# What We Can Learn From Chile's Financial Crisis

#### charlesdwright

You wouldn't know it from all the panicky headlines but the current turmoil on Wall Street is not the world's first financial crisis. Latin America has suffered more than a few, and many were on a larger scale relative to the economies they hit.

One was triggered by Chile's 1982 economic collapse. For a small country it was a lot worse than what is happening in the U.S. today. The Bush economic team could learn from how it was handled.

The Chilean plan helped the banks recapitalize and protected depositors. It also minimized moral hazard and kept the government's role from expanding. The intellectual support for economic liberty was preserved and this protected the market system, which over the past 25 years has not only survived but prospered.

The Hank Paulson-Ben Bernanke testimonies before Congress last week warned of a looming crisis of biblical proportions. President George W. Bush went on television Wednesday night to stir even more public fear.

#### charlesdwright

...Also the \$700B should be used to create millions of jobs; that will enable people to start paying their mortgages.

...that's what you really don't want -- a government creating jobs. The market is fully capable of doing that.

#### charlesdwright

There is a little detail that is not mentioned in the article. At the time, the president of Chile was Augusto Pinochet who had full control over everything... including opposition. Read more here [wikipedia]Pinochet[/wikipedia]

I'm actually soliciting objections to this plan, because I don't know what its drawbacks are.

I don't think it would require a dictator to work, however. Do you?

I do think it's going to take far more charisma than congress has to calm the markets now. They've basically shown themselves to be unable to deliver. If there was such a thing as the perfect plan, they don't have enough credibility to present it convincingly at this point.

Unless the selloff is very orderly, we may see temporary closures.

#### hskk

I did not mean government jobs, I meant government helping the free market to create jobs by giving loans, making supporting laws and trade deals.

...that's what you really don't want -- a government creating jobs. The market is fully capable of doing that.

#### alain

##### Older and Wiser
Chaz, my point is that any plan that worked in Chile at the time had the stamp of approval from Pinochet, which meant, it was going to be put in practice right away. Nobody would oppose it (or dare to oppose it).

Here, things are a little different. That's the reason, for instance, this plan was shutdown even though the president agreed with it.

#### charlesdwright

Chaz, my point is that any plan that worked in Chile at the time had the stamp of approval from Pinochet, which meant, it was going to be put in practice right away. Nobody would oppose it (or dare to oppose it).

Here, things are a little different. That's the reason, for instance, this plan was shutdown even though the president agreed with it.

Understood. But as to soundness of the plan itself, it's not material, right?

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