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Duke professor offers 'proactive' plan to rescue economy

Posted September 29, 2008
Updated September 30, 2008

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— A Duke University professor says that lawmakers should have acted sooner to prevent Monday's meltdown on Wall Street.

They did not, however, and Campbell Harvey, a professor of finance at Duke University's Fuqua School of Business, has formulated a "proactive" plan for Congress that he said would give a good return on buying bad assets and increase credit availability for small businesses and individuals.

After the House voted 228-205 against a proposed $700 billion economic plan, the Dow Jones Industrial average fell by 777 points to its lowest close in three years Monday and its greatest-ever loss of points.

"The $700 billion plan deserved to fail," Harvey said

The bill would have given the treasury secretary wide authority to buy up bad assets, including mortgages, from financial institutions.

Harvey said that plan asked taxpayers to spend too much on what are widely called "toxic assets."

"I can understand that this is a nauseating proposition for the American people," Harvey said.

Instead, he proposed that the government get a better bargain and use the investment to make more loans available to smaller businesses. "Toxic assets" would be bought for lower prices, used to fund loans to businesses and kept for three or five years, assuming a market recovery.

"At these prices, financial firms would be pleased to sell – and the taxpayers would get to buy at a price where we can make a positive return," Harvey said. "Small and medium businesses are the driver of growth in our economy."

Another problem with Congress' plan, Harvey said, was that it would have taken months to implement and been administered by asset managers with a conflict of interest.

Lawmakers need to be looking ahead, the professor said – and preparing to handle as many a 1,000 more bank collapses. Such actions should have been taken more than a year ago.

"The time for action was back then, but you let this thing fester, and this is what you get," Harvey said.

Despite past mistakes, Congress needs to be taking the "proactive" approach that his plan urges, Harvey said.

"You risk a deep recession, and nobody wants that," he said.

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  • news4u Sep 30, 2008

    You know it's getting bad when Wall Street applies for Welfare!

    COMMUNISM - coming soon to a country near you!

  • PirateHeist Sep 30, 2008

    The Senate votes on a revised Bill for the $700 Billion bailout along with TAX BREAKS for large business TOMORROW! Make your voice heard and call or email our senators!

  • OrdinaryCitizen Sep 30, 2008

    Was Campbell Harvey one of the "Gang of 88"? Just curious, I have been looking and can't find the list.

    If so....I'll comment later

  • PirateHeist Sep 30, 2008

    The market will fix itself. Yes some businesses will fail and it will be hard to get loans for a while.. but so what? There is still a profit to be made from making loans; therefore, new banks will open to meet the demand and make a profit! Granted there will be a higher interest rate and likely greater risk determinations. That sounds pretty good after the fiasco of banks lending to people who cannot afford to pay up because they got variable rate interest loans.

  • Adelinthe Sep 30, 2008

    ghimmy - "If this guy knows so much about finance in a practical way why is he teaching and not cruising the Med in his yacht?"

    Perhaps that's not his choice; perhaps he enjoys teaching more than yachting.

    Geez you come up with flimsy arguments.

    God bless.

    Rev. RB

  • Adelinthe Sep 30, 2008

    ghimmy - "the first opportunity elect some public servants less motivated by greed and less controlled by money interests."

    Won't work because they don't exist. Anyone can be bought - for a price.

    God bless.

    Rev. RB

  • Adelinthe Sep 30, 2008

    sillsburykeitha - "It's their own fault, let them sink."

    Don't you understand? If the banks fail, we all lose because somehow somewhere, we've got financial interests in them.

    And furthermore, if the US banks fail, international concerns will have nothing to do with our country - either import or export, and then we'll have nothing to build on or with.

    sheesh

    God bless.

    Rev. RB

  • Adelinthe Sep 30, 2008

    Congress won't listen because they think they know everything.

    What the government needs to do is develop a think tank, a group of university economists to let them hash out a plan. Then when all of the EDUCATED economists agree on a plan, Congress needs to pass it and enforce it without party squabbles.

    But alas, we might just as well wish for an 8th Harry Potter book.

    God bless.

    Rev. RB

  • fl2nc2ca2md2nc Sep 30, 2008

    Sorry rationality, that just makes too much sense for our government to ever enact it... They'd rather just keep increasing our national debt with knee-jerk policies and programs that are nothing more than bandaids.

    Democrats and Republicans alike, for the most part, have become a joke as our "representatives." It really is time to clean house.

  • ghimmy51 Sep 30, 2008

    I think this is a valid question and no joke intended. If this guy knows so much about finance in a practical way why is he teaching and not cruising the Med in his yacht? And why can't he afford a decent haircut?

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