here we went again the financial crisis of...

HERE WE WENT AGAIN:THE FINANCIAL CRISIS OF 2007

AN OVERVIEW OF CONTRIBUTING CONDITIONS, INSTITUTIONS, POLICIES AND BEHAVIOURS

A Public Policy Armchair Series Presentationby Hale RamseyApril 14, 2011Facilitated by:

Johnson-Shoyama School of Public PolicySaskatchewan Public Service Commission

April 2011 1The Financial Crisis of 2007

PRESENTATION OVERVIEW

April 2011 The Financial Crisis of 2007 2

• Crisis chronology• Contributing factors• Financial reforms• Outlook

KEY POLICIES AND EVENTS2000 – 2008

Source: IMF

CRISIS CHRONOLOGYTHE HOUSING PRICE “TRIGGER”

1987 1990 1995 2000 2005 2010

U.S. Housing Prices

Case-ShillerNational House Price Index (SA)

Q/Q per cent change (rhs)

Peak2006:1

SEC Net Capital Rule Change

Black September

CRISIS CHRONOLOGYOWNERS/INVESTORS “HERD” EFFECT

Source: The Economist3 February 2011

CRISIS CHRONOLOGYHISTORICAL ANOMALY

Source: The Economist5 March 2011

CRISIS CHRONOLOGYSUNSHINE STATES “UNDERWATER”

Source: The Economist, 23 October, 2010

CRISIS CHRONOLOGYU.S. ECONOMY

• Key dates:

-1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. Macroeconomic Overview 2000:Q1 to 2010:Q4Per Cent S&P 500

S&P 500 (rhs) Unemployment

Federal FundsInflation

Real GDP

CRISIS CHRONOLOGYU.S. EMPLOYMENT

U.S. Employment

1939 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100

Source: U.S. Bureau of Labour StatisticsCES Survey, http://www.bls.gov/data/#employmentFeb 21, 2011

Private

StateFederal

Total Government Share (rhs)

Millions Per Cent

Total Employment Change 2007-20102007 Level: 137.6 - private: 8.8 (-7.0%) + gov: 0.3 (+1.2%) = change: -7.7 (5.7%)2010 Level: 129.8

CRISIS CHRONOLOGYU.S. FISCAL POLICY RESPONSE

1930 1940 1950 1960 1970 1980 1990 2000 2010

U.S. Federal Fiscal Aggregates (% of GDP)

Source: U.S. Federal Budget FY2012

Revenue

Spending

Budget Balance

Public Debt (rhs)

CRISIS CHRONOLOGYU.S. MONETARY POLICY RESPONSE

2003 2004 2005 2006 2007 2008 2009 2010

U.S. Treasury Securities

FRB Bank Notes

Policy ActionsSecurities from

failing institutions

Policy ActionsDeposits credited

to failing institutions

Source: U.S. Federal Reserve Board

US Federal Reserve Assets & LiabilitiesUS$ Trillions

Assets

Liabilities

U.S. FINANCIAL CRISIS →WORLD ECONOMY …

April 2011 The Financial Crisis of 2007 12April 2011 12The Financial Crisis of 2007

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Real GDP Growth (%) - Selected OECD Countries

Canada, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Mexico, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States, Euro area, Total OECDSource: OECD

… AND TO GOVERNMENTS

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

OECD General Government Financial Balances (% of GDP)

Australia, Canada, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Norway, Portugal, Spain, United Kingdom, United States, Euro area, Total OECDSource: OECD

CONTRIBUTING FACTORS

• Theory, Research and Applied Tools• U.S Cultural View of Housing• International Capital Flows• Macro-prudential Surveillance• Micro-prudential Institutions• Income Inequality?

THEORY AND RESEARCHSEE NO EVIL, HEAR NO EVIL?

“Until very recently, the study of banking crises has typically focused on earlier historical experiences in advanced countries, mainly the banking panics before World War II, or else has focused on modern-day emerging market experiences. This dichotomy is perhaps shaped by the belief that for advanced economies, destabilizing, systemic, multi-country financial crises were a relic of the past. Of course, the recent global financial crisis emanating out of the United States and Europe has dashed this misconception, albeit at great social cost.”

Source: Banking Crises: An Equal Opportunity MenaceReinhart & Rogoff, December 17, 2008

CONTRIBUTING FACTOR: THEORYKEYNES ON THEORY IN POLICY

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back … the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.”

