Throughout the second presidential debate, the candidates sparred repeatedly over the nation’s intensifying economic crisis. After the debate concluded, a panel of preeminent financial experts, including USC faculty, weighed in with their own insights on how Wall Street plunged into a tailspin – and also how to remedy the ailing markets.

More than 350 people packed the Davidson Conference Center Oct. 7 to take part in a panel discussion titled “The Real Estate and Credit Meltdown: How Did We Get Here and Where Do We Go?” An additional 600 watched the conference via Webcast.

The event was co-sponsored by the USC Marshall School of Business, the USC School of Policy, Planning, and Development, the USC Marshall Center for Investment Studies and the USC Lusk Center for Real Estate.

Panelists from USC included professor Larry Harris, holder of the Fred V. Keenan Chair in Finance at USC Marshall; professor Richard Green, director of the Lusk Center; and professor Raphael Bostic, director of SPPD’s master of real estate development program.

The panel also featured several distinguished executives from the financial sector: Brad Hintz, Sanford C. Bernstein and Co. Inc. equity research analyst and former chief financial officer of Lehman Brothers; Robert Rodriguez, chief executive officer of First Pacific Advisors Inc.; and Ken Winston, chief risk officer at Western Asset Management.

Questions from audience members fueled the discussion, which covered a broad scope of financial issues ranging from the primary cause of the current economic spiral to the efficacy of the $700 billion bailout plan.

Bostic opened the evening, explaining that the recent downturn was driven by multi-party greed.

“We had a high-risk environment where there was a lot of money to be made in a very short amount of time,” said Bostic, a former staff economist at the Federal Reserve board of governors. “Even as the risks increased, nobody’s behavior changed because people were still making their money.

“I call it ‘multi-party greed’ because you can’t just blame any one party. It comes down to homeowners, homebuyers, brokers, lenders, banks, investors and regulators – they all had a role.”

In addition, Rodriguez referred to the crisis as an “utter, complete breakdown in the U.S. financial system,” triggered largely by unsound lending.

Throughout the discussion, the need for increased transparency among both financial institutions and policies emerged as a constant theme.

When asked whether the bailout package would work effectively, Green, a former principal economist at Freddie Mac, said it is difficult to make any forecasts until provisions are actually implemented, since the legislation lacks lucidity.

Bostic agreed with the assessment, calling the plan’s lack of transparency “troublesome.”

However, Bostic added that if the bailout legislation is able to “remove some of the bad assets, remove some of the uncertainty that the institutions themselves have in terms of where their liabilities are, that might be enough.”

Green also noted that the injection of capital should be the main emphasis for the federal rescue strategy.

“There is a provision in the bill that hasn’t been remarked on, which allows the Treasury to go about this in a much better way,” he said. “It allows the Treasury to buy shares in financial institutions. One of the problems financial institutions are facing right now is a lack of capital, and this forces them to get rid of assets on their balance sheet, which causes the value of the assets to fall, which puts further stress on the capital – creating a downward cycle.

“If the government is going to intervene, buying equity in a preferred position makes more sense than having the government trying to price what securities should be. I think in principle, that could work.”

Winston, the former managing director and firm risk officer at Morgan Stanley Investment Management, said that, although $700 billion may seem like a substantial quantity, it only represents a fraction of the multi-trillion-dollar mortgage market.

“Hopefully, the (bailout) will reinvigorate the market. But it may be that this spiral has gone way beyond mortgages and the housing market, and spread into a virus across all credit markets, in which case it will be very hard to break with just $700 billion,” he said.

For the evening’s final question, SPPD Dean Jack H. Knott, who moderated the event, asked the speakers what would be your one recommendation to help restore fiscal stability and solvency?

The consensus among the panelists was to restore confidence – which Hintz said has been completely broken down – as well as to increase transparency.

“There are a lot of people who are very scared right now,” said Harris, the former chief economist for the U.S. Securities and Exchange Commission. “And the way you deal with fear is to remove uncertainty. Transparency is extremely important, so that people recognize the risks that they’re facing.

“Hopefully, we will go back to more sensible regulation, but not over-regulation because that kills the creativity of the economy.”

To view archived video from the event, visit http://www.marshall.usc.edu/meltdown