Joseph Stiglitz - Testimony on "The Future of Financial Services Regulation," House Financial Services Committee, October 21, 2008.

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stiglitz102108.pdf

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First, let me thank you for holding these hearings. The subject could not be more timely. Our financial system has failed us. A well-functioning financial system is essential for a well-functioning economy. The problems were predicted, and the still unfolding consequences are largely predictable. Millions are losing their homes, along with their life savings and their dreams for their future and the future of their children. Many who worked hard for a life time and had looked forward to retirement with a modicum of comfort face the remaining days of their lives with hardship and uncertainty. Many will not be able to send their children to college. Millions will lose their jobs as the economy goes deeper into recession. The private sector has already shed a million jobs (net) this year. We as a country will be less able to provide for any future contingency. The strength of our country depends on the strength of our economy. We have not only what are euphemistically called impaired mortgages, we have an impaired economy.

Behind this impaired economy are not just sub-prime mortgages, but, in the words of Professor Nouriel Roubini, a sub-prime financial sector. And part of the reason that it has performed so poorly is inadequate regulations and inadequate regulatory structures. Some have argued that we should wait to address these problems; we have a boat with holes, and we must first fix those holes. Later, there will be time to address these longer-run problems.

That view is wrong. The time to fix the regulatory problems is now, and that is why I especially congratulate you on holding these hearings.

Author

Joseph Stiglitz