http://www.newamerica.net/programs/content/1073/policy Policy Papers by Program for tabbed view on main program pages en http://www.newamerica.net/publications/policy/america_s_exhausted_paradigm_macroeconomic_causes_financial_crisis_and_great_recession <!--[if gte mso 9]><xml> Normal 0 false false false MicrosoftInternetExplorer4 </xml><![endif]--><!--[if gte mso 9]><xml> </xml><![endif]--><!--[if !mso]> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--> <!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; <p><a href="http://www.newamerica.net/publications/policy/america_s_exhausted_paradigm_macroeconomic_causes_financial_crisis_and_great_recession">read more</a></p> Economic Growth Program Global Strategic Finance Initiative Smart Globalization Initiative Next Social Contract Economic Growth Wed, 22 Jul 2009 07:00:00 -0400 Economic Growth 15804 at http://www.newamerica.net http://www.newamerica.net/publications/policy/pitfalls_manufacturing_market <p> Despite its aim, the European Trading Scheme (ETS) for carbon is widely regarded as an inefficient market. The initial design of the scheme has caused trading reactions that do not follow the pricing patterns of other, more efficient commodities. </p> <p> Within ETS, it isn’t carbon’s price volatility that makes its market seem uncharacteristic of other commodities markets; commodity markets are often characterized by volatility. Instead, it is the fact that carbon’s price drivers are not so easily pinpointed and, therefore, its volatility seems arbitrary. </p><p><a href="http://www.newamerica.net/publications/policy/pitfalls_manufacturing_market">read more</a></p> Emily Gallagher Economic Growth Program Global Strategic Finance Initiative Smart Globalization Initiative Next Social Contract Economic Growth Mon, 13 Jul 2009 22:19:00 -0400 Next Social Contract 15814 at http://www.newamerica.net http://www.newamerica.net/publications/policy/defense_uptick_rule <p> On April 9, 2009, the Securities and Exchange Commission (SEC) released five proposals for reinstating the uptick rule and initiated a 60-day public comment period. Now, nearing the end of that comment period, the opinions of senators and financial commentators on the proposed legislation must be ringing in the SEC's ears.  Jim Cramer, the host of the Mad Money TV program, spoke fervently in support of the uptick rule during his May 4th broadcast while Senator Ted Kaufman, another supporter, noted that SEC Chairwoman Mary Schapiro should &quot;do <p><a href="http://www.newamerica.net/publications/policy/defense_uptick_rule">read more</a></p> Emily Gallagher Economic Growth Program Global Strategic Finance Initiative Next Social Contract Economic Growth financial crisis gallagher hedge fund Lehman short selling Uptick volatility Fri, 15 May 2009 05:10:00 -0400 Economic Growth 17032 at http://www.newamerica.net http://www.newamerica.net/publications/policy/bold_action_g20_summit <p> With the London Summit rapidly approaching, I urge participants to take bold steps to address the fundamental structural issues in global finance that have, in part at least, led to the current economic crisis. I recognize that there remains a debate between those who believe that the current economic environment compels a dramatic rethink of the foundations, systems and structures upon which the global economy operates, and those who believe that such sweeping reforms are both unnecessary and politically <p><a href="http://www.newamerica.net/publications/policy/bold_action_g20_summit">read more</a></p> Douglas Rediker Chatham House American Strategy Program Economic Growth Program Global Strategic Finance Initiative Economic Growth Foreign Policy Tue, 31 Mar 2009 04:11:00 -0400 Economic Growth 12247 at http://www.newamerica.net http://www.newamerica.net/publications/policy/foreign_policy_implications_financial_crisis <p> Thank you Mr. Chairman and members of this committee for the honor of addressing you today.  Mr. Chairman, it is a tribute to your leadership that this roundtable is being convened in recognition of the centrality of economic and financial issues to American foreign policy.  </p><p><a href="http://www.newamerica.net/publications/policy/foreign_policy_implications_financial_crisis">read more</a></p> Douglas Rediker American Strategy Program Economic Growth Program Global Strategic Finance Initiative Smart Globalization Initiative Next Social Contract Economic Growth Foreign Policy Trade &amp; Globalization Wed, 11 Feb 2009 14:30:00 -0500 Economic Growth 10814 at http://www.newamerica.net http://www.newamerica.net/publications/policy/sovereign_wealth_funds_foreign_policy_consequences_era_new_money <p> Over the past several months, few issues in international finance have generated as much discussion and comment as have Sovereign Wealth Funds (“SWF”s). This Committee deserves enormous credit for recognizing the potentially significant foreign policy consequences of the rapid accumulation by foreign governments of enormous, growing pools of capital. These large concentrations of government controlled wealth raise complex issues that transcend traditional boundaries between foreign policy, financial markets, international economics and national security. </p> <p> It is my belief, however, that too much focus on SWFs may, in fact, divert attention from the more fundamental foreign policy issue that these funds have come to represent -- that of the rise of “state capitalism” and the broader use of finance as a tool of foreign policy. These, I believe, are increasingly important 21st century phenomena. </p> <p> SWFs are simply a particular type of global financial market investor. They should not automatically trigger foreign policy concerns. Too much focus on SWFs as potential tools of political influence fails to take into account that the world’s more than fifty SWFs are very different in terms of the origin of funds, size, structure, investment philosophy and motivation. Other than the commonality of government ownership, they are really not a definable class of either political or financial actors. But it is specifically foreign government ownership and the possibility that these increasingly wealthy foreign governments may use finance as a tool to advance their national interests abroad that makes them of interest as a matter of foreign policy. </p> <p> I believe the criteria by which many suggest we judge the risks posed by SWFs has resulted in an overemphasis on transparency and disclosure, while ignoring the more subjective, but more valuable, assessment of the political risk that a particular government owner poses. This is dangerous. While increased transparency and disclosure should be encouraged, such an over-emphasis on transparency of SWFs alone may, in fact, lead to unnecessary conflict with allies, which, for a multitude of reasons may fail to meet the requisite level of transparency. Likewise, we may take false comfort from those SWFs that comply with transparency rules, but whose government owners use of a broad array of other financial tools to advance foreign policy interests and which should warrant closer attention... </p> <p> <em><strong>For the full text of the testimony, please see the PDF attached below.</strong></em> </p> Douglas Rediker American Strategy Program Economic Growth Program Global Strategic Finance Initiative Economic Growth Foreign Policy Trade &amp; Globalization Wed, 11 Jun 2008 03:44:00 -0400 Ron Tang 7278 at http://www.newamerica.net http://www.newamerica.net/publications/policy/public_comment_department_treasury_regarding_proposed_regulations_foreign_investment_us <p> The Honorable Nova Daly<br /> Deputy Assistant Secretary<br /> U.S. Department of the Treasury </p> <p> Dear Mr. Daly: </p> <p> We are pleased to submit these comments with respect to the recently proposed regulations regarding the implementation of the Foreign Investment and National Security Act of 2007 (“FINSA”) amendments to Section 721 of the Defense Production Act of 1950 (“Exon-Florio”). </p> <h3>Background</h3> <p> As a general matter, we believe that U.S. and global economic health are strengthened by the free flow of investment capital and by the increased liquidity that open markets provide. As significant providers of capital, foreign investors have thus far been a positive influence on U.S. markets and for the economy as a whole. </p> <p> We recognize, however that economic interests and the free flow of capital, while important, must be balanced against national security interests. Following extensive analysis, we believe that the U.S. Congress, Administration and the American people should be comforted that, as regards foreign investment, this country’s national security interests and financial market integrity are well protected and well regulated. We believe that, in determining the potential impact of proposed FINSA regulations, it is important that they are understood in the context of the entirety of the existing laws and regulations that confront a foreign entity or person seeking to invest in the United States. These proposed FINSA regulations represent just one of multiple areas of restriction, oversight and regulation that confront a foreign investor and that attempt to address this balance. </p> <h3> Comment</h3> <p> Under the express language of Section 721, the President is authorized to review “mergers, acquisitions and takeovers... which could result in foreign control”. These regulations must obviously be consistent with this legislative language. The Treasury Department deserves credit for reminding us of the legislative