News Release

Economic Crisis


Author of the books Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity and The Macroeconomics of Saving, Finance, and Investment, Pollin said today: “U.S. and global financial markets are mired in a severe crisis due to the collapse of the U.S. housing bubble and the subprime mortgage market. A recession is almost certainly on the way, if it hasn’t already begun. …

“We need to start seriously discussing a new structure of financial regulations. Rebuilding a stable source of affordable housing credit should be a top priority. There are useful lessons to extract from the old S&L regulatory system … We should also impose taxes on speculative asset trading, including the stock, bond, and real estate markets. We already heavily tax gambling casinos and race tracks. Why should high-rolling on Wall Street be exempt?

“If financial markets feel entitled to rely on government life supports whenever they face troubles, why shouldn’t we invite public controls over the financial system the rest of the time, when these would so emphatically benefit the well-being of the majority?” Pollin is the Political Economy Research Institute’s founding co-director and professor of economics at the University of Massachusetts at Amherst.

Henwood is editor of Left Business Observer and author of the book Wall Street. He said today: “The Fed’s surprise cut in interest rates was extremely unusual, especially coming just a week before a scheduled policy meeting. … Looking beyond the present, it’s absolutely essential that we learn the lessons of this disaster and re-regulate the financial system to prevent another bubble and bust several years down the road.”

Co-director of the Center for Economic and Policy Research, Weisbrot said today: “The housing bubble started to burst in the second half of 2006, and it was predictable (and predicted) then that the collapse of this enormous bubble would probably cause a recession, just as the collapse of the stock market bubble caused the recession of 2001. However the Fed has been slow to respond. The Fed’s latest move shows that they are now recognizing the seriousness of potential falloff in demand, as well as the unknown instability in international financial markets brought on by the widespread distribution of bad mortgage-backed securities. The Fed and Congress are also both feeling some heat from Republicans who fear that a recession, combined with an unpopular war, could lead to a rout of their party in November elections.”

D’Arista is an economic analyst at the Financial Markets Center, which monitors the Federal Reserve as well as financial markets. She said today: “The current crisis was all but engineered by the Greenspan Fed without recognition by Ben Bernanke of the problems building up as he stayed the course. The excess liquidity that blew up the housing bubble was the result of the Fed’s clinging to reliance on its ability to move the federal funds rate and not recognizing, until months after the high tech bubble burst, that it would have to flood the market to get the economy to respond. Having thrown out all ability to directly influence the growth of bank credit and ignoring the fact that more and more credit growth was occurring outside the banking system, the Fed failed to see that what had fueled both the high tech and housing bubble was an unprecedented rise in household and business debt and borrowing by the financial sector itself. Continuing to promote its belief in the superior ability of market forces to ensure stability, the central bank turned a blind eye to financial excesses including the incredible volume of leveraged speculation by financial institutions that has ended in a still-unwinding credit crunch.”

For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167