how did the us financial sector get to this point? 1987 – jan. 1993 – feb. 1994 – may 1998 –...
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Fact on Financial Reform financial-reform/http://politifact.com/truth-o-meter/article/2010/jul/16/facts- financial-reform/ 1.Consumer Financial Protection Bureau 2.New mortgage rules 3.Size matters 4.Liquidation authority 5.Audit for the Fed 6.Credit card rules 7.Volker Rule 8.Derivatives 9.Hedge funds 10.Credit rating agencies 11.“Say on pay” CriticismsTRANSCRIPT
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How did the US financial sector get to this point?
1987 –Jan. 1993 –Feb. 1994 –May 1998 –Sept. 1998 –Dec. 1998 –1999 – Mar. 2000 –May 2000 – 2001-2006 –
Video is posted at http://www.pbs.org/wgbh/pages/frontline/warning/cron/
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Financial Sector Reform• Financial reform is complicated
– Eight major components.– Evaluate as overall
if proposal will prevent new financial crisis if proposal will NOT prevent new financial crisis
• Systemic risk ~ interdependence in a market where single failure (or cluster) can cause a cascading series of failures, bringing down entire market.
• Moral hazard ~ an individual or institution does not bear the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully
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Fact on Financial Reform
http://politifact.com/truth-o-meter/article/2010/jul/16/facts-financial-reform/
1. Consumer Financial Protection Bureau2. New mortgage rules3. Size matters4. Liquidation authority5. Audit for the Fed6. Credit card rules7. Volker Rule8. Derivatives9. Hedge funds10. Credit rating agencies11. “Say on pay”Criticisms
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Financial Sector Reform
• Summary of proposed banking reform– Copy the heading for the proposed change.– Find information 3-5 facts about what it will do.– Evaluate good/bad of proposed change. Give your
opinion…– Evaluate proposal…back opinion with FACTS
if proposal will prevent new financial crisis if proposal will NOT prevent new financial crisis
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Federal Budget & National debt
• Federal budget = – tax revenues - expenditures
• Balanced budget: taxes = expenditures• Budget deficit: taxes < expenditures • Budget surplus: taxes > expenditures• Government spending is independent of
output (RGDP) while taxes rise/fall with changes in RGDP.
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FY 2010 budget
http://research.stlouisfed.org/fred2/series/FYFSD?cid=5
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Is the Federal Government budget deficit a problem?
YES NO
Would a law or Constitutional Amendment requiring a balanced budget be a good idea?
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How does the government eliminate it’s budget deficit?
• Someone has to pay more, propose 1 tax increase. – Why did you select this tax?– How would the tax increase impact people in different
income groups?• Someone has to get less, propose 1 spending
decrease. – Why did you select this expenditure?– How would this spending decrease impact people?
• What would be the impact of your proposal?
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National Debt
• Will the national debt cause the U.S. government to go bankrupt?
• Q: How does the government pay for it’s budget deficit?– A: It borrows money (issues bonds, treasury bills)– “Crowding out” means it costs average U.S. citizen &
businesses more to take out a loan.• How does the U.S. debt compare to other
countries?
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Budget Deficit = -$1,267 billion