The floor of the New York Stock Exchange on Sept. 25, 2008. Financial markets were mixed as lawmakers moved closer to hammering out a deal aimed at reviving the crippled financial system.
AP Photo

Feldstein: Everyone has a Stake in Preventing the Financial Markets from Collapsing

He said financial crisis is "worse than anything we've seen in the post-war period"

In the News

September 25, 2008

Martin Feldstein, president emeritus of the National Bureau of Economic Research and a member of the Belfer Center's Board of Directors, gave his take on the most pressing issues facing the United States' economy in an interview with Canada's Business News Network.

Below are highlights of the interview. Watch the full video here.

On the current state of the markets:

"The financial markets are in very serious trouble. It's not just that it's hard for business to get credit, which is true, or hard for individuals to get loans, which is true, but he whole financial markets -- the credit that backs up the day-to-day transactions -- just collapsed last week."

On curbing executive salaries as part of a rescue package:

"To me, that is symbolic."

On the price of the securities the government will buy:

"They said at first there would be an auction process -- I don't think an auction process would work here because there are so many different varities of mortgages, mortgage-backed securities, and collateralized debt obligations. It's just so many different products that you can't simply auction them off -- it's not like auctioning off wheat....

....Most recently, Chairman Bernanke has said he thinks they ought to pay a price that reflects the eventual potential value of these securities, not their current price. The purpose of that is to, in effect, inject more capital into the banks -- to give the banks more than these securities would be worth if they sold them to another private buyer."

On Fannie Mae and Freddie Mac

"Fannie and Freddie were a disaster. They've been a disaster for decades. They had in effect paid off so many members of Congress and of the Senate. I don't mean slipping them bribes under the table -- but campaign contributions and indirect support to their political careers -- that they protected themselves from the kind of reforms that should have been put in place. They were able to accumulate $5+ trillion dollars in mortgages and guarantees with virtually no capital against it."

For more information about this publication please contact the Belfer Center Communications Office at 617-495-9858.

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