March 23, 2008April 20, 2008Meeting Report

April 4, 2008

Hugh Gibbons

The Current Financial Crisis

Hugh Gibbons

One would almost have to be trying to avoid the news in recent months to have not seen reports about the sub prime mortgage crisis.

With an MBA from the University of Chicago, one of the premier economics schools in the country, and with a background teaching economics to law students, Hugh Gibbons was well-qualified to cover this timely subject. Beginning with a brief history of the Great Depression and the forces that caused it, Gibbons showed how protections put in place to protect from a repeat of the greatest financial downturn, were recently removed.

He showed how banking and investment practices led to an oversupply of money available for loans which in turn led to an artificial demand for housing. Besides resulting in increased building, this also led to higher prices. At the same time, this led to relaxed lending guidelines which in turn led to increased defaults.

A recent law allowing companies like Bear Stearns to carry liabilities without showing them on their financial disclosures combined with the removal of the aforementioned removal of other protections and the increased default rate led to a collapse that fed on itself.

Interestingly, both the removal of the wall between depository and investment banking and the loosened financial reporting requirements for those holding certain mortgage instruments, largely responsible for the sub prime collapse were sponsored by Phil Gramm, a member of the John McCain economic advisory team.

The question and answer session elicited a wide variety of insightful questions and informative answers.

Report prepared by Brian Jones, Recorder


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