The Shadow Financial Regulatory Committee works to identify and analyze developing trends and ongoing events that promise to affect the efficiency and safe operation of sectors of the financial services industry; explore the spectrum of short- and long-term implications of emerging problems and policy changes; help develop private, regulatory and legislative responses to such problems that promote efficiency and safety and further the public interest; and to assess and respond to proposed and actual public policy initiatives with respect to the impact on the public interest.

Over the past few months, there has been a marked intensification of the Eurozone debt crisis that could have major implications for the United States economy in 2012.

The mortgage meltdown and ensuing financial crisis were the result of an unprecedented accumulation of weak and risky Non-Traditional Mortgages (NTMs). By mid-2008 about one-half of outstanding all loans were NTMs. The early 1990s is the appropriate benchmark since shortly thereafter government policies required the broad-based introduction of “flexible underwriting standards.”

How did the financial system accumulate an unprecedented number of risky mortgages?

To make financial markets less vulnerable to their inevitable cycles, it is an essential responsibility of both private financial actors and government officials to study, develop and implement countercyclical approaches.

In reminding us how very different the present global economic cycle is from previous postwar economic cycles, Martin Wolf makes a number of fine points. However, the one salient point that he does not emphasise is how very compromised are the public finances in many major industrialised economies including the US, the UK, Japan, Italy and Spain.

Hope springs eternal among policy makers in Europe’s beleaguered periphery. At five minutes to midnight in Athens, and with a bank run having started in Madrid, these policy makers cling to the forlorn hope that somehow Germany is going to relent on its strong opposition to euro bonds.

In 2011, the Government Mortgage Complex accounted for 88 percent of all first-mortgage originations in the United States, with the government also controlling an estimated 90 percent of the student loan market. The government’s growing dominance in the home mortgage and student loan categories is cause for concern, posing a threat to private investors, borrowers, and taxpayers.