Number of results to display per page
Search Results
682. The Politics of Credit Rating Agencies in the European Union
- Author:
- Lucia Quaglia
- Publication Date:
- 06-2009
- Content Type:
- Working Paper
- Institution:
- Centre for Global Political Economy, University of Sussex
- Abstract:
- Why did the European Union (EU) decide to regulate Credit Rating Agencies (CRAs), instead of relying on the revised rules agreed at the international level and the revised US law to which the main CRAs operating in the EU but headquartered in the US were subject to? This research addresses this key question concerning the multi-level governance of financial services using a 'soft' rational choice institutionalist framework. It is argued that the global financial crisis, acting as an exogenous shock, triggered three causal mechanisms that led to a new institutional equilibrium within and without the EU, namely the issuing of EU rules on CRAs.
- Topic:
- Political Economy, Financial Crisis, European Union, Finance, and Credit
- Political Geography:
- Europe
683. The Global Financial Crisis: Effects on Bolivia
- Author:
- Luis Carlos Jemio and Osvaldo Nina
- Publication Date:
- 05-2009
- Content Type:
- Working Paper
- Institution:
- Institute for Advanced Development Studies (INESAD)
- Abstract:
- The global financial crisis is expected to have a negative impact on the Bolivian economy. Effects will transmit into the economy through lower export prices and quantities, reduced amount of remittances and depressed foreign direct investment (FDI) flows. These shocks will bring about deficits in the current account and fiscal balances, foreign exchange reserves losses, sluggish economic growth and higher unemployment rates. The latest data available show that the economy is already experiencing the effects of the economic downturn, in the form of decreased exports revenues, sharp reductions in the rates of growth of foreign of exchange reserves and bank lending and a tendency towards a redollarisation of financial assets and liabilities. The Bolivian economy, however, is better prepared, at least in the short run, to cope with the negative effects of the crisis. The commodity export boom experienced between 2005 and 2008 has permitted the country to run sizable external and fiscal surpluses and accumulate foreign exchange reserves. The financial system has exhibited more prudent behaviour in recent years, by not expanding credit too much and increasing investments in highly liquid public bonds. Therefore, although banks are expected to be affected by the global financial crisis, they have high liquidity ratios and are not extremely exposed to risk. The capacity of the Bolivian economy to offset the negative effects of the global crisis will depend on several factors, such as the severity and duration of the crisis and, above all, the quality of the policies that policymakers will implement to cope with the crisis. The government faces several trade-offs in implementing policies in order to cope with the effects of the crisis. The central bank, for instance, is committed to maintaining a fixed exchange rate, in order to reduce inflationary pressures and to avoid a re-dollarisation of the financial system. However, a fixed exchange rate policy has already brought about an exchange rate appreciation, which is hurting competitiveness of tradable activities. Furthermore, the government has room to implement countercyclical fiscal policies, by resorting to the deposits accumulated in the central bank during the export boom years. During 2009, the government is planning to expand public investment and to increase direct transfers to the population. However, these policies are not likely to offset the negative effects that the crisis will have on growth and employment. More efforts should be made to improve the quality of public spending, in order to maximise its impact on economic growth, employment creation and poverty reduction.
- Topic:
- Development, Financial Crisis, Economy, and Exports
- Political Geography:
- South America and Bolivia
684. PolicyWatch #1396: Financial Crisis Grips Fayad Government
- Author:
- Mohammad Yaghi
- Publication Date:
- 08-2008
- Content Type:
- Policy Brief
- Institution:
- The Washington Institute for Near East Policy
- Abstract:
- Palestinian prime minister Salam Fayad recently appealed to the World Bank in an effort to bridge the current budget gap preventing the Palestinian Authority (PA) from paying government salaries this month. Despite a three-year $7.5 billion assistance pledge from the 2007 Paris donor conference, the PA remains in a financial crisis, with a projected shortfall of $400 million for the second half of 2008, as reported by the Ad Hoc Liaison Committee in May. Since Fayad's technocratic government has no independent political base, its legitimacy stems from the PA's financial solvency. He has survived ongoing attacks from rival Fatah leaders only because Palestinian president Mahmoud Abbas recognizes him as the linchpin to Western donor assistance. If the financial crisis persists, however, Fayad's political future is in doubt.