John Maynard Keynes, The General Theory of Employment, Interest, and Money, 1936Concluding Notes, V, para. 2

RATIONAL EXPECTATIONSHYPOTHESIS ORIGIN

• John Muth, 1961• alternative to adaptive expectations• linked peoples’ subjective expectations to mathematical expectations

• enabled policy analysis with “mathematical precision”

• dominant academic view in 1970s-80s• applied in public policies (1980s on)• The Economist, Wrong, INET, Nov 22, 2010

RATIONAL EXPECTATIONSPOPULAR INTERPRETATION & USE

Markets are:• always right

• market prices are best forecasts• always efficient

• efficient markets hypothesis• self-regulating

• regulation only imposed costs• self-correcting

• discretionary fiscal and monetary policies = inflation

RATIONAL EXPECTATIONSSECOND THOUGHTS

“We were all drinking the Kool-aid, Greenspan was tending bar, Bernanke and the academic establishment were supplying the liquor,”Ajay Kapur, Managing Director,Deutsche Bank, (2009 research report)

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” Alan Greenspan, Oct 2008

RATIONAL EXPECTATIONSA MORE MODERATE VIEW

“ … it is not difficult to sketch a theory of rational price speculation based on a microeconomic model of the housing market.” “Rational expectations provide a useful departure point for analyzing the implications of various alternative assumptions; it is the beginning not the end.”

Rational Expectations, Steven M. Sheffrin, Cambridge Surveys of Economic Literature, 1983, p.170

THE “CLASSIC TEXTBOOK” MARKET FAILURES

• Imperfect competition• Public goods• Externalities• Informational asymmetries• Moral hazard • Principal-agent problem• Efficiency ≠ income equity

CONTRIB. FACTOR: RESEARCHFINANCIAL CRISES ARE NOT RARE

Reinhart and Rogoff, 2008• study of crises from 1800 forward• “serial” crises in financial centers (U.K., U.S., and France)

• incidence similar in high- and middle-to-low-income countries

• close links with asset (house and stock) price cycles, financial market liberalization, degree of capital mobility

HISTORICAL PRECEDENTSRECENT EXAMPLES

• 1977 – Spain• 1984 (start) – U.S. Savings and Loans • late 80s - early 90s – Nordic countries• 1992 (start) – Japan • 1994-5 – Mexico, Argentina• 1997-8 – Asia, Russia, Columbia• 2001 – Argentina• 2002 – Uruguay

HISTORICAL PRECEDENTSPOST-1900

CONTRIB. FACTOR: MODELSECONOMIC AND FINANCIAL NOT LINKED

• Macroeconomic standard:• DSGE (dynamic stochastic general equilibrium)

• Do not incorporate financial sector• Financial standard:

• VaR (value-at-risk)• Financial balance sheet focus• Micro focus, capture 1st round effects only

MODELSCOMMON PROBLEMS

• All built on correlations• Increasing complexity => sensitivity• Distributions not normal, but used in practice

• Improbable events discounted to zero• Models developed using data from an era of low volatility and stable correlations

CONTRIBUTING FACTOR:U.S. CULTURAL VIEW OF HOUSING

“Any discussion of housing policy in this country must begin with some recognition of the importance Americans attach to homeownership. Our society has taken steps to encourage homeownership. Tax incentives, mortgage insurance from the Federal Housing Administration, and other government policies all contributed to a long rise in the U.S. homeownership rate--from 45 percent in 1940 to a peak of 69 percent in 2004.”

Ben S. Bernanke, Chairman, Federal Reserve, Arlington, Virginia, October 25, 2010

U.S. CULTURAL VIEW OF HOUSINGHISTORICAL HOME OWNERSHIP RATE

69.066.9

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

U.S. Home Ownership Rate

Source: U.S. Census Bureau

Decennial Annual

1994 2004

Federal Housing

Administration1934

Fannie Mae1938

Freddie Mac1970

U.S CULTURAL VIEW OF HOUSINGTHE AMERICAN DREAM – ORIGINAL

“The American Dream is that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to ability or achievement. … It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

James Truslow Adams, Epic of America, 1931

U.S. CULTURAL VIEW OF HOUSINGFISCAL POLICY SUPPORTS

Mortgage interest deductibility (MID)• Federal

• Second-largest “tax expenditure”• Employer health premiums largest

• Valued at $104.5 B (FY2011,OMB)• 26% tax savings (Hilber & Turner, 2010)

• States – varied applications• up to 9% tax savings

Capital gains exemption• Principal residence (first $250 K)

U.S. CULTURAL VIEW OF HOUSINGFISCAL POLICY SUPPORTS

Stated policy objective: increase home ownership

Realized outcomes: (Hilber & Turner, 2010)• MID capitalized into house prices

• increased ownership rates for high income earners

• low income earner ownership unaffected, but face higher prices

• MID ineffective policy tool to increase home ownership, but does raise prices.

