25. Learning from and Responding to Financial Crisis I (Lawrence Summers)

Financial Markets (ECON 252)

Professor Summers, former U. S. Treasury Secretary and former President of Harvard University, in this the first of two lectures in honor of former Yale Professor and Council of Economic Advisors chairman Arthur Okun, offers thoughts on the role of monetary policy in economic fluctuations, past and present. In the "Okun period," ending about when Okun died in 1980, the monetary authorities were very much involved in actually creating economic contractions. Inflation would repeatedly get out of control, the Fed would hit the brakes, and the economy would slow. But, that is not the story of the economic cycles of the last two decades. Recent economic cycles appear to be connected with factors endogenous to the financial system, such as bubbles or cycles of complacency among lending institutions. Summers argues that to understand the financial markets and the economy, we must consider models of multiple equilibria, such as bank run models, where a change in confidence may shift the economy drastically without any change in fundamentals.

00:00 - Chapter 1. A Profile of Lawrence Summers, Memories of Art Okun
12:48 - Chapter 2. Okun's Concerns on Stable Growth, Inflation, and Cyclical Fluctuations
29:05 - Chapter 3. The Interconnectedness of Modern Financial Crises Worldwide
40:05 - Chapter 4. The Bank Run Metaphor in Non-Bank Financial Crises
58:38 - Chapter 5. Behavioral Finance: Reasons for Positive Feedback
01:15:37 - Chapter 6. Summary and Questions on Government Interventions and Moral Hazard

Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses

This course was recorded in Spring 2008.