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5:10 p.m., Sept. 25, 2008----The current financial crisis occurred because no one paid enough attention, and the U.S. Congress could repeat the pattern if it doesn't closely examine the proposed bailout plan, a panel of University of Delaware financial experts said Wednesday evening, Sept. 24. The panel of experts spoke to a packed crowd of approximately 400 in the Loudis Recital Hall of the Amy E. du Pont Music Building.

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UD Distinguished Scholar in Residence William Poole told the crowd the hidden inner-workings of companies like AIG and Lehman Brothers are what led to the current crisis, while noting that foreseeing potential pitfalls is difficult even for economists.

“You have to be a real expert in a lot of this stuff to be able to make a judgment,” Poole said. “In fact, any of us up here, with the amount of expertise that we have accumulated over the years, would not be able to look at a published bank balance sheet and tell you whether this bank is sound or not.”

Poole, who recently retired as chief executive of the Federal Reserve Bank of St. Louis, is frequently quoted by the likes of Forbes and Bloomberg News. He joined three current and one former UD professor on stage.

Donald Puglisi, UD professor emeritus of finance and now director of Puglisi & Associates financial advisers, outlined the root causes of the crisis. They include, Puglisi said, irresponsible borrowers; consumers' financial illiteracy; government tax incentives for homebuyers; Freddie Mac and Fannie Mae's lending practices; former Federal Reserve Chairman Alan Greenspan; banking regulators and credit rating agencies.

Puglisi said the $700 billion Troubled Asset Relief Program proposed by the Bush administration is not a solution to these problems. “At most it is a stopgap measure to the current crisis,” he said.

Poole said the $700 billion bailout plan is not detailed enough. Noting that the Department of Treasury presented the entire plan to Congress in a document less than three pages long, Poole said it gives the Treasury too much power with too little oversight.

“We need to be sure we are not going to make things worse, which is what I believe is going to happen,” Poole said.

Puglisi argued any plan passed by Congress needs to be guided by two principles.

“The Treasury plan,” Puglisi said, “must not reward failure, and I think it should also be designed to minimize the cost to the American taxpayer.”

The panelists told the audience they did not have a fully formed solution to Wall Street's problems.

“There's no playbook for this. There's no plan,” said James Butkiewicz, professor of economics.

He and his colleagues noted any reform should include more oversight.

“I think it is important to convince people that the game is fair,” Butkiewicz said. It also involves convincing the public banking is safe, he noted.

The panel's experts called the situation a crisis, but agreed consumers can be confident their money is secure in a traditional commercial bank. They said educating consumers about the basics of banking could help boost confidence levels.

“There are many, many different kinds of financial institutions out there that the word 'bank' is involved with: commercial banks, investment banks, mortgage banks,” said Robert Schweitzer, Donald J. Puglisi Professor of Finance and professor of economics.

Schweitzer said mortgage bankers deserve a considerable amount of blame for the crisis. “Your typical commercial bank, which takes deposits [and] makes loans is not,” he said, part of the problem.

Article by Andrea Boyle
Photos by Kevin Quinlan