U.S. CULTURAL VIEW OF HOUSINGFINANCIAL MARKET INSTITUTIONS

• Federal Housing Administration (FHA, 1934)

• insures lenders against homeowner default

• sets minimum standards for insurable loans (ex: down payments)

• Government Sponsored Enterprises (GSEs)

• Fannie Mae (1938), Freddie Mac (1970)• Secondary mortgage market

U.S. CULTURAL VIEW OF HOUSINGGOVERNMENT-SPONSORED ENTERPRISES

• GSEs – Fannie Mae, Freddie Mac• Private (shareholder) ownership• Public mandate (support housing finance)

• Exempt from state and local taxes, line of credit from U.S. Treasury (implicit government guarantee, low cost of funds)

U.S. CULTURAL VIEW OF HOUSINGLEGISLATED HOUSING MARKET SUPPORT

• Community Reinvestment Act (CRA), • passed 1977; required banks to lend in local markets, predominantly minority areas; initially no explicit lending goals; modest regulator enforcement

• Clinton administration raised pressure on regulators to enforce CRA during 1990s

• 1992: Federal Housing Enterprise Safety and Soundness Act

• Directed Department of Housing and Urban Development (HUD) – develop affordable housing goals for Fannie, Freddie and monitor progress

• Mandated 42% of assets in 1995; 50% in 2000 (Clinton), 56% in 2004 (Bush)

• Support across political lines

Source: Financial Crisis Inquiry ReportJanuary 2011

U.S. CULTURAL VIEW OF HOUSINGPOLITICAL SUPPORT - FHA

• Clinton administration reduced FHA qualifying down payment to 3% in 2000, raised max size of eligible mortgage for guarantee, halved premiums charged to borrowers.

• FHA criteria tended to be pro-cyclical during housing price run-up

U.S. CULTURAL VIEW OF HOUSINGPOLITICAL SUPPORT - FHA

1980 1985 1990 1995 2000 2005 2010

FHA Conforming Loan Limits - Fannie Mae

High-CostGeneralGrowth % (rhs)

Source: Fannie Mae

$Thousands Per Cent

INVESTMENT/MARKETCHARACTERISTICS OF HOUSING

• Non-income producing asset• Indivisible• Depreciation rate about 1%/yr• Illiquid (vs stocks/bonds)• No short sale mechanism• Thinly-traded market• Subject to momentum• High transaction costs• High leverage (loan-to-value)April 2011 39The Financial Crisis of 2007

HOUSING OWNER / INVESTORCHARACTERISTICS & BEHAVIOUR

• Perceive houses as safe asset• Emotional attachment• Focus on balance sheet• Poor cost accounting• Unwillingness to realize losses• Financial (il)literacy: subprime

CONTRIBUTING FACTOR:INTERNATIONAL CAPITAL FLOWS

• Free international capital flows associated with banking crises

• Post-WWII to 1970 period: restricted international flows + fixed exchange rates (Bretton-Woods)• Reduced period of banking crises

• Post-1970: free capital flows and flexible exchange rates – more crises

• Free markets argued to be best allocator of capital across borders

INTERNATIONAL CAPITAL FLOWSFLOWS AND CRISES HISTORY

INTERNATIONAL CAPITAL FLOWSDEFICITS: U.S. HH AND CURR. ACC.

• In early1990s:• U.S. current account deficit rises• Net household saving decreases

• becomes negative in late 1990s• General correlation (+) observed between current account deficit and household saving

• Question: internally or externally driven?

INTERNATIONAL CAPITAL FLOWSU.S. HH SAVING AND CURRENT ACC.

