Experts weigh in on economic crisis

September 30, 2008 7:06:38 PM PDT
Democratic and Republican leaders have a delicate and complex mission, to create modifications that will win bipartisan support without creating defections. The financial markets are impatient and lawmakers are being cautious.

One idea being discussed is raising deposit insurance from the current $100,000 to $250,000. That would give savers more confidence that their money is safe.

Professor Aaron Edlin at Cal, one of the economists who sent a letter to Congress saying the rescue plan doesn't go far enough, thinks the FDIC coverage should be unlimited.

"We have a financial firestorm, and we need to make a firebreak that's a long ways from the problem on Wall Street and make sure that depositors don't run on banks," said Edlin.

Another behind-the-scenes discussion is extending unemployment benefits and changing accounting rules to force banks to take big write-downs for their bad loans.

Economics professors at the University of San Francisco held a forum on the financial crisis. Richard Putillo, who teaches investment banking and finance, says Wall Street must be frustrated by how the slow process is.

"I'm sure this is incredibly frustrating to the fast pace on Wall Street, frankly the fast pace in business. But on the other hand, this is our government. It is the way we work," said Putillo.

Both parties have their deal breakers, and leaving besieged homeowners facing foreclosure out of the plan could jeopardize passage.

"I guess the thought is the bailout will stabilize the credit markets enough so other people can start taking out mortgages, that will eventually drive up the need for houses and reduce the risk for foreclosures," said Prof. Gary Neustadter of Santa Clara University Law School.

The longer it takes Congress to decide how to proceed, the world financial system will be facing paralysis.

USF's Hartmut Fischer worries about a protracted delay.

"There is going to be a huge breakdown of confidence in the system, and yes, as hard as it is to say, and I do not think it will happen, we could end up very quickly in a period of depression," said Fischer.

It is that serious. Economists don not use the word depression lightly. However, they are very aware that Federal Reserve Chairman Ben Bernanke is an expert on the Great Depression, and no one wants to be responsible for another one.


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