Experts on topics currently in the news

Southwestern University Professors Available To Discuss Financial Crisis

Several Southwestern University professors are available to discuss various aspects of the current financial crisis:

Accounting Professor Fred Sellers can discuss the origins of the problematic sub-prime mortgages.

"The cause of this crisis is not the Republican laissez-faire philosophy," Sellers says, "The cause of this crisis is a government policy pushing home ownership."

Sellers traces this policy to the Clinton Administration, which in the 1990s pushed for more lenient standards for loans to encourage minority home ownership."Fannie Mae, a quasi-governmental agency, had a phenomenal growth in profits as a result of these loans," Sellers says. "Other institutions wanted to get into it."

Sellers notes that this government policy created an artificial boom in housing. "Houses were built that wouldn't ordinarily have been built, " Sellers says. "A crash was inevitable."

Sellers also can discuss accounting rules that have played a part in the crisis

"As a result of the savings and loan crisis of the 1980s, the Federal Accounting Standards Board (FASB) put into place a new rule called "Mark to Market", which required that financial assets be counted at the current value, not their historical cost, as had been done in the past. This resulted in an artificial writedown of assets, which caused their net worth to go down," Sellers explains. Because financial institutions have to keep a certain percent of their assets on hand in cash, banks were forced to sell things that they would not have ordinarily sold. "This led to firestorm prices," Sellers says.

Ad part of the new bailout, the Senate plans to study these so-called "Mark to Market" rules.

Sellers may be reached at 512-863-1574 or sellersf@southwestern.edu

Ken Roberts, professor of economics, can discuss other roots of the crisis.

"The prelude to this crisis started after 9/11, when (former Federal Reserve Chairman) Alan Greenspan lowered interest rates," Roberts says. "Borrowing was cheap and there were the three 'no problems'":

• Consumer: "I don't have the money for a down payment"
  Banker: "No problem, we'll get you into this house without a down payment."
• Consumer: "I can't afford the monthly payments."
  Banker: "No problem, we'll lower your interest rate for five years."
• Consumer:"After five years, I still won't be able to make the payments."
  Banker:"No, problem. The value of your house will have gone up by then and you can refinance."

"As a result of low interest rates, Wall Street came up with ever more exotic ways to make money," Roberts says. Among these were mortgage-backed securities, which were sold all over the world. The house of cards fell when housing prices slumped.

Rather than focusing on the stock market, Roberts says, people should watch the TED spread, which is the difference between the treasury bill rate and the interbank loan rate. "The TED spread should be almost nothing, but it is up to several points now," Roberts says. "It is a measure of the fear banks have in credit market."

Roberts may be reached at 512-863-1993 or robertsk@southwestern.edu

A.J. Senchack holder of the Luck King Brown Chair in international Economics, can discuss the impact of the crisis on the stock market as well as details of the government's 500-page bailout plan.

Senchack says he expects this recession to last much longer than a typical recession, which usually lasts one and a half years

Senchack may be reached at 512-863-1363 or senchack@southwestern.edu