April 2011 The Financial Crisis of 2007 44Source: IMF Performance in the Run-Up to the Financial and Economic CrisisIMF, January 10, 2011

INTERNATIONAL CAPITAL FLOWSTHE U.S. “SPENDTHRIFT” VIEW

• Initial internal cause hypothesis:gov deficits + ↑HH consumption• should have caused lower $US and higher U.S. interest rates

• some decline in $US observed, but lower interest rates and more foreign lending occurred to finance U.S. current account deficit

INTERNATIONAL CAPITAL FLOWSTHE EXTERNAL “SAVINGS GLUT” VIEW

• External “savings glut” hypothesis:• Bernanke, 2005• Developing countries saving (net goods exporters-China, oil exporters-Middle East, safe harbour in event of repeat financial crisis-Asia) – build-up of foreign exchange reserves

• Globally, savings = investment, so developing country CA surpluses must have developed country CA deficits

CONTRIBUTING FACTORS I:CAPITAL FLOWS (“SAVINGS GLUT”)

Source: “When a flow becomes a flood”The Economist, print edition, January 22, 2009

INTERNATIONAL CAPITAL FLOWSTHE EXTERNAL “SAVINGS GLUT” VIEW

• Foreigners willing to fund U.S. current account deficit – see U.S. as safe haven

• Money flows into U.S. – securities flow out

• Foreigners seek safety and returns above U.S. T-bill rates – creates demand for safe, high-return securities

• U.S. financial “alchemy” turns sub-prime mortgages into supply of high-yield, “A” rated MBS and CDOs

CONTRIBUTING FACTOR:MACRO-PRUDENTIAL SURVEILLANCE

• IMF produces worldwide economic and financial system analysis• “surveillance” role

• From 2004-2007, IMF reports provided some risk indications (current account imbalances could lead to rapid decline in $US and recession)

• But, overall “banner” message (Apr/07) was one of “continued optimism within a benign global environment” (IEO, Jan 10, 2011, p5)

MACRO-PRUDENTIAL SURVEILLANCEIMF ANALYSIS PRIOR TO CRISIS

• Confident that past decade of economic stability would continue

• Endorsed policies and financial practices that fostered rapid innovation and growth

• Reported that financial markets were sound and large financial institutions could weather any likely problem

• All would be proven wrongSource: IMF Performance in the Run-up to the Financial and Economic Crisis: IMF Surveillance in 2004-07Independent Evaluation Office of the International Monetary Fund, January 10, 2011

MACRO-PRUDENTIAL SURVEILLANCEIMF ANALYSIS OF ITS FAILURES

• Main findings of IMF’s IEO:• “Groupthink” – cognitive bias among homogeneous, cohesive groups to consider issues only within a certain paradigm and not challenge its basic principles

• The paradigm? Market discipline, self-regulation, crises unlikely in advanced economies, sophisticated financial markets need little regulation

MACRO-PRUDENTIAL SURVEILLANCEIMF ANALYSIS OF ITS FAILURES

• Disincentives to raise contrarian views or “speak truth to power”• Staff felt that strong contrarian views could “ruin one’s career”

• Conforming assessments not penalized, even if proven wrong

• Self-censorship became prevalent• “Silo operations”: staff tended not to share information or seek advice outside their units (“turf battles”)

CONTRIBUTING FACTOR:MICRO-PRUDENTIAL INSTITUTIONS

• At the country level, legislative and regulatory institutions serve to provide prudence within and across markets and organizations (micro-prudential).

• U.S. financial market regulatory change began in early 1980s

• Several significant changes in the decade preceding the crisis

MICRO-PRUDENTIAL INSTITUTIONSFINANCIAL MARKET REGULATION

• Nov 1999: Gramm-Leach-Billey Act• repeal of Glass-Steagall (1933) (p.55, FCIC)

• bank holdcos (Citigroup, JP Morgan, BofA) now in same areas as “Big 5” investment banks (Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, Lehman Bros.): securitization, OTC derivatives, insurance, stock & bond underwriting (p.56, FCIC)

• Dec 2000: Commodity Futures Modernization Act (p.48 FCIC report)

• Deregulated OTC derivatives market, removed oversight by CFTC and SEC

• Large increase in market:• 2000: $3.2T (gross market value); $95.2T (notional)

• 2008: $20.3T (gross market value); $672.6T (notional)

• Derivatives positions used to lower capital requirements under Basel I, measured using VaR models (p,49 FCIC Report)

