Wednesday, September 24, 2008

The Iraq war cost US its financial system

The US government last weekend decided it could no longer risk taxpayers’ money by supporting Lehman Brothers and on Monday that bank filed for bankruptcy. In assessing the wisdom or otherwise of this decision one fact should be kept in mind: the International Monetary Fund estimates that the total cost to banks of losses stemming from the subprime crisis will amount to $1,000bn; the cost of the war in Iraq, according to other estimates, particularly one by Linda Bilmes and Joseph Stiglitz, will come to $3,000bn.

The US has shot its financial bolt in Iraq, which may cost the country its financial system. It quite simply no longer has the money to stop a run on banks. Seen in this light, the war in Iraq brings to mind the ruinous decision on the part of the French ancien rĂ©gime to finance Lafayette’s campaign during the American revolution.

John M. Coates, University of Cambridge, Cambridge, UK