The second of two forums on the financial crisis sponsored by the University of Washington Alumni Association took place Nov. 3 at Kane Hall. Both events, which drew capacity crowds, are available via archived streaming video.
Whereas the first discussion, which I also covered for Crosscut, summarized the origins and possible consequences of the market meltdown, the second was billed as covering possible solutions. Moderated by former Mayor Norm Rice, it was simply titled, "What Should We Do Now?" and featured Yu-Chin Chen and Charles Nelson of the economics department, Karma Hadjimichalakis of the Foster School of Business, Wolfram Latsch of the Jackson School of International Studies, and local economic analyst Dick Conway. Yet Nelson's late addition to the panel (he's still not listed on the webcast page) wasn't the only change of plans. Somehow the forum had been retooled as part two of the first rather than the second in a series: Instead of providing practical advice to worried citizens or policy advice to the newly elected president, the panelists spent most of their time talking about the true global nature of the financial crisis.
James Jiambalvo, dean of the Foster School, noted during his introductory remarks that while the U.S. stock market has certainly suffered (down 36 percent in the preceding 12 months), we are relatively well off. China, whose market fell nearly 60 percent over the same period, and Iceland, whose OMX 15 index fell 77 percent on a single day, Oct. 14, have taken it far worse. Interestingly, this means that the United States is not in danger of losing global financial preeminence, as Rice worried. Chen actually thinks we might gain: The fact that the dollar is gaining ground against foreign currencies means that global investors still see us as a "safe haven." It was the attractiveness of the U.S. from an investment perspective that brought a flood of liquidity into our markets after 9/11, and a similar phenomenon seems to be taking place right now. "Countries are lining up to lend us money" at relatively low rates, says Latch.
What do they see coming? Latch predicts greater international coordination and cooperation, along with the overhaul of institutions like the World Bank and IMF, which he characterized as having been designed for "a completely different world." Longer-term, everyone seemed to be counting on a U.S. recovery, though whether it would take the shape of an L, V, W, or U was up for debate. As for Washington state, Conway foresees a slowdown, even in Puget Sound. King County in general and Seattle in particular are the only jurisdictions still showing job growth, and this is unlikely to continue.
It was when Rice opened up the floor to questions that more practical issues came to the fore. Members of the audience were concerned about unfunded Medicare and Social Security liabilities, the effect of the crisis on students (loans and job prospects), possible municipal bond defaults, and the possible departure of Boeing from the area. The panel was unable to do much reassuring, though Conway thinks it would be too hard for Boeing to move, and Chen is an optimist with regard to entitlement programs. Rice does, however, foresee some political subdivisions defaulting on their issues, and as for students? Nelson says this is a good time to go to school, as the opportunity cost is low. (Read: In 2009, the choice may not be between school and work, but between school and unemployment). Latsch got the biggest laugh of the night when he expressed his concern over a glut of applications to law school. Apparently many of his former students have recently left Wall Street and now want to apply their talents to our legal system.
In fairness to the panel, there are no quick fixes. Their suggestions to the new president, with which they closed the evening, included investment in infrastructure (what Nelson called "bridges to somewhere"); the avoidance of protectionism, isolationism, and antiglobalization (Nelson and Latsch); and aid to states, the unemployed, and underwater homeowners, plus more money for education (Hadjimichalakis). Conway had said earlier that the domestic economy is paralyzed by a "fear of falling," and that to combat this "we need to do a better job of explaining what's going on ... help people to think properly about the problem." He reiterated in his final remarks that "a lot of our troubles are [from] misperceptions about what's going on," and that, like FDR, President-elect Barack Obama must talk directly to the people and "give straight answers."
I applaud the University of Washington for putting this series together, but as the man sitting behind me remarked as we got up to leave, there were "not a lot of real specific solutions," the promise of which, I assume, drew many of the night's attendees. Professors' explanations of the crisis will only make so much sense as long as Americans are essentially financially illiterate. Perhaps it's time for a series of forums on personal finance? A Nov. 24 panel at Town Hall promises to, among other things, discuss "steps we should take to protect our own pocketbooks." If it lives up to its billing, it's a great first, local step. In a world in which social workers are being asked to do double duty as financial counselors, it's painfully obvious more financial education is necessary.
Writer's note: A commenter on my Oct. 8 article, "Personal Finance 101," mentioned that state senator Karen Keiser got a bill passed a few years ago focusing on financial literacy in the public schools. According to Senator Keiser's legislative assistant, John T. Elder, this resulted in the creation of the Financial Literacy Public-Private Partnership (FLPPP), which was originally funded with $50,000, but whose budget is now folded into that of the Department of Financial Institutions (DFI). Linda Jekel, DFI's director of credit unions, agrees that "all of us need to sharpen our financial skills and knowledge," and highlights "FLPPP's work with the Office of Superintendent of Public Instruction... that resulted in financial education being included in required social studies standards." [PDF] Again, it's a start. We all should understand "the pros and cons of buying a Washington State lottery ticket." I hope that when it comes to setting the budget for the next biennium, FLPPP's budget is not only maintained, but increased. In the midst of short-term fixes, we've got to work on some long-term ones as well.