MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
ROBERT SIEGEL, host:
And I'm Robert Siegel. In Joseph Stiglitz's new book, "Freefall," the Nobel laureate and Columbia economics professor gives Washington bad grades on its responses to the three main economic crises we face.
Stiglitz is least scathing when it comes to the stimulus bill, which he finds an anemic and insufficient response to the recession. When it comes to the housing and financial crisis, he is less charitable. The government has rushed to save institutions it should have let sink, and it has let individuals sink instead of coming to their rescue.
Joseph Stiglitz served on and later chaired President Clinton's Council of Economic Advisers. He was also chief economist at the World Bank, and he joins us from New York. Welcome to the program.
Mr.�JOSEPH STIGLITZ (Author, "Freefall: America, Free Markets, and the Sinking of the World Economy"): Nice to be here.
SIEGEL: And I'd like to begin by playing you something the treasury secretary, Timothy Geithner, said on this program recently. This was his upbeat appraisal of where the economy stands.
Secretary TIMOTHY GEITHNER (Department of Treasury): The economy is growing again. The policies the president put in place are helping lay the foundation for growth and job creation, and everything we're focused on doing is to try to bring forward the time where the economy's creating jobs again, people going back to work, people can be more confident about their financial future, their financial security.
And I think Americans can be more confident of that, and if you look carefully at what you see about consumer confidence surveys, surveys of business confidence, if you see how people are behaving again now, you see confidence starting to come back.
SIEGEL: Joseph Stiglitz, do you share any of the Treasury secretary's optimism?
Mr.�STIGLITZ: Well, things are better than they were, say, a little over a year ago, but the fact is that even the growth that he's talking about is not sufficient to really create the jobs the economy needs. Unless the economy is growing between three percent and three and a half percent, it's not growing enough to create the jobs, let alone to get the unemployment rate down from the 10 percent that it is today to a more normal level.
SIEGEL: As you say, that we should look at unemployment or job creation or job losses not just in absolute terms but relative to how many jobs we would naturally add to the economy when the economy is growing.
Mr.�STIGLITZ: That's right. And normally, we would be adding, say, about 150,000 jobs per month. Right now we're losing jobs.
SIEGEL: Do we need a new economic stimulus plan? And if so, wouldn't it be a lot easier to get through the Columbia Economics Department than through the Congress at this stage?
Mr.�STIGLITZ: We do need another stimulus plan. At the very least, we need to be ready to put one into place. States and localities are really suffering. There's a shortfall in the revenues. When this current stimulus package comes to an end, those shortfalls and revenues will be even more marked.
SIEGEL: Now, I want to ask you next about the housing crisis. In "Freefall," in your book, you're very critical of the approach that the administration took to the mortgage crisis, and you describe at one point an alternative of how the government - I'm not sure if you're talking about the Treasury or the Federal Reserve in that case - might have used government funds for people to use to refinance a portion of their mortgage.
Mr.�STIGLITZ: Well, exactly. The problem is the government has been using its ability to lend to give money to the banks. If they had lent it onto households, maybe with a little charge for transaction, one or two percent, that would bring down their payments, and that would mean that the hundreds and hundreds of thousands of people losing their homes - and with that their life savings - all of that could have been stymied.
SIEGEL: You're saying that somebody, say, with a $300,000 mortgage at five or six percent that they're really having trouble paying now could take a chunk of it, say 100,000 of it, and what if they refinanced through the Fed at two percent? That would bring down their monthly payments. The government would be helping the borrower instead of the lender of the mortgage, and the person would be no longer underwater on the mortgage?
Mr.�STIGLITZ: Well, he'd still be underwater, but his payments would go down by - in the case that you just - the example you gave, paying six percent going down to two percent, that'll bring down his payments by two-thirds. And so that would make the house more affordable, more likely that he wouldn't have to go into foreclosure.
SIEGEL: How do you explain the fact that it seemed quite obvious to people in Washington to do something for the banks, to make money available to them at very low interest rates through the Fed, as opposed to bypassing the banks and making money available to people directly for mortgages at very, very low interest rates?
Mr.�STIGLITZ: I think you have to look at the way Washington often works. The banks are there in great presence. There are estimated five lobbyists per congressman. So it's no wonder, with that kind of clout, that the banks get more of what they want and American households get less of what they need.
SIEGEL: But you address very often in your book the questions of moral hazard, and you come down on the side that the mortgage crisis is largely about predatory lending practices. Some people would say, yes, there are predatory lending practices, but that person who would get the two percent mortgage loan, let's say, from the Fed that you're talking about, was very possibly extremely imprudent in taking out that mortgage in the first place and should've known better.
Mr.�STIGLITZ: Well, he probably was imprudent, but remember, we're talking about, in many cases, first-time homebuyers. They were dealing, on the other hand, with banks who they assumed were experts in risk management. They didn't really understand the game that the banks were playing.
SIEGEL: You begin your book with an interesting perspective, for those of us who have heard often that the economy was humming along quite well until unexpectedly it went over a cliff a couple of years ago. From a global perspective, this has been a couple of decades. It's been an era of economic crises.
Mr.�STIGLITZ: That's right. From a global perspective, we've had one financial crisis after another. Back in the United States, the last crisis, of course, was the S&L financial crisis that cost us several hundred billion dollars and was very expensive for our economy as well. But abroad, we had the Mexican crisis in 1994, a crisis in Thailand, in Indonesia, in Korea, in Argentina, in Brazil, in Russia.
So the banks have consistently done a bad job in assessing creditworthiness. They've consistently been bailed out by public institutions. So this is not the first crisis, and we should keep that in mind.
SIEGEL: And you would say that when those crises occurred, the remedies that we proposed or demanded were not the remedies that we implemented here.
Mr.�STIGLITZ: In fact, just the opposite. When East Asia went into a crisis, we and the IMF demanded that they raise interest rates, that they cut back expenditures, that they raise taxes, that they not bail out their banks.
There's a lot of bitterness today in Asia and other developing countries because of the seeming hypocrisy, the difference between what we demanded of those countries and the way we behaved ourselves here in the United States in this crisis.
SIEGEL: Joseph Stiglitz, thank you very much for talking with us today.
Mr.�STIGLITZ: Well, thank you.
SIEGEL: Joseph Stiglitz is the author of "Freefall: America, Free Markets, and the Sinking of the World Economy."
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