Monthly Archives: November 2012

Why didn’t the U.S. follow Iceland’s example and forgive all debt by its citizens to recover from the financial crisis?

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Since the end of 2008, Iceland’s banks have forgiven loans equivalent to 13 percent of the gross domestic product, easing the debt burdens of more than a quarter of the population.  According to Laes Christensen, Chief emerging markets economics at Danske Bank A/S in Copenhagen “Iceland followed the textbook example of what is required in a crisis.  Any economist would agree with that.”

I will start off the paper discussing Iceland’s economy and what lead to their economic meltdown and how large a role forgiveness of debt played in helping them to recover.  The second part of the paper I will discuss what America did in order to recover from the financial crisis and what experts said about forgiveness of debt, both good and bad.  I will also add my own opinion and tell who I agree with and why.

I will conclude my paper with how President Franklin Delano Roosevelt forgave debt to help America recover from the depression in the 1920’s and what financial experts said about his decision to do so.

Paper Draft

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Jacques Toussaint

Professor Mkang

Pol 3103

November 18, 2012

 

 

Swiss Government and Economic Recovery

The financial crisis experienced in 2008 was the single largest economic slow down globally. Five years later, many of its effects are still being felt and recovery only seems feasible when making projections over the next ten years.  Unemployment, through much of the western world, stagnates near 10%. Pre-crisis normalcy seems nowhere in sight in the United States or in much of Europe. However, Switzerland, one of the financial capitals of the world, seems to have recovered from all symptoms of the crisis. Unemployment is under 3% and the median income is over USD 107,000 a year. Why? Why has Switzerland managed to overcome the banking crisis when others are still suffering from its effects?

The answer is quite simple: strong government intervention. The extensive role of the state has created market-wide reforms for the Swiss banking system and the measures implemented have created a secure and trusted banking system. It has made the baking system both strong and capable of handling major crises, such as the one that occurred in 2008. Many credit the strength of the banking system to large influx of international capital when in fact it is the other way around; the strength of the system attracts capital. The strength of Swiss banks comes from the strong government regulations.

The first section of my paper will discuss the what is implied by “overcome” and the “banking crisis” when referring to the Swiss financial system. The second part of the paper will summarize the current views as to why Swiss banking is strong today while comparing it to current American banks. The third part will discuss my hypothesis as to why Switzerland has largely avoided and recuperated from the financial meltdown of 2008. Finally, I will discuss how the United States government could learn from some of the microeconomic policies implemented in Switzerland and how these policies could help the United States recover at a faster pace.