Newswise — The U.S. House of Representative's rejection of the Troubled Assets Relief Program, the proposed $700 billion Wall Street bailout, was a prudent decision, say two University of Arkansas researchers who are closely monitoring the U.S. financial crisis. "The necessity of passing this particular bill was unclear," said Tim Yeager, associate professor of finance in the Sam M. Walton College of Business and former economist at the Federal Reserve Bank of St. Louis. "Instead of purchasing mortgages directly at unknown prices, the government would be better off purchasing preferred shares of large financial institutions in crisis. If Wall Street lending truly freezes up over the next several days or months, this bill or another one can be passed by Congress to help alleviate the crisis. So at this point, the rejection of the Wall Street bailout bill is a good thing."
Craig Rennie, associate professor of finance in the Walton College, agreed that passage of the bill in its current form would not have been in the country's best interest.
"The initial intent was good," Rennie said, "but the bill was too broad and all-encompassing. It left something to be desired, notwithstanding short-term negative market reaction."
As an academic researcher, Yeager conducted the first empirical study of the effect of the Gramm-Leach-Bliley Act, which removed barriers separating commercial banking from investment banking, merchant banking and insurance underwriting. More recently, his research has focused on government-sponsored enterprises such as Fannie Mae and Freddie Mac. He has also investigated the trend toward universal banking " the mixing of investment and commercial banking.
Rennie's work focuses investment portfolios, securities pricing and financial markets and institutions. He has conducted several studies on CEO compensation and its relationship to equity portfolio incentives, shareholder values and layoff decisions.
Both researchers are available to discuss the impact of the House's decision. Please see contact information below.
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