Macroeconomics Commons^™

Lessons Learned: Alejandro Latorre, Maryann Haggerty

Journal of Financial Crises

At the time of the 2007-09 global financial crisis, Alejandro Latorre was an assistant vice president at the Federal Reserve Bank of New York (FRBNY). He was active in the bailout of American International Group (AIG) from its inception to the end, when AIG repaid its outstanding obligations to both the Federal Reserve and the U.S. Treasury. This Lessons Learned summary is based on a Feb. 26, 2020, interview. He emphasized that the views discussed here are his own, not the views of anyone else currently or previously within the Federal Reserve System or the views of his current employer.

Lessons Learned: Sarah Dahlgren, Alec Buchholtz, Rosalind Z. Wiggins

Journal of Financial Crises

Sarah Dahlgren was the Executive Vice President and head of the Financial Institution Supervision Group at the Federal Reserve Bank of New York (FRBNY) during the crisis and instrumental in the rescue of American International Group (AIG). This Lessons Learned summary is drawn from a March 22, 2018, interview in which she gave her take on how central bankers can prepare for future crises.

Lessons Learned: Chester B. Feldberg, Maryann Haggerty

Journal of Financial Crises

Chester B. Feldberg worked for the Federal Reserve Bank of New York (FRBNY) for 36 years in a variety of roles. In the aftermath of the Global Financial Crisis, he served as a trustee for the AIG Credit Trust Facility (2009-2011). The trust was established in early 2009 to hold the equity stock of American International Group Inc. (AIG) that the U.S. government had received as a result of the 2008 AIG bailout. The three trustees were responsible for voting the stock, ensuring satisfactory corporate governance at AIG, and eventually disposing of the stock.

When he was named as a …

Lessons Learned: Eric Dinallo, Maryann Haggerty

Journal of Financial Crises

Eric Dinallo was New York State Superintendent of Insurance from January 2007 through July 2009. In New York, as throughout the United States, insurance companies are regulated at the state level. In his position as Superintendent, Dinallo oversaw the insurance operating companies of American International Group (AIG) within New York. AIG’s holding company, however, was supervised at the federal level. Much of AIG’s problems came from its non-insurance subsidiary AIG Financial Products (AIGFP), which was a major presence in the market for credit default swaps (CDS), a type of derivative that was a factor behind the 2007-09 financial crisis. This …

The Rescue Of Fannie Mae And Freddie Mac – Module Z: Overview, Rosalind Z. Wiggins, Ben Henken, Adam Kulam, Daniel Thompson, Andrew Metrick

Journal of Financial Crises

In September 2008, as the financial crisis that had begun the previous year escalated, the US government appointed a conservator for two government-sponsored enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), that dominated the secondary mortgage market and were among the largest participants in the global capital markets. The conservatorships were the hallmark of a multipart rescue plan intended to save the firms from insolvency and a disorderly collapse and required the combined and coordinated efforts of several government agencies and instrumentalities. Ultimately, the government invested $191.5 billion into the …

The Rescue Of Fannie Mae And Freddie Mac–Module F: Federal Reserve’S Large-Scale Asset Purchase (Lsap) Program, Daniel Thompson, Adam Kulam

Journal of Financial Crises

By late 2008, the secondary mortgage markets were suffering high default rates, causing mortgage lending to slow and the value of mortgage securities to plummet. The Federal Reserve lowered the federal funds rate, and the government placed Fannie Mae and Freddie Mac into conservatorship, yet credit in housing and other financial markets remained tight. On November 25, the Fed announced its intent to purchase up to $500 billion in agency mortgage-backed securities (MBS) and $100 billion in agency debt to reduce the cost and increase the availability of mortgage credit, which would support housing markets and improve conditions in financial …

The Rescue Of Fannie Mae And Freddie Mac – Module C: Gse Credit Facility, Emily Vergara

Journal of Financial Crises

In 2007 and 2008, the collapse of the subprime mortgage market and the deterioration of the housing market more generally precipitated a crisis at the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which together held or guaranteed $5.3 trillion in mortgage assets. Over the course of two years, both entities suffered high losses and saw their liquidity positions deteriorate as the market perceived their rapid decline. On September 6, 2008, the Federal Housing Finance Agency (FHFA), pursuant to the authority of the Housing and Economic Recovery Act (HERA) of 2008, took Fannie …

