"Gratified' to help with banking crisis -Diamond after winning Nobel economics prize

Record ID: 1692613

  • Title: "Gratified' to help with banking crisis -Diamond after winning Nobel economics prize
  • Date: 10th October 2022
  • Summary: CHICAGO, ILLINOIS, UNITED STATES (OCTOBER 10, 2022) (REUTERS) VARIOUS OF PROFESSOR DOUGLAS DIAMOND LOOKING OUT WINDOW (SOUNDBITE) (English) DOUGLAS DIAMOND, UNIVERSITY OF CHICAGO PROFESSOR AFTER LEARNING HE WON THE NOBEL PRIZE IN ECONOMICS, SAYING: "Well, once I heard the voices of the, of the committee members whose voices I actually knew, I was sure that this was for real. I didn't actually think it was a prank. I mean, who's going to call somebody at 345 in the morning? They wouldn't it wouldn't be a very good prank to be tired for that for a couple of days from waking up that early. But I was very, very happy to find out it was not a prank, that's for sure." CAMERA DURING INTERVIEW WITH DIAMOND (SOUNDBITE) (English) DOUGLAS DIAMOND, UNIVERSITY OF CHICAGO PROFESSOR AFTER LEARNING HE WON THE NOBEL PRIZE IN ECONOMICS, SAYING: "I'm trying to think more and more about how the financial system is organized, why it's organized the way it is, how it's organized, and in particular, why things like financial crises seem to be recurrent parts, not frequently but infrequently, in the financial system. Actually, the whole point of a lot of the work with Phil Dybvig the paper, the second paper they mentioned a lot of the work with Phil Dybvig is trying to understand why we sometimes see financial crises when we could possibly set it up in a way where there would never be a crisis, but you're actually better off leaving things vulnerable to the fear of fear itself or the self-fulfilling prophecy of a crisis, hoping that that never happens and you can do things that you couldn't do otherwise." DIAMOND SITTING AT WINDOW (SOUNDBITE) (English) DOUGLAS DIAMOND, UNIVERSITY OF CHICAGO PROFESSOR AFTER LEARNING HE WON THE NOBEL PRIZE IN ECONOMICS, SAYING: "I wouldn't say dreams of it, but it's certainly a very nice thing to have received. Phil Dybvig and I wrote our paper in a way that was as simple as we could possibly make it, even though it had a certain amount of mathematics in it so that people like bank regulators and policymakers could understand it. So probably the most gratifying thing for us is that policymakers actually seemed to understand it and the insights that we had, which are pretty simple, could be used in the actual financial crisis. Certainly, in 2008, people understood that part of what happened after Lehman was a panic, a fear of fear itself issue and that the response to getting confidence back was an important part of dealing with that crisis." DIAMOND POSING FOR PHOTOS
  • Embargoed: 24th October 2022 15:08
  • Keywords: DOUGLAS DIAMOND NOBEL NOBEL PRIZE IN ECONOMICS
  • Location: CHICAGO, ILLINOIS, UNITED STATES
  • City: CHICAGO, ILLINOIS, UNITED STATES
  • Country: US
  • Topics: Government/Politics,United States
  • Reuters ID: LVA001124210102022RP1
  • Aspect Ratio: 16:9
  • Story Text: Economics professor Douglas Diamond said he was glad to find out that the early morning call at 3:45 a.m. on Monday (October 10) was not a prank, but rather a phone call from the Nobel prize committee in Sweden. Diamond learned that he was one of a trio of U.S. economists including Former Federal Reserve Chair Ben Bernanke who won this year's Nobel Economics Prize for laying the foundation of how world powers now tackle global crises like the recent pandemic or the Great Recession of 2008.
    "Well, once I heard the voices of the committee members whose voices I actually knew, I was sure that this was for real... I was very, very happy to find out it was not a prank, that's for sure," said Diamond.
    Diamond, Bernanke, and Philip Dybvig won for their research on how regulating banks and propping up failing lenders with public cash can stave off an even deeper economic crisis, such as the Great Depression of the 1930s.
    "The actions taken by central banks and financial regulators around the world in confronting two recent major crises - the Great Recession and the economic downturn that was generated by the COVID-19 pandemic - were in large part motivated by the laureates’ research," the Swedish Academy said in announcing this year's prize winners.
    Governments around the world bailed out banks in 2008 and 2009, generating a torrent of criticism as ordinary consumers suffered with many losing their homes even as banks, a key culprit of the crisis, were saved.
    But society on the whole benefited, the laureates' research suggests.
    "The whole point of a lot of the work with Phil Dybvig the paper, the second paper they mentioned a lot of the work with Phil Dybvig is trying to understand why we sometimes see financial crises when we could possibly set it up in a way where there would never be a crisis, but you're actually better off leaving things vulnerable to the fear of fear itself or the self-fulfilling prophecy of a crisis, hoping that that never happens and you can do things that you couldn't do otherwise," said Diamond, a University of Chicago professor, who argues that preventing the collapse of investment bank Lehman Brothers would have made the crisis less severe.
    Ironically Bernanke was the chair of the U.S. Federal Reserve at the time of Lehman's collapse in 2008, which became one of the main catalysts of the world's biggest financial turmoil since the 1930s.
    Bernanke, now a fellow at the Brooking Institution, argued at the time that there was no legal way to save Lehman so the next best thing was to let it fail and use the government's financial resources to prevent wider systemic failures.
    The three economists will receive an equal share of the 10 million Swedish crown ($885,000) prize money.
    They join such luminaries as Paul Krugman and Milton Friedman, previous winners of the prize.
    The majority of previous laureates have been from the United States.
    The economics prize is not one of the original five awards created in the 1895 will of industrialist and dynamite inventor Alfred Nobel.
    It was established by Sweden's central bank and first awarded in 1969, its full and formal name being the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
    (Production: Eric Cox, Arlene Eiras)
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