Bies calls for change in public policy

Columbia residents gathered Monday for a lecture about the economy.

By Laura Swan

Published Feb. 10, 2009

Economist Susan Bies explained the financial crisis and offered solutions to a nearly full room as part of a lecture series Monday afternoon.

Bies, who was Federal Reserve System Board of Governors member, discussed the underlying sources of the financial crisis being asset bubbles, the accountant's role in the situation and how we should and can demand consumer protection.

The Harry S. Truman School of Public Affairs and the Graduate School sponsored the lecture.

Freshmen Jeff Emens and Sam Lind said they received an e-mail from their adviser about the event. They said attending the lecture and others like it help students get in to the Tulaske College of Business.

School of Public Affairs Director Barton Wechsler said the Monroe-Paine Distinguished Lecture in Public Affairs series has a long history at MU.

"This lecture will be of interest to anyone trying to understand today's financial crisis," Graduate School Dean Pam Benoit said. "This is definitely of interest to me because I myself am trying to grasp these intricacies."

Graduate student Kate Hertweck said Bies clarified a lot of major issues for her.

"It's nice to have everything succinctly organized by someone I trust to know the issues," she said.

Bies' knowledge of this subject has come from her experience holding leadership positions in several financial organizations for 30 years. She was inducted into Financial Executives International's Hall of Fame last year.

She began her lecture by saying she enjoyed being back at MU, since she often visited her husband, then-boyfriend, here.

"I want to talk about current issues that won't be solved overnight," Bies said.

She said every recession is a little different from the one before it. A liquidity issue just now hitting the real economy, defined as the average American's financial situation, drives this recession, she said.

Although Bies was a member of the Federal Reserve, she said she never imagined how big the underwriting was and no idea how bad the problem was. She said the major problem with the system was there was no transparency since "less than one-fourth of loans are on the books of banks or credit unions."

She blamed mortgages for the entire crisis.

"If Republican and Democrat public policy doesn't find a way to deal with the mortgage and underwriting issue, it's never going to go away," she said.

When people couldn't afford mortgages in the early 2000s, instead of just letting less people take out mortgages, the Reserve eased up on its standards. "If you give someone a loan and they can't afford it, that's the most predatory loan you can make," Bies said.

Bies said the main problem with economic public policy is that the central bank chooses which sectors of the economy get funding.

"We need standards to regulate who gets funding," she said.

Bies said there is a need for regulatory reform to spend more time finding where in the economy imbalances or risks are growing.

"What we've got now is a problem of moral hazard," she said.

She said since companies think they can just get a buyout and their investors will be protected, people and businesses are taking more risks than ever. She stressed the importance of consumer education.

"I hope this brings about a much better general financial education not only in high school and college, but over your lifetime," she said.