Martin Feldstein: It's Not "Too Big To Fail", It's "Too Connected to Fail"; GDP to Shrink

Yesterday, BNN interviewed Martin Feldstein, Professor at Harvard U., President Emeritus of the National Bureau of Economic Research (the group that calls recessions), Ronald Reagan's Chief Advisor in Economy, mentor of Larry Summer Obama's economy team.

These are some of the excellent points he made:

- There is a real risk of a double-dip recession in the U.S.

- The American consumer is in an "awful" state.

- On rates: Not a chance of interest rates going up soon, at least late 2010.

- On GDP: GDP is misleading indicator because Q3 number would be boosted by Cash for clunkers, first time home buyer subsidy. The number below could be higher than what we will see going foard. Next year GDP may well decline.

- Hardly anything good to be said about state of the consumer, there are 15 millions unemployed, 8 millions in involuntary short-time, household wealth is down $10T.

- On housing and banks: Housing sector, commercial real estate is still critical, bug burden in banks, specailly regional and smaller banks, which have to cut down in lending since they do not know how many closures and foreclosures are coming up.

- Small businesses are not able to borrow

- Commercial real estate is the key to more bank failures

- "Too big to fail" is a misnomer, the right name is "too connected to fail". Lehman was not that big.

- Stock market is overvalued, P/Es are too high.

Watch interview.