The Rescue Of American International Group Module Z: Overview, Rosalind Z. Wiggins, Aidan Lawson, Steven Kelly, Lily S. Engbith, Andrew Metrick

Journal of Financial Crises

In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company’s ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. …

The Rescue Of American International Group Module D: Maiden Lane Ii, Lily S. Engbith, Devyn Jeffereis

Journal of Financial Crises

In September 2008, American International Group (AIG) faced increasing difficulty in returning cash collateral to counterparties looking to terminate, rather than roll over, their securities lending agreements, in part because the company had invested the collateral in residential mortgage-backed securities (RMBS), which were becoming illiquid. The Federal Reserve Bank of New York (FRBNY) provided liquidity to the company, including through the Securities Borrowing Facility (SBF), which allowed for the repayment of cash collateral but did not address the falling values of the RMBS. In November 2008, the Federal Reserve Board authorized the creation of Maiden Lane II (ML II), a …

The Rescue Of American International Group Module B: The Securities Borrowing Facility, Lily S. Engbith, Alec Buchholtz, Devyn Jeffereis

Journal of Financial Crises

In 2008, American International Group (AIG) was among the largest insurance corporations in the world and maintained a profitable securities lending program. However, AIG invested much of the cash collateral received from counterparties in residential mortgage-backed securities, whose value began to collapse rapidly and unexpectedly, creating liquidity strain for AIG when borrowers returned their securities. Because of these strains, credit downgrades, and losses, in September, the company sought assistance from the Federal Reserve which, on October 6, 2008, approved the establishment of the Securities Borrowing Facility by the Federal Reserve Bank of New York (FRBNY). The FRBNY agreed to loan …

Stress Tests And Policy, Greg Feldberg, Andrew Metrick

Journal of Financial Crises

Ten years after the Federal Reserve’s crisis-era bank stress test, it is time to recalibrate the stress tests for “peacetime.” Outside of a crisis, supervisors should tailor stress tests to focus on their comparative advantages by taking a macroprudential focus, with severe scenarios that enable them to learn about emerging risks in both traditional and shadow banking sectors. In peacetime, also, supervisors should emphasize risk- management practices and be wary of forcing rapid changes in capital levels for individual banks, while linking stress-test results with countercyclical capital buffers across the system.

Mobility Pattern Changes In Indonesia In Response To Covid-19, Setia Pramana, Yuniarti Yuniarti, Dede Yoga Paramartha, Satria Bagus Panuntun

Economics and Finance in Indonesia

All countries affected by the COVID-19 pandemic have established several policies to control the spread of the disease. The government of Indonesia has enforced a work-from-home policy and large-scale social restrictions in most regions that result in the changes in community mobility in various categories of places. This study aims to (1) investigate the impact of large-scale restrictions on provincial-level mobility in Indonesia, (2) categorize provinces based on mobility patterns, and (3) investigate regional socio-economic characteristics that may lead to different mobility patterns. This study utilized Provincial-level Google Mobility Index, Flight data scraped from daily web, and regional characteristics (e.g., …

A Pandemic Of Protectionism: How Economic Isolationism Affects The Economy, Álvaro Martín

Journal of New Finance

The aim of this paper is to study the economic consequences of protectionism from a macroeconomic perspective. For that purpose, we estimate the impact of tariffs on different economic variables as GDP growth, trade volume or unemployment, comparing the effects for two groups of countries: high-income and low-income. For this, we build a regression model to estimate the effects of tariff changes on each of these variables, differentiating between the two groups of countries. Tariffs contribute to increase unemployment, generate lower economic growth and reduce trade volumes, but by how much? This is very relevant in the actual pandemic environment …

Fiscal Sustainability In Indonesia With Asymmetry, Mohamad Ikhsan, I Gede Sthitaprajna Virananda

Economics and Finance in Indonesia

The management of fiscal balance determines public debt sustainability, where a positive response of primary balance towards the debt ratio indicates a sustainable path. However, there might be asymmetry in the government's fiscal management between different phases of the debt trajectory and business cycle. This study examines the sustainability of fiscal imbalance and public debt in Indonesia using the fiscal reaction function with annual fiscal data from 1976 to 2019. We incorporate asymmetry by decomposing the lagged debt ratio and cyclical output variables into their positive and negative partial sums. We find that Indonesia's fiscal imbalance is on a path …

