Creating jobs

With the U.S. facing its worst recession in the post-WWII era, William Galston of Brookings Governance Studies has presented an agenda that "would demand both elected officials and their constituents to subordinate other objectives, however worthy, to the overriding objective of restarting the engine of economic growth and sustaining robust job creation." His proposed policies:

• Pro-growth tax reform
• Public incentives for larger private capital investments in public infrastructure
• Conditional revenue-sharing by the federal government
• Jump-starting the stalled trade treaty agenda
• Pro-growth regulatory policy
• Facilitating immigrants with advanced education, critical skills, or entrepreneurial capacity to enter and remain in the U.S.
• Reducing student dropouts and using community colleges to provide skills for future jobs

Priority No. 1: Creating an Agenda to Spur Job-Creating Economic Growth, July 20, 2010, pdf (6pp/291kB), html

Higher ed spurring economy

The Rockefeller Institute of Government at University at Albany, SUNY, released a study on the increasingly important role of higher education in revitalizing regional and state economies. Authored by David Shaffer and David Wright, the report found that higher ed is:

• Advancing innovation through new technologies, processes, products, ideas, and leveraging knowledge creation to yield tangible economic benefits.
• Helping employers prosper and grow through worker training, management counseling, help for startups, and other initiatives.
• Playing a more vigorous role in community revitalization.
• Continuing its core mission of creating an educated population.

According to the report, the old paradigm for economic development rested on business attraction and retention incentives (infrastructure, tax breaks, etc.), with research, technology transfer, and worker training "thrown in...sometimes as a kind of afterthought." The authors propose a new, "knowledge first" paradigm in which "knowledge is the lead incentive that states offer businesses they want to attract or grow."

A New Paradigm for Economic Development
      Report (pdf, 74pp/588kB), March 2010
      News release, March 15, 2010

Myths about opportunity

Americans have always believed that their country is unique in providing the opportunity to get ahead. Just combine hard work with a bit of talent and you'll climb the ladder—or so we've told ourselves for generations. But rising unemployment and financial turmoil are puncturing that self-image.

Isabel V. Sawhill and Ron Haskins of the Brookings Institution and authors of Creating an Opportunity Society have come up with five myths about "our land of opportunity."

For starters, contrary to the belief that "Americans enjoy more economic opportunity than people in other countries," children born into a lower-income family in the Nordic countries and in the United Kingdom have a greater chance of forming a higher-income family as adults. Sawhill and Haskins counter the belief that poverty and inequality in the U.S. are driven by immigrant workers and offshoring of jobs with statistics on "a dramatic change in American family life"--the rise of children in single-parent families whose poverty rates are five time as high as two-parent households. The authors also discuss myths concerning generational upward mobility, public assistance, and cutting waste and abuse in the federal budget.

Five Myths About Our Land of Opportunity, Nov. 1, 2009

Do the right thing...or pay later

...statistical indicators are important for designing and assessing policies aiming at advancing the progress of society

New York Times (NYT) reports Wednesday on the recent study on "new assessment tools that incorporate a broader concern for human welfare than just economic growth." Authored by Nobel prize-winning economists, Joseph E. Stiglitz and Amartya Sen, the report is their response to the President of the French Republic, Nicholas Sarkozy, "unsatisfied with the present state of statistical information about the economy and the society,...to create a Commission, subsequently called, The Commission on the Measurement of Economic Performance and Social Progress (CMEPSP)":

...to identify the limits of GDP as an indicator of economic performance and social progress, including the problems with its measurement; to consider what additional information might be required for the production of more relevant indicators of social progress; to assess the feasibility of alternative measurement tools, and to discuss how to present the statistical information in an appropriate way.

NYT considers the report as being "more critique than prescription" and "a treatise on the inadequacy of G.D.P. growth as an indication of overall economic health." The report itself states that "our measurement system [needs] to shift emphasis from measuring economic production to measuring people’s well-being."

• When evaluating material well-being, look at income and consumption rather than production.
• Emphasise the household perspective.
• Consider income and consumption jointly with wealth
• Give more prominence to the distribution of income, consumption and wealth.
• Broaden income measures to non-market activities.

