Experts see Depression parallels in U.S. crisis

By Pedro Nicolaci da Costa

Annandale-on-Hudson, New York (Reuters) - Events surrounding the U.S. housing crash in many ways resemble the Great Depression, including strings of failed bailout plans and a reliance on voluntary compliance, policy experts said on Thursday.

A panel of speakers at Bard College's Levy Economics Institute, in Annandale-on-Hudson in upstate New York, offered a series of proposals for grappling with the crisis. Among them was the creation of an institution like the Depression-era's Home Loan Corporation to put a floor under the mortgage market.

"There is some stuff that does have that eerie 1932 feel," said Thomas Ferguson, a professor of political science at the University of Massachusetts, Boston, citing regulators' "infinite confidence in moral suasion."

The experts agreed that the housing boom contained the seeds of its own demise, creating the illusion that prices could rise indefinitely and leading to reckless risk-taking.

"One of the things that makes bubbles hard to control is that so many people are making money off them while they last," said Alex Pollock, a fellow at the American Enterprise Institute who spent 35 years in the banking sector.

MINSKY MOMENT

The yearly conference is held in honor of Hyman Minsky, an economist who argued that periods of financial stability provide the perfect breeding ground for crisis, as investors' ability to gauge risk is impaired by the prospect of consistently lofty returns.

UMass' Ferguson maintained, however, that the current approach of employing all of the Federal Reserve's monetary ammunition to cushion the market's fall was doomed to failure, and would hurt competition in the banking sector.