Professors provide information on crumbling credit system

With the country's financial institutions buckling under a faltering credit system, economics professors decided to explain the financial crisis in typical DePauw fashion - they hosted a panel discussion. Watson Forum was filled with students, faculty and staff Wednesday afternoon as professors Gary Lemon, Ann Jennings, Kellin Stanfield and Kerry Pannell attempted to break down the recent economic struggles that caused the U.S. Senate to pass a $700 billion bailout bill Wednesday evening.

To start the discussion, the panel preceded the question-and-answer session by taking turns explaining the current and historical functions of financial institutions in the U.S. Displaying a timeline of past economic crises from the beginning of the 20th century to the present, Pannell pointed out waves of regulation and deregulation that have marked the fiscal history of the country. She addressed the peak and fall of housing prices in 2006 that have led to today's problems with rising foreclosures, an event that foreshadowed the current state of the economy.

Following Pannell, Jennings provided the audience with an example of a balance sheet in order to show the fallout of a collapsing financial institution. The sheet showed the relationship between liabilities and assets.

Using the bankrupt Lehman Brothers Holdings Inc. investment bank as an example, she explained how these companies collapse. As a result of unpaid assets that lead to unpaid liabilities, bankrupted financial institutions can ignite a domino effect the results of which she labeled "the credit crunch."

"The worry is that there's not going to be enough credit to allow the economy to function," Jennings said.

Lemon focused on the stagnant credit system, saying that the seized markets need to regain confidence in order to flow again.

"So how do we give people confidence?" a student in the audience asked.

Correctly predicting the Senate actions that would occur later in the day, Lemon said he assumed Congress would act on the bailout this week, as part, but possibly not enough, of the confidence needed to get people's money back.

Jennings said she thought the market would need to bounce back with "a lot more regulations to ensure due diligence at every stage of lending," as her fellow professors nodded in agreement. While the panel said they did not believe the country would sink into a depression that would rival the stock market collapse of the 1920s, they addressed the repercussions the crisis will have on the lives of students and their families.

"Credit is drying up," Jennings said, "and student loans go with it."

Another student was curious to know the negative aspects of the bailout, since the U.S. House of Representatives turned down the original bailout plan on Monday.

"It might allow for credit to flow," Stanfield said, "but whether or not that helps the economy overall is questionable."

Sophomore Sally Reasoner said her main concern was not for herself, but for her parents, because she doesn't have student loans or money in the stock market.

"I came because I had no idea what was going on," she said.

After listening to the panel, she said she is concerned for the future, and that she hasn't completely grasped the effects the crisis and the bailout will have on her down the road.

"If it doesn't happen now, the cycle will likely run again and affect our generation," Reasoner said.

As someone who has talked with several students about the crisis, Pannell said she believes people should be concerned with the economic situation.

"My biggest concern is that there's a possibility that people's education will be affected by the timetables of change," Pannell said.

Senior Robyn Jenkins said she's feeling the pressure of the crisis as she prepares to enter the job market and is now looking at different post-graduation options like graduate school to try and "stay out of that mess for as long as I can.