Does Paulson Really Think the Credit Crunch Will Last a Decade?

How long does Hank Paulson think this credit crunch will last? According

to the FT, it could be a decade:

The crisis of confidence in credit markets is likely to last longer than

previous financial shocks of the past two decades, Hank Paulson, Treasury

secretary, warned on Tuesday.

He said the uncertainty in credit markets would last longer than the turmoil

that followed the Asian crisis and the Russian default of the 1990s or the

Latin American debt crisis of the 1980s.

The turmoil that followed the Asian crisis and Russian default of the 1990s

we know about. It started in late 1997, and it continued until about 1999. Call

it 18 months.

But the Latin American debt crisis of the 1980s was much more prolonged. That

started with Mexico’s default in 1982, and didn’t really end until the Brady

Plan, which was launched in 1989 and didn’t really get moving until well into

the early 1990s.

But is the Latin American "lost decade" really what Paulson was referring

to? Here’s the quote in the FT:

Mr Paulson said he had been an investment banker at Goldman Sachs during

the “Russian default, Asian crisis . . . and Latin American credit crisis”

and expected this bout of uncertainty in credit markets was “going to

take longer” to resolve.

The thing about Latin America is that it’s never very far from a credit crisis.

It’s entirely possible that Paulson here was referring not to the 1980s but

rather to the period from 2001 to 2002, in which Argentina and Uruguay both

defaulted and political worries sent Brazilian bonds tumbling to severely distressed

levels. That crisis lasted two years, not ten years: a big difference.