Monday, November 16, 2009
Tweet[IWS] CRS: THE GLOBAL FINANCIAL CRISIS: ANALYSIS & POLICY IMPLICATIONS [9 October 2009]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
The Global Financial Crisis: Analysis and Policy Implications
Dick K. Nanto, Coordinator, Specialist in Industry and Trade
October 2, 2009
http://assets.opencrs.com/rpts/RL34742_20091002.pdf
[full-text, 155 pages]
Summary
The world is near the bottom of a global recession that is causing widespread business
contraction, increases in unemployment, and shrinking government revenues. Although recent
data indicate the large industrialized economies may have reached bottom and are beginning to
recover, for the most part, unemployment is still rising. Numerous small banks and households
still face huge problems in restoring their balance sheets, and unemployment has combined with
sub-prime loans to keep home foreclosures at a high rate. Nearly all industrialized countries and
many emerging and developing nations have announced economic stimulus and/or financial
sector rescue packages, such as the American Recovery and Reinvestment Act of 2009 (P.L. 111-
5). Several countries have resorted to borrowing from the International Monetary Fund as a last
resort. The crisis has exposed fundamental weaknesses in financial systems worldwide,
demonstrated how interconnected and interdependent economies are today, and has posed vexing
policy dilemmas.
The process for coping with the crisis by countries across the globe has been manifest in four
basic phases. The first has been intervention to contain the contagion and restore confidence in
the system. This has required extraordinary measures both in scope, cost, and extent of
government reach. The second has been coping with the secondary effects of the crisis,
particularly the global recession and flight of capital from countries in emerging markets and
elsewhere that have been affected by the crisis. The third phase of this process is to make changes
in the financial system to reduce risk and prevent future crises. In order to give these proposals
political backing, world leaders have called for international meetings to address changes in
policy, regulations, oversight, and enforcement. On September 24-25, 2009, heads of the G-20
nations met in Pittsburgh to address the global financial crisis. The fourth phase of the process is
dealing with political, social, and security effects of the financial turmoil. One such effect is the
strengthened role of China in financial markets.
The role for Congress in this financial crisis is multifaceted. While the recent focus has been on
combating the recession, the ultimate issue perhaps is how to ensure the smooth and efficient
functioning of financial markets to promote the general well-being of the country while
protecting taxpayer interests and facilitating business operations without creating a moral hazard.
In addition to preventing future crises through legislative, oversight, and domestic regulatory
functions, On June 17, 2009, the Department of the Treasury presented the Obama Administration
proposal for financial regulatory reform. The proposal focuses on five areas and includes
establishing the Federal Reserve as a systemic risk regulator, creating a Council of Regulators,
regulating all financial derivatives, creating a Consumer Financial Protection Agency, improving
coordination and oversight of international financial markets, and other provisions. Treasury also
has submitted to Congress proposed legislation to implement the reforms. The reform agenda
now has moved to Congress. Legislation in Congress addresses many of the issues in the
Treasury plan but also may focus on other financial issues. Congress also plays a role in measures
to reform and recapitalize the International Monetary Fund, the World Bank, and regional
development banks.
Contents
Recent Developments and Analysis .............................................................................................1
The Global Financial Crisis and U.S. Interests.............................................................................2
Policy and Legislation...........................................................................................................4
Four Phases of the Global Financial Crisis ..........................................................................10
Contain the Contagion and Strengthen Financial Sectors ...............................................10
Coping with Macroeconomic Effects.............................................................................12
Regulatory and Financial Market Reform......................................................................14
Dealing with Political, Social, and Security Effects .......................................................17
New Challenges and Policy in Managing Financial Risk ...........................................................23
The Challenges ...................................................................................................................23
Summary of Policy Targets and Options ..............................................................................27
Origins, Contagion, and Risk ....................................................................................................30
Risk ...................................................................................................................................34
The Downward Slide ..........................................................................................................35
Effects on Emerging Markets ....................................................................................................40
Latin America .....................................................................................................................47
Mexico .........................................................................................................................50
Brazil...........................................................................................................................51
Argentina ......................................................................................................................53
Russia and the Financial Crisis............................................................................................54
Effects on Europe and The European Response .........................................................................56
The "European Framework for Action" ...............................................................................60
The de Larosiere Report and the European Plan for Recovery..............................................63
The de Larosiere Report................................................................................................63
