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8/14/2019 Instant News

1/18

The US Elections, Obama,

McCain and how it matters


2/18

Barack Hussein Obama II

1983 - 1991

1997 - 2004

Nov 2004

Feb 2007

Jun 2008

Nov 2008

Jan 2009

1

Source: http://en.wikipedia.org/wiki/Barack_oba
http://en.wikipedia.org/wiki/Barack_obamahttp://en.wikipedia.org/wiki/Barack_obama


3/18

Obama on the economy2

ttp://www.barackobama.com/issues/economy/index.php
http://www.barackobama.com/issues/economy/index.phphttp://www.barackobama.com/issues/economy/index.php


4/18

Obama on foreign policy3

://www.barackobama.com/issues/foreign_policy/index.php://www.india-defence.com/reports/3906://www.ndtv.com/convergence/ndtv/uspolls2008/Election_Story.aspx?ID=NEWEN20080071398&
http://www.barackobama.com/issues/foreign_policy/index.phphttp://www.india-defence.com/reports/3906http://www.ndtv.com/convergence/ndtv/uspolls2008/Election_Story.aspx?ID=NEWEN20080071398&http://www.ndtv.com/convergence/ndtv/uspolls2008/Election_Story.aspx?ID=NEWEN20080071398&http://www.india-defence.com/reports/3906http://www.barackobama.com/issues/foreign_policy/index.php


5/18

Obama v McCainObama McCain

Iraq Against war in 2002Wants phased withdrawal by2010

Supports surge begun in 2007Convinced that US is winning

Iran Favors talks, even atPresidential levelIntl sanctions to forcetransparency

Against Presidential level talksthat may lend legitimacy tohardlinersTighten sanctions, outside UN ifnecessary

Economy Cut taxes for the workingclass, increase taxes for therichestFund to stave off foreclosures

Maintain tax cuts under BushState guarantees for mortgagesand for student loans

Health Wants all Americans to becovered by a universal healthcare plan

Greater oversight of insuranceand pharmaceutical companies

International trade

Attacked NAFTA with Canadaand Mexico; wants torenegotiate

Supports NAFTA and sees freetrade as an important tool in USforeign policy

ttp://www.news.com.au/dailytelegraph/story/0,22049,23809082-5017257,00.html

4
http://www.news.com.au/dailytelegraph/story/0,22049,23809082-5017257,00.htmlhttp://www.news.com.au/dailytelegraph/story/0,22049,23809082-5017257,00.html


6/18

The financial crisis and what isbeing done about it


7/18

US Economic Recession Impact Panic in financial markets encouraged investors to take their money out of

risky mortgage bonds and shaky equities and put it into commodities,contributing to the world food price crisis and oil price increases

Beginning in mid-2008, all three major stock indices in the United States(the Dow Jones Industrial Average, NASDAQ, S&P 500) entered a bearmarket. On 15 September 2008, a slew of financial concerns caused the

indices to drop by their sharpest amounts since 9/11

Housing price declines left consumers with less wealth, which placeddownward pressure on consumption

Job losses in the financial sector were significant, with over 65,400 jobs lost

in the United States as of September 2008

The sudden lack of credit also caused a slump in car sales. Ford sales inOctober 2008 were down 33.8% from a year ago, General Motors sales weredown 15.6%, and Toyota sales had declined 32.3%


8/18

US Economic Recession - Impacton India

The Indian economy would grow at 7% despite the global economic meltdownbut this would not mean a reduction in existing job levels: Chidambaram

The profit margins of Indian companies were getting affected due to the globalfinancial woes, but the firms still retain double digit growth

Only companies which are internationally exposed for raw materials (steel, oil)or whose revenue is in dollars are negatively impact: Economists

Concerned over growing fears of a recession in the US, Indian equities trade atlow levels in tandem with other global peers

The market ignored moves by India's central bank and the finance ministry toinfuse liquidity into the system by again cutting the CRR and by compensatingbanks to the extent of Rs. 250 billion for waiver of farm loans


9/18

Policy Measures to the crisis US& Europe

Broadly, the Federal Reserves response has followed two tracks

Efforts to support market liquidity and functioning Macroeconomic objectives through monetary policy

Between 18 September 2007 and 30 April 2008, the target for theFederal funds rate was lowered from 5.25% to 2% and the discount ratewas lowered from 5.75% to 2.25%, through six separate actions

The Fed and other central banks have conducted open market operationsto ensure member banks have access to funds (i.e., liquidity). These are

effectively short-term loans to member banks collateralized bygovernment securities

Central banks have also lowered the interest rates charged to memberbanks (called the discount rate in the U.S.) for short-term loans


10/18


The Fed is using the Term Auction Facility (TAF) to provide short-term loans(liquidity) to banks. The Fed increased the monthly amount of these auctions to$100 billion during March 2008, up from $60 billion in prior months

