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The current economic recession is deep, painful and complicated, and the solution must be a combination of a restructuring of the financial system and the implementation of an effective monetary and fiscal policy, a panel of economic and financial experts said yesterday morning in the Copley Formal Lounge.

Co-sponsored by The Financial Times and the McDonough School of Business, “A Panel Discussion on the Economic Crisis and Global Challenges,” is part of a series of events intended to expose Georgetown students to real world events, especially those relating to public policy, said MSB Dean George Daly.

The panel for yesterday’s discussion was moderated by Chrystia Freeland, U.S. managing editor of The Financial Times, and included speakers Dominique Strauss-Kahn, managing director of the International Monetary Fund, Roger Altman, former U.S. deputy treasury secretary under President Bill Clinton and co-founder of boutique investment bank Evercore Partners in New York City, and William Gale, director of the Economic Studies Program at the Brookings Institution. Following a one-hour discussion, audience members were given the opportunity to ask questions relating to economic issues.

embers of the panel said that setting the world back on the path of growth and development will require a multi-faceted approach, which includes coordinated action by the government and the central bank.

“The question of recovery would be helped by the stimulus [package], but there is something more at the root of the economy, which has to do with a healthier banking system . [or else] all the money put in by the stimulus would just go into the black hole,” Strauss-Kahn said. “The reality is that one dollar spent in restructuring the banking sector today is much more useful than the same dollar spent building bridges, or whatever it may be.”

Altman supported an idea of creating a “bad bank” similar to the Resolution Trust Corporation, a government-owned company implemented during the savings and loan crisis in the 1980s that had the purpose of acquiring and liquidating assets where the debt could not be repaid to the original bank. Nationalization, Altman said, is not the answer.

“There is a downward spiral which is plunging the financial sector into a state where the idea of nationalization is being raised,” he said. “Nationalization is seen as the very last resort.”

Gale stated that he was dubious about the practicality behind the standard approach of trying to stimulate individual consumption and increasing government spending, but that it still may be the best solution.

“We got into this situation by spending too much and taking in too much debt. The only solution that anyone can come up with is to spend more and take up more debt,” Gale said. “To make it more complicated, as soon as we recover, we need to tell people to stop spending like mad and start saving like mad. The whole logic of how this is supposed to work is iffy, but I don’t have a different logic that works better.”

Overall, though, members of the panel say the economy will eventually recover. Altman, looking at recessions in the past, believes in the resiliency of the economy and of the people.

“We’re not in a depression. We’re not going to be in a depression. We’re in a different world,” he said. “I don’t think it’s a matter of faith, but I think it’s a matter of history.”

Gale emphasized that this particular recession is unique, and requires a different perspective than the crisis in the 1980s.

“This is the occasional, very deep, very long, very difficult to get out of recession,” Gale said. “The stakes are very high, and I do share the optimism that the U.S. has a very dynamic and very strong economy, but it is not obvious to me that if we don’t do anything that we’ll turn out okay.”

Strauss-Kahn, drawing on his experience with the IMF, said coordinated international action is necessary to combating the downturn.

“This crisis is a global crisis and the solution must also be a global solution. … What is missing today is coordination and cooperation among different countries. This is not the time to have confrontation, but certainly a time when we need more cooperation,” he said. “Solutions to the banking crisis have to be implemented country-by-country, but the way it is done and the timing have to be discussed [internationally].”

The panel did say that solving the problem poses some political challenges.

“It doesn’t feel good to say that you’re going to put more money into the sector when everyone has in mind that all the mess comes from this sector. . It appears in public debate that we are helping the banks rather than helping the people,” Strauss-Kahn said. “That’s why you have to explain that the problem is not to bail out anybody, but the problem is that for somebody in a small town in Arkansas to find a new job or just to keep his job, you need his company to have credit, and you need the bank to be able to provide this. . We are in an economy now where the financial sector needs to work.”

Altman agreed by saying that the Troubled Asset Relief Program recently passed in Congress is the most unpopular program in D.C., but that there is a realization that the program is needed.

“We’re seeing even with the new administration, with all the glow and honeymoon aspects of it, that controversy is sparking as far as TARP is concerned. It is only going to get even more controversial. That will not be on account of missteps or bad judgments, it just the nature of [the program],” he said. “Politics are very difficult, but at the same time there is an understanding that the problem is severe . while people don’t like it, they understand it is necessary.”

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