Report of the commission on the measurement of economic performance and social progress
(September 2009, pdf, 292pp/3.2MB)

Sweatshops are not a game

New York Times posted a story online Tuesday (appearing in print July 1, 2009, B4) on China's latest attempts to restrict the trade and use of virtual money, banning virtual currencies being exchanged for real world goods...

The buying and selling of the make-believe currencies used in online gaming has become so widespread that Chinese authorities fear it will affect the real economy.

NYT writes that the China Internet Network Information Center found that nearly $2 billion in virtual currency was traded in China in 2008. Real world sweatshops producing earned virtual credits later to be resold at profit to overseas customers and online marketplaces trading in virtual goods for real goods and cash are two sides of the online coin.

NYT reports Edward Castronova, a professor of telecommunications at Indiana University Bloomington, approves China's response and considers virtual currencies pose a possible threat to world economies.

As virtual currencies take over more and more purchasing power, control over the effective money supply shifts from the central bank to the game developers.

Author of such works as, Exodus to the Virtual World: How Online Fun Is Changing Reality and Synthetic Worlds: The Business and Culture of Online Games, Castronova as early as 2001 predicted:

Unlike many internet ventures, virtual worlds are making money -- with annual revenues expected to top USD 1.5 billion by 2004 -- and if network effects are as powerful here as they have been with other internet innovations, virtual worlds may soon become the primary venue for all online activity.

While describing China's current regulations to rein in online gaming as their toughest, NYT points out the activity continues to grow.

Keeping competitive

From the Brookings Global Economy and Development Program comes a paper on rebuilding American competitiveness, proposing that "policymakers need to build a foundation for sustainable, long-term prosperity that can drive our economy once we move beyond the present crisis."

The paper's four-part agenda for America's future call for investing in:

• Infrastructure: prioritizing transportation infrastructure, reducing traffic, upgrading freight efficiency, expanding access to broadband, selling the wireless spectrum


• People: building an affordable, flexible health care system, encouraging lifelong learning, providing economic security


• Ideas: providing incentives for innovation, patenting only the best, investing in blue-sky R&D, promoting innovation clusters


• Green transformation: putting a price on emitting greenhouse gases, investing in green R&D, promoting green government decisions

Strengthening American Competitiveness: Regaining Our Competitive Edge - Four Priorities and 20 New Ideas (pdf, 28pp/352kB), Feb. 2009

Recent GAO reports

From the Government Accountability Office (GAO):

FOSTER CARE: State Practices for Assessing Health Needs, Facilitating Service Delivery, and Monitoring Children's Care, GAO-09-26 (pdf, 58pp/944kB), Feb. 6, 2009

State child welfare programs, including foster care, are federally funded by the Administration for Children and Families (ACF), but states are responsible for their foster children's health care, which is often financed by Medicaid. For this study, GAO reviewed policies and practices in 10 states (CA, DE, FL, IL, MA, NY, OK, TX, UT, and WA) of efforts to improve the delivery of health services. It covers state actions (1) to identify health care needs, (2) ensure delivery of appropriate health services, and (3) document and monitor the health care of children in foster care.


TROUBLED ASSET RELIEF PROGRAM: Status of Efforts to Address Transparency and Accountability Issues, GAO-09-296 (pdf, 112pp/2.7MB), Jan. 30, 2009

The Troubled Asset Relief Program (TARP) was authorized by the Emergency Economic Stabilization Act of 2008. Among other information, the report gives the status of $293.7 billion of TARP funds disbursed as of Jan. 23, and a timeline of programs and selected actions under TARP from Oct. 2008 to Jan. 2009. From the Highlights page:

While GAO does not question the need for swift responses in the current economic environment, the lack of a clearly articulated vision has complicated Treasury’s ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP and has limited its ability to identify personnel needs

TROUBLED ASSET RELIEF PROGRAM: Status of Efforts to Address Transparency and Accountability Issues, GAO-09-359T (pdf, 13pp/176kB), Feb. 5, 2009

This is testimony by the Acting Comptroller General on the Jan. 30 report.


Update of State and Local Government Fiscal Pressures, GAO-09-320R (pdf, 8pp, 177kB) Jan. 26, 2009

This letter is an update of GAO's testimony of Nov. 19, 2008, covered in an earlier post. GAO has developed a model that simulates fiscal outcomes of state and local governments for several decades into the future. GAO's two findings: (1) Long-term fiscal challenges faced by the the state and local sector are exacerbated by the current recession, and (2) Consideration of state fiscal relief requires attention to targeting and timing of temporary assistance, specifically Medicaid.

