Robert Mundell, professor of economics at Columbia University, says there are six men responsible for our current financial crisis. Why should we care what Mundell has to say on this subject? Well, there are several reasons. Mundell, who is a Canadian economist, graduated from the University of British Columbia in Vancouver. He attended the Massachusetts Institute of Technology, where he earned a PhD in Economics in 1956. According to a Wikipedia biography, Mundell also attended the London School of Economics and was a top performer in his years there. Mundell worked as an economics professor at McGill University and the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University. As chair of economics at the University of Waterloo in the 1970s, Mundell laid the groundwork for the introduction of the euro through his pioneering work in monetary dynamics and optimum currency forms. Mundell’s work on currency areas and international exchange rates led to his being awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel by the Bank of Sweden (Sveriges Riksbank) in 1999. As a Nobel Prize winner, Mundell has an interesting outlook on the present world financial crisis, and he shared some of his ideas in a recent conference held in Florence, Italy. According to Mundell, the origins of today’s financial crisis were the dot com boom of the 1990s and the global slowdown in 2001-2002. Sub-prime lending complicated things, and the temporary fixes along the way failed to normalize the situation. Mundell identified six men he believes are responsible for contributing to today’s recession: · Lewis Ranieri, known as the father of securitized mortgages · Former president, Bill Clinton · Alan Greenspan, chairman of the US Federal Reserve from 1987 to 2006 · Maurice (Hank) Greenberg, former chairman and CEO of American International Group, the world's largest insurance and financial services corporation · Ben Bernanke, sworn in as chairman of the Federal Reserve Board of Governors in Washington DC in 2006; and · Hank Paulson, former 74th US Treasury Secretary Lewis Ranieri was the first to come under attack. According to Mundell, Ranieri’s pioneering of mortgage backed bonds in the 1980s helped to lay the groundwork for today’s crisis. Bill Clinton moved the crisis to the next level by strengthening the 1977 Community Reinvestment Act during his time in office as president, making loans easier to secure for socially disadvantaged borrowers. Alan Greenspan’s role, Mundell said, was to keep interest rates “too low for too long,” supporting sub-prime lending, and advocating variable rate mortgages, which Mundell called “a terrible idea.” Ben Bernanke’s mistake was that he “allowed the dollar to soar on the idea that the exchange rates don’t matter,” Mundell said. And Hank Paulson, though Mundell calls him “the best of the three recent treasury secretaries,” shares the blame because of the “colossal failure” of bailing out Bear-Stearns, but failing to understand that it was equally important (if not more so) to bail out Lehman Brothers. This was a critical error, Mundell said, and it was compounded by Paulson’s failure to notice the significance of the appreciation of the US dollar in 3Q 2008. According to Mundell, that was a sure sign of the negative things to come. Having pointed the finger into the past at all of the people who put us in the bind we’re in, Mundell looked forward to his prediction of where the world will be at this time next year. Mundell’s prediction is that the US recovery will begin in the second half of 2009 and that Europe will begin to recover six months later. Though he predicts a major slowdown in the Chinese economy, he believes there will be moderate recovery late in the year 2010. China’s growth rate, which has begun to drop, will go from a high of 11% in 2008 to a more modest 6% in 2010, Mundell said. A drop of 5% is nothing to sneeze at, but the end result – a 6% rate of growth – will place China as a significant world player in the context of growth. So if we put faith in Mundell's outlook, though we’re in a bind now, it isn’t all bad news. If we hang in there for a few months, things might just begin to get better.