Thursday, September 25, 2008
[IWS] CBO: FEDERAL RESPONSES TO MARKET TURMOIL [24 September 2008]
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 Budget Office (CBO)
Testimony
Statement of Peter R. Orszag, Director
Federal Responses to Market Turmoil
before the Committee on the Budget, U.S. House of Representatives
September 24, 2008
http://www.cbo.gov/doc.cfm?index=9767
or
http://www.cbo.gov/ftpdocs/97xx/doc9767/09-24-MarketTurmoil.pdf
[full-text, 11 pages]
[excerpts]
One problem is that the markets for some types of assets and transactions have
essentially stopped functioning. To address that problem, the government could
conceivably intervene as a �market maker,� by offering to purchase assets through
a competitive process and thereby provide a price signal to other market
participants. (That type of intervention, if designed carefully to keep the
government from overpaying, might not involve any significant subsidy from the
government to financial institutions.) The second problem, though, involves the
potential insolvency of specific financial institutions. By some estimates, global
commercial banks and investment banks may need to raise a minimum of roughly
$150 billion more to cover their losses. As of mid-September 2008, cumulative
recognized losses stood at about $520 billion, while the institutions had raised
$370 billion of additional capital.1 Restoring solvency to insolvent institutions
requires additional capital injections, and one possible source of such capital is
the federal government.
...
Most of this testimony examines the Troubled Asset Relief Act of 2008. That act
appears to be motivated primarily by concerns about illiquid markets. The more
the government overpays for assets purchased under that act, however, the more
the proposed program would instead provide a subsidy to specific financial
institutions, in a manner that seems unlikely to be an efficient approach to
addressing concerns about insolvency.
______________________________
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 Budget Office (CBO)
Testimony
Statement of Peter R. Orszag, Director
Federal Responses to Market Turmoil
before the Committee on the Budget, U.S. House of Representatives
September 24, 2008
http://www.cbo.gov/doc.cfm?index=9767
or
http://www.cbo.gov/ftpdocs/97xx/doc9767/09-24-MarketTurmoil.pdf
[full-text, 11 pages]
[excerpts]
One problem is that the markets for some types of assets and transactions have
essentially stopped functioning. To address that problem, the government could
conceivably intervene as a �market maker,� by offering to purchase assets through
a competitive process and thereby provide a price signal to other market
participants. (That type of intervention, if designed carefully to keep the
government from overpaying, might not involve any significant subsidy from the
government to financial institutions.) The second problem, though, involves the
potential insolvency of specific financial institutions. By some estimates, global
commercial banks and investment banks may need to raise a minimum of roughly
$150 billion more to cover their losses. As of mid-September 2008, cumulative
recognized losses stood at about $520 billion, while the institutions had raised
$370 billion of additional capital.1 Restoring solvency to insolvent institutions
requires additional capital injections, and one possible source of such capital is
the federal government.
...
Most of this testimony examines the Troubled Asset Relief Act of 2008. That act
appears to be motivated primarily by concerns about illiquid markets. The more
the government overpays for assets purchased under that act, however, the more
the proposed program would instead provide a subsidy to specific financial
institutions, in a manner that seems unlikely to be an efficient approach to
addressing concerns about insolvency.
______________________________
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 : 5:28 AM