Recent CRS reports

Recent Congressional Research Service (CRS) reports from Open CRS:

Economic Stimulus: Issues and Policies, R40104 (pdf, 23pp/327kB), Jan. 23, 2009

This report discusses the current state of the economy, including measures already been taken by monetary authorities; reviews proposed economic stimulus package; assesses need for, magnitude of, design of and potential consequences of fiscal stimulus; and discusses recent and proposed financial interventions.


Proposed Funding for Education in the American Recovery and Reinvestment Act of 2009, R40151 (pdf, 34pp/1.2MB), Jan. 22, 2009

H.R.1 (pdf, 647pp), the "American Recovery and Reinvestment Act of 2009" was introduced in the House on Jan. 26 to promote economic recovery. This report gives an overview of programs that are or would be administered by the U.S. Dept. of Education (ED) in the act under Titles IX and XII. It discusses elementary and secondary education, higher education, the Institute for Education Sciences (IES), and the State Fiscal Stabilization Fund.


Health Insurance Continuation Coverage Under COBRA, R40142 (pdf, 13pp/164kB), Jan. 16, 2009

COBRA requires employers to offer continued health insurance, generally for 18 months, to employees who lose coverage under certain circumstances. CRS reports on COBRA coverage and discusses issues of employer size and retirees and costs for both employees and employers.


States and Proposed Economic Recovery Plans, R40112 (pdf, 16pp/177kB), Jan. 5, 2009

This report examines the arguments presented by the National Conference of State Legislatures (NCSL) and the National Governors Association (NGA) to include state fiscal assistance in an economic recovery plan, several arguments to exclude state assistance from such a plan, and the implications the proposals presented by NCSL and NGA might have for the economy. It also examines issues related to the targeting of state fiscal assistance and arguments for and against including infrastructure construction projects in an economic recovery plan.

Modernizing financial regulation

Earlier this month the Government Accountability Office (GAO) issued a report on modernizing the U.S. financial regulatory system. GAO also presented testimony on its report.

GAO found that the current regulatory system "has not kept pace with major developments in financial markets and products," such as:

• Systemic risks posed by large and interconnected financial conglomerates that cross financial sectors of banking, securities, and insurance
• Activities of large and less-regulated market participants, such as nonbank mortgage lenders, hedge funds, and credit rating agencies
• New and more complex investment products
• Ensuring that accounting and audit standards appropriately respond to financial market developments
• Coordinating internationally with other regulators in the increasingly global aspects of financial markets

GAO offers a framework for a more effective regulatory system:

1. Clearly defined regulatory goals
2. Appropriately comprehensive
3. Systemwide focus
4. Flexible and adaptable
5. Efficient and effective
6. Consistent consumer and investor protection
7. Regulators provided with independence, prominence, authority, and accountability
8. Consistent financial oversight
9. Minimal taxpayer exposure

FINANCIAL REGULATION: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, GAO-09-216 (pdf, 107pp/2.1MB), Jan. 8, 2009

FINANCIAL REGULATION: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, GAO-09-310T (pdf, 30pp/416kB), Jan. 14, 2009. Testimony before the Congressional Oversight Panel (COP).

"Eds & meds"

Universities and hospitals ("eds" and "meds") are "potential drivers of economic development in metropolitan areas," according to a recent report from the Brookings Metropolitan Policy Program. The report examines four impacts of expanding eds and meds that would raise earnings of metropolitan residents:

• Expanding eds and meds brings in new income to a metropolitan area
• Expanding eds raises metropolitan residents’ earnings by improving their skills
• Expanding university research spurs metropolitan economic development
• Expanding meds is likely to encourage other employers in a metropolitan area to pay higher wages

Included in the report are two tables listing the top 30 metropolitan areas for higher education and for medical care.

