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Current $700 Billion Rescue Plan Alone Will Not Work, Says Duke Professor

September 26, 2008

The nation’s financial crisis will not be solved by the current $700 billion proposal alone, says a Duke University finance expert.

“We have been trying to put out one fire after another and it is time to get ahead of the problem,” says Campbell R. Harvey, a professor of finance at Duke’s Fuqua School of Business who researches global risk management. “One day it is money market funds, the next is Washington Mutual and the Troubled Asset Relief Program. … We need a comprehensive set of policies and I hope my proposals are a step in that direction.

“It is unrealistic to think that we can continue to call on Citi and JPMorgan,” added Harvey.

In addition to calling for the implementation of the $700 billion plan, Harvey proposes the recapitalization of the FDIC, and the creation of a new fund specifically designed to jumpstart the credit system.

He said the federal government needs to quickly put in place adequate staff to handle an estimated 750 to 1,000 bank failures that may occur over the next six months. He also proposes a two-year moratorium on mortgage pre-payment penalties and measures to avoid credit being cut off for non-financial companies, particularly, small- and medium- sized companies that are the engine of economic growth and jobs.