Driving European Recovery ..........................................................................................65
The British Rescue Plan ......................................................................................................66
Collapse of Iceland's Banking Sector ..................................................................................67
Impact on Asia and the Asian Response.....................................................................................69
Asian Reserves and Their Impact ........................................................................................71
National Responses .............................................................................................................73
Japan ............................................................................................................................73
China ............................................................................................................................74
South Korea ..................................................................................................................78
Pakistan ........................................................................................................................79
International Policy Issues...................................................................................................80
Bretton Woods II...........................................................................................................81
G-20 Meetings ..............................................................................................................81
The International Monetary Fund ..................................................................................86
Changes in U.S. Regulations and Regulatory Structure..................................................89
Figures
Figure 1. Quarterly (Annualized) Economic Growth Rates for Selected Countries .....................13
Figure 2. Origins of the Financial Crisis: The Rise and Fall of Risky Mortgage and Other Debt.......32
Figure 3. Selected Stock Market Indices for the United States, U.K., Japan, and Russia ............36
Figure 4. Exchange Rate Values for Selected Currencies Relative to the U.S. Dollar..................38
Figure 5. Current Account Balances (as a percentage of GDP)...................................................42
Figure 6. Global Foreign Exchange Reserves ............................................................................43
Figure 7. Capital Flows to Latin America (in percent of GDP)...................................................45
Figure 8. Capital Flows to Developing Asia (in percent of GDP) ...............................................45
Figure 9. Capital Flows to Central and Eastern Europe (in percent of GDP)...............................46
Figure 10. Asian Current Account Balances are Mostly Healthy ................................................70
Figure 11. Monthly Change in Chinese FDI and Trade: April 2008-May 2009 ...........................75
Tables
Table 1. Problems, Targets of Policy, and Actions Taken or Possibly to Take in Response to the Global Financial Crisis .........27
Table 2. Stimulus Packages by Selected Countries.....................................................................39
Table 3.China's Central Government November 2008 Domestic Stimulus Package....................76
Appendixes
Appendix A. Major Recent Actions and Events of the International Financial Crisis ..................90
Appendix B. Stimulus Packages Announced by Governments ................................................. 142
Appendix C. Comparison of Selected Financial Regulatory Reform Proposals ........................ 145
Appendix D. British, U.S., and European Central Bank Operations, April to Mid-October 2008 ................ 149
Contacts
Author Contact Information .................................................................................................... 151
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
The Global Financial Crisis: Analysis and Policy Implications
Dick K. Nanto, Coordinator, Specialist in Industry and Trade
October 2, 2009
http://assets.opencrs.com/rpts/RL34742_20091002.pdf
[full-text, 155 pages]
Summary
The world is near the bottom of a global recession that is causing widespread business
contraction, increases in unemployment, and shrinking government revenues. Although recent
data indicate the large industrialized economies may have reached bottom and are beginning to
recover, for the most part, unemployment is still rising. Numerous small banks and households
still face huge problems in restoring their balance sheets, and unemployment has combined with
sub-prime loans to keep home foreclosures at a high rate. Nearly all industrialized countries and
many emerging and developing nations have announced economic stimulus and/or financial
sector rescue packages, such as the American Recovery and Reinvestment Act of 2009 (P.L. 111-
5). Several countries have resorted to borrowing from the International Monetary Fund as a last
resort. The crisis has exposed fundamental weaknesses in financial systems worldwide,
demonstrated how interconnected and interdependent economies are today, and has posed vexing
policy dilemmas.
The process for coping with the crisis by countries across the globe has been manifest in four
basic phases. The first has been intervention to contain the contagion and restore confidence in
the system. This has required extraordinary measures both in scope, cost, and extent of
government reach. The second has been coping with the secondary effects of the crisis,
particularly the global recession and flight of capital from countries in emerging markets and
elsewhere that have been affected by the crisis. The third phase of this process is to make changes
in the financial system to reduce risk and prevent future crises. In order to give these proposals
political backing, world leaders have called for international meetings to address changes in
policy, regulations, oversight, and enforcement. On September 24-25, 2009, heads of the G-20
nations met in Pittsburgh to address the global financial crisis. The fourth phase of the process is
dealing with political, social, and security effects of the financial turmoil. One such effect is the
strengthened role of China in financial markets.
The role for Congress in this financial crisis is multifaceted. While the recent focus has been on
combating the recession, the ultimate issue perhaps is how to ensure the smooth and efficient
functioning of financial markets to promote the general well-being of the country while
protecting taxpayer interests and facilitating business operations without creating a moral hazard.