• Apr 2004: SEC Net Capital Rule• EU (2002) required “Big 5” investment banks to have single regulator to operate in Europe (p.150, FCIC)

• Two existing options: Fed, OTS• “Big 5” proposed SEC option –proprietary VaR models to determine regulatory capital – reduced req’ts

• Not SEC area (investor protection, vssupervision), staff of 10 to 24

MICRO-PRUDENTIAL INSTITUTIONSRATING AGENCIES

Provide credit quality:• information (aggregators, asym.info)• monitoring (costly for investors)• certification (in cap. req’ts, thresholds)Market structure: oligopoly (legal, SEC)• 10 U.S. NRSROs, 3 dominant firms

• price and market share competition• “issuer-pay”, “issuer-choice” market• conflict of interest potential – issuer can “ratings-shop”; rater can cut quality

RMBS STRUCTURESUBPRIME AAA

SECURITIZATION PROCESS

Source: US Federal Deposit Insurance Corporationhttp://www.fdic.gov/news/news/speeches/archives/2007/chairman/spapr1707.html

• “A” ratings crucial to investor acceptance of structured MBS, CDOs

• Investor acceptance crucial to rating agency revenue & profits

• Moody’s data: (FCIC Report, p.146)• 2000 – 33% total rev.; 26% profit• 2006 – 44% total rev.; 37% profit

• Quantity and value of issues increased• 2004 – 220 issues; $90B value• 2007 – 717 issues; 326B value

• Increase in agencies’ workload and revenue, no more staff or resources• lost staff to CDO firms (25% in 2005)• could not do “meaningful research”

• Model (joint probability) correlations for CDOs unavailable (short history)• MBS correlations used as proxies• added to view of CDOs as “safe”• uncritical investor acceptance

• Correlated decline in real estate values led to downgrades of MBS, CDOs• 2007: 20% of CDOs downgraded• 2008: 91% of CDOs downgraded• 3x ↑ in assumed model correlations

• MBS, CDO downgrades led to capital impairment in financial firms, leading to forced asset sales, feeding stock market decline … “cliff effect” (IMF)• self-perpetuating downward cycle

• Proposed reforms (IMF, Oct 2010)• remove regulatory rating references where “cliff effects” occur, make investors rely on own due diligence

• oversee raters same as banks• restrict “ratings shopping” (possibly assign raters to complex issues)

• Some voluntary movement from raters• unsolicited ratings

MICRO-PRUDENTIAL INSTITUTIONSMARK-TO-MARKET ACCOUNTING

• Financial instruments valued at point-in-time market prices as opposed to book (historical) values or modeled (future) expected values• “Market is always right” POV• Works if markets are liquid and stable … • … but not if illiquid and volatile.

MICRO-PRUDENTIAL INSTITUTIONSMARK-TO-MARKET ACCOUNTING

• Can add to pro-cyclicality in volatile or illiquid markets – “cliff effect”• Effects recognized during crisis (Sep 2008) FASB Statement No. 157, Fair Value Measurements clarification

• Illiquid market rule change (Apr 2009) FASB Staff Position FAS 157-e rule change on determining if a market is illiquid

MARK-TO-MARKET ACCOUNTINGPOST-CRISIS OBSERVATIONS

“… at times, marking securities at market prices “creates situations where you have to go out and raise physical capital in order to cover losses that as a practical matter were never really there.”

Financial Crisis Inquiry Report, p.227

MARK-TO-MARKET ACCOUNTINGPOST-CRISIS OBSERVATIONS

“Mark-to-market conventions forced lower valuations, which in turn led to fire sales of assets and a self-fulfilling vicious circle of lower valuations, higher volatilities, and larger haircuts.”

Global Financial Stability Report, IMF, October 2010, p.63

MARK-TO-MARKET ACCOUNTINGPOST-CRISIS EVENTS

• Some evidence of “rule-skirting”• Lehman Bros. used purchase/repurchase agreements near quarter-end MtM to show reduced leverage (“Repo 105”)

• Lehman auditors, Ernst and Young facing fraud lawsuit

CONTRIBUTING FACTOR:INCOME INEQUALITY?

• Correlation between bank failures (financial crises), income inequality, financial (de)regulation and income inequality in U.S. history.

David Moss, Harvard Business School, August 2010

“The study of income inequality--its causes, its consequences, and its potential policy implications--has a long history in economics, although it has not always had a high profile among researchers and policymakers.”