In July 2008, the Fed finalized new rules that apply to mortgage lenders. In October2008, the Fed expanded the collateral it will loan against to include commercialpaper, to help address continued liquidity concerns

On 19 September 2008, the U.S. government announced a plan to purchase largeamounts of illiquid, risky mortgage backed securities from financial institutions,which is estimated to involve at minimum, $700 billion of additional commitments.On 1 October 2008 the U.S. Senate approved an amended version of the plan

Alarmed by the speed of the economys decline, the European Central Bank (ECB)cut its benchmark interest rate on November 6th by half a percentage point, to3.25%, and BoE cut its benchmark rate to 3%


11/18


Putting up huge sums of money and standing ready to recapitalize and takeequity stakes in their banks. A staggering total of some 1,873 billion ($2,556billion) was agreed for this purpose in the euro area alone

France: Pledged 320 billion in state-guaranteed lending to banks, and 40billion to recapitalize banks in trouble

Germany: State guarantee worth 400 billion to back banks loans to eachother, plus 80 billion to top up capital.

No system-relevant bank will be allowed to fail; no depositor will lose money.

Life support will be switched off and the free market will be back in businessafter 2009

Iceland: The board of the IMF will meet on Nov 10 to decide whether to loanIceland $2 billion.

Iceland is seeking upto $6 billion from lenders including the IMF, Nordicneighbors, Russia, Japan and the EU to rebuild its economy following a bankingcrisis and the collapse of the national currency (Icelandic Krona)


12/18

Bailouts Last Resort

Mar 2008: Bear Stearns acquired by J.P. Morgan Chase for $1.2 billion.In orderfor the deal to go through, the Fed issued a nonrecourse loan of $29 billion toBear Stearns

Sep 2008: The Treasury Department confirmed that Fannie Mae and FreddieMac would be placed into conservatorship with the government taking over

management of the pair

Sep 2008: The Federal Reserve provided an emergency loan of $85 billion toAIG, which will be repaid by selling off assets of the company. Thisintervention gave the US government a 79.9% equity stake at AIG; anadditional $37.8 billion in secured funding from the Fed

Sep 2008: Washington Mutual declared bankruptcy. The United States Officeof Thrift Supervision (OTS) announced that it was seizing WaMu and would sellmost of its functional assets to J.P. Morgan Chase

Sep 29, 2008: British bank Bradford & Bingley was nationalized by the UKgovernment. The government will take control of the bank's 50bn mortgages

and loans, while its savings operations and branches are to be sold to Spain'sSantander


13/18

India- measures to handlethe crisis

November 4: Fin Min forced state-owned banks to say they will cut lending rates by 0.75percentage points

RBI lowered repo rate from 8% to 7.5%, having cut it from 9% to 8% 12 days earlier

RBI lowered cash reserve ratio and raised the amount a bank could borrow at its door.These measures will release 1.2 trillion rupees ($24 billion) into Indias banking system

SLR was cut to 24%

In October, the RBI reduced CRR by a cumulative 250 basis points to augment liquidity

A special 14-day repo window for Rs 20,000 crore was opened to enable mutual fundsaccess to funding

Banks were also allowed temporary access to SLR eligible securities by an additional0.5% of their net demand and time liabilities

http://www.economist.com/finance/displaystory.cfm?story_id=12
http://www.economist.com/finance/displaystory.cfm?story_id=12566909http://www.economist.com/finance/displaystory.cfm?story_id=12566909


14/18

"for his analysis of tradepatterns and location ofeconomic activity"

Paul Krugman and theNobel


15/18

The Juice of New TradeTheory Protectionism can be good

Economies of Scale effects; Consumers like diversity inchoices Production gets concentrated where there ismore production

Explains 20th century trade between countries with similarcompetencies, unlike the classic Ricardian model ofcomparative advantage

Theory was being spoken of by various economists,Krugman formalized it mathematically


16/18

Economic Geography &Misc. Location matters

Economic activity tends to get concentratedand clustered - not just network effects but

also the importance of economies of scale Staunch critic of the Bush administration

Suggested the measures that Gordon Brownhas taken buying equity instead of just

toxic debt


17/18

Other Hot Issues

The question of reserves should you defend thecurrency?

Full Convertibility is it the way to go? Asset Liability matching SE Asian crisis Inflation fighting vs BoP crisis aversion What has the RBI done? largely non-

interventionist, with some psychological barrierswhich are mostly not predicted by the market

ECB borrowings who has borrowed abroad andhow much reserves do you really need?


18/18

If you want to sound especiallycool

Mention Robert Shiller The SubprimeSolution

Economist at Yale; predicted the dot-

com and the real estate bubble bursts Argues for indexing fundamentally

different financial markets with inbuilt

risk management systems Housing futures, trills, adjustable

mortgages indexed to income

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