Category Archives: Finance

How Much Risk is Acceptable?

Source: Alicia H. Munnell, Anthony Webb, and Alex Golub-Sass, Center for Retirement Research at Boston College, Issue in Brief, IB#8-20, November 2008

The brief’s key findings are:
• The financial crisis suggests the need for a new universal tier of retirement saving to supplement Social Security and 401(k)s.
• If the tier were a defined contribution system, asset levels would vary with market returns and payouts with interest rates.
• Replacement rates could fluctuate as much as 30 percentage points- even if everyone invested in an identical target-date fund.
• An alternative is to guarantee a fixed return, but this return will almost always be lower than that under a target-date fund, and guarantees are not costless.

Green Affordable Housing: HUD Has Made Progress in Promoting Green Building, but Expanding Efforts Could Help Reduce Energy Costs and Benefit Tenants

Source: Government Accountability Office, GAO-09-46, October 07, 2008

From the summary:
HUD has taken steps to promote energy efficiency by providing information, training, and technical assistance, but its efforts have limitations. HUD has also provided some financial incentives to promote green building, including energy efficiency, for public housing and for a small segment of the multifamily properties HUD supports. Additionally, HUD has developed some performance measures to track the progress of its energy efficiency efforts. However, HUD has not begun requiring energy-efficient products and appliances in its public housing properties, as required by statute. HUD has also not implemented major energy efficiency updates to the building code for manufactured housing in more than a decade. Without such requirements and updates, public housing authorities may be spending more on utility expenses than is necessary and manufacturers may lack an incentive to build energy- efficient manufactured homes. Green building practices can increase up-front costs but may also provide long-term benefits, including financial, environmental, and health benefits.

Student Debt and the Spirit of Indenture

Source: Jeffrey J. Williams, Dissent, Vol. 55 no. 4, Fall 2008

College student loan debt has revived the spirit of indenture for a sizable proportion of contemporary Americans. It is not a minor threshold that young people entering adult society and work, or those returning to college seeking enhanced credentials, might pass through easily. Because of its unprecedented and escalating amounts, it is a major constraint that looms over the lives of those so contracted, binding individuals for a significant part of their future work lives. Although it has more varied application, less direct effects, and less severe conditions than colonial indenture did (some have less and some greater debt, some attain better incomes) and it does not bind one to a particular job, student debt permeates everyday experience with concern over the monthly chit and encumbers job and life choices. It also takes a page from indenture in the extensive brokerage system it has bred, from which more than four thousand banks take profit. At core, student debt is a labor issue, as colonial indenture was, subsisting off the desire of those less privileged to gain better opportunities and enforcing a control on their future labor. One of the goals of the planners of the modern U.S. university system after the Second World War was to displace what they saw as an aristocracy that had become entrenched at elite schools; instead they promoted equal opportunity in order to build America through its best talent. The rising tide of student debt reinforces rather than dissolves the discriminations of class, counteracting the meritocracy. Finally, I believe that the current system of college debt violates the spirit of American freedom in leading those less privileged to bind their futures.

Mortgage Market Deregulation and Equity Stripping Under Sanction of Law

Source: Vincent Dilorenzo, St. John’s Legal Studies Research Paper No. 08-0146

From the abstract:
Who is to blame for the large mortgage market losses borne by consumers, communities, the financial services industry and others? This paper explores government’s responsibility. It explores whether the decision to deregulate the mortgage market to a degree that permitted both unsafe and unfair mortgage practices was the decision of Congress or the federal regulatory agencies. Part one of this paper explores Congress’ viewpoint toward deregulation of the mortgage market. It differentiates two types of deregulation: (a) lifting of statutory requirements and substituting regulatory constraints, and (b) lifting of all government mandates and substituting a preference for market forces to police abusive practices. This paper examines Congress’ actions and motivations over a thirty year period and initially concludes that Congress embraced the former view and not the latter. This view was consistently embraced in the period 1982 to 1994 to address unsafe banking practices and unfair banking practices. Unfortunately, Congress then provided mixed signals regarding its deregulation viewpoint in legislative enactments in 1994 when faced with unfair banking practices. This permitted regulatory agencies to continue to pursue a deregulatory agenda even when faced with evidence of abusive lending practices.

Part two of this paper explores the viewpoint of the federal regulatory agencies toward deregulation of the mortgage market. It examines the actions and viewpoints of the federal banking regulators in the last three decades. Two conclusions emerge. First, the agencies preferred a free market approach and implemented such an approach whenever statutes provided the discretion to do so. Second, the regulatory agencies embraced a decision making model that relied on predictions of net societal benefits as the determinant of a decision to intervene in the mortgage markets. Such a viewpoint led the agencies to typically shun government intervention. That decision led to equity stripping for over a decade, especially in low-income communities, more equity stripping in recent years as lax lending practices led to defaults and foreclosures, and even more in the coming year as foreclosures multiply.

