The Progressive


A project of Common Dreams

For Immediate Release
Contact: Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167

Turning Downturn Into Depression?


Ferguson is professor of political science at the University of Massachusetts, Boston. The first part of his article "Too Big to Bail: The 'Paulson Put,' Presidential Politics, and the Global Financial Meltdown," written with Robert Johnson, appears in the next issue of the International Journal of Political Economy. He is the author of Golden Rule (University of Chicago Press, 1995).

Available for a limited number of interviews, Ferguson said today: "Geithner and Summers are well on their way to turning a steep downturn into a world depression. They have to stop dreaming up schemes that amount to paying the people who killed off our financial system to bury it. The president and his advisers need to insist on immediate bank inspections to tell who's solvent and who's not. Not a penny more should be spent until they have that information. Banks that are insolvent need to be closed; those that can survive can be recapitalized just as the Swedes did in the nineties. That means temporary nationalization, with the government selling back its shares when growth resumes. No nonsense about private-public partnerships. The government-owned firms have to understand that their priority is to revive lending, not playing the yield curve or buying loans in the secondary market. It worked in Sweden; it would work in the United States if accompanied by a big enough fiscal stimulus."

Prins is a former investment banker turned journalist. She used to run the European analytics group at Bear Stearns and has also worked at Lehman Brothers and Goldman Sachs. She said today: "There was nothing in Geithner's speech or plan to indicate the Treasury, or the administration, has a clue as to the value of toxic assets existing in the global financial networks, specifically on the books of our nation's banks. Without the ability to evaluate the potential downside of any kind of plan that revolves around these assets, no amount of word spin can make it work. This persistent blind-spot will continue to propel the market, and economy, downward. Talk of transparency must be converted into immediate and 100 percent disclosure of the assets and the leverage behind them, that reside on every financial institution's books. Credit will not flow, if trust is not restored. Trust will not be restored, if disclosure is not complete. We need our leaders to stop pretending or accepting that asset evaluation is rocket-science. It isn't."

Prins is now a senior fellow at Demos. She is the author of two books: Other People's Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket.
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