Posted by: Dirk | September 2, 2009

The costs of the crisis

The German newspaper Die Welt has put Commerzbank Research to work to find out what the crisis has cost us:

Studie
Finanzkrise vernichtete bislang 10,5 Billionen Dollar
Von Martin Greive 29. August 2009, 09:45 Uhr

Ein Jahr nach der spektakulären Pleite der US-Investmentbank Lehman Brothers kommt die ganze Wahrheit ans Licht. Laut einer aktuellen Berechnung für WELT ONLINE hat der Kollaps der Finanzwirtschaft weltweit einen Schaden von 10,5 Billionen Dollar verursacht – davon einen beträchtlichen Teil in Deutschland. Doch der Crash hat auch etwas Gutes.

So total cost is 10.500 billion US dollars (never mind the Billionen: eine Billion = a thousand billion) due to write-down of values of different financial assets. Although I like the idea of a newspaper outsourcing some research to some experts, I wonder whether this act was successful. Here are my two objections:

  1. How can you speak of costs and then speak about loss of wealth that is measured in book values? If people see a stock fall from 1,000 to 500, nobody would conclude that people have to shoulder a cost of 500 for every stock they hold. The idea is ridiculous. If some people misjudge the value of a stock and then that value is corrected by the market, why should there be a loss to anyone? OK, some people are not as rich as they believed to be, but calling that a cost?
  2. There have been some real costs in terms of resource misallocation due to wrong relative prices. There have been some real costs in terms of unemployment. There have been some real costs in terms of bail-out money. There has been some costs in terms of providing the banks with cheap money. What about that?

The article leaves me – again – with a feeling that it’s better to read nothing at all about the financial crisis than reading a (German) newspaper.

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