Transcripts

"Commentary"-Recession Rescue

SUSIE GHARIB: Tonight's commentator says maybe a recession wouldn't be so bad. He's Bernard Baumohl, director of the Economic Outlook Group.

BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: Here's a question that may bring cries of heresy, is a recession bad for the economy? Many forecasters see such a downturn in 2008. But would a recession further devastate an economy already reeling from a failing housing market and a damaged financial sector? Or is it just the right medicine this economy needs to cure its ills and hasten a healthy recovery?

I believe a recession may actually be beneficial this time and here's why. Recessions are a natural and vital part of a business cycle. After all, consumers and business leaders sometimes make mistakes and occasionally these mistakes are big enough to bring on a recession.

One drag on the economy today is the housing sector, which is suffering a slow bleed. The drip-by-drip fall in home prices and tougher refinancing rules only deepen the housing debacle. A recession however would permit interest rates to fall more aggressively and this can lure homebuyers back much sooner. Moreover, financial institutions burdened by sub-prime assets may write them off more quickly under the cover of recession and thus improve their balance sheets.

Of course, recessions are not painless. Some lenders and hedge funds may go under. But the economy now looks like a train wreck moving in slow motion. A recession could purge the country of its real estate excesses and bad debt more rapidly and allow the economy to emerge from this mess faster and much sounder. I'm Bernard Baumohl.