Presidents Barry Mills joined Associate Professor of Economics Gregory DeCoster to offer a lecture on the state of the economy in Studzinski Hall on Monday, October 6. The two speakers addressed a full auditorium.
"I wanted to speak with all of you during this time of economic uncertainty because I have a background in the investment world, and I feel that these issues are complicated," said Mills, a former partner at Debevoise & Plimpton law firm. "I view this as a great learning opportunity for all of us to come together and understand the situation a bit better."
Mills assured the audience that Bowdoin students and their families need not worry about the state of the College's finances.
"We are operating the College in a way that will allow us to withstand a whole lot before we need to worry about the state of the College," said Mills. "What's really amazing is that Bowdoin is currently worth more than Iceland."
According to Mills, the mortgage-backed securities and the credit-default swap systems that evolved in the '80s were "instruments that really changed the world of corporate finance."
"When people were borrowing money for houses and putting down 15 to 20 percent, the market that Fannie Mae and Freddie Mac were creating expanded the real estate market and allowed a lot of people to buy homes that before never could," said Mills. "That's when the wheels started to comes off the bus."
President Mills turned the microphone over to DeCoster to focus on the current state of the economy.
DeCoster described the U.S. economy as an engine lubricated by oil. He said that the oil in the U.S. economy is the credit market, and right now we are witnessing events in the sub-prime mortgage market that are taking the oil out of our economy and therefore putting it at risk of being unable to function.
"The Chairman of the Federal Reserve said, 'If we don't do this, we may not have an economy on Monday.' When the Chairman of the Fed says we might not have an economy on Monday, he means we may not have an economy on Monday," said DeCoster. "If companies can't borrow, they can't pay their workers, and the workers can't buy anything, and stores go out of business, and slowly the oil leaks out of the engine. We were riding that edge, and now we're still riding that edge."
DeCoster said that in order to fix the problems with the economy, the Federal Reserve needs to identify which banks are solvent, which banks are operating, and which banks need a little help. In order to identify which banks need help and which banks are operating correctly, the Federal Reserve needs to create a market again.
"You need a big, reliable buyer to create a market," said DeCoster. "The biggest reliable buyer out there is the U.S. government, because it can pretty much just print out the money."
At the conclusion of the lecture, one audience member asked whether or not the economy is facing a full-blown recession.
"If we're not in a recession, we're pretty close to being in one, and it's going to take a long time to get moving again in a positive way," said Mills. "We consider the lingering problem of credit card debt and have to ask when it will play into the state of the economy, as well. It's pretty scary."