The Distribution Of Public Spending For Health Care In The United States, 2002

Source: Thomas M. Selden and Merrile Sing, Health Affairs Web Exclusives, Vol. 27 no. 5, July 2008
(subscription required)

From the abstract:
U.S. health care spending is projected to approach $2.4 trillion in 2008; a large share will be paid by government outlays and tax subsidies. Other countries routinely conduct incidence analysis of public health care spending, yet we know of no recent and comprehensive incidence studies for the United States. We examined data for 2002 from the Medical Expenditure Panel Survey aligned to the National Health Expenditure Accounts and augmented with simulated tax subsidies. The public sector accounted for 56.1 percent of health spending within the civilian noninstitutionalized population. Our analysis highlights this sector’s role in financing the care of seniors and people in poor health.

Municipal Utility Says Collaborations Save Money While Lowering Emissions

Source: American City and County, August 19, 2008

Officials at Roseville Electric, a city-owned electricity provider in Roseville, Calif., say collaborating with local businesses, government organizations and consumers has helped it save money while reducing greenhouse gas emissions. The utility has completed several projects, most recently working with St. Paul, Minn.-based HB Fuller to implement an energy efficiency plan at its manufacturing facility that saved $44,000 annually while eliminating 430,000 pounds of CO2 emissions.

AASA Survey Finds Rising Fuel, Energy Costs Stressing School Budgets

Source: American Association of School Administrators, 2008

From the press release:
Rising fuel and energy costs are taking a toll on school system budgets nationwide, according to the results of a new survey released today by the American Association of School Administrators. The eight-question AASA Fuel and Energy Snapshot Survey asked school superintendents about the effect of rising fuel and energy costs on their school districts. Ninety-nine percent of respondents reported these rising costs are having an impact on their school systems. Further, they reported that conserving energy, cutting back on student field trips and consolidating bus routes are among the top steps districts are taking to minimize the impact of rising fuel and energy costs. Meanwhile, few states are stepping forward to assist school systems struggling to meet escalating these rising costs.
See also:
Survey Results
Charts and Graphs
Snapshot of Superintendents’ Responses

Increasing the Value of Federal Spending on Health Care

ISource: Peter R. Orszag, CBO Testimony, before the Committee on the Budget, U.S. House of Representatives, July 16, 2008

The rate of growth in health care costs is the most important factor influencing the federal government’s long-term fiscal situation. The Congressional Budget Office (CBO) projects that, without any changes in federal law, total spending on health care will rise from 16 percent of the gross domestic product (GDP) in 2007 to 25 percent in 2025 and 49 percent in 2082, and net federal spending on Medicare and Medicaid will rise from 4 percent of GDP to almost 20 percent over the same period. Many of the other factors that will play a key role in determining future fiscal conditions–including the actuarial deficit in Social Security and a decision about extending the 2001 and 2003 tax legislation past its scheduled expiration in 2010–pale by comparison over the long term with the impact and challenges of containing growth in the cost of federal health insurance programs.
See also:

Investing in Infrastructure

Source: Peter Orzag, Congressional Budget Office, Testimony before the Committee on Finance, United States Senate, July 10, 2008

From the blog:
The testimony makes the following key points:
• Estimates from the Federal Highway Administration (FHWA) and other sources indicate that additional spending of up to tens of billions of dollars each year on transportation infrastructure projects could be justified. Some of that spending would simply maintain the current performance of existing infrastructure; other projects would improve performance to the extent that the economic benefits exceeded the costs (although some projects would have net benefits that were smaller than those that could be obtained from spending on items besides infrastructure).
• Although the rationale for some additional spending is probably strong, the economic returns on specific projects vary widely. Accordingly, even if the Congress were to increase spending, it would be important to identify which projects provided the largest potential benefit from limited budgetary resources.
• Some of the demand for additional spending on infrastructure could be met by providing incentives to use existing infrastructure more efficiently and by devoting current budgetary resources to their highest valued uses. For example, the Department of Transportation has reported that the demand for new spending on highways could be reduced by as much as $20 billion annually if congestion pricing were implemented to encourage efficient use of existing infrastructure.
• A special-purpose entity, such as a federally chartered infrastructure bank, could provide funding for infrastructure outside of the annual appropriation process but would not be a source of “free money”: Any reduction in the federal shares of project costs (obtained by reducing grant sizes or by shifting from grants to loans or loan guarantees with smaller subsidy costs) would require greater shares to be borne by project users, state or local taxpayers, or both.

See also:
Issues and Options in Infrastructure Investment, May 2008