The Local Economic Impact of "Eds & Meds": How Policies to Expand Universities and Hospitals Affect Metropolitan Economies (pdf, 32pp/1.14MB), Dec. 10, 2008

Recent CRS reports

Recent Congressional Research Service (CRS) reports from Open CRS:

Safe Drinking Water Act (SDWA): Selected Regulatory and Legislative Issues, RL34201 (pdf, 27pp/176kB), Nov. 26, 2008

The Safe Drinking Water Act (SDWA), first enacted in 1974, is administered by the Environmental Protection Agency (EPA), which delegates primary enforcement of the drinking water program to states and tribes through the Public Water System Supervision (PWSS) program. In the 110th Congress, SDWA issues include: drinking water contaminants; perchlorate and pharmaceuticals and personal care products (PPCPs) in drinking water; drinking water infrastructure needs and funding; small systems (serving 3,300 persons or fewer) issues; and underground injection control (UIC) and geologic sequestration of carbon dioxide to reduce greenhouse gas emissions.


Emergency Communications: The Future of 911, RL34755 (pdf, 36pp/200kB), Nov. 21, 2008

The current 911 infrastructure is based on analog technology that does not support newer, digital technologies, resulting in dropped or misdirected calls. According to CRS, modernizing 911 will require new technologies, collectively referred to as Next Generation 911, that should incorporate Internet Protocol (IP) networks. The most recent legislation passed by Congress, the NET 911 Improvement Act of 2008, P.L. 110-283 (pdf, 8pp), requires a national plan for migrating to an IP-enabled emergency network.


Iceland's Financial Crisis, RS22988 (pdf, 6pp/72kB), Nov. 20, 2008

Among CRS's conclusions:

The failure of Iceland’s banks raises questions about bank supervision and crisis management for governments in Europe and the United States. This incident raises questions about how national governments should address the issue of supervising foreign financial firms that are operating within their borders and how to protect their depositors when a foreign-owned firm may attempt to withdraw deposits from one market in order to offset losses in another.

Arctic National Wildlife Refuge (ANWR): Votes and Legislative Actions, 95th Congress through 110th Congress, RL32838 (pdf, 37pp/204kB), Nov. 19, 2008

The Arctic National Wildlife Refuge (ANWR) comprises 19 million acres that contain undeveloped oil and gas sources as well as a wide range of plants and animals. This report summarizes Congress's attempts to address issues of energy development and preservation in the Refuge, particularly from the 108th through 110th Congresses.

Recent GAO reports

From the Government Accountability Office (GAO):

STATE AND LOCAL FISCAL CHALLENGES: Rising Health Care Costs Drive Long-term and Immediate Pressures, GAO-09-210T (pdf, 16pp/356kB), Nov. 19, 2008

GAO's statement addresses three key points:

• State and local governments' long-term fiscal challenges
• Rapidly rising health care costs which drive long-term fiscal difficulties
• Considerations involved in targeting supplemental funds to states through Medicaid during economic downturns:
  • delivering assistance as soon as needed
  • targeting assistance according to the extent of each state's downturn
  • temporarily increasing federal funding so that it turns off when states' economic circumstances improve
  • triggering so starting and ending points of assistance respond to indicators of economic distress

CONFIRMATION OF POLITICAL APPOINTEES: Eliciting Nominees' Views on Management Challenges within Agencies and across Government, GAO-09-194 (pdf, 155pp/1.13MB), Nov. 17, 2008

This report contains 35 appendixes, one for each of 28 major executive departments and agencies, and seven major government management areas. Each appendix lists key issues needing attention and a series of questions that Senate committees can use to assess nominees of the incoming administration in confirmation hearings.


Energy Efficiency: Potential Fuel Savings Generated by a National Speed Limit Would Be Influenced by Many Other Factors, GAO-09-153R (pdf, 10pp/304kB), Nov. 7, 2008

The report draws two conclusions:

• Reducing a vehicle's speed can potentially increase its fuel economy, depending on the vehicle's characteristics. Factors that enhance fuel economy: engine efficiency (e.g., fuel injection), electronic and computer controls, more efficient transmissions, and hybrid technology. Factors that decrease fuel economy: increases in vehicle weight, performance, and accessory loads.
• A reduced speed limit is only one of many factors that could affect total fuel use. Other factors include: drivers' compliance with a reduced speed limit, congestion in urban areas, road and weather conditions, driver behavior (driving less, buying fuel-efficient vehicles, aggressive driving), proper vehicle maintenance.

