[Tageblatt, Luxembourg, U.K.]

Le Monde, France

The Global Downturn:

A ‘Shock of Suspicion’

‘The shock was all the more rude since Western economic and monetary leaders have long explained that the worst was ‘unlikely.’ … The global financial system has in a scant few months, gone from an excess of confidence to an excess of suspicion.”

EDITORIAL

Translated By Kate Davis

January 23, 2008

France - Le Monde - Original Article (French)

American economist John Kenneth Galbraith, who studied crashes down to the last detail, wrote, "What we do know is that speculative episodes never come gently to an end. The wise, though for most, the improbable course, is to assume the worst.” The subprime crisis confirms his judgment. With a brutality unseen since September 11, 2001 - this is first of all why stock markets have been dropping for several days.

The worst, then, seems to be heading our way very quickly. It’s not clear by what miracle the world’s leading economy - that of the United States - will manage to escape a recession. The global banking system, for its part, is vacillating. Some of the biggest American and European institutions find themselves in a situation so critical that to bail themselves out, they had had to call in emergency capital from Asia and the Middle East.

The shock was all the more rude since Western economic and monetary leaders have long explained that the worst was “unlikely.” The American Federal Reserve estimated that the bill for the subprime problem would hardly exceed $100 billion. It has now risen to several hundred billion. Like her colleagues, French Finance Minister Christine Lagard has long argued that the real economy wouldn’t be affected by this purely financial crisis. This was supposed to be reassuring, but its soothing nature only slowed the realization among economic actors of the gravity of the situation.

In a globalized and financialized economy, how is it imaginable that the catastrophe would remain confined to the United States, and have only a marginal impact on the planetary growth? … That the Chernobyl cloud of the subprime crisis would not cross the Atlantic? From tiny Norwegian towns on the verge of bankruptcy because of their reckless investments to banks in Communist China, the entire world is now affected.

But the crisis is no longer that of subprime loans - and hasn’t been for quite some time. It is that of global credit, of the financing of the economy as a whole. That makes it extremely disturbing - far more so than the dot-com crash - and particularly difficult to overcome. Because most of all, this is a matter of psychology. The global financial system has in a scant few months, gone from an excess of confidence to an excess of suspicion. Yesterday, money was being lent to anyone at any price. Today, money isn’t being lent to anyone. To find a balance, the duty of truth and transparency applies to everyone, bankers as well as economic and monetary officials.

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