The financial crisis is havng the greatest negative impact on those nearing retirement in the United States, the United Kingdom and Australia, according to the OECD. This is especially true for those whose pension plans are exposed to riskier assets , the OECD says in the 2009 edition of its biennial Pensions at a Glance.
Private pension funds lost 23% of their value in 2008, worth a heady US$5.4 trillion.
Economic output is falling and unemployment is rising, putting pressure on the finances of public pension schemes as well. Governments must continue reforms to ensure that public and private retirement income provision is socially as well as financially sustainable, the OECD says.
With rising unemployment and falling tax revenues squeezing public finances, OECD governments face budget deficits of nearly 9% of national income on average in 2010. This leaves little room for more generous public pensions. Some countries have already had to cut back on future public spending on pensions.
But private pension schemes have also been badly hit by plunging stock markets, and the way they operate needs to change, says the report. Reforms should include better regulation, more efficient administration, clearer information about risks and rewards of different options and an automatic switch to less risky investments as people near retirement, the OECD says.
“Because of the long horizon involved in pensions – with 60 years on average between when people make their first contribution and receive their last benefit – all kinds of pension provision are subject to risks and uncertainties of different kinds. Diversifying pension provision remains the right strategy, in the face of demographic, political, economic and financial risks, according to the report. Rolling back reforms and trying to rely on public pay-as-you-go financed pensions alone is the wrong way to go.”
Technorati Tags: financial crisis, pensions
A surge of medical bankruptcies is likely to strengthen the political impetus for healthcare reform efforts in Congress, according to Oxford Analytica.
Statistics from the Bankruptcy Data Project at Harvard indicate that the number of total individuals in all chapters of bankruptcy in the month of April 2009 was more than 40% higher than in April 2008. Medical costs are a key — and growing — factor behind this jump in individual bankruptcy filings, OxAn says. “A survey by the Commonwealth Fund showed that 41% of adults had medical debt or had problems paying their medical bills in 2007; it is not surprising that these widespread financial pressures can lead to full-blown bankruptcy in the context of a major recession.”
“As the debate over healthcare reform heats up ahead of President Barack Obama’s August deadline for legislation, policymakers will point to the devastation medical costs can have on household finances as another justification for expansions in health insurance. Health insurance stability — provided through affordability and portability — should help prevent medical bankruptcies by protecting against financial risk.”
With the added pressures of the recession, medical bankruptcies will surge this year. However, this is likely to strengthen the political impetus for healthcare reform efforts in Congress, which are continuing to progress.
Technorati Tags: bankruptcy, Healthcare, Obama health plan
European sovereign nations sporting high credit ratings have started to see weakening public finances amid the ongoing economic crisis.
In a report on the deterioration of public finances among highly rated European nations, Standard and Poor’s Credit Research said eroding tax bases, the need to support banking systems and fiscal stimulus to boost economies have all contributed to significant rises in government debt levels.
In the face of the deterioration in highly rated European sovereigns’ public finances, we expect that substantial levels of wealth and diversification, together with timely policy responses, should allow highly rated European sovereigns to remain rated highly. In some cases, however, their ratings could become lower than prior to the crisis.
Since the beginning of the year, S&P has lowered the long-term ratings on Ireland, Spain, Portugal and Greece, and revised the outlook on the U.K. to negative from stable.
S&P said deficits are expected to rise further and peak for every highly European nations in 2010, when most economies should be returning to growth.
Technorati Tags: deficits, European bonds, public-debt, sovereign-debt
Guest post by Oxford Analytica.
A recent report by the Center for Public Integrity, an advocacy group, documents the extensive, long-term lobbying efforts of 25 firms involved in fostering the hectic growth of the sub-prime mortgage industry. During the peak years of the sub-prime market in 2005-07, these leading securities and investment companies made millions of dollars in campaign donations to both Democrats and Republicans with a stake in overseeing the industry.
While the report has received widespread media coverage in the United States, there is nothing particularly remarkable about its conclusions. Business lobbying is as old as the US republic and is constitutionally protected under the First Amendment. Indeed, furious lobbying and overt political corruption (which would be impossible under current rules) facilitated the post-Civil War railroad construction boom — and bust.
However, lobbying may have helped exacerbate the size of the financial services bubble — and the consequences of its implosion.
- • One credible estimate suggests that over the course of the last decade, the financial services sector collectively donated 2.2 billion dollars to political campaigns, and spent 3.5 billion dollars on lobbying activity in Washington.
- • This may have helped produce a sanguine political response to the surge in sub-prime lending: from 2000-07, the most active 25 originator firms issued approximately 1 trillion dollars in sub-prime mortgages to over 5 million borrowers — generating billions of dollars in additional revenue.
- • Of course, the sector’s implosion ultimately created a surge in systemic risk, led to the collapse of several major financial institutions, and necessitated hundreds of billions of dollars in federal bailout outlays.