The Nation's Long-Term Fiscal Outlook: September 2008 Update, GAO-09-94R (pdf, 15pp/328kB), Nov. 6, 2008

GAO uses two fiscal simulations of what might happen to federal deficits and debt levels under varying assumptions. "Baseline Extended" follows the Congressional Budget Office's (CBO) September baseline estimates for 10 years and holds revenue and spending constant. The "Alternative" simulation is based on historical trends and recent policy preferences. GAO bases its simulations on Social Security and Medicare Trustees' projections and CBO's Medicaid projections. According to GAO, "Under either set of projections, the long-term outlook is unsustainable."

IMF

The Congressional Research Service (CRS) issued a paper on the role of the International Monetary Fund (IMF) in the global financial crisis. CRS sees the IMF mitigating the crisis in two ways: (1) immediate crisis management, and (2) increased surveillance of the global economy. For the first, the IMF activated its Emergency Financing Mechanism (EFM) to expedite loans and has available the Exogenous Shocks Facility (ESF) to assist low-income countries facing events outside their control. CRS says that the "deepening interconnectedness of the international economy" calls for greater cooperation between the IMF and international financial regulatory bodies.

The Global Financial Crisis: The Role of the International Monetary Fund (IMF), RS22976 (pdf, 6pp/76kB), Oct. 27, 2008, from Open CRS

Recent GAO reports

From the Government Accountability Office (GAO):

CHECK 21 ACT: Most Consumers Have Accepted and Banks Are Progressing Toward Full Adoption of Check Truncation, GAO-09-8 (pdf, 66pp/1.38MB), Oct. 28, 2008

The Check Clearing for the 21st Century Act of 2003 (Check 21) was intended to streamline check collection by promoting electronic check processing and authorizing substitute checks--paper copies of the front and back of original checks--for banks that do not accept checks electronically. Check 21 required GAO to assess the following regarding check truncation: (1) gains in economic efficiency and benefits and costs to the Federal Reserve and financial institutions, (2) consumer acceptance, and (3) benefits and costs to bank consumers. GAO found no overall gains in efficiency by the Federal Reserve or a sample of banks but future efficiencies are expected; most bank consumers have accepted changes to their checking accounts and have realized benefits and costs relating to faster processing and access to account information.


GREEN AFFORDABLE HOUSING: HUD Has Made Progress in Promoting Green Building, but Expanding Efforts Could Help Reduce Energy Costs and Benefit Tenants, GAO-09-46 (pdf, 68pp/1.42MB), Oct. 7, 2008

The Dept. of Housing and Urban Development (HUD) spends about $5 billion annually on energy costs for public housing. For this report, GAO was asked to review (1) HUD's efforts to promote energy efficiency in its programs, (2) potential costs and benefits of green building in its affordable housing programs, and (3) lessons learned elsewhere that HUD could use for green building. GAO recommends that HUD require energy-efficient products and appliances in public housing, update the building code for manufactured housing, develop a utility benchmarking tool for multifamily properties, and provide nonenergy green building incentive points in some grant programs.


HEALTHY MARRIAGE AND RESPONSIBLE FATHERHOOD INITIATIVE: Further Progress Is Needed in Developing a Risk-Based Monitoring Approach to Help HHS Improve Program Oversight, GAO-08-1002 (pdf, 55pp/6.96MB), Sept. 26, 2008, released Oct. 27, 2008

The Deficit Reduction Act of 2005 appropriated $150 million in grants for Healthy Marriage and Responsible Fatherhood programs from 2006 through 2010. Both programs serve low-income and minority groups but Healthy Marriage programs target teenagers with marriage and relationship activities while Responsible Fatherhood programs provide parenting skills primarily to incarcerated parents. This report reviews oversight of the grants made by the Dept. of Health and Human Services (HHS) for these programs.

CBO weighs in

Yesterday Peter Orzsag, Director of the Congressional Budget Office (CBO), testified before the House Budget Committee on the turmoil in financial markets. He identified two problems facing the markets: illiquidity triggered by market panic and the potential insolvency of many financial institutions.

After analyzing the Troubled Asset Relief Act of 2008 proposed by the Treasury, Orzsag presented an alternative approach to address insolvency concerns. That proposal would have the government "invest directly in financial institutions to strengthen their capital positions, without directly purchasing troubled assets. The injections could take the form of preferred stock, which would effectively lower the cost of new capital for the institutions." Orzsag stated that variations of this proposal have been offered, and he listed their pros and cons.