Alan Greenspan, Jackson Hole, Wyoming, August 28, 1998

INCOME INEQUALITYREGULATION & BANK FAILURE LINK?

INCOME INEQUALITYINCOME TAX LINK?

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1916 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011

U.S. Federal Top Marginal Tax Rates& Income Share of Top 0.01% of Income Earners

Income Tax

Capital Gains

Income Threshold

Income Share of Top 0.01%(scaled to 1916=100)

COUNTING THE COSTSMORE THAN JUST “BAILOUTS”

• Costs of financial crises tend to focus on direct bank bailout costs (government expense)

• Ignores effects on government revenue and consequent deficits/debt

• Also, economic and social costs

GOVERNMENT REVENUEDECLINES …

… AND GOVERNMENT DEBTRISES

LOOKING FORWARDHOW LONG TO RECOVER?

Reinhart and Rogoff (2008) present estimates for 18 post-WWII antecedent banking crises in advanced economies

VariablePeak-to-Trough

ChangeDuration of Downturn

Per Cent Years

House Prices (real) - 35.5 6.0Equity Prices (real) - 55.9 3.4Unemployment Rate * + 7.0 4.8GDP (real, per capita) - 9.3 1.9

* Trough-to-peak

LOOKING FORWARDFINANCIAL REFORMS

• Dodd-Frank Act (July 21, 2010)• regulator consolidation• systemic risk evaluator• liquidation authority

• Basel III (Dec 19, 2009 proposed)• higher capital requirements• greater liquidity requirements• central clearing of derivatives

• IMF capital controls (Apr 5, 2011)• “policies to manage [capital] inflows”

LOOKING FORWARDBARRIERS TO REFORM

• Regulatory implementation hurdles• governments face budget constraints• political discussion often “binary”

• Regulations’ success can lead to removal of regulation (seen as no longer needed)

• Regulation effectiveness metric of static economic efficiency at odds with dynamic risk-taking and with income distribution

LOOKING FORWARDWILL IT WORK?

• Will current reforms prevent future financial crises?• Given past experience: No.

• Recent crisis has the hallmarks of many past crises: capital mobility, financial market liberalization, asset price inflation

• Past attempts at controls have failed• Memories fade, not inherited: “next time, it will be different”

QUESTIONS, COMMENTS?

MAJOR REFERENCES

Financial Crisis Inquiry Commission. The Financial Crisis Inquiry Report, Final Report Of The National Commission On The Causes Of The Financial And Economic Crisis In The United States, Official Government Edition. January 2011

Hilber, Christian A. L. and Turner, Tracey M. The Mortgage Interest Deduction and its Impact on Homeownership Decisions. August 12, 2010, draft.

International Monetary Fund. Recent Experiences in Managing Capital Inflows—Cross-Cutting Themes and Possible Policy Framework. February 14, 2011

International Monetary Fund, Independent Evaluation Office. IMF Performance in the Run-Up to the Financial and Economic Crisis: Bilateral Surveillance of the United States, Background Paper. December 9, 2010

International Monetary Fund, Independent Evaluation Office. IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07. January 10, 2011

International Monetary Fund. Global Financial Stability Report. October, 2010

Rajan, Raghuram G. Fault Lines: How Hidden Fractures Still Threaten The World Economy

Reinhart , Carmen M. and Rogoff, Kenneth S. The Aftermath of Banking Crises. December 19, 2008, draft.

Reinhart , Carmen M. and Rogoff, Kenneth S. Banking Crises: An Equal Opportunity Menace. December 17, 2008.

MAJOR REFERENCES

Sheffrin, Steven M. Rational Expectations. Cambridge Surveys of Economic Literature. 1983.

Greenspan, Alan. The Crisis. April 15, 2010.

Moss, David. Comments on Bank Failure/Regulation/Inequality Chart. August 2010.

Piketty, Thomas and Saez, Emmanuel. Income Inequality in the United States, 1913–1998. The Quarterly Journal of Economics. February 2003.

U.S. Internal Revenue Service. U.S. Individual Income Tax: Personal Exemptions and Lowest and Highest Bracket Tax Rates, and Tax Base for Regular Tax. http://www.irs.gov/taxstats/article/0,,id=115033,00.html (Tables 23, 24)

United States Federal Budget , FY2011

The Economist. Various Issues.

here we went again the financial crisis of...

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