In the News (The New York Review of Books): “The Crisis and How to Deal with It”
Following are excerpts from a symposium on the economic crisis presented by The New York Review of Books and PEN World Voices at the Metropolitan Museum of Art on April 30. The participants were former senator Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells, with Jeff Madrick as moderator.
Jeff Madrick: “We have a three-front problem: a housing market that went crazy as the housing bubble burst; a credit crisis, the most severe we’ve known since the early 1930s; and now a sharp drop in demand for goods and services and capital investment, leading to a severe recession.”
Bill Bradley: “The national government has now made about $12.7 trillion in guarantees and commitments to the US financial sector, and we’ve already spent a little over $4 trillion in this crisis… If we look out to June, July, and if we see that the PPIP [Public-Private Investment Program, created by Treasury Secretary Timothy Geithner] is not succeeding, that the bank assets aren’t being bought at levels that they should be bought from the books of banks.”
Neal Ferguson: “This is the end of the age of leverage, which began, I guess, in the late 1970s, and saw an explosive rise in the ratio of debt to gross domestic product, not only in this country, but in many, many other countries… This is a crisis of the global economy. I’d go so far as to say it’s a crisis of globalization itself.”
Paul Krugman: “US households have seen their net worth decline abruptly by $13 trillion, and there are similar blows occurring around the world. So the people, individual households, want to save again… This causes a problem… If we ask the question “Where will the savings come from to finance the large US government deficits?,” the answer is “From ourselves.”
The Chinese are not contributing at all… Things are getting worse more slowly, but we have not managed to head off a crisis that could turn out to be self-reinforcing, and leave us in this trap for many, many years.”
Nouriel Roubini: It’s pretty clear by now that this is the worst financial crisis, economic crisis and recession since the Great Depression… But we’re still contracting at a pretty fast rate… The outlook for Europe and Japan, both this year and next year, is even worse…
The lesson of the Great Depression is quite clear: it began with the collapse of the stock market in 1929, and we ended it with World War Two. Therefore, war is a consequence of failing to take necessary measures within a required time frame.
Politicians are of the opinion that self-regulation is the way to go, which means that there’s no regulation whatsoever. The entire model of self-regulation and market discipline has gone down in flames.”
George Soros: There are two features that I think deserve to be pointed out. One is that the financial system as we know it actually collapsed… At the same time, the financial shock had a tremendous effect on the real economy, and the real economy went into a free fall, and that was global…
Markets were seen basically as self-correcting. That paradigm has proven to be false… When people see this crisis as being the same as previous financial crises, they’re making a mistake… The interesting thing is that what needs to be done in the short term is almost exactly the opposite of what needs to be done in the long term. Obviously the problem was excessive leverage.”
Robin Wells: In many ways we’re almost adverse to bringing up the situation in which we find ourselves with the net exporting countries… So I think we’re going to have to address these chronic global trade imbalances. You might very well see a shift toward more protectionism.”