• Economic Recovery Digest

    Economic Recovery Digest is a one-stop shop for up to date information on public policy dealing with the economic recovery. We compile news items and opinion pieces several times a day and post them here. Economic Recovery Digest is a project of the Mercatus Center at George Mason University. It grew out of an internal update our staff compiled for members of the Mercatus Center's Financial Markets Working Group and we thought others might find value in being able to access the information.

Latest News

Fraudsters eye huge stimulus pie, consultant says

MarketWatch – “Williams predicted that about $500 million of the total $787 billion stimulus would be channeled into the traditional procurement network for government contracts, while the rest will be spent directly by the government or outside the corporate network. ‘The rule of thumb typically is that of the about $500 billion worth of money that’s going to run through the procurement process, somewhere between 5% and 10% of that usually finds it way into potential problems.’ Williams said. ‘That’s sort of the benchmark that I use.'”

U.S. economy: consumer confidence rises, import prices climb

Bloomberg – “Confidence among U.S. consumers rose for a fourth straight month in June, reinforcing signs of an impending end to the recession, while prices of imported goods jumped as oil costs climbed.”

Today’s Top Stories

Washington looks at making compensation permanent part of financial regulation

FinReg21 – “The administration and Congress are looking at ways for regulators to supervise pay practices at financial firms that will go beyond basic reforms in corporate governance for firms in general, such as “say on pay” provisions for shareholders or more independent compensation committees.”

Divisions brew over approaches to monetary policy

WSJ – “Fed officials have become more confident recently that they have stabilized the economy and set the stage for recovery. But divisions are brewing within the Fed over whether it should do more to speed the healing, pause, or start pulling back to avoid an outbreak of inflation.”

Geithner’s plans for Wall Street regulation

FT – “Tim Geithner, the Treasury secretary, will next week unveil revised plans, which are likely to include the creation of two new structures on top of the existing alphabet soup of agencies. These will include a “council of regulators” – likely to comprise the heads of the largest agencies – which will oversee the ­Federal Reserve’s new uber-regulatory role of overseeing systemic risk. There is also likely to be a new agency to regulate consumer products, such as mortgages and credit cards.”

Spending stimulus money takes money

WP – “But of the areas that most need a boost, greater Washington is pretty much at the bottom of the list. While unemployment rises elsewhere, it has declined in the region for the past two months, to 5.6 percent, the lowest of any major metro area. Washington is getting a big benefit as it is — the stimulus package includes billions to erect and refurbish federal buildings, most notably $448 million for a new complex for the Homeland Security Department. But the legislation’s effect on the bureaucracy probably will be the biggest boon. The region has already added 9,000 government jobs compared with a year ago.”

Today’s Top Stories

Fed says downturn may be moderating amid weaknesses

Bloomberg – “The Federal Reserve said the U.S. downturn may be slowing in almost half of its regions, with the outlook at some companies improving while “stringent” loan conditions and a “weak” labor market persist.”

Fed unveils lending details after lawmakers pressure

Bloomberg – “The Fed said a total of 378 banks borrowed from its discount window in May or got funds from auctions of cash aimed at combating the liquidity crisis. Officials still stopped short of identifying the firms, a measure called for by some lawmakers and the subject of freedom-of-information requests and lawsuits.”

Overdraft should be an ‘opt-in’ service only, top lawmaker says

FinReg21 – “Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, urged the Federal Reserve to include the provision in the final version of its Regulation E governing overdrafts. This would mean that customers would not be authorized to run an overdraft in an ATM withdrawal or debit card transaction without specifically agreeing to the service and the fees.”

Point of View: Get ready for inflation and higher interest rates

Arthur LafferWSJ – “But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.”

Today’s Top Stories

Goals shift for reform of financial regulation

WP – “The administration had originally sought to eliminate turf wars among agencies and gaps in their oversight, for instance by centralizing the power to oversee banks in one body and combining the two agencies that police financial markets. Those proposals have fallen by the wayside, the sources said.”

Bailout watchdog calls for new bank stress tests if economy worsens

FinReg21 – “The adverse scenario in the stress tests administered to the 19 largest bank holding companies may not have been adverse enough and should be repeated if actual economic indicators turn out to be worse, the watchdog for the bank bailout fund said.”

Congress subpoenas the Fed over BofA-Merrill Lynch

AP – “The lawmakers’ subpoena comes after claims that top government officials pressured Bank of America Corp. CEO Ken Lewis to complete the bank’s purchase of Merrill Lynch, threatening his job security. Lewis has testified that he had been advised by the officials, former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, not to disclose details of Merrill Lynch’s difficult financial position, according to New York State Attorney General Andrew Cuomo.”

Point of View: Small bank big trouble?

Simon JohnsonThe Baseline Scenario – “The more interesting question is whether many small banks could copy each other’s behavior and create a situation where they are all “too big to fail” at more or less the same moment.”

Latest News

Fault lines emerge as financial players try to influence regulatory overhaul

WP – “As the Obama administration prepares to unveil plans for overhauling financial regulation, potentially addressing such diverse issues as credit card lending and global economic threats, a multifront war is brewing. It pits competing interests among businesses, consumers, government agencies and lawmakers against one another.”

Top regulatory warns about creating financial products safety commission

FinReg21 – “A proposal being considered by the administration to create a financial products safety commission risks cutting across existing regulators and creating duplication, a top regulator said. A better idea would be to set minimum standards for financial products that various regulators would enforce, suggested Richard Ketchum, chief executive of the Financial Industry Regulatory Authority.”

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