The economic crisis in which America finds itself embedded has many questioning how we got into this situation and, more importantly, what the best course of action to get the economy back on its feet may be. Yesterday afternoon, students filed into a lecture hall in the Isenberg School of Management in the hopes of finding some answers to the pressing dilemmas of this financial crisis.
Prominent economist, chairman of MFS Investment Management, Harvard Business School senior lecturer and author Robert Pozen was on campus Thursday to offer his take on the problems which led to the financial downturn and the steps which need to be taken for the nation to recover. Speaking to a crowd of about 60 students and a handful of Isenberg faculty, including associate dean Mark Weinberg, Pozen’s lecture, “The Global Response to the Financial Crisis: Can we avoid a repeat?,” outlined the irresponsible decision making by lawmakers, bankers and consumers alike that has driven the country into financial turmoil.
Pozen’s newest book, “Too Big to Save: How to fix the U.S. Financial System,” has been hailed as the most detailed and comprehensive breakdown of the economic crisis to date. In the lecture, Pozen drew directly from his book, presenting his take on the three issues he believes were the most controversial in today’s financial debate: government bailouts, executive compensation and mortgage security.
In 2009, the United States government spent $1.6 trillion bailing out nearly 700 companies. While Pozen believes the bailout was necessary in some instances, such as AIG, which he said would have lead to an economic implosion, he said he feels 95 percent of the bailouts were entirely political, and a result of government officials who cracked under pressure.
“When the government decided to bailout all of the big companies, the smaller ones who didn’t matter as much wanted a piece of the action as well, and the government wanted to be fair so we gave them what they wanted,” he said. Pozen suggested future bailouts should follow a very narrow and carefully calculated rationale, assisting only companies whose failure would lead to global repercussions.
Prior to becoming the chairman of MFS Investment Management in 2004, a firm which manages more than $200 billion in assets worldwide, Pozen spent five years as president of Boston-based Fidelity Management & Research Co., the investment advisor to Fidelity Mutual Funds. During his time as president, Fidelity’s assets nearly doubled. With over 20 years experience in investment management, Pozen has been very critical of how the government has handled the performance bonuses for company CEOs. He suggests extending the period for executive performance bonuses in order to ensure that they are performance based rather than guaranteed salaries.
“Any idiot can increase profits in the span of one year,” he said. “All the current system does is encourage short-sighted thinking and irresponsible investments with big payoffs.”
Another troublesome issue for economists is the high rate of inflation and increased national debt. Pozen cited the fragile – yet interconnected – relationship between the United States and China, and what that means for consumers who want to help nurture the economy back to health. For the currency imbalance to level out, Chinese people need to consume a lot more and Americans need to save a lot more. According to Pozen, the average Chinese family manages to save 25 to 30 percent of their annual income while American families are currently saving only 5 percent of their income annually. In order to fix this problem, Pozen says the American consumer is going to have to go through a transformation on how we choose to use our income. Pozen said responsibility to keep the inflation rate under control lies entirely with the Federal Reserve, and he is confident that Federal Reserve chairman Ben Bernanke will figure out the problem and fix it.
After about an hour-long lecture, Pozen spent 20 minutes or so fielding questions from the audience.
Ultimately, the tone of his lecture was based on a quote that he began with from fifteenth-century Italian philosopher Niccolo Machiavelli, “Never let a serious crisis go to waste.” Although America is by no means out of the woods and there is certainly a great deal of work to be done, Pozen hopes those with the power to make a difference will share the insights he expressed in his book and learn from the mistakes in order create a stable future economy.
Noah Steinberg-Di Stefano can be reached at [email protected].
