The panel titled “A New Financial World Order?,” sponsored by the Prebusiness Program, included Miles Cahill, associate professor of economics; Loren Cass, associate professor of political science; Michael Lochhead, vice president for administration and finance; Lee Oser, associate professor of English; and B. Jeffrey Reno, associate professor of political science. Each was given 12 minutes to present one aspect of the causes and/or effects of the financial crisis. Professor Chu moderated.
The panel jumped straight into the issues behind the crisis. Cass explained how countries with large current account surpluses recycled their capital into the United States, looking for investments with high returns, and ending up in investing in bundled subprime mortgages. Reno delved into the history of the subprime loan and how executives at Fannie Mae and Freddie Mac manipulated loan practices that contributed to the subprime problem.
Cahill recapped the evolution of credit default swaps, a derivative investment which are essentially insurance for bonds, and how insurers who were allowed to purchase insurance on bonds they didn’t own spawned an oversized and unregulated market.
Oser put modern economics in the context of Catholic belief, invoking the works of St. Thomas Aquinas, Pope Leo XIII, and Pope John Paul II, who proposed re-evaluation of economic morality as well as giving considerable authority to local communities.
Following the presentation, the panel took questions from the audience. When asked “Is everything changing?” the respondents said people will need to have “faith.”
“We’re seeing very similar patterns here that have occurred throughout history,” Cahill said. “The economy can and does recover, but it requires faith in the investments that people are making. Recent deregulations may have contributed to the credit crunch, and perhaps more regulation is necessary.”
Lochhead agreed. “I believe the credit markets will come back, but people will need to have faith in them first.”
The world’s finances are uncertain because the market is now so volatile, the panelists said. One thing that is certain, though, is that the U.S. government will play a major role in financial institutions, possibly becoming a major financial institution in the coming years.
“The government and the Fed are now buying stakes in banks, effectively owning your debt,” Cahill said.
“The federal government will be a big lien holder for a lot of debt, including student debt,” Lochhead added.
By Anthony Curotto ’09
