Stiglitz Says Problems Have "Become Even Bigger"

Written By Brian Hicks

Posted September 14, 2009





According to a Rasmussen Poll released today, the mood of the public is more pessimistic today than it was as year ago when Lehman Brothers collapsed.

Today, only eight percent of adults are optimistic about the economy rating it as good or excellent. That’s down from 18% a year ago. Meanwhile, among investors, just six percent  rate the economy as good or excellent, down from 23% a year ago.

One of them is likely Joseph Stiglitz, who said today that are banking problems “have become even bigger” since Lehman rocked the markets last fall.

From Bloomberg by Mark Deen and David Tween entitled: Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman.

“Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

“It’s an outrage,” especially” in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.


Hmmmm….now that really is a good question. 

One year later, not much has changed.


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