World Bank and ISET Conduct a Joint Seminar on Financial Crisis
On November 4, 2009, David Tarr of the World Bank visited ISET to give a presentation on "The US Financial Crisis: Causes, Consequences and Reforms".
Tarr currently serves as a World Bank Consultant, and is a former lead economist at the World Bank's Development Research Group in Washington.
After an introduction by ISET Academic Director Wilfred Ethier, Dr. Tarr began his address to the ISET community, students of other universities, ISET partner organizations, and World Bank representatives. Tarr's presentation began with a look at the political, regulatory, and market failures that caused the 2008 US financial crisis. As he explained, first, while Congress was fixing the Savings and Loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure, as Congress was appealing to narrow constituencies. Second, in the mid-1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to lower bank mortgage standards to underserved areas. Crucially, the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies and asset managers were all plagued by problems such as moral hazard or conflicts of interest.
Dr. Tarr explained that the financial deregulation of the past three decades is unrelated to the financial crisis, and suggested several recommendations for regulatory reform.
The presentation was followed by a question and answer session.
