Despite the cancellation of one of its speakers, the Foreign Affairs Symposium's (FAS) fourth event of the year, a panel on the global financial crisis, had what co-chair Claire Cravero called "a great turnout." About 200 people were present. Two different Hopkins professors were able to step in and contribute in place of the absent Willem Buiter.
The panelists discussed the current financial crisis, the effects of the U.S. crisis on the worldwide economy and strategies for overcoming the current recession.
The first speaker was Dr. Robert Barbera, executive vice president and chief economist at Investment Technology Group and a professor at Hopkins. He focused on the buildup to the current global financial crisis.
"I'm going to talk about how we got into this mess, how bad the mess is and who to blame," he said.
One of his key points was that misunderstandings about human nature and the way that the market functions were largely responsible for the crisis.
"We all fell in love with a model that said people will be rational," he said.
According to Barbera, however, people often act irrationally, basing their expectations of future results on what has happened in the past.
"If you string a bunch of happy yesterdays together, people don't change their forecast. It's not that they think things will get better, it's that they don't think they will get worse," he said.
Barbara said that this lack of concern about the future meant that no one considered the possibility of housing prices going down, and so no one planned for that contingency. The government based its actions on what Barbera described as "the academic idea that the market can't be outsmarted, and it turned out that wasn't very smart."
The next to speak was Dr. Albert Kyle, a professor from the University of Maryland and a member of NASDAQ's advisory board. He agreed with Barbera on many points about the causes of the crisis. He then discussed Secretary of Treasury Timothy Geithner's recently introduced plan to create incentives for private investors to buy some of the risky assets banks currently hold so that they can gain enough capital to start lending again.
"I think it's a bit of a blunt instrument to use," he said. "Even if it works as planned, it won't be enough to fill the hole [of missing capital at banks]."
Kyle also spoke about some of the future effects of the crisis on the world. He felt that people would be so focused on adapting to the crisis in the developed world that undeveloped regions, especially Africa, could suffer more.
"I think Africa is going to be forgotten," he said.
Christopher Carroll, a Hopkins professor of economics, discussed some of the government's actions to cope with the crisis, particularly within the Federal Reserve. He said that one important action they should take is "quantitative easing."
"The Fed is going out and buying long-term government securities . . . so that interest rates go down," he said.
He also described what he saw as the most important role of government at the moment.
"Government needs to be the sane, rational, steady hand in the midst of a market where people are first euphoric and then panicked."
Finally, Olivier Jeanne, a Hopkins professor and research fellow at the Center for Economic Policy Research, spoke about what he called "the international dimension of the crisis."
One of the issues he discussed was that all countries want their currency to be slightly devalued compared to other nations so that they fare better in international trade. However, not all nations can depreciate their currency at the same time.
He also spoke about the dangers of protectionism and suggested that moderate inflation, between 2 and 6 percent, would be beneficial to the economy and could help it to recover.
"The scary little secret is that we are not sure how to produce inflation," he said.
Though admittedly "gloomy" about the response of the global community thus far, Jeanne said that he would be glad to be contradicted by his colleagues.
The questions following the panel ranged from requests on what to read to better understand the crisis - suggestions included The Economist and an economist named Hyman Minsky - to whether the current literature regarding investment advice was still relevant. Panelists thought that in many cases current literature could be useful, provided that readers made responsible plans for the future.
Audience responses were mostly positive, although some members remained confused about particular aspects of the crisis.
"I'm a science major, so I don't have a complete idea of economic theory," junior Alex Sommerfeld said. "The overall picture is still convoluted, but the main thing is that it's a complex situation."
Hilary Parker, a first year graduate student at the School of Public Health and Rocco Addante, a student visiting Hopkins, both found the event to be very informative.
"They did a great job of explaining what the government was doing and how everything started," Addante said.
Cravero felt that the presentation was dense at times.
"I was only able to follow because I've taken econ classes," she said.
Before the panel began, she had asked the speakers what it was like to be an economist at this point in time.
"They were all excited," she said. "There are events like this now where people want to come and learn from them, and there's so much to be done."
Please note All comments are eligible for publication in The News-Letter.