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261. One Fix Too Many

Author:
John H. Makin
Publication Date:
11-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Just as Wall Street was celebrating the presumed end of the latest financial crisis by pushing stocks to record highs, proclaiming continued strong earnings growth, and continuing to recite the mantra “slowdown, but no recession,” Treasury Secretary Henry Paulson provided a vivid reminder that the housing and mortgage crisis is not over. On Monday, October 15, while Citibank was reporting that compared with last year's results its third-quarter earnings had fallen by 57 percent, the Treasury's “super-SIV” plan was revealed. It seems that the Goldman Sachs alumni at Treasury—Paulson and his under secretary for domestic finance, Robert Steel—had become concerned that the offbalance- sheet special investment vehicles (SIVs) held by commercial banks might not be financeable. That would mean that not enough investors could be found to provide the short-term financing necessary to sustain SIVs, the repositories of hardto- value securitized mortgages that continue to plague bank balance sheets.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

262. Global Rebalancing

Author:
John H. Makin
Publication Date:
10-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The global economic and financial picture is changing rapidly. A review of some of the key elements is in order, as the U.S. economy has slowed rapidly and the Federal Reserve has responded aggressively with rate cuts, while the Bank of England's tough policies pushed one of the United Kingdom's largest mortgage lenders, Northern Rock, to the brink of collapse as a bank run on that suddenly beleaguered institution ensued. Meanwhile, Japan, still the world's second-largest economy—though perhaps the least dynamic of the major ones—slipped into negative growth at a 1.2 percent annual rate in the second quarter after having initially reported growth over 2 percent. The rate-boost-obsessed Bank of Japan finally decided to stop raising rates, and, to add to the complexity of the picture, Japan's relatively new prime minister Shinzo Abe resigned, unable to provide the leadership sorely needed in a nation lacking economic and political direction.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States, Japan, United Kingdom, and England

263. The Music Stops

Author:
John H. Makin
Publication Date:
09-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
During a 10:00 a.m. conference call on August 17, 2007, Federal Reserve vice chairman Donald Kohn and New York Federal Reserve president Timothy Geithner were urging Citicorp chief executive Chuck Prince and his fellow big bank CEOs to use the Fed's discount window, which is set up to alleviate liquidity pressures on individual banks or on the banking system as a whole. Prince, the head of the world's largest bank (Or is it the second largest? No one really knows since bank balance sheets are so full of securities that cannot be priced.) may have been wishing that he had not chosen to offer a chillingly clear characterization of the global financial system a little more than five weeks earlier in a Financial Times interview on July 9, three weeks before the global credit markets began to seize up.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

264. The Band Plays On

Author:
John H. Makin
Publication Date:
08-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
In a July 9 interview in Tokyo with the Financial Times about the surging, liquidity-driven financial sector, Citigroup chief executive Chuck Prince characterized the situation in global financial markets more insightfully than some investors might have wished: “When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.” Prince elaborated further, saying that (as the article paraphrased it) “the way big Wall Street banks and hedge funds had picked up troubled subprime mortgage lenders was an example of how 'liquidity rushes in' to fill the gap as others spot a buying opportunity.”
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States and Tokyo

265. Why Interest Rates Are Rising

Author:
John H. Makin
Publication Date:
07-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The bond “conundrum” that Alan Greenspan spoke of toward the end of his tenure at the Federal Reserve is disappearing. Chairman Greenspan was drawing attention to unusually low longterm interest rates worldwide on bonds.1 More recently, however, in less than a month interest rates on U.S. ten-year notes have risen by 60 basis points with no change in expected inflation. The shift is all the more unusual because of its abruptness and relative magnitude: in statistical terms, it is a rise of three standard deviations in “real” (inflation-adjusted) rates in a market that has been quiet over the past five years. Moreover, the few “surprise” moves since the tech-stock bubble burst in 2000 have mostly been in a downward direction.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

266. The Remarkable American Consumer

Author:
John H. Makin
Publication Date:
06-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The American consumer is a very persistent spending machine. It is American consumption growth running at higher than 4 percent annualized— well above its long-term average—that has kept the economy comfortably out of recession for the past six months as the housing slowdown has subtracted more than a percentage point from growth. Even with a substantial additional drag on the U.S. economy from other areas—inventory liquidation, weakening net exports, and rapidly rising gasoline prices—the American consumer's spending surge has still been enough to keep GDP growth in positive territory.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States and America

267. Weaker Capital Spending Cuts Growth Forecast

Author:
John H. Makin
Publication Date:
05-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
On Friday, April 13, the Wall Street Journal's lead story on the unlucky U.S. economy was “Economy Enemy No. 1: Soft Capital Spending.” The nation's leading business newspaper was acknowledging a six-month slowdown in capital spending that has, along with the drag from the housing sector, been lowering U.S. growth.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

268. Using the Earned Income Tax Credit to Stimulate Local Economies

Author:
Alan Berube
Publication Date:
11-2006
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Over the 30 years of its existence the federal Earned Income Tax Credit (EITC) has been described variously as a wage supplement, a program to reduce tax burdens, an antipoverty tool, a welfare-to-work program, and a form of labor market insurance. The program has enjoyed expansions under both Republican and Democratic administrations, and in 2006, the EITC will provide more than $40 billion to low-income working families. The credit lifts nearly 5 million Americans above the poverty line each year. Moreover, because the EITC aids only those families with earnings from work, researchers have credited it with raising labor force participation levels and helping families transition from welfare to work.
Topic:
Economics, Human Welfare, and Markets
Political Geography:
United States and America

269. Measuring the Informal Economy - One Neighborhood at a Time

Author:
Yusef Freeman, John Talmage, and Jamie Alderslade
Publication Date:
09-2006
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
The study of the urban informal economy has expanded in the last thirty years, challenging researchers to find more accurate methods of quantifying its activity. This paper examines recent works that focused on the urban informal economy in particular, and evaluates different definitions and techniques for measuring it. Methods discussed include indirect estimation methods, such as currency demand, electricity consumption, and labor force statistical profiles, as well as direct estimation measures such as labor force and household surveys. This paper discusses the prospects for applying these largely macro-level methods to more micro-market analysis and speculates on the avail ability and usefulness of existing data sources in the United States. It concludes by suggesting that there is much room for further research on the size, determinants and implications of the informal economy in American cities and calls for new efforts to align different methods of measuring the inform al economy so they can be increasingly used to support decision-making processes in the public and private sectors.
Topic:
Demographics, Economics, and Markets
Political Geography:
United States and America

270. Financial Access for Immigrants: Lessons from Diverse Perspectives

Author:
Audrey Singer, Jeremy Smith, Robin Newberger, and Anna Paulson
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
The United States has long benefited from the aspirations, talents, and hard work of the many immigrants who have settled here. Each generation has debated the costs of immigration and its benefits and grappled with how best to incorporate immigrants into U.S. society. The unparalleled size and growth of the contemporary immigrant population means that these conversations and debates continue today in communities throughout the country. The well-being of the nation increasingly depends on whether immigrants' economic progress keeps up with their demographic growth.
Topic:
Economics, Markets, and Migration
Political Geography:
United States