Testimony of Dean Baker Before the House Financial Institutions Subcommittee of the Financial Services Committee

Publication Date: March 2009

Publisher: Center for Economic and Policy Research

Author(s): Dean Baker

Research Area: Banking and finance

Keywords: Financial industry; Home ownership; Liquidity

Type: Testimony

Coverage: United States

Abstract:

"1) There are two separate issues ostensibly addressed by the TARP and subsequent measures by Treasury and Federal Reserve Board. First, government involvement is needed to arrange an orderly reorganization of insolvent institutions; and second, actions are necessary to maintain the flow of credit.

2) The primary cause of the downturn is the loss of wealth as a result of the collapse of the housing bubble and the subsequent loss of value in the stock market. Credit is a secondary issue.

3) The government can help to promote a better flow of credit in this downturn by ensuring that smaller financial institutions that are in reasonably good financial health have fuller access to funds."