Reuters
January 04, 2010
America's financial crisis is nowhere near over, according to top economists who largely contradicted the growing chorus of Wall Street bankers and U.S. government officials who say the worst has passed.
"The recession is not over," said Michael Intriligator, professor of economics at the University of California, Los Angeles.
He predicted economic output would not return to pre-crisis levels until 2013, while the job market would not fully recover until 2016.
The views expressed at the annual meeting of the American Economic Association here stand in sharp contrast to rising optimism in the banking sector, which analysts say has benefited disproportionately from government bailout efforts.
U.S. gross domestic product expanded 2.2 percent in the third quarter, but the sustainability of the recovery remains the subject of fierce debate.
Talk is rife of "upside risks" to economic growth, which, on median, is predicted to climb over 3 percent during 2010, according to Reuters polls.
But Simon Johnson, an economist at MIT's Sloan School of Business, said that by propping up the financial sector, government efforts to date are only delaying another inevitable crash.
By giving large financial institutions the assurance that they are too big to fail, and thereby offering an implicit guarantee to excess risk-taking, the administrations of
Presidents George W. Bush and Barack Obama have made the problem worse.
"The crisis is just beginning," Johnson said. "Have bankers won? In the short-term, absolutely. The immediate opportunity for change has already been missed."
That's because a broken political system leaves politicians beholden to the financial industry, argued Joseph Stiglitz, Nobel laureate and professor of economics at Columbia University.
THE MYTH OF INNOVATION
For that reason, Stiglitz said, what has so far emerged in terms of regulatory reform proposals is far too meek to have any effects.
"The regulatory reforms on the table are totally inadequate," he said.
Stiglitz said the idea that record banking profits were warranted because of a large degree of "financial innovation" was plainly wrong.
MIT's Johnson went further.
What he calls the "mythology of financial innovation" was really "a way to extract rents out of consumers."