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.

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