2008 Archives

Latest bailout no guarantee for economy


The following is from the Oct. 14, 2008, edition of The Atlanta Journal-Constitution. Kumar Venkataraman, a finance professor in SMU's Cox School of Business, provided expertise for this story.

October 14, 2008

The Atlanta Journal-Constitution

In tossing a quarter of a trillion dollars to the nation’s banks, the government is pumping lubricant into the nation’s economic engine.

The move should prevent the motor from freezing up, but it cannot guarantee that the engine won’t sputter and stall.

Announced Tuesday morning, the $250 billion bailout is meant to ensure that banks have enough money — and enough confidence — to make loans needed by companies and consumers. And while financial markets and big banks sometimes seem to operate in their own world, they are needed in the “real” economy of people and businesses.

“The linkage is very, very strong, because the real economy relies on credit,” said Kumar Venkataraman, finance professor at Southern Methodist University’s Cox School of Business. “If the banks freeze up, then average people cannot buy cars and buy furniture.”

If consumers buy less, retailers and manufacturers must cut expenses. When they lay off workers, consumer spending slows further, which chills the economy still more. “If you don’t have credit, you guarantee a recession.”

Read the full story.


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