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Durham professor says he warned lawmakers of financial crisis

Posted September 24, 2008
Updated September 25, 2008

— A Professor at Duke University says he saw the problems in the financial markets coming two-years ago. He even asked Congress to do something about it last year.

Back then, however, lawmakers were unready to act, Professor Steven Schwarcz says.

Now, President Bush is asking Congress for a $700 billion bailout. If they don't approve it, lawmakers risk a cascade of wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses, the president said in a television address Wednesday night.

As the financial crisis dominated media coverage Wednesday evening, the founding director of the Duke Global Capital Markets Center says he set off alarm bells in nationwide articles nearly a year ago. Schwarcz even spoke before Congress about his plan to save the U.S. markets from what he called a "death spiral."

Schwarcz said the response from lawmakers was, "It makes sense to do this, but there is not the political will.”

Schwarcz called for a governmental group to purchase devalued securities at a discount to shore up and renew confidence in the stock market during panic.

That "is very similar to what the U.S. Treasury is now proposing,” he said.

However, Schwarcz's calls for action were nine months ago. At that time, he claims, the price tag to taxpayers would have been a lot lower and a profit could have been turned on the investment.

In the future, Schwarcz said, he would like to see the government create a brain-trust of experts like himself, a group to whom officials could refer when markets start heading in the wrong direction.

"The government is not really appreciating what is happening,” Schwarcz said.

A taxpayer bailout is meeting with deep skepticism, especially from conservatives who are revolting at the high price tag and unprecedented intervention in the private sector.

Though there is general agreement that something must be done to address the spiraling economic problems, the timing and even the size of the package remain in doubt.

"Many of you cite this as a serious problem, and I agree,” Treasury Secretary Henry Paulson said.

An ABC News-Washington Post poll said Wednesday the public is split about evenly over whether it supports federal "steps" to handle the financial crisis. In a survey released Tuesday by the nonpartisan Pew Research Center, there was nearly 2-to-1 support for the government "potentially investing" billions to try securing the markets.


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  • mramorak Sep 25, 2008

    Money blinds most

  • todd23 Sep 25, 2008

    Richard Shelby also warned about this as well as Greenspan. Bush wanted the additional oversight to prevent this from happening (and so did McCain for those to like to associate them so much). When it made it to legislators, every Republican voted for it. Every Democrat voted against it.

    I don't agree with Bush's plan to fix the problem but he wouldn't have to think about it if legislators implemented the oversight he asked for in the first place.

  • copforlife Sep 25, 2008

    Durham Professor-----isn't that kind of a Oxymoron?????

  • TheAdmiral Sep 25, 2008

    That is the problem - no one cares.

    When no one cares, then bankruptcy legislation with tricks to raise interest rates on people who have even good credit goes to 34.99%

  • R.O.BdaCZAR Sep 25, 2008

    And I used to wonder how all those people from up north were flocking to Cary buying all these expensive houses. Hmmm

  • oyid Sep 25, 2008

    Why are we pinning blame on 'people' for buying beyond their means when homes, mortgages and the like were being promoted as 'The American Dream'. In fact, if these 'poor folks' did not consume as they did between 2002-2007, we would still be in a recession following the tech bust.

    Consider >> when a home is constructed, it touches a broad spectrum of industries in our economy. So thank ALL Americans for helping us out of a recession and make Wall Street pay for their clever financial schemes.

  • superman Sep 25, 2008

    Everyone should have seen this coming. Little or no downpayment not much to qualify for a loan. The mortage companies were hungry to get the interest and the lawyers wanted the closing cost. Then people couldnt make the payments, and the value of real estate went down. The mortgage was more than the current resell value. People spending more than they made or could afford! Look around houses selling for 300,000 to 500,000. Just what do these people do for a living that they can afford that? Along with two SUV's and all the other frills they have to own. A loan is only a loan if the person can and will pay it back-- otherwise it becomes a gift. This is not really about politics-- it is just about the wild spending of most Americans. People should be smart enough to know what they can afford.

  • hi_i_am_wade Sep 25, 2008

    Yeah, so what. Hey guess what professor, in a few years the economy will be doing great. And then in a few years after that, the economy will slump again. I am not a genius, I just know how to look at history. The economy always goes up and down and is more powerful than Congress or the President. So, professor, do you want a cookie for what anybody with a 5 minute history lesson could figure out?

  • mfalesana Sep 25, 2008

    They funny thing is that Congressman Ron Paul actually has been warning of this for quite some time and he was ignored as well. This "bailout" isn't going to fix the problem at all. We keep dragging the bad decisions along and it's not any of our responsibilities to pay for the greedy bankers.

  • 5Rs Sep 25, 2008

    In these trying times, we are so lucky to have such socialistic representatives as David Price and Brad Price - oops, I mean Miller. I'm sure they will do the left thing.