Transcripts

"Commentary"-How Financial Crisis Can Pay Off

SUSIE GHARIB: In tonight's commentary, when a financial crisis is actually an economic safety valve. Here's Michael Mandel, chief economist at "BusinessWeek."

MICHAEL MANDEL, CHIEF ECONOMIST, BUSINESSWEEK: Five: that's the number of major financial crises we've seen since 1987. Almost like clockwork, the bottom falls out of some market every few years. First, of course, was the October 1987 crash, then the credit crunch of the early 1990s, the emerging market crisis of '97, '98 and the tech bust of 2001, 2002. Now, of course, we're grappling with the sub-prime mess, which is number five. Each event, at the time, seemed like a potential disaster. The credit crunch of the early 1990s, for example, was called the worst banking crisis since the great depression.

But guess what? The horrible predictions did not happen. Central banks and regulators responded vigorously. The banking industry did not collapse and borrowers had little trouble raising money. In fact, despite five financial crises, the past 20 years have been remarkable for the smoothness of growth. The U.S. has had only two minor recessions and the global economy has not experienced a single down year. The sub-prime mess is probably not going to make much of a dent in global growth either.

Here's a thought: perhaps-- just perhaps-- these financial disruptions are not a sign of instability. Perhaps the so-called crises are really safety valves for the global economy. The periods of volatility scare investors and borrowers out of excess risk-taking, without causing any lasting damage to the real economy. The implication is simple. If the global economy is functioning well, we should expect a financial crisis every five years or so. In today's world, crisis may be the new normal. I'm Mike Mandel.