Main street to blame for recession: economics prof
“The only thing we learn from history is that we don’t actually learn from history,” said Phelim Boyle, a professor of finance at Wilfrid Laurier University, who opened a panel discussion Friday at the annual School of Business and Economics conference.
This year, the focus of the conference was the global financial crisis.
The purpose of the panel, entitled “Lessons from the Financial Crisis,” was to promote discussion about the current situation in the world of finance.
Frank Milne, a professor of economics and finance at Queen’s University, argued that governments must be more careful with their fiscal policies and should be looking more intensely at the long-term impacts they will yield.
“Main street had much more to do with the economic crisis than Wall Street,” said Sanjiv Das, a professor of finance at Santa Clara University.
Das was implying that smaller businesses are to blame over the corporate world.
Das went further, explaining that this is because of “their excessive risk-taking and implicit systemic effect.”
Das’ talk focused the cause of the current crisis.
He mentioned how single bank regulations, such as the system in place in Canada, can actually increase the risk. Das also addressed the bailout issue, saying that he is not in favor of them because they contain a high moral hazard.
“The problem is that a bailout is a one-size-fits-all solution. The companies get the money, but then use it for something else entirely.”
An important piece to the puzzle, according to Brian Smith, a professor of finance at WLU, is that we need to address the over-indebted consumer. Canadian households have much less household debt than their American counterparts. These debts at the Main street level play an important role in the in the current financial crisis.
Smith mentioned that about a year ago, Canada was facing problems such as assets with no liquidity, and had little prospect for recovery, which in turn began the fall to market breakdown.
In order to stabilize the financial systems in the future, Smith suggested that a global co-operation of banking regulations is needed, similar to the single federal regulator system currently in place in Canada.
The general discussion on the panel led to the conclusion that banks have the main control over the economy and the financial crisis is sitting on their shoulders. Das predicted that the economy will remain slow for at least the next couple of years.