Penn Arts and Sciences

Global Economic Crisis

SSPF Director Keynotes Policy Conference, Sparks Discussion of Future of Post-Bankruptcy Detroit

SSPF director Thomas Sugrue has a lot of advice for Detroit as it grapples with bankruptcy. He warned against "trickle down urbanism," argued that the city cannot rely on an influx of hipsters and the "creative class" to spark revitalization, and told Detroit policymakers to build on the city's strengths, especially health care, education, and public employment.

Sugrue's views about the city's future were featured in the Detroit Free Press and Forbes, and in radio, newspaper, and television interviews. On February 27, Sugrue presented the keynote address to more than 800 people at the Detroit Policy Conference, sponsored by the Detroit Regional Chamber.

Sugrue's engagement with Detroit comes at a crucial moment in the city's history. Over the last week, Detroit's Emergency Manager submitted a plan to resolve the city's bankruptcy. Detroit Future City, the city's leading planning organization, announced its plans to demolish blighted properties and lay the groundwork for the city's revitalization. And Detroit's newly elected mayor, Mike Duggan, gave his first major policy address.

Sugrue is David Boies Professor of History and Sociology, and author of the prize-winning book, The Origins of the Urban Crisis.

BANKRUPT: Lessons from the Detroit Fiscal Crisis (Gilles Duranton, Robert Inman, Jeremy Nowak, Thomas Sugrue, Susan Wachter)

Tue, 09/10/2013 - 5:30pm - 7:00pm

Please join the Penn Social Science and Policy Forum and the Penn Institute for Urban Research for a roundtable on Detroit's unprecedented municipal bankruptcy and its implications for urban finance, pensions, and the future of American cities. Speakers include Gilles Duranton, Professor of Real Estate and chair of the Real Estate Department at the Wharton School, Robert P. Inman, Richard K. Mellon Professor of Finance, Economics, and Public Policy, Wharton School; Jeremy Nowak, Chair of the Board of the Federal Reserve Bank of Philadelphia and President of J Nowak and Associates, LLC; and Thomas J. Sugrue, David Boies Professor of History and Sociology and Director of the Penn Social Science and Policy Forum. Moderated by Susan M. Wachter, Co-Director of the Penn Institute for Urban Research. This event is free and open to the public. Please register here.

SSPF Summer Institute on Inequality Brings Together Top Students, Major Scholars

A select group of predissertation students from throughout the United States gathered in Philadelphia for the Penn SSPF's first Summer Institute on Inequality. Held from June 17 through June 26, the program furthered SSPF’s mission of fostering policy-relevant scholarship at every stage of development by helping graduate students early in their careers explore key topics and refine their research goals. Students explored cutting-edge qualitative and quantitative research on a variety of topics related to inequality, including poverty, labor force participation, income and wealth disparities, the impact of race and ethnicity, spatial dynamics, educational gaps, and social and economic policies that address inequalities.

Visiting speakers included of the most important social scientists working on inequality today, including demographer Marta Tienda (Princeton), sociologist Sean Reardon (Stanford), incoming ASA president Paula England (NYU), and anthropologist Kathryn Newman (dean at Johns Hopkins).  Visit the summer institute webpage for background on the institute participants and faculty.

In the News: SSPF Faculty on the Urban Fiscal Crisis

Penn Social Science and Policy Forum Director, Thomas Sugrue and  SSPF executive board member Robert Inman are quoted on urban financial crises, public policy, and Detroit's emergency management in the current issue of Next City.

Ending Too Big to Fail: Financial Regulation After Dodd-Frank (Sheila Bair)

Thu, 05/09/2013 - 2:00pm - 4:30pm

The talk by Chairman Bair will be followed by a panel discussion on financial regulation featuring Bair and Wharton Professors Franklin Allen, Richard Herring and Susan Wachter.

AS CHAIRMAN OF THE FDIC DURING THE FINANCIAL CRISIS, Sheila Bair oversaw the successful resolution of over 350 banking institutions representing assets in excess of $800 billion.  Working in tandem with the Federal Reserve Board and US Treasury Department, the FDIC was deeply involved in the frenetic efforts to stabilize troubled financial behemoths such as Wachovia, Citibank and Bank of America, representing trillions of dollars in assets.

Chairman Bair fought a public --if not always successful -- battle against government bailouts and decried the lack of adequate tools to deal with failing financial conglomerates.  She successfully sought new authority in the Dodd-Frank financial reform law to place all large financial institutions under the same type of receivership process the FDIC has successfully used for insured banks, thus shifting the financial burden of failure onto creditors and shareholders, not taxpayers.

