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81. Regulation, Market Structure, and Role of the Credit Rating Agencies

Author:
Mark A. Calabria and Emily McClintock Ekins
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
During the financial crisis of 2008, the financial markets would have been better served if the credit rating agency industry had been more competitive. We present evidence that suggests the Securities and Exchange Commission's designation of Nationally Recognized Statistical Rating Organizations (NRSROs) inadvertently created a de facto oligopoly, which primarily propped up three firms: Moody's, S, and Fitch. We also explain the rationale behind the NRSRO designation given to credit rating agencies (CRAs) and demonstrate that it was not intended to be an oligopolistic mechanism or to reduce investor due diligence, but rather was intended to protect consumers. Although CRAs were indirectly constrained by their reputation among investors, the lack of competition allowed for greater market complacency. Government regulatory use of credit ratings inflated the market demand for NRSRO ratings, despite the decreasing informational value of credit ratings. It is unlikely that this sort of regulatory framework could result in anything except misaligned incentives among economic actors and distorted market information that provides inaccurate signals to investors and other financial actors. Given the importance of our capital infrastructure and the power of credit rating agencies in our financial markets, and despite the good intentions of the uses of the NRSRO designation, it is not worth the cost and should be abolished. Regulators should work to eliminate regulatory reliance on credit ratings for financial safety and soundness. These regulatory reforms will, in turn, reduce CRA oligopolistic power and the artificial demand for their ratings.
Topic:
Economics, Markets, Financial Crisis, and Governance
Political Geography:
United States

82. Corporate Welfare in the Federal Budget

Author:
Tad DeHaven
Publication Date:
07-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Rising federal spending and huge deficits are pushing the nation toward a financial and economic crisis. Policymakers should find and eliminate wasteful, damaging, and unneeded programs in the federal budget. One good way to save money would be to cut subsidies to businesses. Corporate welfare in the federal budget costs taxpayers almost $100 billion a year.
Topic:
Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
United States

83. Prospects for Global Growth in 2012

Author:
Onur Bayramoğlu
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Global Political Trends Center
Abstract:
The current concern among many is that what we are faced today is not a usual crisis that is part of the economic cycle, but an era of great stagnation with low growth and high unemployment, not witnessed since the Great Depression of the 1930's. One wonders which country will drive global growth while major actors such as the European Union are now financial casinos, the United States is continuously losing its dynamism, Japan is struggling under demographical problems, and the emerging markets are still too small and volatile. Once again, policy makers acknowledge that the problems of growth are global and systematic; such that if one faces an issue, all of them get contaminated. However, they still seek for solutions in mercantilist national policies.
Topic:
Economics, Globalization, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States and Europe

84. Reinventing America's Legacy Cities: Strategies for Cities Losing Population

Publication Date:
04-2011
Content Type:
Working Paper
Institution:
American Assembly at Columbia University
Abstract:
The global knowledge economy favors cities because their density and infrastructure support the knowledge spillovers and innovation that flow from concentrated economic activity. Increasing demand for energy efficiency, too, favors the proximity and walkability found in cities' dense urban development patterns. Perhaps most importantly, cities continue to offer a unique opportunity for living well together in dense, dynamic communities where diversity and democracy flourish. In the United States people continue to move to metropolitan areas and before the Great Recession were increasingly returning to central cities, a trend expected to continue as the economy rebounds.
Topic:
Development, Economics, Markets, Governance, and Urbanization
Political Geography:
United States

85. The Evolving Structure of the American Economy and the Employment Challenge

Author:
Michael Spence and Sandile Hlatshwayo
Publication Date:
03-2011
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
This paper examines the evolving structure of the American economy, specifically, the trends in employment, value added, and value added per employee from 1990 to 2008. These trends are closely connected with complementary trends in the size and structure of the global economy, particularly in the major emerging economies. Employing historical time series data from the Bureau of Labor Statistics and the Bureau of Economic Analysis, U.S. industries are separated into internationally tradable and nontradable components, allowing for employment and value-added trends at both the industry and the aggregate level to be examined. Value added grew across the economy, but almost all of the incremental employment increase of 27.3 million jobs was on the nontradable side. On the nontradable side, government and health care are the largest employers and provided the largest increments (an additional 10.4 million jobs) over the past two decades. There are obvious questions about whether those trends can continue; without fast job creation in the nontradable sector, the United States would already have faced a major employment challenge.
Topic:
Economics, Markets, Labor Issues, and Financial Crisis
Political Geography:
United States and America

