Who Knows: Professor Adam Honig on Market Meltdowns

Adam Honig’s seminar this semester about financial crises in developing countries has an added dose of relevance, now that the United States is experiencing a financial crisis of its own that could impact the financial future and career prospects of many Amherst students.

Honig, assistant professor of economics and an expert on financial crises in developing countries, fielded some questions from Director of Public Affairs  Peter Rooney about his course, implications of the financial crisis in the United States, and his thoughts on where things are headed.


Adam Honig, Assistant Professor of Economics
Assistant Professor of Economics Adam
Honig
What is the name of your course?

It’s called “Topics in Open Economy Macroeconomics," but it’s basically a course that looks at financial crises and currency crises in emerging market countries.

How does the current  financial crisis in the U.S. compare to financial crises in developing countries?
 
Some of the larger issues are the same, such as lax oversight of the financial system. I tend to stress that despite how bad things seem to be going in the U.S., it gets much worse in emerging market countries, because they tend to also experience a currency crisis that then deepens the financial crisis. They also have less tools at their disposal to manage crises once they’ve begun.

Treasury Secretary Henry Paulson said he was embarrassed that the financial system in the United States is in need of such a massive bailout. Should he be?

I think we should be embarrassed. We’ve done a good impression of many developing countries in not regulating and supervising our financial system properly.   

Will emerging market countries trust the financial advice of the United States in the future?

While I think our advice – that countries should move toward liberalization of their financial markets, both domestically and internationally - is good, the key is to have institutions in place that can prevent rampant risk-taking. From what I can tell we failed to follow our own advice in that respect.

Do you have confidence in the abilities of Federal Reserve Chairman Ben Bernanke and Henry Paulson to develop and implement a bailout of the U.S. financial system?

Bernanke is as good an economic thinker on this issue as there is, so I certainly think we have good people in charge making the tough decisions. Of course there are also good thinkers who disagree with those decisions. The problem is that when you’re in a crisis you’re in a crisis. There are no easy solutions and there are tradeoffs no matter what you do.

For me, the fear of not doing something substantial is paramount, even if what we do is not perfect. I don’t know who else I would want making those decisions.
 

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