"The bailouts, while stabilizing the financial system in the short term, have created a long-term drag on our economy.  Because we propped up the mismanaged institutions, our financial sector remains bloated.  The well-managed institutions have to compete with the boneheads.  We did not force financial institutions to shed their bad assets and recognize their losses.  Lingering uncertainty about the true extent of those losses made previously profligate management more risk averse when prudent risk taking and lending were most needed, particularly by small businesses.  Only in 2012 did we finally see some meaningful pickup in lending by the big financial institutions.  Economic growth is sluggish, unemployment remains high.  The housing market still struggles.  I hope that our economy continues to improve.  But it will do so despite the bailouts, not because of them."
-- From Bull by the Horns (2012)

Sheila C. Bair served as the 19th Chairman of the Federal Deposit Insurance Corporation for a five-year term, from June 2006 through June 2011. As FDIC Chairman, Ms. Bair presided over a tumultuous period in the nation’s financial sector, working to bolster public confidence and system stability. Determined not to turn to taxpayer borrowing during the crisis, the FDIC managed its losses and liquidity needs entirely through its traditional industry-funded resources.  In response to the financial crisis, she developed innovative and stabilizing programs that provided temporary liquidity guarantees to unfreeze credit markets and increased deposit insurance limits.  In 2007, she was a singular – and prescient – advocate for systematic loan modifications to stem the coming tidal wave of foreclosures. Ms. Bair also led FDIC resolution strategies to sell failing banks to healthier institutions, while providing credit support of future losses from failed banks’ troubled loans. That strategy saved the Deposit Insurance Fund $40 billion over losses it would have incurred if the FDIC had liquidated those banks.

Chairman Bair has also received several honors for her published work on financial issues, including her educational writings on money and finance for children, and for professional achievement. Among the honors she has received are: Distinguished Achievement Award, Association of Education Publishers (2005); Personal Service Feature of the Year, and Author of the Month Awards, Highlights Magazine for Children (2002, 2003 and 2004); and The Treasury Medal (2002). Her first children’s book, Rock, Brock and the Savings Shock, was published in 2006 and her second, Isabel’s Car Wash, in 2008. Bull by the Horns (2012) documents her tenure as FDIC Chairman.

She is also a regular contributor to CNN Money.

The Rise of the Latin American Middle Class (Francisco Ferreira)

Fri, 03/15/2013 - 12:00pm - 1:30pm

IN THE WAKE OF DEBT CRISES IN THE 1980s and a “lost decade” of middle-class growth in the 1990s, and despite the 2002 South American economic crisis and the global economic crisis of 2007, the size of the middle class in Latin America and the Caribbean recently grew by 50 percent—from approximately 100 million people in 2003 to 150 million (or 30 percent of the continent’s population) in 2009. Over the same period, the proportion of people in poverty fell from 44 percent to around 30 percent.   How has this happened, and what are the policy implications for the region and perhaps the world?  Drawing from a recent World Bank report for which he was the lead author, Ferreira digs into the data to explore who has moved into the middle class over the past 15 years, which factors enabled them to do so, and to what extent these same factors explain the drop in poverty. Going forward, there are many potential benefits from a growing middle class, but whether they come to fruition will depend, to a large extent, on whether countries manage to anchor their middle classes in a new, more cohesive, social contract that emphasizes the inclusion of those who have been left behind. Lunch provided, discussion encouraged.

“There is no evidence that the middle class is overly dependent on—or employed by—the public sector. In most Latin American countries for which data exist, public sector employment was more frequent among the rich than among the middle class (although Mexico and Peru were exceptions). The public sector employed more than one-fourth of middle-class workers in only one country: Honduras. It would appear, therefore, that popular images of the middle class—as being made up of either intrepid entrepreneurs (who start their own small businesses and pull themselves up the ladder by their own shoestrings) or lazy bureaucrats (comfortably relying on a government paycheck)— are inaccurate. Typically, the Latin American middle-class worker is a reasonably educated service worker, formally employed by a private enterprise in an urban area.”
– from Economic Mobility and The Rise of the Latin American Middle Class by Francisco Ferreira, Julian Messina, Jamele Rigolini, Luis-Felipe López-Calva, Maria Ana Lugo, and Renos Vakis

Francisco H. G. Ferreira is a Lead Economist at the World Bank's Research Department. His research interests include poverty, inequality, and the political economy of development, and he has published some 25 journal articles and a number of books and book chapters on these topics. In his World Bank career, he has also served as the Deputy Chief Economist for Latin America and the Caribbean (2009-2011), and as a co-Director of the team that wrote the World Development Report 2006, on Equity and Development. Dr. Ferreira is the Editor-in-Chief of the Journal of Economic Inequality and a former editor of Economía, the journal of the Latin American and Caribbean Economic Association. He also sits on the editorial boards of the Review of Income and Wealth, the World Bank Economic Review, and the Economic Analysis Review, and on the Councils of the International Association for Research in Income and Wealth and of the Society for the Study of Economic Inequality (ECINEQ). In 2000 and 2001 he received the Adriano Romariz Duarte and the Haralambos Simeonides Prizes from the Brazilian Economic and Econometric Societies, and later the Kendricks Prize for best article published in the Review of Income and Wealth during 2006-07. He was born and raised in São Paulo, Brazil, and holds a Ph.D. in Economics from the London School of Economics. Prior to joining the World Bank's Research Department, he was an Assistant Professor of Economics at the Catholic University of Rio de Janeiro (PUC-Rio).