86. Housing Policy in the U.S.: The Evolving Sub-national Role

Author:
Robert M. Buckley and Alex F. Schwartz
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
The New School Graduate Program in International Affairs
Abstract:
This paper provides a general overview of U.S. housing policy, with emphasis on state and local programs. Despite the focus on local programs we also discuss the broader national policy environment. This broader context is necessary because national policies play a crucial role in shaping the country's housing markets. We briefly trace out some of the key features of the housing market, highlighting tenure distributions, housing conditions and costs. Particular emphasis is given to the role of increasing housing costs and the housing opportunities of the poor. The paper also describes: (1) the nation's housing finance and tax systems, focusing on the different ways the government uses the tax code to subsidize homeowners and renters; and (2) state and local government programs, often implemented in the close collaboration of nonprofit organizations. A final section provides a brief overview of the strengths and weaknesses of U.S. housing policy and the evolving role of sub-national governments.
Topic:
Economics, Markets, Global Recession, and Financial Crisis
Political Geography:
United States

87. Ensuring Corporate Transparency to Mitigate Climate Change

Publication Date:
02-2011
Content Type:
Policy Brief
Institution:
Transparency International
Abstract:
Mitigation to reduce global emissions of greenhouse gases will require substantial shifts in energy policy, consumer habits and technology development. As a major contributor of greenhouse gases (GHGs) and a driver of technological change, corporations will be crucial in shaping the solutions to many of these challenges.
Topic:
Climate Change, Environment, Industrial Policy, International Trade and Finance, and Markets
Political Geography:
United States

88. Strategic Oil Stocks and Security of Supply

Author:
Giacomo Luciani and François-Loïc Henry
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Holding strategic oil stocks is at first sight an obvious tool to address potential disturbances in supplies. Rationally defining the desirable size of stocks and designing rules for their predictable use is an elusive task, however. A key conceptual difficulty arises in the distinction between commercial and strategic stocks, because a physical shortfall in the oil supply will inevitably lead to an increase in prices. But if strategic stocks are utilised when prices increase they become indistinguishable from commercial stocks. This paper reviews the legislation in force in the US and the EU on the use of strategic oil stocks as well as the emergency response systems of the International Energy Agency. It finds that such measures have been activated rarely and in dubious circumstances. Alternative approaches are proposed consisting of encouraging companies and major consumers to hold larger stocks and seeking a cooperative agreement with oil-producing countries for mutually beneficial stock management.
Topic:
Security, Energy Policy, Markets, and Oil
Political Geography:
United States and Europe

89. Markets, Tort Law, and Regulation to Achieve Safety

Author:
Paul H. Rubin
Publication Date:
06-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Markets, tort law, and regulation are alternative methods of achieving safety. Of these, the market is the most powerful, but it is often ignored in policy discussions. I show that both for the United States over time and for the world as a whole, higher incomes are associated with lower accidental death rates, and I discuss some examples of markets creating safety. Markets may fail if there are third-party effects or if there are information problems. Classic tort law is a reasonable (although expensive) way to handle third-party effects for strangers, as in the case of auto accidents. In theory, regulation could solve information problems, but in practice many regulations overreach because of different information problems—consumers are unaware of unapproved alternatives. A particularly difficult information problem arises in the case of what I call “ambiguous goods”— goods that reduce some risks but increase others (for example, medical care and malpractice.) Product liability focuses on these goods; over half of the litigation groups of the American Association for Justice are for ambiguous goods.
Topic:
Markets
Political Geography:
United States

90. The world economic crisis as a changed circumstance

Author:
Hermann Ferré and Kabir Duggal
Publication Date:
08-2011
Content Type:
Policy Brief
Institution:
Columbia Center on Sustainable Investment
Abstract:
In September 2008, the bankruptcy of Lehman Brothers sent financial markets in the United States into a spin. Credit markets froze as banks began to mistrust counterparties, not knowing the extent of toxic assets in loan portfolios that could lead to another major bank collapse. The crisis quickly spread around the world. Governments were urged to take drastic measures. Experts discussed the possible nationalization of portions of the U.S. banking industry and other sectors. Other countries also considered measures to save key industries.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States