Iowa suffered through a "Farm Crisis" in the 1980s that was caused by plummeting farmland prices, similar to the decline in home values that’s a main cause of the current economic meltdown.
Iowa State University economist Neil Harl suspects we are not in the midst of a "normal" recession. "This is not a normal downturn," Harl says. "This is a downshifting to a new, lower plateau — at least for a time."
According to Harl, the Wall Street bailout is "pouring money into the top" of banks and other financial institutions when it would be better to help restructure individual loans so people keep their homes and businesses, even though the value of those homes and businesses has plummeted. "When collateral values have fallen, losses have already occurred. It doesn’t help to stand around and say, ‘Pay your bills’ if you can’t," Harl says. "So what do you do? Well, you strip out the debt down to the value of the collateral and maybe prolong the payment. If it’s a 15 year loan, maybe go to a 20 and maybe reduce interest rates, which is anathema to most lenders…This is called debt restructuring and it involves stretching out payment, reducing interest rates maybe even forgiving some principle."
Harl says that was the approach with many restructured farm loans during the Farm Crisis and it worked to stabilize the agricultural sector, whereas the Wall Street bailout launched in late September seems to have done nothing to stabilize the economy. "Not only is it not working, it’s turning off the American people and without the support of the American population, it’s probably not going to work," Harl says.
According to Harl, the treasury secretary and congress asked too little of the recipients of the Wall Street bailout. Harl made his comments on the IPTV program "Iowa Press."