Tuesday, September 15, 2009

Stiglitz says banking problems are now bigger than pre-Lehman Brothers

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system.

“In the U.S. and many other countries …” Stiglitz said in an interview in Paris, “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods”.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said.

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government. “The question then is who is going to finance the U.S. government,” Stiglitz said.


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