How bad can the financial crisis get? | Philly

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Tuesday, September 23, 2008

How bad can the financial crisis get?

Over the weekend, the Federal government annouced plans for a mind-boggling $700 billion bailout for Wall Street. Read the details in today's Daily News."It's Our Money" asked some of the sharpest financial and budget minds in Philadelphia about the crisis. We wanted to know if things were really as bad as they seem and what was worst that could happen. Their responses are below.

Most importantly, we want to hear from you. How bad do you think the economic crisis can get? Are you already feeling the pinch in your pocketbook? Use the comment section to sound off!

Michael Masch
Chief Business Officer, School District of Philadelphia

“It's clear that something needs to happen because you can't have markets where people who have money won't lend it to people who need to borrow it. If that happens, then our entire system stops. Everybody needs credit. Companies need to be able to borrow to invest in new productive capacity. Government needs to borrow to create assets, like public works. If no one is willing is lend us money than lots of things will stop happening. Businesses that are otherwise healthy will not be able to function. For example, we need to borrow money to fix our schools. Government will not be able to function without borrowing money to do what we need to do. If people are afraid of what might happen next, that they have the money to lend but are unwilling to lend, then we will have a serious problem.”

Rob Dubow
Finance Director, City of Philadelphia

“The worst case scenario is that people are going to get scared and not repay loans. That will cause the credit markets to freeze up. You might have an extended period where loans are hard to get. That makes it difficult to get money for capital projects and other areas....A lot of people have retirement investments and if there is a contraction in the market the value of their investments will go down. That means something to everyone. Also, if the real estate market continues to move slowly, it becomes hard for people to sell their homes.”

Professor Oliva Mitchell
Pension Research Council, University of Pennsylvania

“People are talking about the Great Depression. People are talking about something worse than the Great Depression. The good news is that this risk has been spread around globally. Traditionally, the impact of this kind of economic crisis is usually only felt in the United States. Some of this poison bill has been swallowed by a host of financial institutions and people around the world. I think we're coming to the end of that. The rest of the world is reacting with horror and shock. The dollar is undergoing a lot of pressure and it's really destabilizing the global financial system. The good news is that Philadelphia has a lot of hospitals and pharmaceutical companies. We're all going need anti-depressants and psychological help.”

Uri Monson
Executive Director, Pennsylvania Intergovernmental Cooperation Authority

“I have a growing realization that the stewards of the American economy have no idea what they're doing and no idea how to combat the problem. The ultimate danger may be a complete loss of consumer confidence and the impact that would have on every sector of the U.S. economy.”

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About Sandra Shea and Ben Waxman

Every year, city government spends slightly more than $4 billion. Where does all that money come from? More importantly, where does it go? Are we getting the most bang for our tax buck? “It's Our Money” is a joint project between Philadelphia Daily News and WHYY, funded by the William Penn Foundation, designed to answer these questions.

Sandra Shea is the editorial page editor of the Philadelphia Daily News; she’s been with the Daily News since 1990, and joined the editorial board in 1998, where she has specialized in city and state legislation and policy. A week-long editorial series on the Fairmount Park system she produced with another board member was a finalist for the Pulitzer Prize.

Ben Waxman reports and blogs for “It's Our Money.” Before joining “It's Our Money”, he was a regular contributor to the Philadelphia Daily News op-ed page and former contributor to the blog Young Philly Politics. He studied political science at Juniata College in Huntingdon, PA.