In the midst of unprecedented market turbulence, four UC Davis experts will weigh in on the government’s response to the financial crisis.
“Understanding the Financial Crisis,” a faculty panel, will begin at 12:10 p.m. at the Institute of Government Affairs, Room 360 of Peter J. Shields Library. The one-hour event is free and open to the public.
The panelists include Brad Barber, professor of finance at the UC Davis Graduate School of Management and director of the Center for Investor Welfare and Corporate Responsibility; Paul Bergin, associate professor of economics and a specialist in international macroeconomics; Alan M. Taylor, professor of economics specializing in international economics and economic history; and Eric Rauchway, professor of history and director of the Center for History, Society and Culture.
The panelists will discuss the Emergency Economic Stabilization Act of 2008, the recently passed bill commonly known as “the bailout.” The legislation gives the U.S. Treasury the authority to purchase up to $700 billion in U.S.-backed mortgage securities in order to inject liquidity and confidence into the financial system.
“It’s important that we restore credit markets to normalcy,” said Brad Barber, who studies the stock market and the psychology of individual investors.
Barber directs the Center of Investor Welfare and Corporate Responsibility, which “emphasizes the rigorous application of scientific principles to investment management and corporate practices,” according to the official web site.
Though variations of the phrase “Wall Street greed and irresponsibility” have been prolific during the presidential campaign, Barber said “there’s plenty of blame to pass around.“
“There is no doubt that many financial institutions originated loans that were predicated on false assumptions regarding home price appreciation and the ability of the borrower to repay the loan,” he said.
“Absent smoking gun e-mails, it’s difficult to know whether the false assumptions were simply foolish or something more nefarious,” Barber said.
Taylor and Rauchway will provide the historical perspective on the panel.
Taylor will discuss the “causes, solutions and fallout” of the 2008 financial crisis, he said in an e-mail.
Bergin, the other UC Davis economist scheduled to participate in the panel, did not respond to requests for an interview.
Rauchway, the author of The New Deal: A Very Short Introduction, said he will put the government’s response in a historical frame.
The causes of the Great Depression and the 2008 financial crisis have similarities, Rauchway said. In the 1920s, American consumers relied on credit as demand for big-ticket household items, he said.
But people around the world were borrowing money from the United States, which resulted from World War I, he said.
“Many countries depended on continuing lending from the U.S. to keep them in business while they tried to rebuild their economies after the damage of the Great War of 1914-1918,” Rauchway said in an e-mail interview.
However, after the Federal Reserve’s tightening of credit and the 1929 crash, unemployment rose, consumption declined and individuals and businesses defaulted on their loans, he said.
“The world situation is changed as far as who owes whom money – the U.S. is the big debtor now – but much of the story is indeed similar,” Rauchway said.
Unlike in the 1930s, the U.S. now has the Federal Deposit Insurance Corporation to protect deposits, the Federal Reserve to manage the money supply and a greater degree of international cooperation, Rauchway said.
In addition, Franklin D. Roosevelt, in order to stem the rising tide of unemployment, created the slew of infamous “alphabet soup“ agencies. Fortunately, Rauchway doesn’t predict such intervention will be necessary.
Seating for “Understanding the Financial Crisis” is limited, and so people are advised to arrive early. For more information about the Institute of Government Affairs, the sponsor of the panel, visit iga.ucdavis.edu.
PATRICK McCARTNEY can be reached at email@example.com.