- Topic:
- Government, International Political Economy, Financial Crisis, and World Bank
- Political Geography:
- Middle East and Palestine
685. Freddie Mac and Fannie Mae: An Exit Strategy for the Taxpayer
- Author:
- Arnold Kling
- Publication Date:
- 09-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The Fannie Mae-Freddie Mac crisis may have been the most avoidable financial crisis in history. Economists have long complained that the risks posed by the government-sponsored enterprises were large relative to any social benefits.
- Topic:
- Economics, Government, and Financial Crisis
- Political Geography:
- United States
686. Stress-Testing the Regulators: Market Risks and the EU Economy
- Author:
- Max Watson
- Publication Date:
- 04-2008
- Content Type:
- Policy Brief
- Institution:
- Chatham House
- Abstract:
- Today's market turbulence and global imbalances prompt the question whether economic and regulatory policies are poorly designed or just badly implemented. The question is urgent for Europe, which has its own asset booms and imbalances to worry about as well as the backwash of US problems. The imbalances in Europe's economies in large part reflect favourable shocks, such as falling interest rates and growing financial integration. But the 'growth crisis' in Portugal underscores the fact that there can be hard landings, even without a financial crisis, if fiscal policy is unwise and if productivity fails to take off. The current global imbalances and turbulence also have a common backdrop in the long period of unusually easy liquidity and low risk premia during which today's problems built up. This suggests that central banks should be prepared more often to 'lean against the wind' in times of asset price exuberance, and that politicians should not cut taxes or boost spending permanently on the back of revenue gains that result from transient financial booms. Banks and supervisors have many lessons to draw. Some involve going 'back to basics' on issues such as liquidity, off-balance-sheet operations, and the ability to close and reopen banks. Others require a careful look at incentives – in executive pay, rating agency roles and loan production systems. Supervisors also need to take better account of boom-bust cycles when they assess risks, and address cross-border issues in EU banking. Moral hazard has been partly addressed by pain inflicted on bank managements and shareholders. But at the macro level it may be building up as policy-makers act to limit losses in a setting where they cannot trace the ultimate fallout from risks. In future, their discretionary interventions need to be truly exceptional and much more symmetrical, or the money supply and the public debt will ratchet up amid serious resource misallocation.
- Topic:
- Economics, Government, and Financial Crisis
- Political Geography:
- United States and Europe
687. New York City's Preparedness for Terrorism (and Catastrophic Natural Disasters)
- Author:
- Clark Kent Ervin
- Publication Date:
- 10-2008
- Content Type:
- Working Paper
- Institution:
- Aspen Institute
- Abstract:
- Sooner or later, somewhere or other, another natural disaster will strike America, be it a hurricane, a tornado, an earthquake, or a flood. Sooner or later, somewhere or other, terrorists will attempt to strike America again. Indeed, many experts believe that the threat of another attack is rising. 1 Al Qaeda is resurgent, having reconstituted itself along the Afghan-Pakistan border. 2 And, recent history shows that terrorists are especially prone to strike during the transition from one administration to another or early in the term of a new government. Adding to our vulnerability, the nation is now bogged down in two wars and groaning under mounting debt, while our economy is sinking from the greatest financial crisis since the Great Depression.
- Topic:
- Security, Natural Disasters, Financial Crisis, and Al Qaeda
- Political Geography:
- Pakistan, Afghanistan, and United States of America
688. Foreign Exposure to Asset-Backed Securities of U.S. Origin
- Author:
- Daniel O. Beltran, Laurie Pounder, and Charles Thomas
- Publication Date:
- 08-2008
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- The financial turmoil which began in August 2007 originated, in part, because investors reassessed the quality of the assets underlying many asset-backed securities (ABS), particularly U.S. mortgages. The prominence of European banks in the early stages of the turmoil created the perception that foreigners held an outsized share of risky U.S. securities and prompted questions of why Europeans were so exposed. This paper evaluates that perception by quantifying foreign exposure to ABS with U.S. underlying collateral. Using the latest survey data on foreign portfolio holdings of U.S. securities, we find that the ultimate losses that foreigners could incur arising from U.S. underlying assets are small relative to most scale variables, although initial total mark-to-market losses are estimated to be significantly larger. Among other reasons for this difference between ultimate and initial losses, we demonstrate that the securitization chain can amplify mark-to-market price declines in the presence of uncertainty or illiquidity. Finally, we show that, relative to the size of the market, foreigners’ holdings of U.S. mortgage-backed securities do not appear to be elevated compared with their holdings of other U.S. assets.