- Financial lobbying tactics. In their lobbying efforts, the financial services community has pursued two key tactics:
- • Bipartisan focus. Lobbying has been focused on both parties, in an effort to help foster a deregulatory consensus. While Republicans tend to use more pro-business rhetoric during political campaigns, since the 1970s the Democratic party has also increasingly pursued a deregulatory agenda.
- • Structural context. Lobbying has become inextricably, and quite deliberately, interlinked with campaign fundraising; collectively these activities now form the structural context in which Washington law-making operates and in which electoral politics occurs.
Artificial consensus? The influence of lobbying, particularly on legislation affecting financial services regulation, is difficult to quantify or separate from the general trend to the Right in US politics from 1980 to 2006. However, it is striking that there is a far stronger consensus in Washington, in favour of a limited regulatory agenda, than there is among academic or professional economists.
Even the financial crisis and election of President Barack Obama does not seem to have shifted this consensus much. While Obama has intervened massively in the financial services industry to prop up certain banks (chiefly via the 700 billion dollar Troubled Asset Relief Program enacted under his predecessor) and has also facilitated the rescue of the politically sensitive auto sector, he has repeatedly emphasised that such intervention is temporary. Treasury Secretary Timothy Geithner has also pointedly eschewed using federal equity stakes in banks to change their business practices by, for example, dictating broad new executive compensation rules.
Financial services industry lobbying is constitutionally protected, and has promoted beneficial reforms. However, the growth and success of such lobbying may have helped create an unusual degree of deregulatory consensus in Washington — perhaps inhibiting consideration of the downsides of an increasingly laissez faire approach.
Technorati Tags: deregulation, financial crisis, financial-regulation
Ever wonder where the International Monetary Fund money goes? If so check out this handy map of the IMF’s current lending arrangements.
The IMF has stepped up lending in response to the global economic crisis, and in March 2009, it completed a major overhaul of how it lends money, offering higher amounts and better tailoring loan terms to countries’ needs. You can also view related information in tabular form.
Technorati Tags: financial crisis, International-Monetary-Fund
New modeling carried out by MIT on the likelihood of how much hotter the Earth’s climate will get in this century shows that without rapid and massive action, the problem will be about twice as severe as previously estimated six years ago - and could be even worse than that.
The new projections, published this month in the American Meteorological Society’s Journal of Climate, indicate a median probability of surface warming of 5.2 degrees Celsius by 2100, with a 90% probability range of 3.5 to 7.4 degrees. This compares with a median projected increase in the 2003 study of just 2.4 degrees.
MIT says the difference is caused by several factors rather than any single big change. Among these are improved economic modeling and newer economic data showing less chance of low emissions than had been projected in the earlier scenarios. Other changes include accounting for the past masking of underlying warming by the cooling induced by 20th century volcanoes, and for emissions of soot, which can add to the warming effect. In addition, measurements of deep ocean temperature rises, which enable estimates of how fast heat and carbon dioxide are removed from the atmosphere and transferred to the ocean depths, imply lower transfer rates than previously estimated.
The least-cost option to lower the risk is to start now and steadily transform the global energy system over the coming decades to low or zero greenhouse gas-emitting technologies.
The study uses the MIT Integrated Global Systems Model, a detailed computer simulation of global economic activity and climate processes that has been developed and refined by the Joint Program on the Science and Policy of Global Change since the early 1990s.
While the projected outcomes where there are no policies in place that specifically induce reductions in greenhouse gas emissions now look much worse than before, there is less change from previous work in the projected outcomes if strong policies are put in place now to drastically curb greenhouse gas emissions.
Technorati Tags: climate-change, global-warming, greenhouse-gases
The aftermath of the government stress tests has been the hot topic of recent days, topped by Standard & Poor’s gloomy assertion that the Banking Crisis Could Go On For Another 3 or 4 years and CreditSights‘ prediction that Smaller Regional Banks May Slide into Junk Bond Status.
Meanwhile Fitch saw another shoe continuing to drop in US Credit Card Losses Will Be Meaningfully Higher in 2Q and S&P observed that Commercial Real Estate Under Stress as Refinancing Dries Up.
Moody’s added insult to injury with Global Junk Bond Default Rate to Hit 14.8% but also offered a sliver of better news for some with New Accounting Rule a Boon for Bank Bargain Hunters.
Still, the most popular recent post was the news that France leads OECD nations in Eating and Sleeping. Is there a correlation? No wonder freedom fries didn’t catch on.
The French spend more time sleeping than anyone else in OECD countries. They also devote more time to eating than anyone else and nearly double that of Americans, Canadians or Mexicans.
But did they factor in that Americans have learned how to eat and sleep at the same time?
