Economics Final Review: Crash, Macro Policy and Globalization
I. banking - TRUST ME
- competitive incentives in private sector
- collateral, credit rating, default, bankruptcy
- Federal Reserve and fractional reserve system, FDIC
II. venture capital and private equity
- kickstarter, the nanny effect, hot growth sectors, Chindia, BRIC
III. stock and bond markets
- bond terms, ratings and yields
- IPO incentives, due diligence, limited liability
- what makes stocks change value?
- bubbles, risk tolerance, mature markets, bear market, bull market
- herd psychology, P/E ratio
- Dow, S&P 500, NASDAQ, NYSE, SEC
- funds - managed and indexed
- stock case studies: Apple, AIG, Berkshire Hathaway, Facebook, Exxon Mobil
IV. typical return on investment: bank deposit AAA bond ___ stock market index ___
V. The Crash
A. mortgage markets and black swans
- prime rate and subprime mortgages, ARM
- collateralized debt obligations (CDO's), rating agencies, credit default swaps
- institutional investors, hedge funds
- HON - "magic of securitization," quants
B. chart a path from prime rate CDO's to investment bank crisis to Great Recession 2008
- whose fault was it? drank their own kool-aid?
- why was foreclosure crisis everybody's problem? (vicious cycles diagram)
- Meltdown details:
- Bear Stearns > Fannie Mae/Freddie Mac > Lehman Brothers > AIG > TARP> ARRA
- Bernanke, Paulson, Geithner, Lew, Bush, Obama
- moral hazard and systemic risk
VI. Monetary and Fiscal Policy
A. measures of economic health - define and recognize desirable values
- productivity
- inflation
- employment
B. monetary tools - Fed, expansionary and contractionary policy
- commercial bank interest rates
- Treasury bond sales/purchases [HON: quantitative easing]
- moral suasion
C. Crash and Recession policies: stimulus/recovery package and bailouts
- leadership roles: Obama, Geithner, Lews, Bernanke
- Paulson's TARP
- Obama's ARRA - (Keynes lives!)
- future deficits and debts
- entitlement tsunami - Medicare drivers: demographics, health care costs
- Republicans v Democrats 2013 - shutdown!
- how does a bill become a law? who controls each stage?
- Affordable Care Act / Obamacare
- Boehner, Ryan and Rep priorities - less long term debt, short term spending cuts
- Obama, McConnell and Dem priorities - short term recession recovery
- long term - "balanced" revenue and spending
VII. Globalization
A. wealth and poverty factors
- production factors, cultural priorities, history [HON - colonialism]
- Smith, Marx and Keynes in global context - role of gov't, class interest
B. globalized supply and demand concepts
- opportunity cost and comparative advantage
- use supply and demand curve to predict/describe trade impact: ANTIE PINE
- Chimerica and Walmart case study
- balance of trade, Shenzhen, Smithfield
- HON: currency devaluation
- where do gains from efficiency go?
- Clinton, WTO, dumping, "level playing field"
- [HON -Friedman - flat, hot and crowded]
- US and comparative advantage policies - "ecosystems for innovation"
- "do your homework, someone in India wants your job"
- Koerner's thesis
- protectionism - why/not use law/taxes to protect your local suppliers?
- HON: Bastiat's candlemakers
C. black swans for 2013 - what does resilience require?
D. history of development economics
- imperialism - infrastructure for the empire, trade wars and Great Depression
- public sector financing - IMF, World Bank, import substitution
- neoliberalism - structural adjustment and austerity, privatization, free trade
- community based development - microcredit, cooperatives and local accountability
- 2013: neoliberals vs skeptics - rehearse the best arguments