In addition to preventing future crises through legislative, oversight, and domestic regulatory
functions, On June 17, 2009, the Department of the Treasury presented the Obama Administration
proposal for financial regulatory reform. The proposal focuses on five areas and includes
establishing the Federal Reserve as a systemic risk regulator, creating a Council of Regulators,
regulating all financial derivatives, creating a Consumer Financial Protection Agency, improving
coordination and oversight of international financial markets, and other provisions. Treasury also
has submitted to Congress proposed legislation to implement the reforms. The reform agenda
now has moved to Congress. Legislation in Congress addresses many of the issues in the
Treasury plan but also may focus on other financial issues. Congress also plays a role in measures
to reform and recapitalize the International Monetary Fund, the World Bank, and regional
development banks.
Contents
Recent Developments and Analysis .............................................................................................1
The Global Financial Crisis and U.S. Interests.............................................................................2
Policy and Legislation...........................................................................................................4
Four Phases of the Global Financial Crisis ..........................................................................10
Contain the Contagion and Strengthen Financial Sectors ...............................................10
Coping with Macroeconomic Effects.............................................................................12
Regulatory and Financial Market Reform......................................................................14
Dealing with Political, Social, and Security Effects .......................................................17
New Challenges and Policy in Managing Financial Risk ...........................................................23
The Challenges ...................................................................................................................23
Summary of Policy Targets and Options ..............................................................................27
Origins, Contagion, and Risk ....................................................................................................30
Risk ...................................................................................................................................34
The Downward Slide ..........................................................................................................35
Effects on Emerging Markets ....................................................................................................40
Latin America .....................................................................................................................47
Mexico .........................................................................................................................50
Brazil...........................................................................................................................51
Argentina ......................................................................................................................53
Russia and the Financial Crisis............................................................................................54
Effects on Europe and The European Response .........................................................................56
The "European Framework for Action" ...............................................................................60
The de Larosiere Report and the European Plan for Recovery..............................................63
The de Larosiere Report................................................................................................63
Driving European Recovery ..........................................................................................65
The British Rescue Plan ......................................................................................................66
Collapse of Iceland's Banking Sector ..................................................................................67
Impact on Asia and the Asian Response.....................................................................................69
Asian Reserves and Their Impact ........................................................................................71
National Responses .............................................................................................................73
Japan ............................................................................................................................73
China ............................................................................................................................74
South Korea ..................................................................................................................78
Pakistan ........................................................................................................................79
International Policy Issues...................................................................................................80
Bretton Woods II...........................................................................................................81
G-20 Meetings ..............................................................................................................81
The International Monetary Fund ..................................................................................86
Changes in U.S. Regulations and Regulatory Structure..................................................89
Figures
Figure 1. Quarterly (Annualized) Economic Growth Rates for Selected Countries .....................13
Figure 2. Origins of the Financial Crisis: The Rise and Fall of Risky Mortgage and Other Debt.......32
Figure 3. Selected Stock Market Indices for the United States, U.K., Japan, and Russia ............36
Figure 4. Exchange Rate Values for Selected Currencies Relative to the U.S. Dollar..................38
Figure 5. Current Account Balances (as a percentage of GDP)...................................................42
Figure 6. Global Foreign Exchange Reserves ............................................................................43
Figure 7. Capital Flows to Latin America (in percent of GDP)...................................................45
Figure 8. Capital Flows to Developing Asia (in percent of GDP) ...............................................45
Figure 9. Capital Flows to Central and Eastern Europe (in percent of GDP)...............................46
Figure 10. Asian Current Account Balances are Mostly Healthy ................................................70
Figure 11. Monthly Change in Chinese FDI and Trade: April 2008-May 2009 ...........................75
Tables
Table 1. Problems, Targets of Policy, and Actions Taken or Possibly to Take in Response to the Global Financial Crisis .........27
Table 2. Stimulus Packages by Selected Countries.....................................................................39
Table 3.China's Central Government November 2008 Domestic Stimulus Package....................76
Appendixes
Appendix A. Major Recent Actions and Events of the International Financial Crisis ..................90
Appendix B. Stimulus Packages Announced by Governments ................................................. 142
Appendix C. Comparison of Selected Financial Regulatory Reform Proposals ........................ 145
Appendix D. British, U.S., and European Central Bank Operations, April to Mid-October 2008 ................ 149
Contacts
Author Contact Information .................................................................................................... 151
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 9:19 AM
