It was a “Black September” for people in the world of finance — October doesn’t look promising either. Combined, they have been the worst two months on Wall Street in U.S. history.

Major financial institutions have failed, stock markets have dropped to record lows and a $700 billion rescue plan, signed into law by President Bush on Friday, has forced even the average American to take notice of the economy.

“I don’t think [students] have seen anything like this in their lifetimes,” said Joseph Cheng, associate professor and chair of finance and international business at Ithaca College. “Everybody has a lot of questions, more questions than answers.”

Senior Matt Hutton said his business and finance professors have been discussing the issue in class.

“It [used to be] only a few minutes,” he said. “Now, there’s a whole lot more emphasis on talking about what’s happening day to day in the market.”

The crisis on Wall Street, the job market and other economic concerns, including energy, taxes and health care, have been some of the most visible issues for presidential candidates John McCain and Barack Obama.

“They often ask in polls, ‘What is the most important issue?’” said Donald Beachler, associate professor of politics. “The economy is No. 1, the economy is No. 2, the economy is No. 3.  It’s all about the economy right now.”

 

The Financial Crisis

Though the past two months have been a whirlwind of activity on Wall Street, the problem started more than a year ago, said Roger Hinderliter, associate professor of economics.

The collapse of the financial sector was a trickle effect from the beginning of the housing crisis during summer 2007, when housing prices dropped unexpectedly and homeowners who had taken out loans to pay their mortgages were forced to default, said David Ring, associate professor of economics at SUNY-Oneonta. It’s one of the patterns Ring will discuss Saturday at the Macroeconomic Policy Panel Discussion, a meeting of members of the New York State Economics Association held at the college and led by Hinderliter.

At the same time, the banks that issued those loans sold them to third parties, who were then at a loss for capital because homeowners could not afford to repay them, Ring said. The dangerous results were the ensuing bank failures, which caused a loss of confidence in the U.S. credit system and the fear of financial institutions to grant loans.

“If the credit system breaks down, the ability to produce goods and services is weakened, and we could go into a recession,” Ring said.

Hinderliter said the issue students should worry about when analyzing the situation is the burden that will fall on the taxpayers — since the $700 billion figure is a rough estimate of what it will actually take to save the economy.

“The total burden that is essentially going to be the taxpayers’ burden is unclear,” Hinderliter said.

 

The Job Market

Wall Street is not the only factor in the downward-sloping economy. According to the U.S. Department of Labor, the unemployment rate increased from 4.7 percent in September 2007 to 6.1 percent in September 2008.

“By the time graduation takes place it may be 7 percent or more than 7 percent,” Hinderliter said. “Once you get into the economy where business firms find it impossible or very difficult to borrow in order to finance operations, they are going to be very reluctant to hire new employees.”

John Fracchia, assistant director for employer relations in Career Services at the college, said students will have to make themselves stand out among the same sized pool of applicants in a smaller job market.

Senior Brianne Lewis has had two summer internships. She said she thinks they have prepared her to enter the market after graduation.

“Some students maybe didn’t make those connections,” she said. “I know that they’re in trouble.”

 

Beyond the Bailout

 

Frank Musgrave, professor of economics, said the problem with the amount of public attention focused on the bailout is neglect for other prevalent economic issues.

“It’s too bad that we have to categorize it into a political philosophy,” he said. “Many [other economic] topics … are going to go by the wayside.”

Susan Allen-Gil, professor of biology and coordinator of environmental studies, said if the economy wasn’t in this state, she thinks climate change would be a more prevalent issue.

“It’s terrific that the topic is figuring in highly into the debates, but it’s a difficult election because the economy is eclipsing everything,” she said.

Beachler said both candidates emphasize the need to be energy independent, or eliminate our dependence on foreign sources, though their emphasis is different. Their positions differ the most on tax policies and health care, he said.

Musgrave, who wrote a book on health care in 2006, said there are two extreme solutions to the health care problem in the country: universal and privatized. Neither is perfect, he said, so there needs to be a comfortable balance between the two positions.

“I’m afraid neither of the candidates, except for general statements made in [Tuesday’s debate], are comfortable with that,” he said.

The United States debt is now $10 trillion. But Ring said Americans have been reluctant to find a solution to the problem given the choices: raise taxes or cut government spending.

“It’s very difficult to cut spending because somebody benefits from that spending,” he said. “Just like it’s very difficult to raise taxes because someone gets hurt by those taxes.”  

Musgrave said he is worried candidates will be too tied to their traditional party ideologies to refocus their policies on the economy.

“What that does is take out the incentive to invest,” he said. “You don’t need a bright head on your shoulders to see that is not going to help increase confidence in the credit system.”

 

Staff Writer Clara Eisinger contributed to this story.