Economic Experts Offer Solutions to Financial Turmoil

With financial markets in chaos, several of the leading economists affiliated with Harvard Kennedy School's Belfer Center -- including Lawrence H. Summers, Martin Feldstein, and Paul Volcker -- are actively advising policymakers on next steps.

Summers said in an interview earlier this month on Charlie Rose that the economic situation "isn't something we can ride out with the hope that somehow, in a deep sense, the fundamentals are strong."

Both Summers and Volcker have pushed for a government program to buy up distressed loans from banks -- a proposal that now is gaining traction in Washington. The program is intended to find a systemic way to shore up the financial system. Summers, in meetings in Washington this week, urged Congress to consider additional stimulus for the economy.

Feldstein, Volcker, and Summers have been among the leaders in not only diagnosing the current crisis, but also proposing solutions. Feldstein and Summers are members of the Belfer Center's Board of Directors, while Volcker is a member of its International Council.

In an influential oped in the Financial Times in late August, titled "How to Shore up America's Housing Market," Feldstein wrote that, "the risk of a downward spiral of house prices is the primary danger facing the American economy. Because of the structure of securitised mortgage finance, this risk has the potential to cause a global financial crisis. Both of these problems will remain until a new policy brings stability to house prices."

Since March, well before others backed sweeping systemic solutions, Feldstein has advocated for a federal program of "mortgage replacement loans." He wrote then in the Wall Street Journal: "A voluntary loan-substitution program could reduce the number of defaults and dampen the decline in house prices -- without violating contracts, bailing out lenders or borrowers, or increasing government spending."

The economists have in recent weeks expressed increasing worry about the outlook for the U.S. economy, particularly as home prices continue to decrease.

"I am worried," Feldstein told MarketWatch in late August. "I think the downward spiral of house prices could be a very serious problem to the economy. There is no evidence that is going to stop."

Summers, Volcker and Feldstein are advising the presidential campaigns, as well as Congressional staff on legislation.

"This last decade will, when statistics are in, in all likelihood be the worst decade of American economic performance since the Great Depression," Summers told NPR's On Point this week.

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