A comment on government bailout measures in the global financial crisis

The subprime mortgage crunch that had simmered throughout 2007 erupted into a global financial crisis in mid-September 2008. To deal with the globally raging crisis, governments worldwide unveiled massive bailout plans. Up till now governments have been ratcheting up the size of bailouts and the extent of direct intervention as the financial crisis is spreading and the economic recession is deepening. Meanwhile, governments worldwide are also making tough policy choices among bailout and economic stimulus options. Government decisions made in this unprecedented global financial crisis are, in our opinion, replete with contradictions and mistakes. It is fully understandable that a government may make imperfect decisions when it takes on an unprecedented challenge without adequate preparation. Severely underestimating the nature and magnitude of the crisis and lacking a global macro-perspective and an overall framework and guideline when designing bailout packages, have, however, affected the impact of bailouts and created pitfalls that may come back to haunt the economies in the future.