, we find that there is a 28% probability that a "minor depression" (macroeconomic decline of 10% or more) will occur when there is a stock-market crash. There is a 9% chance that a "major depression" (a fall of 25% or more) will occur when there is a stock-market crash. In reverse, the chance that a minor depression will also feature a stock-market crash is 73%. And major depressions are almost sure to have stock-market crashes (our data show the probability is 92%).

In applying our results to the current environment, we should consider that the U.S. and most other countries are not involved in a major war (the Iraq and Afghanistan conflicts are not comparable to World War I or World War II). Thus, we get better information about today's prospects by consulting the history of nonwar events -- for which our sample contains 209 stock-market crashes and 59 depressions, with 41 matched by timing. In this context, the probability of a minor depression, contingent on seeing a stock-market crash, is 20%, and the corresponding chance of a major depression is only 2%. However, it is still the case that depressions are very likely to feature stock-market crashes -- 69% for minor depressions and 83% for major ones.

http://online.wsj.com/article/SB123612575524423967.html

[Zkribbler]

It's going to be a long eight years...

Not long enuf. And not nearly as long as the last eight.

[Naked Gents Rut]

Well, I'm going to be paying for all 16 for the rest of my life. At least you can escape to the Phils.

[Cort Haus]

May I just lower the tone of this conversation for a moment to say that many of the staff of the Economist are so lazy that they get the lift to go up a single flight of stairs?

I know this to be true because I work in the same office block as them and while on my way up to the fifth floor am often tempted to mutter "I hope your legs get better" when they get out at the first.

[notyoueither]

I did some more research for you, NYE.

Looking at all of the events from our 34-country history, we find that there is a 28% probability that a "minor depression" (macroeconomic decline of 10% or more) will occur when there is a stock-market crash. There is a 9% chance that a "major depression" (a fall of 25% or more) will occur when there is a stock-market crash. In reverse, the chance that a minor depression will also feature a stock-market crash is 73%. And major depressions are almost sure to have stock-market crashes (our data show the probability is 92%).

In applying our results to the current environment, we should consider that the U.S. and most other countries are not involved in a major war (the Iraq and Afghanistan conflicts are not comparable to World War I or World War II). Thus, we get better information about today's prospects by consulting the history of nonwar events -- for which our sample contains 209 stock-market crashes and 59 depressions, with 41 matched by timing. In this context, the probability of a minor depression, contingent on seeing a stock-market crash, is 20%, and the corresponding chance of a major depression is only 2%. However, it is still the case that depressions are very likely to feature stock-market crashes -- 69% for minor depressions and 83% for major ones.

http://online.wsj.com/article/SB123612575524423967.html

That's interesting.

Do you have any objections to any of the content of the article?

[Naked Gents Rut]

Dunno. I'd have to get a better look at the statistical model to see if I find its results to be convincing or not.

[notyoueither]

Is he a well respected economist?

[Naked Gents Rut]

Barro is the man.