How economy looks to the man who wrote the book
Nobel laureate Paul Samuelson blames crisis partly on 'fiendish' financial engineering on Wall Street.
How does the man who literally wrote the book on economics regard the current financial crisis and emerging global recession?
Paul A. Samuelson's first answer is a bit understated.
"It's very serious," says the author of "Economics," the tome that served as a primer on the subject for several generations of college students. It is, he says, much more than the bursting of a big price bubble in the housing market, a phenomenon the US has experienced before with less ill effect.
Then the 1970 Nobel Prize winner unloads both barrels. It's so bad now, Dr. Samuelson says, in part because of "fiendish, Frankenstein financial engineering" by Wall Street that "obliterated" the transparency of the resulting derivative financial instruments now sinking banks and other institutions in the United States, Europe, and elsewhere.
He also criticizes federal regulators for allowing "unconscionable superleveraging" – that is, some financial firms borrowed as much as 30 and 40 times their own capital to make investments, creating a perilous financial position.
Samuelson, now a professor emeritus at the Massachusetts Institute of Technology in Cambridge, suggests that the US government "may have to do a lot of spending" to get the economy back on track. That approach, he adds, is "reminiscent" of what President Franklin Roosevelt did to help bring the nation out of the Great Depression of the 1930s, a time when Samuelson was studying economics at Harvard University.
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