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Smith School faculty have been actively involved in
advising key players and proposing potential solutions to
the finance crisis. Albert “Pete” Kyle, Smith Chair
Professor of Finance, worked as an expert for the SEC in
conjunction with the OIG report on the collapse of Bear
Stearns, briefing congressional staffers for Henry Waxman’s
Committee on Government Oversight. Kyle and Haluk Unal,
professor of finance, held a briefing session for members of
the Senate and House Committees on Banking, reporters from
Business Week, Dow Jones and U.S. News & World Report, and
Department of Justice officials, at the Smith School’s
downtown Washington, D.C., campus in the Reagan Building.
Lemma Senbet, William E. Mayer Chair Professor of Finance,
and N.R. Prabhala, associate professor of finance, were
invited by Maryland Congressman John Sarbanes to brief his
chief of staff and the legislative staff of the federal
Oversight and Government Reform Committee on issues relating
to the execution of the Paulson economic rescue plan. They
and many other Smith finance faculty have provided expert
commentary to numerous press outlets and news programs,
including ABC, CNN, the Washington Post, Forbes magazine,
Bloomberg, and NPR.
Here’s a sampling of their opinions:
Alexander Triantis, Professor and Department
Chair of Finance
One of the questions that emerges from all this is what
will happen to financial engineering? I’ve heard people say
that the whole structured mortgage market will be wiped out;
no one will do these packages of securitized loans anymore.
That would be unfortunate. Financial engineering in some
cases is a way to get around taxes and accounting, and
that’s not helpful from a societal aspect. But financial
engineering can create a way for people to manage their
risks and tailor their risk return, and I don’t want to get
rid of that.
Lemma Senbet, William E. Mayer Chair Professor of
Finance
We need to be sure compensation design is providing
executives with incentives to perform, as opposed to
incentives to manipulate performance. Research and
development has a long-term influence on a company, but it
does not have a short-term affect on profits, so there may
be an incentive to delay R&D in favor of short-term
profit…that is why we need to look at how compensation is
structured.
Albert “Pete” Kyle, Smith Chair Professor of
Finance
The trend recently, before the last year or so, has been
toward deregulation. What you’re going to see in the next
two or three years is that the government will be extremely,
heavily involved in the financial markets. Fannie Mae and
Freddie Mac will continue to be big problems and government
will have stakes in banks it will need to decide what to do
with. After two or three years of active involvement, I can
see the focus shifting toward how to get government
regulation into balance.
N. R. Prabhala, Associate Professor of Finance
This crisis is not entirely about credit or liquidity,
but about consumer confidence in the residential home
market. Some kind of direct relief to homeowners, or to
buyers of homes, such as a tax break or perhaps direct
subsidies of closing costs, might stimulate interest in
buying homes. Of course that assumes that home prices are
depressed below their actual value.
Read more about this topic at the
Smith Business magazine Web site.
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