The global financial crisis has taken a particularly harsh toll on Russia, where the leading stock index has lost more than half its value since July. Moscow has devised a bailout package, but analysts say more pain could be on the way, particularly if oil prices keep falling.
Nationalizing Fannie Mae and Freddie Mac, the two monster housing-finance companies, may be risky, but it is healthier than other options. In this Washington Post op-ed, Sebastian Mallaby argues that the US government should nationalize and then dismantle these institutions, creating maximum space in the mortgage market for smaller private players.
For many decades, banking giants such as JP Morgan, Goldman Sachs and others, enjoyed the reputation that came with their economic clout, political influence and sheer wealth. However, recent events at Lehman Brothers and Bear Stearns have called into question this polished image, says Sebastian Mallaby.
In this Nikkei article, Roger Kubarych outlines the lessons learned in the past few weeks that will be of lasting importance to global investors. He finds that "too complex to fail" is the prevailing U.S. economic doctrine—with the Bear Stearns bail-out as case in point. Kubarych also argues that banks are capitalists until they need government hand-outs but will revert to type once the crisis fades.
In this Washington Post op-ed, Sebastian Mallaby explores the double-bubble theory of the current financial crisis—not only do we face the bursting of a real estate bubble, but we also face the bursting of a second bubble which is the product of a quarter-century expansion in borrowing, excessive confidence in the dollar and an overblown faith in markets. In order to deal with this double-bubble, Mallaby advocates two reforms: bringing complex, “over the counter” securities onto exchanges and requiring lenders to increase capital cushions during market upswings.
More government is the remedy that the U.S. Congress is reaching for as it moves to evaluate the Bear Stearns Cos. disaster. In this New York Sun article, Amity Shlaes recounts another banking catastrophe, the story of Bank of United States, to show that government involvement can also be a curse—especially when the role of public officials and institutions is unclear.
Three developments have altered the US economic and financial climate this year - a distinct tightening of credit terms, a sudden slide in confidence, and emerging signs that the US labor market is softening – and they have been powerful enough to compel an almost unprecedented policy response by both the Federal Reserve and the US Government. Roger Kubarych argues that the monetary policy easing and fiscal stimulus will work, albeit slowly, but the effects on financial markets are less clear.
Until recently, increasing house values and low interest rates have made taking out an adjustable-rate mortgage a no-brainer. Even as the mortgage crisis has unfolded, the traditional model of fixed-rate mortgages is still viewed as uncool. Amity Shlaes argues that Washington should promote fixed-rate mortgages to curtail moral hazard in home borrowing. Both homeowners and the financial markets that serve them would feel better knowing that at least one part of American life is fixed.
The most vivid image amid last week's financial turmoil came from the nation's biggest mortgage lender, Countrywide Financial Corp. Scenes at Countrywide branches conjured those grainy black-and-white images of Depression-era bank runs. Fear has taken over, and sound institutions are suffering along with poorly managed ones. Sebastian Mallaby argues that markets are punishing Countrywide irrationally - and dozens of other basically sound companies are caught up in the maelstrom.
The current subprime mortgage meltdown is part of a time-honored story. Despite the fact that there is more pain to come in this shakeout, Sebastian Mallaby argues that the market for subprime mortgages will eventually revive and thrive, just as it did with subprime’s close cousin, the junk bond.
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The authors argue that the United States has responded inadequately to the rise of Chinese power and recommend placing less strategic emphasis on the goal of integrating China into the international system and more on balancing China's rise.
Campbell evaluates the implications of the Boko Haram insurgency and recommends that the United States support Nigerian efforts to address the drivers of Boko Haram, such as poverty and corruption, and to foster stronger ties with Nigerian civil society.
Learn more about CFR’s mission and its work over the past year in the 2014 Annual Report. The Annual Report spotlights new initiatives, high-profile events, and authoritative scholarship from CFR experts, and includes a message from CFR President Richard N. Haass. Read and download »