- Topic:
- Economics, Financial Crisis, Financial Markets, and Mortgages
- Political Geography:
- United States and North America
689. The Asian Financial Crisis, Uphill Flow of Capital, and Global Imbalances: Evidence from A Micro Study
- Author:
- Brahima Coulibaly and Jonathan Millar
- Publication Date:
- 08-2008
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This study assesses the role of the Asian Önancial crisis of the late 1990s in the emergence and persistence of the large current account surpluses across non-China emerging Asia, which have been a signiÖcant counterpart to the U.S. current account deÖcit. Using panel data encompassing nearly 3,750 Örms, we trace the current account surpluses to a marked and broad-based decline in corporate expenditures on Öxed investment in the aftermath of the crisis that cuts across a wide spectrum of countries, industries, and Örms. The lower corporate spending in turn depressed aggregate investment rates, widened the saving-investment gap, and allowed the region to turn into a net exporter of capital. We then consider the factors behind this reduction in postcrisis corporate investment. While weaker Örm-level fundamentals in the postcrisis period seem to explain part of the drop in investment rates, ongoing re-structuring owing to large debts accumulated and excess investment undertaken in the run-up to the crisis has been the main source of restraint postcrisis corporate investment. The results suggest that even after a decade, the e§ect of the Önancial crisis is still a§ecting corporate investment decisions in emerging Asia, and that as the restructuring completes its course, investment rates will likely rise to contribute to a gradual reduction in the regionís current account surpluses.
- Topic:
- Emerging Markets, Financial Crisis, Economic Inequality, and Investment
- Political Geography:
- Asia
690. The FDI recession has begun
- Author:
- Karl P. Sauvant
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- Columbia Center on Sustainable Investment
- Abstract:
- With $1.8 trillion (according to UNCTAD), world foreign direct investment (FDI) flows reached an all-time high last year. All major regions benefitted from increased flows. But that was then. What is, and will be, the impact of the financial crisis and the recession on FDI flows this year and next?
- Topic:
- Development, Economics, International Trade and Finance, Foreign Direct Investment, and Financial Crisis
691. Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
- Author:
- Stan J. Liebowitz
- Publication Date:
- 10-2008
- Content Type:
- Policy Brief
- Institution:
- Independent Institute
- Abstract:
- Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be? This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-under- writing standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk. The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percent- age increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising.
- Topic:
- Economics, Government, Markets, Financial Crisis, and Minorities
- Political Geography:
- United States
692. Iceland on the brink? Options for a Small, Financially Active Economy in the Current Financial Crisis Environment
- Author:
- Daniel Gros
- Publication Date:
- 04-2008
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- For small financially active countries the exchange rate assumes particular importance, not only as a shock absorber, but potentially also as a source of shocks during financial market crises. This is very much in evidence today in the case of Iceland which is being hit hard by the recent turbulence in financial markets.
- Topic:
- Economics and Financial Crisis
- Political Geography:
- Europe
693. The Banking Crisis: Causes, Consequences and Remedies
- Author:
- Paul De Grauwe
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- The paradigm that financial markets are efficient has provided the intellectual backbone for the deregulation of the banking sector since the 1980s, allowing universal banks to be fully involved in financial markets, and investment banks to become involved in traditional banking. There is now overwhelming evidence that financial markets are not efficient. Bubbles and crashes are an endemic feature of financial markets in capitalist countries. Thus, as a result of deregulation, the balance sheets of universal banks became fully exposed to these bubbles and crashes, undermining the stability of the banking system. The Basel approach to stabilise the banking system has as an implicit assumption that financial markets are efficient, allowing us to model the risks universal banks take and to compute the required capital ratios that will minimise this risk. I argue that this approach is unworkable because the risks that matter for universal banks are tail risks, associated with bubbles and crashes. These cannot be quantified. As a result, there is only one way out, and that is to return to narrow banking, a model that emerged after the previous large-scale banking crisis of the 1930s but that was discarded during the 1980s and 1990s under the influence of the efficient market paradigm.
