Professors provide information on crumbling credit system
By: Christine Digangi
Issue date: 10/3/08 Section: News
With the country's financial institutions buckling under a faltering credit system, economics professors decided to explain the financial crisis in typical DePauw fashion - they hosted a panel discussion.
Watson Forum was filled with students, faculty and staff Wednesday afternoon as professors Gary Lemon, Ann Jennings, Kellin Stanfield and Kerry Pannell attempted to break down the recent economic struggles that caused the U.S. Senate to pass a $700 billion bailout bill Wednesday evening.
To start the discussion, the panel preceded the question-and-answer session by taking turns explaining the current and historical functions of financial institutions in the U.S. Displaying a timeline of past economic crises from the beginning of the 20th century to the present, Pannell pointed out waves of regulation and deregulation that have marked the fiscal history of the country. She addressed the peak and fall of housing prices in 2006 that have led to today's problems with rising foreclosures, an event that foreshadowed the current state of the economy.
Following Pannell, Jennings provided the audience with an example of a balance sheet in order to show the fallout of a collapsing financial institution. The sheet showed the relationship between liabilities and assets.
Using the bankrupt Lehman Brothers Holdings Inc. investment bank as an example, she explained how these companies collapse. As a result of unpaid assets that lead to unpaid liabilities, bankrupted financial institutions can ignite a domino effect the results of which she labeled "the credit crunch."
"The worry is that there's not going to be enough credit to allow the economy to function," Jennings said.
Lemon focused on the stagnant credit system, saying that the seized markets need to regain confidence in order to flow again.
"So how do we give people confidence?" a student in the audience asked.
Correctly predicting the Senate actions that would occur later in the day, Lemon said he assumed Congress would act on the bailout this week, as part, but possibly not enough, of the confidence needed to get people's money back.
Watson Forum was filled with students, faculty and staff Wednesday afternoon as professors Gary Lemon, Ann Jennings, Kellin Stanfield and Kerry Pannell attempted to break down the recent economic struggles that caused the U.S. Senate to pass a $700 billion bailout bill Wednesday evening.
To start the discussion, the panel preceded the question-and-answer session by taking turns explaining the current and historical functions of financial institutions in the U.S. Displaying a timeline of past economic crises from the beginning of the 20th century to the present, Pannell pointed out waves of regulation and deregulation that have marked the fiscal history of the country. She addressed the peak and fall of housing prices in 2006 that have led to today's problems with rising foreclosures, an event that foreshadowed the current state of the economy.
Following Pannell, Jennings provided the audience with an example of a balance sheet in order to show the fallout of a collapsing financial institution. The sheet showed the relationship between liabilities and assets.
Using the bankrupt Lehman Brothers Holdings Inc. investment bank as an example, she explained how these companies collapse. As a result of unpaid assets that lead to unpaid liabilities, bankrupted financial institutions can ignite a domino effect the results of which she labeled "the credit crunch."
"The worry is that there's not going to be enough credit to allow the economy to function," Jennings said.
Lemon focused on the stagnant credit system, saying that the seized markets need to regain confidence in order to flow again.
"So how do we give people confidence?" a student in the audience asked.
Correctly predicting the Senate actions that would occur later in the day, Lemon said he assumed Congress would act on the bailout this week, as part, but possibly not enough, of the confidence needed to get people's money back.
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