Federal Responses to Market Turmoil (pdf, 11pp/68kB), September 24, 2008

See also Director's 9.25.08 blog on this testimony.

Bailout

Open CRS has provided two timely reports from the Congressional Research Service (CRS) on federal intervention in the current Wall Street crisis.

One is on the cost of past and present government interventions. The paper describes current interventions for AIG, Fannie and Freddie, and Bear Stearns, and a table summarizes interventions from the 1970s (Lockheed, Penn Central, New York City), 1980s (Chrysler, S&Ls), 2001 (U.S. Airlines), and the aforementioned firms in 2008.

The second report is on the legislative proposal, as of Sept. 21, for the $700 billion bailout by Treasury. The paper covers (1) various aspects of the draft proposals, among them: debt limit, definition of troubled asset, factors to guide intervention, management of mortgage-related assets, and loss mitigation and loan modification, and (2) FAQ such as: Does the proposal include provisions to help home owners facing foreclosure? How could financial turmoil affect the wider economy if nothing is done? Couldn't the same assets be purchased through Fannie Mae and Freddie Mac now that they are in a conservatorship backed by the Treasury?

The Cost of Government Financial Interventions, Past and Present
RS22956 (pdf, 6pp/68kB), September 23, 2008

Proposal to Allow Treasury to Buy Mortgage Related Assets to Address Financial Instability RS22957 (pdf, 6pp/72kB), September 22, 2008

Fannie and Freddie costs

In the last two days the Congressional Budget Office (CBO) has issued two items relating to Fannie Mae and Freddie Mac: a letter to the House Budget Committee from CBO Director Peter Orszag and a cost estimate of a pending bill.

Orszag's letter responded to the proposal released July 14 by the Treasury Dept., specifically Treasury's temporary authority to purchase equity in the housing finance government-sponsored enterprises (GSEs) that include Fannie Mae, Freddie Mac, and the Federal Home Loan (FHL) Banks. The letter stated in part:

Taking into account the probability of various possible outcomes, CBO estimates that the expected value of the federal budgetary cost from enacting this proposal would be $25 billion over fiscal years 2009 and 2010. That estimate accounts for both the possibility that federal funds would not have to be expended under the new authority and the possibility that the government would have to use that authority to provide assistance to the GSEs.

CBO's cost estimates of H.R. 3221 (pdf, 636 pp.), the Housing and Economic Recovery Act of 2008, as amended by the Senate on July 11, 2008, span fiscal years 2008-2018. The bill includes Treasury's temporary authority to purchase equity in the GSEs. CBO and the Joint Committee on Taxation (JCT) estimate that enacting this legislation would:

• Increase direct spending by $41.7 billion over the 2008-2018 period, and
• Increase revenues by about $16.8 billion over the 2008-2018 period.

In total, those changes would increase budget deficits (or reduce future surpluses) by about $24.9 billion over the 2008-2018 period.

CBO's Estimate of Cost of the Administration's Proposal to Authorize Federal Financial Assistance for the Government-Sponsored Enterprises for Housing (pdf, 10pp/60kB), July 22, 2008

H.R. 3221, Housing and Economic Recovery Act of 2008 (pdf, 5pp/80kB), July 23, 2008

Fannie Mae & Freddie Mac: FAQ

"Recent turmoil in the housing and financial markets have caused concern over the future of Fannie Mae and Freddie Mac...." begins a 6-page FAQ issued yesterday by the Congressional Research Service (CRS). Fannie Mae and Freddie Mac are chartered by Congress, their "safety and soundness" regulated by the Office of Federal Housing Enterprise Oversight (OFHEO). CRS states: OFHEO "has repeated assurances that Fannie and Freddie have adequate capital, but as highly leveraged financial intermediaries Fannie Mae and Freddie Mac have limited resources against losses."

Among the FAQs:

• Why are Fannie Mae's and Freddie Mac's stock prices declining so much?
• What risks do Fannie Mae and Freddie Mac face in today's economic environment?
• What risks do Fannie Mae and Freddie Mac create for the U.S. government?
• What risks do Fannie Mae's and Freddie Mac's financial problems create for homeowners and those planning to become homeowners?

