Wescott Congressional Testimony on Meltdown on Wall Street
Dr. Robert F. Wescott, President of Keybridge Research, testifies before the U.S. House of Representatives Committee on Oversight and Government Reform on the collapse of Lehman Brothers and the U.S. financial crisis
Dr. Robert F. Wescott, President of Keybridge Research, testified before the U.S. House of Representatives Committee on Oversight and Government Reform on the collapse of Lehman Brothers and the U.S. financial crisis. In his written testimony, Dr. Wescott explores three fundamental questions:
(1) What were the main causes of the financial crisis?
(2) What are its economic effects?
(3) What lessons should we draw for public policy from these experiences?
In Dr. Wescott's view, the collapse of Lehman Brothers proved to be the "pinprick that burst the bubble" - an event common to all financial crises that signals severe weakness in the system, shakes market confidence, and sets off a vicious circle of unwinding, deleveraging, and tightening credit conditions. As expressed to the Committee by Dr. Wescott, "the current financial meltdown in America had a key driving factor - a rapid expansion of credit. It had a key vehicle - the housing market. It had a number of important enabling factors - mainly innovations in the financial sector, the erosion of underwriting standards, and heavy leveraging. Finally it had a trigger event that led to a rapid erosion of confidence in financial markets - the collapse of the investment firm Lehman Brothers in mid September 2008." Dr. Wescott goes on to elaborate on the implications of the financial crisis for the real economy, and discusses potential steps that policymakers may take to avoid a similar situation in the future.
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