Research Tweetgeist:
Deloitte Spending Index (tax burden, unemployment claims, wages, home prices) fell 1.46% in Apr after 1.95% rise in Mar http://bit.ly/Yfu6o
Which is the better deal: the $700 bn TARP or the TRAP (Treasury Relief Art Project) 10,000+ works of art for $873,784? http://bit.ly/KbGWf
MIT US commercial real estate index for Q1 down 5.8% from Q4, placing the index 26.4% below its 2007Q2 peak. http://bit.ly/HRhHf
Weekend listening while contemplating the stress tests: The Fix Is In, by Elbow. http://bit.ly/4mEEm
Technorati Tags: accounting, Bankrate, commercial-real-estate, credit card debt, demographics, junk-bonds, stress test, TARP, Zeitgeist
The International Monetary Fund has made available a free pre-publication section of a new Handbook on Securities Statistics, produced in conjunction with the Bank for International Settlements (BIS) and the European Central Bank (ECB).
The Handbook is the first publication of its kind dealing exclusively with the conceptual framework for the compilation and presentation of securities statistics. It directly addresses a recommendation of one of the Group of Twenty (G20) working groups concerning the need to fill data gaps and strengthen data collection.
The aim of the first part of the Handbook is to assist national and international agencies in the production of relevant, coherent and internationally comparable securities statistics for use in financial stability analysis and monetary policy formulation.
A useful feature of the handbook is its clear and simple definitions of terms used in the securities market.
Securitisation results in debt securities for which coupon or principal payments (or both) are backed by specified financial or non-financial assets or future income streams. A variety of assets or future income streams may be used securitised including, among others: residential and commercial mortgage loans; consumer loans; corporate loans; government loans; credit derivatives, and future revenue.
Topics covered include:
- Main features of debt securities
- Institutional units and sectors
- Securitisation
- Accounting rules, valuation and accrued interest
- Classification of debt securities
- Detailed presentation tables
- Metadata
- Structured debt securities
- Islamic debt securities
Technorati Tags: debt securities, financial-regulation, Securities, securitization
KPMG has issued a useful summary and outlook for road infrastructure projects in the US, Canada and Mexico through 2013. All three countries have ambitious infrastructure stimulus plans in the works.
In the US, California, Florida, and Texas lead the states in terms of combined public and private investment in road infrastructure and are projected to maintain their dominance through the medium run.
Among other aspects, the report looks at the growing involvement of private investment:
- Virginia, Texas, and Florida have been the dominant players when it comes to utilizing private investment to fund new capacity.
- The City of Chicago and the State of Indiana have led the way in terms of private sector investment in operation and maintenance of existing assets.
- In the lead up to 2013, states like California, New York, Georgia, Nevada, and Michigan are looking very seriously at joining the list of states using private investment for road infrastructure.
A strong appetite for alternative funding and development models such as public-private partnerships is also found in Canada. Several road and transit-related projects have been developed as PPPs, with more envisioned for the future.
Road expenditure in Mexico is predicted to shrink by an average of 8.6 percent per annum between 2009 and 2013, despite a “National Infrastructure Program” launched in 2007 that is expected to result in billions of U.S. dollars in additional investment across the country.
Global infrastructure trend monitor: North American roads edition — Outlook 2009–2013.
Technorati Tags: infrastructure, PPP, public private partnerships, toll-roads, transportation
A new working paper* from the International Monetary Fund has generally good news about the prospects for further alleviation of poverty around the world, except for the poorest of the poor.
“The poverty rate is seen to decrease from 1970 to 2000 for all poverty lines, and significantly
so for all, but the lowest poverty line. One can therefore with a reasonable degree of
confidence conclude that relative poverty has decreased,” the paper finds.
The poverty rate is expected to continue to fall sharply from 57.2 percent in 2000 to 49.7 percent in 2010 at a poverty line of one-half of the mean.
“At a poverty line of one-sixth of the mean the decrease in the poverty rate is somewhat lower (from 20.0 percent to 17.7 percent), but at a poverty line of one-tenth of the mean the poverty rate is forecasted to increase (from 8.9 percent to 9.2 percent). Encouragingly, the poverty gap improves for all three poverty lines, but the lower is the poverty line the smaller is the improvement.”
“In line with the results obtained earlier for the 1990s, the tentative conclusion therefore is that there are good prospects for continued poverty alleviation in the 2000s with the exception of poverty alleviation among the poorest of the poor.”
“The significant lowering of relative poverty is impressive and suggestive of major structural changes having taken place in the world economy over this period, ” the paper concludes.
“However, the data also indicate a worsening relative income outcome among the world’s poorest particularly in the 1990s (with indications that this trend continues in the 2000s). This latter result should temper anyone’s optimism with regard to the progress having been made in the fight against poverty.”
*Global Relative Poverty
Prepared by Lynge Nielsen
Technorati Tags: economic-data, poverty
