One of the great things about investment banking is that even while a bank like Merrill Lynch goes down the tubes and gets taken over, its economics team steadily churns out research about the process as if it were happening to somebody else. It's a bit like when the BBC had to report on its own self-destruction after the Hutton Report. It can be done, and a paper from Merrill's economics team today makes fascinating reading. It's a summary of a much bigger IMF document on banking crisis, which surveys 124 historic banking crises. It's so good I am simply going to quote from it so that, if anybody in the White House cabinet room happens to be reading this, they too can quote bits of it as they get on bended knee to each other to plead for signatures on the TARP Act....

"An inconvenient truth: Net fiscal costs from banking crises are substantial, averaging 13.3% of GDP. The government is highly unlikely to make a profit on any program; the average recovery rate is just 18% of gross fiscal costs. Real GDP losses average 20% relative to trend during the first four years of the crisis. There is a negative correlation between output losses and fiscal costs: the higher the fiscal costs, the smaller the loss of output."

Translation: Dear Mr Obama, forget your plans for healthcare. Dear Mr McCain, who is gonna pay for more surges? Dear Mr & Mrs Joe Public of America - expect 4 years where you feel 80% as wealthy as you do now...