Factors To Improve Fishery Household Welfare: Empirical Analysis Of Indonesia, Bayu Rhamadani Wicaksono, Yuniarti Yuniarti, Dede Yoga Paramartha

Economics and Finance in Indonesia

This study attempts to verify the linkage between the characteristics of fishers and the welfare of fishery household in Indonesia, which is explained by the surplus obtained by fishers. Based on the empirical results using multiple linear regression analysis, variables with significant impacts on improving the welfare of fishery household in Indonesia in both marine and inland open water fisheries are fishing gear, number of fishers, number of crew, salary, province, age, gender, education level, processed storage, transportation, and market target. Furthermore, the characteristics of fishers are divided into similarities and differences. Observed from the similarities, the main fishers play …

The Role Of Macroeconomic And Policy Uncertainty In Density Forecast Dispersion, You Li, Anthony S. Tay

Research Collection School Of Economics

We explore empirically the role of macroeconomic and policy uncertainty in explaining dispersion in professional forecasters’ density forecasts, and in explaining individual forecaster uncertainty (defined as the uncertainty expressed by individual forecasters in their density forecasts). We focus on US real output growth and inflation, using data from the Philadelphia Fed’s quarterly Survey of Professional Forecasters (SPF), 1992-2016. We find that dispersion in individual density forecasts is related to macroeconomic uncertainty, especially in longer horizon forecasts, but not policy or forecaster uncertainty. There is also little evidence that forecaster uncertainty reflects macroeconomic or policy uncertainty.

Credit Limit Of Unsecured Consumer Lending: Evidence From Micro Data, Suwinto Johan, Calista Endrina Dewi

Economics and Finance in Indonesia

As credit card debts have increased in Indonesia over the past ten years, concerns over the impulsive buying behavior of Indonesian credit card holders have emerged. Therefore, more attention must be paid to credit risk management of banks as it plays an important role in analyzing the possibility of losses due to the inability of prospective borrowers to repay debts. This study provides empirical evidence about the prudence of commercial banks in Greater Jakarta in offering credit card limits. Using primary micro-data collected from credit card applications submitted to the largest foreign private bank providing retail credit in the Greater …

Indonesian Provinces Sdgs Composite Index: Lampung Province Analysis, Reny Andriati, Mohamad Fahmi

Economics and Finance in Indonesia

Publications of Sustainable Development Goals (SDGs) have mainly been conducted at a national level and separately for each goal. No prior research has been done on SDGs composite index at a provincial level in Indonesia. It is necessary to create a composite index that presents a single value at the provincial level to enable regional evaluation. The Indonesia Province SDGs composite index is developed from indicators based on Statistics Indonesia gathered from several publications. The data sources are the National Socio-Economic Survey (Susenas) and the Basic Health Research (Riskesdas) which were linked surveys held in 2018. Principal Component Analysis and …

The Impact Of The Capital Market, The Insurance Sector And The Mortgage Finance Sector On Economic Growth In Egypt, 2005-2019, Hana Anis

Theses and Dissertations

This thesis aims to explore the relationship between financial markets and economic growth in Egypt for the 15 years period, starting from 2005 to 2019. The study concentrates on the non-banking financial sector which includes the stock market, the debt market, the mortgage and the insurance sectors. The Vector Autoregressive (VAR) model is utilized to describe the relationship between GDP growth rate, as a proxy for economic growth, and a number of variables from the financial sector. Results of the analysis show that there is a significant relationship and statistical causality between the growth rate and the debt market, represented …

Determinants Of Business Cycle Synchronisation In The Common Monetary Area In Southern Africa, Gustaf Dillner

Undergraduate Economic Review

This paper examines the key factors that determine business cycle synchronisation in the Common Monetary Area in Southern Africa by applying the extreme bounds analysis. I investigate traditional structural indicators and policy indicators of output correlation with annual data from 1980 to 2018. A positive effect of sector homogeneity and trade intensity on business cycle synchronisation is identified. However, whereas sector homogeneity is a growing trend correlating with an increasing trend of cycle correlation, trade intensity is not. Instead, trade intensity increases significantly in periods of stagnant growth when cycle correlation is higher, but no long-term trend can be seen.