| When asked what is the worst thing that could | | | | 1-5 years. The survey also asked whether the |
| happen to the economy, German people answer | | | | respondents or their friends or family had lost money |
| inflation and Americans answer unemployment. This | | | | during the crisis of 1996. The objective was to see |
| difference is deeply rooted in the experience of the | | | | how experiences reported in that question affects |
| two countries during the turbulent economic times | | | | people's expectations of another crisis. The survey |
| between the two world wars. Germany experienced | | | | found that only a third of Bulgarians ruled out the |
| what is still considered to be one of the worst | | | | possibility of a banking crisis, while a third believed |
| inflation periods of all times and the U.S. population | | | | that a crisis is likely or very likely. This is remarkable |
| was traumatized by sky high unemployment. Almost | | | | because Bulgaria has had very successful reforms in |
| a century later these experiences affect how people | | | | its financial system and its economy. |
| think and how societies structure their economic | | | | Yet, the survey found that the 1996 crisis still |
| policies - the German authorities place a top priority | | | | weighed heavily on respondents minds. People who |
| on controlling inflation whereas the U.S. government is | | | | had experienced a large loss in 1996 were almost 50 |
| vigilant on unemployment. | | | | percent more likely to expect another crisis. Clearly, |
| That negative experiences affect expectations and | | | | going through a traumatic financial event has |
| behavior was confirmed recently in a research report | | | | long-term effects on people's trust in the stability of |
| using data from Bulgaria. Bulgaria is a small country is | | | | the financial system. Furthermore, incomplete trust |
| Southern Europe, one of the Soviet satellites that | | | | affects behavior. People repeatedly mentioned lack |
| began market and political reforms in the beginning of | | | | of trust as one of the major reasons for not opening |
| the 1990's. It was, however, too eager to liberalize its | | | | a bank account, taking out credit or investing in the |
| financial system and too slow to reform its real | | | | stock market. |
| economy. Government provided credit to politically | | | | Would we see the same effect in the U.S.? How long |
| important enterprises and corruption contributed to a | | | | would it take for people who lost 50 percent of their |
| build-up of bad debts in the banking system. By 1996, | | | | retirement portfolio and 20-30 percent of the equity |
| the situation was unmanageable and a large fraction | | | | in their homes to become enthusiastic investors |
| of the banking system imploded. Many people lost | | | | again? The analysis from Bulgaria suggests that it |
| their life savings. | | | | may take years and possibly decades. One more |
| Twelve years later, in May 2008, a national polling | | | | reason to avoid a meltdown of the financial system. |
| agency conducted a survey investigating whether | | | | The full report it available as a research paper from |
| the experience of 1996 affects how people were | | | | the Economics Department of Georgia State |
| thinking about the financial system. The survey asked | | | | University in Atlanta, in the U.S. |
| people whether a banking crisis is likely in the next | | | | |