What Led To This Economic Morass?

Tonight, President Obama’s economic and budget press conference defined his plans for fiscal action. He said, ““We will recover from this recession, but it will take time, it will take patience, and it will take an understanding that when we all work together; when each of us looks beyond our own short-term interests to the wider set of obligations we have to each other — that’s when we succeed.” You may read the entire text of his press conference here.

Jeremy Siegel, professor at Wharton, has a lesson for students interested in what led our economy into this economic wasteland. “Lesson One: What Really Lies Behind the Financial Crisis?” 

Key points:

The “fatal flaw” of financial firms creating and keeping mortgage-backed securities.

The strategic errors of Henry Paulsen, Secretary of the Treasury during the Bush admnistration.

This recession may not be as deep as the 1980′s

Housing, who bought them, and stock-short selling had little or nothing to do with this crisis.

The faulty presumptions made by risk management specialists.

The failures of Corporate CEO’s and Alan Greenspan.

The confusion of policy makers about why banks were/are not lending.

“Towards the end of his 90-minute talk, Siegel offered some tongue-in-cheek advice to would-be entrepreneurs. “Start a new bank,” he said. “You won’t have the problems of existing banks, and the federal loans interest rate is near zero.  Demand for loans is high, and you will face no competition from the private market. You could become very profitable.”