1150 Seventeenth Street, N.W., Washington, D.C. 20036
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Since its inception in March 2007, the AEI "Deflating Bubble" series has been ahead of the curve with its pessimistic analysis of financial and economic events. Now, in the midst of the international financial bust and banking crisis, it will address the domestic and global financial outlook for the next
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six months and policy prescriptions for the mortgage market, the banking system, the securities markets, and the Federal Reserve. Speakers will include AEI economists Desmond Lachman and John H. Makin; R. Christopher Whalen, managing director of Institutional Risk Analytics; and Thomas Zimmerman, managing director at UBS Investment Bank. AEI resident fellow Alex J. Pollock will moderate.
| 1:45 p.m. | Registration | |
| 2:00 | Panelists: | Desmond Lachman, AEI |
| John H. Makin, AEI and Caxton Associates | ||
| R. Christopher Whalen, Institutional Risk Analytics | ||
| Thomas Zimmerman, UBS Investment Bank | ||
| Moderator: | Alex J. Pollock, AEI | |
| 4:00 | Adjournment |
1150 Seventeenth St., NW
Washington, DC 20036
Phone: 202-419-5212
E-mail: karen.dubas@aei.org
American Enterprise Institute
1150 Seventeenth Street, N.W.
Washington, DC 20036
Phone: 202-862-4870
E-mail: VRodman@aei.org
Looks Like Rain: Economic Forecast and Policy Recommendations for the Next Six Months
WASHINGTON, MARCH 24, 2009--On March 17th, the American Enterprise Institute hosted a group of financial experts for the fifth in a series of conferences discussing the ongoing financial crisis triggered by the collapse of the housing bubble. Despite some recent positive developments, the panelists were unanimously dour on the current state and six month outlook of the economy. Desmond Lachman, a resident fellow at AEI, commented, "I think now you can see certain signs of improvement that … indicate this is going to pass like everything else," but "the trouble is that the bad news really dominates."
None of the panelists was optimistic that the housing market will rebound soon. Thomas Zimmerman, the managing director at UBS AG Investment Bank, noted that, following a year of flat existing home sales, the numbers turned negative again in the fourth quarter of 2008, and Lachman pointed to the substantial and growing foreclosure inventory nationwide as evidence that prices still have some distance yet to fall. The sputtering economy, restricted access to credit, and a lack of confidence in financial markets have combined to depress homebuyer traffic severely despite a substantial increase in affordability. Furthermore, Zimmerman expressed fears that the weakness in the market could spread during the next year. "Some of these states have held up pretty well," he said. "It's now their turn to get hit."
There was little support for the current government programs designed to prop up the housing market, as Zimmerman noted that the recently announced "Homeowner Affordability and Stability Plan" (HASP) effectively rewards those homebuyers who were least responsible when acquiring a mortgage, encourages more homeowners to become delinquent, and will likely lead to high default rates after the expiration of its five-year subsidy period. However, Zimmerman's primary concern with HASP is that it "punishes investors in order to save homeowners," and will "discourage investors from ever getting back into the securitized market."
John Makin, a visiting scholar at AEI, and Christopher Whalen, the cofounder and managing director of Institutional Risk Analytics (IRA), agreed that an important step toward resolving the banking system's instability is admitting that "there are too many banks, too many of them are insolvent, and some of them have to go away." Whalen said that IRA currently rates 2,200 banks with a grade of "F," and if the federal government continues discouraging bankruptcy, the financial obligations of those institutions may prove too large to maintain America's sovereign debt rating. Eventually "someone else is going to be telling us to act. That is when you're right on the verge of bankruptcy--as a country."
There was a lack of confidence in the Obama administration's handling of the financial crisis thus far among all the panelists, and a belief that the key players currently in place in the administration are not the right people for the job. Makin said that pushing for a huge fiscal stimulus was "the biggest strategic mistake of President Obama immediately after taking office" because "everybody knows that the first thing you fix is the financial system." Whalen in turn argued that "The biggest problem we have right now is that we've got a Secretary of the Treasury and a Federal Reserve Board Chairman who are not credible with the financial markets. The people in my business know when they are hearing a load of nonsense." Alex Pollock, a resident fellow at AEI, concluded that to restore confidence the Obama administration should appoint someone like Jesse Jones, who successfully ran the Reconstruction Finance Corporation during the 1930s, "a tough-minded, financially savvy old guy."
--SCOTT GANZ
Speaker biographies
Desmond Lachman joined AEI as a resident fellow after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund’s (IMF) Policy and Review Department and was active in staff formulation of IMF policies toward emerging markets. Mr. Lachman has written on topics such as economic policy, fund arrangements, monetary reform, import restrictions, and exchange rates. At AEI, he studies major emerging market economies and the role of multilateral lending institutions.
John H. Makin is a visiting scholar at AEI. He is also a principal at Caxton Associates. Mr. Makin has been an adviser to numerous U.S. government agencies, the Federal Reserve System, and the Bank of Japan. He is a member of the Council on Foreign Relations and the Economic Club of New York. Mr. Makin joined AEI in 1984 after a distinguished career in academic research. He is the author of numerous books and articles on financial, monetary, and fiscal policy, and he writes AEI’s monthly Economic Outlook.
Alex J. Pollock has been a resident fellow at AEI since 2004, focusing on financial policy issues, including government-sponsored enterprises, retirement finance, housing finance, corporate governance, accounting standards, and issues raised by the Sarbanes-Oxley Act. Previously, he spent thirty-five years in banking, including twelve years as president and chief executive officer of the Federal Home Loan Bank of Chicago, while also writing numerous articles on financial systems and management. He is a director of Allied Capital Corporation, the Chicago Mercantile Exchange, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
R. Christopher Whalen is the cofounder and managing director of Institutional Risk Analytics, where he is responsible for sales, business development, and editorial activities. He has worked as an investment banker, research analyst, and journalist for more than two decades and has covered a variety of industry sectors, including technology and financial institutions. In addition to editing the newsletter The Institutional Risk Analyst, Mr. Whalen contributes regularly to publications such as Barron's, The International Economy, and American Banker. He is a member of Professional Risk Managers International Association and volunteers as a regional director of the association's Washington, D.C., chapter and chairs its speakers committee.
Thomas Zimmerman is a managing director at UBS AG Investment Bank. He has been involved in managing the firm's asset-backed and mortgage-backed securities for the past eleven years. Before joining UBS, Mr. Zimmerman managed the asset-backed and mortgage-backed securities research groups at Prudential Securities and Chemical Bank. Mr. Zimmerman started his research career as a vice president in the mortgage research department at Salomon Brothers. His research has appeared in numerous fixed-income publications and industry reference works. He was a member of the UBS research team that consistently ranked first in the annual Institutional Investor survey of fixed-income analysts.
