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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 34 / 42

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1/23/2015

Jamshid Damooei, PhD

34

What to Look for in the Months or Years Ahead….Continued

Have we learned anything for the future to avoid a similar problem?

There are some who believe that there is no need for the government to step in.

The question is that If help is not coming who will lose?

Based on OECD estimates, some $300 billion losses are centered in real estate. That is just one-half of 1% of Americans' net worth. In a $14 trillion economy, such losses can be swallowed down with a slight burp.

But as financing projects (production, housing, etc.) are delayed the harm will spread to the general economy and its firms and workers. That is what economic policy should aim to mitigate. We can see the pain of such adjustment in our own county.

Bailout has a limited impact and may not solve the problem although rise of short term economic problems will force the government to consider it.

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