Posts Tagged ‘Great Recession’

Anthony Downs On Financial Reform

Tuesday, September 14th, 2010

Anthony Downs discusses the ins and outs of financial reform.  The nation’s financial system needs significantly more regulation than exists now.  The lack of tough regulatory powers strongly impacted the recent financial crash and the Great Recession that ensued.  The good news is that the Obama administration is moving firmly in this direction with financial reform legislation a critical item on its agenda.  This is the opinion of Anthony Downs, a senior fellow with the Brookings Institution and former President of the Real Estate Research Corporation.  In a recent interview for the Alter+Care Podcasts, Downs said that between 1980 and 2007, the value of international capital markets – including bank deposits, assets, equities, public and private debt – quadrupled relative to the world’s GDP, lifting millions of people out of poverty.  Although unprecedented, this growth relied heavily on borrowed money to finance higher living standards and highly leveraged loans with limited reserves backing them.  In the end, the growth was unable to be sustained.

The financial reform legislation currently undergoing reconciliation by a Senate-House conference committee is not a reinstatement of the 1933 Glass-Steagall Act – which separated investment and commercial banking — because banks will still be allowed to deal with securities.  Under the new law, banks will have to register derivatives with some type of formal exchange and maintain records on who is borrowing money and under what terms.  This marks a significant change from before the Great Recession, when derivatives were traded with virtually no oversight.

Downs believes that former Federal Reserve Chairman Alan Greenspan contributed to the financial crisis in two ways.  In 2001, when Greenspan was informed that there was fraud in the subprime housing market and that he should do something about it, he refused to take action because he didn’t believe in regulation.  According to Downs, “that was a terrible mistake and meant that all the horrible loans made in the subprime market could continue unchecked.”  Greenspan’s second error was to maintain low interest rates for as long as he did at a time when an enormous amount of capital was coming into the United States economy from overseas.  Because investors were avoiding the stock market, they put their money into real estate.  That drove the price of properties sky high and destroyed the concept of intelligent underwriting and evaluating the risk before approving the loan.

Global Healthcare Spending Growing Faster Than GDPs

Tuesday, July 13th, 2010

Blame the Great Recession for sharp increases in the ratio of healthcare spending to GDP.  Real annual per-capita health spending climbed 4.2 percent between 2000 and 2008 in Organization for Economic Cooperation and Development (OECD) countries, according to a new study.  Not surprisingly, the United States led the pack of 31 nations with healthcare spending as a proportion of GDP rising by 16 percent.  Next in line were France (11.2 percent); Switzerland (10.7 percent); Austria (10.5 percent); and Germany (10.5 percent).  Healthcare spending in the United States was $7,538 person.  Compare that to $5,003 in Norway; $4,627 in Switzerland; $4,210 in Luxembourg; and $4,079 in Canada.

According to the OECD, healthcare spending is rising faster than economic growth.  The average ratio of healthcare spending to GDP rose from 7.8 percent in 2000 to nine percent in 2008.  Technological changes, an aging population and high expectations are among the factors driving up costs, a situation that is unlikely to change in the near future.  The Great Recession also led to increases in the ratio of healthcare spending to GDP in several countries.  Ireland, for example, saw an increase from 7.5 percent in 2007 to 8.7 percent in 2008, while it rose from 8.4 percent to nine percent in Spain.

Government pays for healthcare coverage in the majority of OECD nations.  As a result, government spending on healthcare rose from an average of 12 percent in 1990 to 16 percent in 2008.  As a result, nations currently under pressure to reduce budget deficits have some difficult decisions to make to sustain their healthcare systems.  The options are to cut the growth of public spending on healthcare, cutting other expenditures, or raising taxes.

Rick Mattoon: Is the Recession Over?

Monday, March 8th, 2010

 The Fed says the recession is over.  Economic indicators show that the recession is over.  This is the opinion of Rick Mattoon, a senior economist and advisor in the economic research department of the Federal Reserve Bank of Chicago and a lecturer at the Kellogg School of Management at Northwestern University.  Rick’s primary research focuses on issues facing the Midwest regional economy.

In a recent interview for the Alter Inspire Podcasts, Mattoon warned that most people probably don’t feel like the nation is coming out of a recession because there are few signs of job creation or easier access to credit.  One of the major concerns economists have is that this will be a double-dip “W-shaped” recession because once the bump from the $787 billion stimulus ends, there will be scant pent-up consumer demand for products and services to take the place of government spending.

One positive sign is an uptick in hiring by temporary employment agencies, which usually is considered to be a good harbinger of what future demand will be.  Another interesting theory about this particular recession in terms of jobs is the idea that companies adjusted their employee levels much more aggressively at the beginning of this cycle.  As a result, they are operating at extremely lean levels and so may hire earlier rather than later.

One problem is that there is a skills mismatch in the economy.  Many people who have lost their jobs don’t possess the right skills to find employment in growth industries such as clean energy or healthcare.  The challenge is training these individuals to bring their skills up to par.