Is US Government Debt Different? (Franklin Allen, Charles Mooney, David Skeel)

Fri, 03/29/2013 - 12:00pm - 1:30pm

IN MAY 2012, PENN LAW SCHOOL AND THE WHARTON FINANCIAL INSTITUTION CENTER (FIC) organized the conference “Is U.S. Government Debt Different?” The event was financed by a Sloan Foundation grant to the FIC. The conference was conceived against the background of skyrocketing U.S. government debt, the standoff over the statutory debt limit between the Congress and the President of the United States in the summer of 2011, and the ongoing debt crisis in the Eurozone. This confluence of shocks and near misses created the urgent need to consider the unthinkable: default, restructuring, or a wholesale reassessment of the U.S. Treasury securities’ place in the world. The conference brought together leading economists, historians, lawyers, market participants, and policy makers to discuss different aspects of U.S. government debt, including its role in the global financial markets, its constitutional, statutory and contractual basis, and its sustainability. Now, post-election, with the fiscal cliff debates fresh and more battles over the debt looming, the editors of the conference volume (available as a free e-book) sort through and discuss the conference’s most valuable lessons.

“Restructuring of U.S. obligations on Treasuries would face a significant and obvious complication. In general, the U.S. does not know the identity of the holders of its Treasuries that are held in the commercial book-entry system. (By “holders” of Treasuries, I mean the ultimate beneficial owners on the books of a Federal Reserve Bank or on the books of another intermediary with which the holder maintains a securities account, as discussed below.) It is true that we read about the large foreign holders of U.S. debt, including the Chinese  and Japanese governments. But these data on holders of U.S. debt come from surveys.”  
– from “United States Sovereign Debt: A Thought Experiment on Default and Restructuring” by Charles W. Mooney

Franklin Allen is the Nippon Life Professor of Finance and Professor of Economics at the Wharton School of the University of Pennsylvania.  He has been on the faculty since 1980. He is currently Co-Director of the Wharton Financial Institutions Center.  He was formerly Vice Dean and Director of Wharton Doctoral Programs and Executive Editor of the Review of Financial Studies, one of the leading academic finance journals. He is a past President of the American Finance Association, the Western Finance Association, the Society for Financial Studies, and the Financial Intermediation Research Society, and a Fellow of the Econometric Society. He received his doctorate from Oxford University. Dr. Allen’s main areas of interest are  corporate finance, asset pricing, financial innovation, comparative financial systems, and financial crises. He is a co-author with Richard Brealey and Stewart Myers of the eighth through tenth editions of the textbook Principles of Corporate Finance

Charles W. Mooney Jr. is a leading legal scholar in the fields of commercial law and bankruptcy law. His book (with S. Harris) Security Interests in Personal Property (Foundation Press, 5th ed. 2011) is a widely adopted text used in law schools around the United States.  Mooney was honored for his contributions to the uniform law process by the Oklahoma City School of Law and was awarded the Distinguished Service Award by the American College of Commercial Finance Lawyers. He also served as U.S. Delegate at the Diplomatic Conference for the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Protocol and for the Diplomatic Conference for the UNIDROIT (Geneva) Convention on Intermediated Securities. Mooney also served as a Co-Reporter for the Drafting Committee for the Revision of UCC Article 9 (Secured Transactions), as the ABA Liaison-Advisor to the Permanent Editorial Board for the UCC, and as a member of Council and Chair of  the Committee on UCC of the ABA Business Law Section. 

David Skeel is the S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School.  He is the author of The New Financial Deal: Understanding the Dodd-Frank Act and its (Unintended) Consequences (Wiley, 2011); Icarus in the Boardroom: The  Fundamental Flaws in Corporate America and Where They Came From (Oxford University Press, 2005); Debt’s Dominion: A History of Bankruptcy Law in America (Princeton University Press, 2001); and numerous articles on bankruptcy, corporate law, Christianity and law, and other topics.  Professor Skeel has also written commentaries for the New York Times, Wall Street Journal, Books & Culture, The Weekly Standard, and other publications. 