Fannie Mae's and Freddie Mac's Financial Problems: Frequently Asked Questions, RS22916 (pdf, 6pp/72kB), July 15, 2008, from Open CRS

See also: The Freddie and Fannie Fallout, New York Times, 7.13.08. The author writes:

By issuing debt, (Fannie and Freddie) guarantee or own more than $5 trillion in home mortgages. Got that? $5 trillion.

Because the federal government established the companies, investors view them as backed, at least implicitly, by taxpayers. And that implied guarantee is what drove Fannie and Freddie’s business models.

Recent CRS reports

Recent Congressional Research Service (CRS) reports from Open CRS:

The Strategic Petroleum Reserve: History, Perspectives, and Issues, RL33341 (pdf, 16pp/120kB), May 15, 2008

The Strategic Petroleum Reserve (SPR) was established in 1975 by the Energy Policy and Conservation Act (EPCA, P.L. 94-163) in response to the 1973-74 Arab oil embargo. CRS discusses its history, the acquisition of crude oil for the SPR, drawdown authorities, and when the SPR should be used. EPCA authorizes drawdown of the SPR if the President finds a "severe energy supply interruption," which is deemed to exist if three condition are met: If "(a) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (b) a severe increase in the price of petroleum products has resulted from such emergency situation; and (c) such price increase is likely to cause a major adverse impact on the national economy."


Basel II in the United States: Progress Toward a Workable Framework, RL34485 (pdf, 10pp/164kB), May 14, 2008

The report begins with a capsule history of the Basel capital accords--international agreements that determine the minimum amounts of capital financial institutions must hold. Basel I was adopted in 1988 by the Basel Committee on Banking Supervision and in the last decade came to be viewed as insufficient because banks could "game the system." Basel II was published in 2004 and updated in 2005. Basel II has 3 pillars: (1) minimum capital requirements, (2) supervisory review, and (3) public disclosure. In the United States, the 11 largest banks will be "core" Basel II banks, and the remaining banks may continue to use the Basel I framework.


Evaluating the Potential for a Recession in 2008, RL34484 (pdf, 24pp/152kB), May 13, 2008

CRS cites 3 current recessionary pressures: the housing bust, liquidity crunch, and energy shock. To counter these events, Congress has enacted an economic stimulus package (pdf, P.L. 110-185), and the Federal Reserve has cut interest rates and increased direct lending to financial institutions. Despite these measures, according to the report, private sector forecasters peg the chance of a recession in 2008 at 60%.

See earlier FR post, Recession - who decides? 1.30.08

State finances and recession

The Rockefeller Institute of Government issued, on Jan. 30, a report on recessions and state finances, providing 50-state comparisons of past recessions and their effects, using the 2001 recession as a key reference point. It notes that, in the short term, a recession does not affect states' expenditures as much as tax revenues which are hit by "the ravages of a recession," and makes a cautionary observation:

...the initial response to a recession in the year of a negative revenue surprise typically includes administrative actions or a combination of administrative and legislative actions. These commonly involve across-the-board cuts, reserve-fund drawdowns, and borrowing from other parts of the budget. These actions often have no impact on longer-term structural problems, or can even make the subsequent year's problem worse. States reserve the big guns of large tax increases and spending cuts for the executive budget process, and that process can take several years to play out....

What Will Happen to State Government Finances in a Recession? (pdf, 27pp/1MB)

--------
In a news release Jan. 24, the National Governors Association (NGA) announced its adoption of an economic stimulus policy for Congress. In a brief information paper, the governors propose countercyclical funding to be made up of Medicaid assistance and a flexible block grant. A longer background paper provides Congress and the Administration with information on the fiscal condition of the states, the potential state role in economic stimulus, and specific policy options. Maintaining that any stimulus package should be "timely, temporary and targeted," the paper proposes six categories for Congress to consider in a formulating such a package:

• General revenue sharing
• Targeted state-federal programs for high-risk populations
• Job creation
• Mortgage default assistance
• Existing regulations (moratoriums to assist states in holding down expenditures)
• Individual income tax and business tax reductions

Economic Stimulus Information Paper (pdf, 4pp/84kB)
Economic Stimulus: A State Perspective (pdf, 11pp/88kB)