Besides the US and Germany, what about the other nine countries suffering a financial crisis meltdown? (They were France, Greece, Iceland, Ireland, Italy, the Netherlands, Portugal, Spain, Ukraine and Britain.) They’re doing especially poorly, and according to Ms. Reinhart, “This crisis may in the end surpass in severity the Great Depression in a large number of countries. In fact, it may very well have one of the most protracted and painful recoveries for advanced countries in the aggregate.”

So why are we doing relatively well?

  • First, US policymakers threw more fiscal and monetary stimulus at the economy early in the crisis—at least as compared with the rest of the world. (Arguably, to be fair to the EU, it was relatively paralyzed by systemic institutional constraints: In central banking land, there’s no elixir more invigorating than being able to print the currency in which your sovereign obligations are denominated.)
  • Second, the US is much better at debt restructuring and workouts than most of the rest of the world. Not only is the US Treasury everybody else’s haven in a time of crisis—enabling us to borrow more cheaply than the rest of the world—but our legal system and private sector is far more tolerant, if not absolutely welcoming, of second chances and bankruptcies. For example, US homeowners who walk away from an “underwater” house lose the house, but they’re no longer liable for the mortgage debt. In Europe, the debt stays with you.

What moral can we draw for Law Land?

I think the lesson that jumps from our recent experience is that a forward, not a backward, orientation is always going to work out better. I don’t mean to make the learning sound more portentous than the facts will actually support, but one of the greatest strengths of the American civil character is that we don’t just permit but celebrate second chances. (Exhibit A: here you can lose the house and lose the debt, but elsewhere you lose the house and keep the debt.)

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