Former Federal Reserve Board Governor Frederic Mishkin Sounds Off on the Obama Economic Plan
Friday, March 13, 2009SUZANNE PRATT: Some analysts are stepping up their criticism of the Obama administration's economic rescue plans. But the president says he's confident the country will get through this recession. Larry Summers, a top Obama economic adviser, also promised today the administration's plans would lead to a turnaround. However, Summers said the timing is unclear. In recent days, the president has argued the recovery must be built on a post- bubble model of economic growth. The first step he says is to get credit flowing again.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: And the thing I want to emphasize is that we are spending every day working through how to get credit flowing again so that businesses, large and small, as well as consumers, are able to obtain credit and we can get this economy moving again.
PRATT: Meanwhile, former Federal Reserve Board Governor Frederic Mishkin says he wants more clarity from the White House about how it plans to fix the nation's financial system. Earlier today Jeff Yastine spoke with Mishkin, now a professor of banking at Columbia business school and he began by asking his take on the administration's efforts.
FREDERIC MISHKIN, PROF., OF BANKING, COLUMBIA BUSINESS SCHOOL: The good news is I think they understand the problem. The quality of when I see what's said, I think they understand it. I think that the issues they talk about as being important are the right issues. The bad news and that's the good news, but the bad news here is that the execution hasn't been there. Making the tough choices has not been done yet. And that's what leadership is all about. And until the markets - whatever popularity ratings is going to be irrelevant now because the real issue is going to be how good of a job did you do in the long run? And right now the businesses and consumers and the markets have not been convinced that the execution's going to happen. And this is one of the reasons why we're standing in a very dangerous environment right now.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: You've talked a lot in recent months about the importance of first and foremost fixing the financial system. How much closer are we towards achieving that goal?
MISHKIN: We haven't done it yet and I think that this has got to be the highest priority. The stimulus package that was passed, even though I think that doing a package, a fiscal stimulus was a reasonable and important thing to do, is a side show. It will not solve the problem. That even if it creates several million jobs, which I think is not unreasonable, if you end up losing five million or 10 million jobs and you create two or three, you're still in big trouble. Until the financial system gets fixed and until we actually have the ability of getting money to people with good investment opportunities, the system is just not going to work.
YASTINE: Why is there such resistance towards reorganizing or nationalizing the weakest banks in the financial system? If this were any other industry, this reorganization would have already occurred.
MISHKIN: We do not have the legal basis to do that with bank holding companies and financial service holding companies. So one of the things that we're going to have to have is legislation to deal with that.
YASTINE: And that's a step towards--
MISHKIN: That's part of the step--
YASTINE: . fixing of the financial system.
MISHKIN: Absolutely. I think we have to -- there has to be recognition that we are in -- not only a major national crisis, a national emergency, but a world emergency.
YASTINE: Professor Mishkin, what are you seeing in the financial markets these days, the credit markets? Are they still locked up or is there some lending going on? Are they starting to unfreeze, so to speak?
MISHKIN: There have been some improvements in parts of the credit market, in particular, I think, that this is because of the large injections of liquidity into the system from the Federal Reserve. The Federal Reserve has more than doubled the size of its balance sheet exactly to try to get the credit markets to work better, but they are so far from being where they need to be that our whole system is still severely hampered. The other issue is that with them still crippled, there's still the potential that bad things that could happen. We have to make sure that the system is not vulnerable. It is still not what is so far from working properly, still vulnerable to shocks. We have to get on a solid basis so that we don't have another situation where a major failure of an institution starts to make us go into even a worse situation than where we are currently.
YASTINE: Our guest, Professor Frederic Mishkin, former Federal Reserve Board member and professor of banking and financial institutions at Columbia business school.
MISHKIN: Thank you so much.