Greek Tragedies: Social Collapse and the Rise of Xenophobia (Nadina Christopoulou)

Fri, 04/12/2013 - 12:00pm - 1:30pm

THE RECENT CRISIS IN GREECE has been more than a financial crisis: it has been a social crisis and a crisis of identity that has bolstered the political fortunes of Neo-Nazis and xenophobes and further burdened the already difficult lives of immigrants. An anthropologist and commentator who has worked with migrants, refugees and asylum seekers in Greece for over a decade provides a close-up glimpse of the effects of the global economic crisis on a vulnerable population. Lunch provided, discussion encouraged.

Nadina Christopouloou trained as an anthropologist at McGill and Cambridge and researched the Roma in Greece, and their social memory, through their storytelling practices. Since 2002, she has worked in Greece with refugees, asylum seekers and migrant women’s networks and organizations.  Recently she prepared a documentary series tracing the parallel paths of migrants in Greece and Greeks abroad. She has also compiled a photographic archive of migrant communities in Greece and Greeks in diaspora over the last century, curated by the Magnum photographer Nikos Economopoulos. Since 2011, she has been the general secretary of the Greek Council for Refugees. She also writes a weekly column for a major Greek news website, News 247.

Global Economic Crisis Workshops Now Available on YouTube

Looking for a quick course on the past, present, and future of the Global Economic Crisis by some of the world's leading economists, political scientists, historians, and sociologists? Thomas Piketty offers a rigorous analysis of the growing income gap; Mark Blythe explores the "dangerous theory" of austerity; Scott Nelson steps back and looks at financial panics in the United States from a long view; Jefrey Frieden examines debt crises in a comparative perspective; Lane Kenworthy suggests a path forward.

The Penn Social Science and Policy Forum's YouTube page is a one stop gateway to cutting-edge social science for scholars, journalists, policy makers and students. 

Possibilities and Perils: The Future of Economic Policy (Peter Orszag)

Thu, 03/28/2013 - 5:00pm - 6:30pm

IN THE WAKE OF THE FINANCIAL CRISIS, Great Recession and sluggish recovery, good federal policy can help rebuild the American economy and make it both more stable and equitable. Misguided policy could take the nation down a very different road. In an era of divided government and political brinksmanship, many sensible policies don’t get the public airing they deserve – much less the legislative action we desperately need.  Peter Orszag, Citigroup Vice Chairman of Corporate and Investment Banking and the former head of the Office of Budget and Management, discusses the options facing economic policy makers.

“The negotiations are about more than taxes. There is also the debt limit, which, according to the best guesses of both the Congressional Budget Office and the Bipartisan Policy Center, will be reached in the first quarter of 2013.

So the question for the Democrats is: Even if you win higher marginal tax rates, how do you plan to get the debt limit increased? The Republicans, after all, could cave on raising taxes but still be unwilling to include a debt-limit increase in the agreement, absent any changes to entitlements. In that case, the fiscal-cliff victory would be Pyrrhic, with another crisis arriving in February or March.

In any case, Democrats should affirmatively want entitlement reform that is progressive and puts the crucial programs on a sounder footing.

On Social Security, the Democrats, while they still control the White House and the Senate, should want to lock in the victory they have already won over the idea of keeping private accounts out of Social Security. Plus, as Peter Diamond and I have laid out, it’s possible to restore the program’s long-term solvency while also making it fairer -- including by having it reflect the growing gap in life expectancy by income and education. Finally, and perhaps most important, Social Security reform can be phased in gradually, thereby minimizing the damage to the labor market from too much austerity too soon.”

– from “A Good Deal Will Raise Tax Rates, Fix Entitlements,” which appeared December 4, 2012 on Bloomberg View.

Peter Orszag is an American economist, currently serving as Vice Chairman of Corporate and Investment Banking at Citigroup. He also writes a bimonthly column for Bloomberg View, covering such topics such as bipartisanship, the American class divide, unemployment, and other economic issues. Orszag is currently an adjunct senior fellow at the Council on Foreign Relations. He resides and works in New York City. Prior to becoming Vice Chairman of Global Banking at Citigroup, Peter Orszag served as the 37th Director of the Office of Management and Budget (OMB) under President Barack Obama, who nominated him to the position. He served as the Director from November 2008 through August 2010, after which he took his current position. Orszag also served as the Director of the Congressional Budget Office (CBO) from January 2007 until November of 2008. From 2001-2007, Orszag was a senior fellow at the Brookings Institution, where he headed the Hamilton Project and the Retirement Security Project. He was a lecturer at UC Berkeley in macroeconomics in 1999 and 2000. Before this, he worked in the Clinton administration as Senior Economist and Senior Adviser on the Council of Economic Advisers in 1995 and 1996, and as Special Assistant to the President for Economic Policy in 1997 and 1998. Orszag has also been a columnist for the New York Times, writing about the deficit, Social Security, health care, and other topics.

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