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Bloomington Herald-Times Articles

March 26, 2009

IU financial experts to lead panel on economic crisis
By Nicole Brooks
March 26, 2009

While heads of financial markets may not fully understand the world's economic crisis, a panel of Indiana University economists will come together to analyze it for the rest of us.

"We're economists. This is our job," IU economics professor Eric Leeper said of communicating to the public the deeper meaning behind the headlines of the day.

Leeper put together a group of IU finance and economics professors and alums to speak on several facets of the economy during an open discussion. The panel talk is April 3 from 2 to 4 p.m. in room 100 of Woodburn Hall. Topics include some causes of the economic slump, a look at policy responses to the meltdown, a forecast of what's to come, and some historical perspective on this recession.

"People have short memories," Leeper said. A look at recent recessions may put our current situation in perspective, he said.

One block to making sense of the financial crisis is people's anger, Leeper said. The nation has been sidetracked by the furor over AIG's bonuses to its employees, for example.

"We've lost sight of the point. I understand the anger," he said. But people need to get past emotions to focus on what's important, he said: Financial markets have to get back to stability and banks have to make loans. The economy relies on banks doing what banks do, he said -- making loans.

A person with extra income, due to tax cuts or a job saved or created by the stimulus package, would ideally spend some and put the rest in the bank, Leeper said. The bank would then, ideally, turn that money into a small business loan.

Some of the Federal Reserve's responses to the crisis have been unconventional and effective in making this happen, Leeper said. It has lowered interest rates to nearly zero and has bought private assets.

"I think we're seeing that financial markets are less seized up. Some loans are being made."

A paradox here, he said, is that the economy also depends on people not saving their money. The government encourages people to buy stuff, and lower interest rates are an incentive to save less.

Asked what people can do as this financial crisis plays out, Leeper said, "One thing that Americans can do is not panic. Remember to take the long view, if you can."