Troubles ahead for world economy
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Broadcast: 27/07/2010
Reporter: Kerry O'Brien

51 economists back Labor's stimulus spend
SMH, August 16, 2010 - 3:57PM
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KERRY O'BRIEN: Well President Obama said no longer will that be allowed to happen, where the banks are too big to fail. Now is that true?

JOSEPH STIGLITZ: No. I mean - and that statement was, to me, the biggest disappointment: his overselling what had been accomplished. What we did in the bill is to say, "The Government has more powers." But the issue isn't powers. If you're too big to fail, government will bail you out and it will bail out the shareholders and the bondholders.

KERRY O'BRIEN: Can the whole thing happen again?

JOSEPH STIGLITZ: It can and it almost surely will happen again, because we didn't deal with the problem of too-big-to-fail banks. It is one of the reasons why it will happen again. And we didn't really deal effectively with all the kinds of excessive risk-taking, all the problems of lack of transparency that were at the core of this crisis. And so, yes, we understand what the issues are, we understand the issues better than we did three years ago, but politics intruded the power of the banks, was too great. They're making $20 billion off of derivatives. So rather than lending, they're engaged in all of these kinds of gambling and excessive risk-taking and generating large profits, but it's not helping the American economy and it's putting at risk American taxpayers.

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