Former SEC Chief Economist and MIT Golub Center Visiting Fellow Chester Spatt
Join us on November 1, 12 noon to 12:30 ET for a live conversation with former SEC Chief Economist and MIT Golub Center Visiting Fellow Chester Spattand Golub Center Director and Professor of Finance Deborah Lucas.
As the 10-year anniversary of the great financial crisis approaches, the program seeks to answer two questions: what have we learned? And have we made enough progress to prevent a repeat of something similar? Chester and Deborah will discuss financial regulation and housing market finance reform, and share their ideas for fostering stronger ties between the regulatory and the academic communities and what lies ahead
MIT Sloan Prof. and Golub Center Director Deborah Lucas
Laurie Goodman,co-director of the Housing Finance Policy Center at the Urban Institute will also appear on the program to talk about housing finance reform.
You will be able to view the show on Livestream by bookmarking this site and tuning in November 1st at 12 noon.
Submit your questions on Twitter using #MITSloanExperts before and during the show. Your question could be answered live on the air.
Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy
High rates of debt growth by local governments are a cause for concern in any country. In China, where recent turmoil in the equity and foreign-exchange markets has put a spotlight on that country’s economy and growth prospects, increasing levels of borrowing by provincial and other lower levels of government has resulted in local indebtedness rising nearly four-fold since 2008, reaching about 40% of GDP.
Debt growth of that magnitude raises concerns about fiscal sustainability, debt affordability, transparency and accountability. Cautionary tales abound. From New York City in the ‘70s, emerging market countries in the ‘80s, Russia in the ‘90s, and Detroit, Greece and Puerto Rico more recently, there is a long list of governments that have experienced the painful economic repercussions of taking on debt they could not afford.
While the massive debt buildup in China presents challenges, the situation is not as dire as a full-blown debt crisis, a new policy brief from the MIT Center for Finance and Policy by Xun Wu, a visiting scholar, suggests.
Ask most finance experts about the “world’s largest financial institutions,” and you’ll hear names like Citigroup, ICBC (China’s largest bank) and HSBC. However, governments top the list of large financial institutions, with investment and insurance operations that dwarf those of any private enterprise. For instance, last year the U.S. federal government made almost all student loans and backed over 97% of newly originated mortgages. Add to that Uncle Sam’s lending activities for agriculture, small business, energy and trade, plus its provision of insurance for private pensions and deposits, and you’ll discover it’s an $18-trillion financial institution. By comparison, JP Morgan Chase, the largest U.S. bank, had assets totaling about $2.4 trillion.
While government practices differ across countries, the basic story is much the same everywhere. As the world’s largest and most interconnected financial institutions — and through their activities as rule-makers and regulators — governments have an enormous influence on the allocation of capital and risk in society. And as financial actors they are confronted with the same critical issues as their private-sector peers: How should a government assess its cost of capital? How should its financial activities be accounted for? What are the systemic and macroeconomic effects? Are the institutions well-managed? Are its financial products well-designed?