Nearly 400 students packed the Hinckley Institute caucus room, filled the neighboring office and spilled into the hallway and the OSH foyer to hear U professors and financial experts assess the current economic crisis.
The forum occurred only a few hours before the U.S. House of Representatives voted down a $700 billion bailout plan for the banking industry and the Dow Jones Industrial Average plunged more than 700 points.
The financial situation has students such as Diane Valero in a panic.
“I’m really worried about it. The economy is already affecting me8212;there are reduced jobs and they’ve already lowered my pay rate. The banks are scaring me right now,” said Valero, a freshman in family studies who, until recently, was a customer of Washington Mutual8212;one of the largest banks to collapse last week because of bad mortgage deals.
Most panelists criticized the bailout plan, saying Congress needs to devise a solution soon, but pointing out that the government shouldn’t reward the shareholders of the banks that made bad decisions in the first place.
“There’s been a lot of talk about Main Street versus Wall Street,” said finance professor Scott Schaefer. “There’s a difference between bailing out shareholders of banks and bailing out the banks.”
Economics professor Lance Girton said the government should pass the savings on to homeowners and the American people, not investment bankers.
With more banks going under by the day, record drops in the stock market and no real solution in sight, economic prospects look bleak, but panelists said the United States is not headed into a depression. Instead, the country will probably go into a recession that could last up to 18 months.
Economics Department Chairman Peter Philips said the country’s financial situation would be more like the post-war recession of 1981 than the Great Depression of 1931.
Some panelists worried, though, that if the banks aren’t bailed out, the industry will lose the institutional knowledge of the capabilities of borrowing and lending.
“If the banks are allowed to collapse we will see real stress,” Girton said. “It seems to me we should require financial institutions to find the market price and write off the capital.”
Americans don’t want to buy shares in banks right now because they don’t know what’s hiding on the balance sheets, Girton said. But banks need to establish values and start borrowing and lending with each other again.
Thishun “Thomas” Deng, the chief China strategist for Goldman Sachs, said his firm is not too worried about the future, but it realizes that banks are built on confidence8212;which not a lot of people have right now.
“There is a systematic risk,” Deng said.
U students are already feeling the pinch, as national economic strains are impacting the U’s ability to get state funding. On Friday, the Utah State Legislature decided to cut $10.5 million in ongoing funds to the U in order to assuage the state’s $350 million budget hole.
Philips said the Utah unemployment rate doubled in 2008, and students might be seeing impacts on their families. He said the economic crisis will determine what kinds of jobs are available when students graduate, determine what classes are being offered (since some might be cut because of costs), and decide how much tuition students will pay in the long run.
Hinckley Institute Director Kirk Jowers said he is worried the negative politics surrounding the crisis will curb what had been a rising student energy surrounding the upcoming presidential elections.
“Hopefully it will be a call to action for them,” Jowers said. “But other students are more fatalistic and will be thinking, why get involved8212;(politicians) don’t do anything anyway.”
Jowers said it has been disappointing to watch Congress play a “blame game” instead of coming up with the next steps to solve the problem.
“We’ve got to hope that Congress realizes that paralysis is not acceptable in the case,” Jowers said.
Chad Hill, a senior in economics, said that even though he’s seen downturns in the real estate industry where he works, he’s optimistic about the future.
“I’m confident that we can come out on top no matter what,” Hill said. “There are still people working hard and hard work will be rewarded.”
Tyler CobbA crowed of students gathered in the OSH foyer, after the Hinckley Institute caucus room and the neighboring office filled up, to watch the closed circuit TV showing of the Hinckley forum about the financial crises.