Archive for March, 2010
Collateralized debt obligations (CDOs) have been responsible for $542bn in write-downs at financial institutions since the beginning of the credit crisis. In this paper, [Anna Katherine Barnett-Hart] conducts an empirical investigation into the causes of this adverse performance, looking specifically at asset-backed CDO’s (ABS CDO’s). Using novel, hand-collected data from 735 ABS CDO’s, [she] documents several main findings. First, poor CDO performance was primarily a result of the inclusion of low quality collateral originated in 2006 and 2007 with exposure to the US residential housing market. Second, CDO underwriters played an important role in determining CDO performance. Lastly, the failure of the credit ratings agencies to accurately assess the risk of CDO securities stemmed from an overreliance on computer models with imprecise inputs. Overall, [her] findings suggest that the problems in the CDO market were caused by a combination of poorly constructed CDOs, irresponsible underwriting practices, and flawed credit rating procedures.
The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.
How should we characterize the economic period we have now entered? After nearly two brutal years, the Great Recession appears to be over, at least technically. Yet a return to normalcy seems far off. By some measures, each recession since the 1980s has retreated more slowly than the one before it. In one sense, we never fully recovered from the last one, in 2001: the share of the civilian population with a job never returned to its previous peak before this downturn began, and incomes were stagnant throughout the decade. Still, the weakness that lingered through much of the 2000s shouldn’t be confused with the trauma of the past two years, a trauma that will remain heavy for quite some time.
The unemployment rate hit 10% in October, and there are good reasons to believe that by 2011, 2012, even 2014, it will have declined only a little. Late last year, the average duration of unemployment surpassed six months, the first time that has happened since 1948, when the Bureau of Labor Statistics began tracking that number. As of this writing, for every open job in the US, six people are actively looking for work.
The government's unprecedented $700bn economic bailout will actually cost taxpayers just 16% of that total, according to a Congressional Budget Office (CBO) report released Wednesday.
The Treasury's losses on the Troubled Asset Relief Program (TARP) will total $109bn over the program's lifetime, CBO latest estimates show. That's up $10bn from the agency's last projection, released in January.
CBO, which is charged with reviewing congressional budgets, has released a series of TARP cost calculations in the 17 months since the bailout began, each time updating its numbers with the latest data. At one point CBO expected the cost to be as high as $356bn, but faster-than-expected bank repayments and other cost adjustments have drastically reduced the expected price tag.
TARP's two big moneysuckers are AIG and the auto industry.