- Topic:
- Economics, Markets, and Financial Crisis
- Political Geography:
- Europe
694. Earning from History: Financial Markets and the Approach of World Wars
- Author:
- Niall Ferguson
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- We are living through a paradox-or so it seems. Since September 11, 2001, according to a number of neo-conservative commentators, America has been fighting World War III (or IV, if you like to give the Cold War a number). For more than six years, these commentators have repeatedly drawn parallels between the "War on Terror" that is said to have begun in September 2001 and World War II. Immediately after 9/11, Al Qaeda and other radical Islamist groups were branded "Islamofascists". Their attack on the World Trade Center was said to be our generation's Pearl Harbor. In addition to coveting weapons of mass destruction and covertly sponsoring terrorism, Saddam Hussein was denounced as an Arab Hitler. The fall of Baghdad was supposed to be like the liberation of Paris. Anyone who opposed the policy of pre-emption was an appeaser. And so on.
- Topic:
- Cold War, Economics, Terrorism, War, and Financial Crisis
- Political Geography:
- America and Iran
695. Can Exchange Rates Forecast Commodity Prices?
- Author:
- Kenneth Rogoff, Yu-chin Chen, and Barbara Rossi
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- This paper studies the dynamic relationship between exchange rate fluctuations and world commodity price movements. Taking into account parameter instability, we demonstrate surprisingly robust evidence that exchange rates predict world commodity price movements, both in-sample and out-of-sample. Our results are consistent with a present value relationship in which the exchange rate depends on a present value of fundamentals including, for a core group of commodity exporters, the world price of their commodity exports. Because global commodity prices are essentially exogenous to these countries, we are able to avoid the endogeneity pitfalls that plague most of the related exchange rate literature. More directly, the analysis suggests that where commodity price forward markets are thin or non-existent, exchange rate-based forecasts may be a viable alternative for predicting future price movements.
- Topic:
- Economics, Markets, and Financial Crisis
- Political Geography:
- Australia and New Zealand
696. Investment Cycles and Sovereign Debt Overhang
- Author:
- Mark Aguiar, Manuel Amador, and Gita Gopinath
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock is a constant. The expected tax on capital endogenously varies with the state of the economy and investment is distorted by more in recessions than in booms amplifying the effect of shocks. The government's lack of commitment induces a negative correlation between investment and the stock of government debt, a "debt overhang" effect. Debt relief is never Pareto improving and cannot affect the long-run level of investment. Further, restricting the government to a balanced budget can eliminate the cyclical distortion of investment.
- Topic:
- Debt, Economics, Markets, and Financial Crisis
697. Country Economic Forecasts: China
- Publication Date:
- 12-2008
- Content Type:
- Policy Brief
- Institution:
- Oxford Economics
- Abstract:
- A turn in the domestic investment cycle has been coupled with a dramatic slowdown in external demand, leaving China weathering storms on both fronts. But with the government announcing an unprecedented fiscal package and with fewer structural problems to contend with than in earlier downturns, China is likely to fare better than in previous domestically-driven slowdowns such as in the early-1980s and 1990s.
- Topic:
- Development, Economics, Markets, and Financial Crisis
- Political Geography:
- China
698. Country Economic Forecasts: Germany
- Publication Date:
- 12-2008
- Content Type:
- Policy Brief
- Institution:
- Oxford Economics
- Abstract:
- Germany appears to be slipping deeper into recession. The latest industrial figures are alarming: production fell 2.1% in October and orders were down 17.3%. If output remained at current levels to year-end, then Q4 would be down 3.2% on Q3, but the situation is deteriorating. The manufacturing PMI is below 40 and the expectations component of the Ifo is at its lowest level since the first oil crisis in the early 1970s. Key to the rapid decline has been an abrupt halt to investment, both in Germany and globally. Investment in machinery and equipment had stalled in Q3 and domestic orders of capital goods then dropped 6% in both October and November. Business investment will fall by over 4% in 2009. But exports have also seen a rapid decline, having fallen in both Q2 and Q3, while export expectations are near all-time lows. Export volumes are expected to drop next year, despite the depreciation of the euro. We have slashed our growth forecasts, with GDP now likely to fall by at least 1% in Q4. And we now do not expect the economy to emerge from recession until 2009H2 and for the economy to shrink by over 2% in 2009 overall – the biggest drop in over 60 years. Rapidly declining oil prices and an extended recession mean inflation could fall close to zero by next summer. Inflation has already slowed to 1.4% in November from a peak of 3.1% in July.
