To keep updated on the economic crisis you should check Understanding the economic crisis from a variety of points of view: University of Chicago faculty provide their perspectives
The latest news from our faculty members and their views are the following:
U.S. Financial Crisis, October 13, 2008
Luigi Zingales offers advice on how to fix the credit mess
Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance, says “quickie bankruptcies” are the best way to solve the financial crisis. Writing in an “On My Mind” column in Forbes October 27, he said, “Countless kibitzers told Hank Paulson that there was a better way to rescue the financial system than to buy up bad mortgage paper. Many believe the government should buy preferred stock, the way Warren Buffett is doing. Here’s a third way to end the crisis. It’s simple and it doesn’t cost taxpayers a dime. My proposal is to streamline bankruptcy in a way that would allow banks to restructure their debt and restart lending. This special Chapter 11 would be temporary, lasting only one year.” The plan “upholds the free market principles that we live by,” he wrote.
Recapitalize banks in Europe to solve the financial crisis there
Christian Leuz, Joseph Sondheimer Professor, says “instead of saving one failing bank at a time or competing with each other for deposit insurance, European regulators and governments should unite and come up with a joint response to the crisis before the situation spirals out of control.” Writing in an op-ed in the Wall Street Journal Europe October 9, Leuz said, “The markets are concerned about the undercapitalization of banks regardless of the regulatory rules. There are several ways to recapitalize the banking system. One promising proposal is to insist that banks raise the equivalent of, say, 2% of their assets through a rights offer … A mandatory recapitalization avoids the negative signal to the market that an effort to raise capital by a single bank would send in this environment.”
Anil Kashyap supports government plan to buy up parts of U.S. banks
Anil Kashyap, Edward Eagle Brown Professor of Economics and Finance, says the U.S. government’s plan to possibly buy up parts of troubled banks is a better solution than just buying up troubled assets or letting the economy grind to a halt. In an interview on NPR’s “Day to Day” program October 9, Kashyap said the credits markets are frozen because banks are unwilling to lend to each other. For that situation to change, banks need to become confident that if they do lend to other banks, they will get their money back. Sitting by and letting the banking system grind to the ground is certainly not in the national interest, he said. “At this point if the choice is to let the banking system implode or use some government money in an intelligent way to prop up the banking system, almost all responsible economist here and elsewhere would choose the latter.”
