St. Louis Fed president speaks on mortgage crisis

Just days after one of the biggest downfalls in the stock market’s history, James Bullard, president of the Federal Reserve Bank of St. Louis, told an IU crowd that little was known about how the fallout would ultimately affect ordinary people.

Bullard, an IU Ph.D. economics graduate of 1990, spoke to about 100 students and faculty Thursday night at Alumni Hall in the Indiana Memorial Union.

Bullard’s speech focused on the deterioration of important investment banks in the past seven months and how the FED has attempted to ease their negative economic impact.

“We do not know what will happen this time around, and we should be humble in our predictions,” Bullard said.

The Federal Reserve’s biggest problem the last few months has been handling the downfall of financial institutions.

Bullard said these non-banking institutions are not subject to many federal regulations and can lead to “systematic risk,” where the economy deteriorates due to the collective risk of some powerful institutions.

Despite the bankruptcies, Bullard said that in a capitalist economy, some firms need to go out of business in a controlled manner.

“There’s been some of the worst crises management in a generation,” Bullard said. “So I don’t mind if firms go out of business because they didn’t like the score. You just want that to occur in some orderly way so that it doesn’t harm the rest of the economy.”

Bloomington resident and IU alumnus John Simon said Bullard was impartial and didn’t assert himself on some of the current political issues, but wished this analysis would have happened before the Wall Street crisis.

“It’s kind of like we’re talking about it after the fact instead of before it happened,” Simon said.

IU economics professor Jim Self said he enjoyed Bullard’s speech about the recent mortgage problems.

“He gave a fairly good analysis,” Self said. “The real question is, will the mortgage crisis spill over to the everyday economy?”