Archive for January, 2009

The Financial Crisis – Which Inning Are We In?

Wednesday, January 14th, 2009

Professor Edwin T. Burton of the University of Virginia Economics Department spoke on the current economic crisis at a Senior Statesmen of Virginia forum on January 14, 2008. Professor Burton is a well known economic expert who is a frequent guest on WINA. He is the former head of the Virginia Retirement System and is the author of the Burton Finance Blog.

Burton received his B.A. in Economics from Rice University in 1964 and his Ph.D. in Economics from Northwestern University in 1971. He is currently professor of economics at the University of Virginia, a post he has held since 1998. He is also currently a trustee of Virginia Retirement System. His past positions include head of Investment Banking and Municipal Finance at Interstate Johnson Lane from 1994 to 1995, president of Rothschild Financial Services, Inc. from 1987 to 1994, senior vice President of Smith Barney from 1975 to 1984 and assistant and associate professor of economics at Cornell University from 1969 to 1979.

The topic of today’s presentation is “The Financial Crisis – Which Inning Are We In?”. Bill Davis, SSV board member and secretary, moderated today’s program.

Program Summary

UVa Economics Professor Edwin Burton addressed the current economic crisis. He stated that the economic condition today is not worse than the Great Depression—unemployment now is even less than during the Carter administration. The problem began in early 2007 when the credit (lending) market started to freeze up. The head of the Federal Reserve and administration officials kept saying everything was OK, and that confused the market. Yet there is no way to measure the state of the credit market at any given time like there is to measure the stock and bond markets. <!–[if !vml]–><!–[endif]–>Housing facts: 30 % have no mortgage; 40 % have small mortgages with no problems; remaining 30% are where the subprimes are. Fannie Mae was set up to make low interest loans for home purchases, but President Johnson did not want the debt to show up on government books and so it was structured to resemble free enterprise systems of other institutions. The administration had taken the position they wouldn’t bail out the mistakes of others, but over one-half of the debt is now owned by foreign countries, and failure would have even more severe repercussions on the US financing its national debt.

Predictions and observations: •Unemployment will go to 8.5 % during the next three months. •Credit markets are already improving and housing markets will improve except in some areas. •We’ll be in deep trouble if the new administration takes the protectionist route—this was one of the causes of the Great Depression. •Although Professor Burton didn’t vote for Obama, he gives the new president an “A” for all of his appointments so far except for Hillary. •Professor Burton does not favor any stimulus package because the results will be so far down the road that they will then contribute to inflation. •A lot of money will be wasted by the stimulus package and banking.

Visit Professor Burton’s blog site at http://etbfinance.blogspot.com/.