- Topic:
- Economics and Financial Crisis
- Political Geography:
- Europe and Germany
699. Country Economic Forecasts: Brazil
- Publication Date:
- 12-2008
- Content Type:
- Policy Brief
- Institution:
- Oxford Economics
- Abstract:
- In sharp contrast to many emergers, Brazil was still growing very robustly in Q3. But the intensification of the global crisis, and its numerous repercussions – many of which were unforeseen – since September has been so great that it has stopped the economy in its tracks. The clearest sign of this is that annual import growth, which had been growing at close to 60% mid-year, dropped to only 9.2% in November. This is an indication of the extent to which previously soaring domestic demand growth, particularly investment, has slowed. Export volumes were already weakening in Q3 and the major deterioration in the global background since then is expected to lead to exports falling by nearly 3% in 2009 as a whole. This, together with the much lower commodity prices than firms will have budgeted for and the global fall in business confidence, will cause investment to shrink in 2009 after 15% growth in 2008. Consumer spending growth is also forecast to slow significantly but should at least stay positive, helped by an expected moderation in inflation. Meanwhile, given its healthy fiscal position, the government is likely to step up its spending. Overall, GDP growth is now forecast to slow to 1.3% in 2009. Although scope for the central bank to cut interest rates remains constrained by the weak BRL and 6%+ inflation, the rapid pace of the slowdown in both Brazil and the rest of the world may lead to a substantial reduction in underlying inflation pressures. This could pave the way for interest rate cuts to start in early-2009.
- Topic:
- Economics, Markets, and Financial Crisis
- Political Geography:
- Latin America
700. Financial Crisis and Fiscal Policies in Globalization: A Latin America Experience
- Author:
- Ayça Şimşek
- Publication Date:
- 03-2007
- Content Type:
- Journal Article
- Journal:
- Bilgi
- Institution:
- Sakarya University (SAU)
- Abstract:
- Dünya ekonomisinde küreselleşme süreci ile birlikte hızla artan dışa açılma eğilimleri özellikle gelişmekte olan ülkelerin finansal piyasalarında önemli değişimlere yol açmıştır. Bu ülkelerde erken dışa açılma (finansal piyasaların gelişimini tamamlamadan dışsal aktörlere açılması) ve sığ piyasaların varlığı piyasaların dışsal şoklardan etkilenme derecesini arttırarak krizlerin oluşumunu tetiklemiştir. Latin Amerika ülkeleri bu özellikleri bünyesinde barındıran ve dolayısıyla krizlerden önemli ölçüde etkilenen ülkeler olmuşlardır. Bu ülkelerin finansal piyasalarında 1960'lı yıllardan itibaren küreselleşmenin hız kazanmasıyla birlikte krizler ortaya çıkmaya başlamıştır. Bu krizler ile mücadelede özellikle IMF tarafından önerilen ortodoks ekonomi politikaları uygulanmış ve bu çerçevede sıkı para ve maliye politikası önlemleri ile finansal krizlerin piyasalar üzerindeki etkileri azaltılmaya çalışılmıştır. Ancak bu politikalar; uygulama sonuçları itibariyle kısa dönemde finansal piyasalarda kısmi bir iyileşme sağlamışsa da uzun dönemde ekonomide daraltıcı etkilere yol açarak reel ekonomideki durgunluk sürecini körüklemiştir. Dolayısıyla bu piyasalarda krizlerle mücadelede uygulanan para ve maliye politikalarının eşanlı yürütülmesi ve bu bağlamda makroekonomik politikaların birbiriyle tutarlılığı önem taşımaktadır. Bu açıdan Latin Amerika ülkelerinde reel piyasaları daraltmadan finansal risklerin azaltılmasını sağlayacak güvenilir ve istikrarlı bir ekonomi politikasının uygulanabilirliğinin sağlanması, sadece finansal istikrarın değil tüm makroekonomik istikrarın gerçekleştirilmesi için gerekli görülmektedir.
- Topic:
- Financial Crisis
- Political Geography:
- Latin America