history to Exon-Florio, highlighting that “the Conferees in no way intend to impose barriers to foreign investment”. This is an important point to remember when reviewing the proposed regulations. </p> <p> It is because of the limitations of the scope and intent of the relevant legislation that we express our concern that some of the proposed regulatory language may result in a deterrent, if not an outright barrier, to legitimate foreign investment -- even if that is not the intention of either the legislation or regulation. </p> <p> We recognize the advantages to maintaining flexibility on the part of the Committee on Foreign Investment in the United States (“CFIUS “). We nevertheless believe that the corollary of increased flexibility for the U.S. Government is increased uncertainty on the part of the potential foreign investor. This is likely to discourage consideration of potential investment opportunities and may well have a negative effect on foreign investment into the country. </p> <p> Our concern emanates from a belief that domestic and foreign investors alike generally reward predictability and certainty, while shying away from uncertainty and the unquantifiable risk it presents. This is likely to negatively impact valuations or even the decision to pursue a given investment at all. </p> <p> The proposed regulations retain significant flexibility (and therefore uncertainty) and avoid providing a specific “roadmap” or comprehensive “safe harbor” guidance to investors. As a result, there is likely to be a good deal of uncertainty as to whether any individual transaction might, <u>inter alia.</u>, fall within the definition of a “covered transaction” (Section 800.206) or whether it is structured to afford the investor the necessary level of “control” (Section 800.203) to warrant review by CFIUS. </p> <p> We believe that uncertainty for potential investors about whether an individual transaction will require CFIUS review is likely to add both cost and risk to a transaction, which may well result in a negative impact on potential investment into the U.S. Investors will be presented with a choice of erring on the side of caution by incurring costs, delays and transaction risks in subjecting their potential investment to CFIUS review and scrutiny, or to assume the risk that a non-reviewed transaction is later determined to have required such approval, and is subject to scrutiny, sanction and disruption after the fact. The alternative is to simply decline to pursue the investment. </p> <h3> Conclusion</h3> <p> It is clear that there is a need for the U.S. Government, including CFIUS, to retain flexibility in all instances where national security interests are at stake. But it is imperative that we recognize that it is not in our national interest to unnecessarily discourage legitimate foreign investment into the United States. We believe that the proposed regulations would be improved if they created less uncertainty, more predictability and included more explicit “safe harbor” provisions to provide guidance to those international investors who seek to invest their capital in this country. The risk is that they may desire to invest, but will decline to do so for fear of how their investment may be treated under these regulations. Any unnecessary deterrent to foreign investment is neither appropriate under Exon-Florio, nor would it increase our national security. On the contrary, it could endanger our economic security, instead. </p> <p> <em><strong>A PDF version of the letter is available below.</strong></em> </p> Douglas Rediker Heidi Crebo-Rediker American Strategy Program Economic Growth Program Global Strategic Finance Initiative Economic Growth Foreign Policy Trade &amp; Globalization Mon, 09 Jun 2008 03:38:00 -0400 Ron Tang 7274 at http://www.newamerica.net http://www.newamerica.net/publications/policy/financing_americas_infrastructure <p> America’s basic infrastructure is outdated, worn, and in some cases, failing. Most experts agree that it is inadequate for meeting the demands of the 21st-century global economy. If we are to remain competitive, we must invest in capital assets like roads, ports, bridges, mass transit, water systems, and broadband infrastructure. Many other countries -- both rich and poor -- see investing in infrastructure as imperative for economic survival and success in an increasingly competitive economic environment. But the United States has lagged in infrastructure investment, in both relative and absolute terms. We are spending less than 2 percent of GDP on infrastructure, while China and India are spending 9 percent and 5 percent of GDP, respectively. </p> <div style="text-align: center"> <img src="/files/Infrastructure_spending.jpg " alt="US Public Capital Spending on Water and Transportation Infrastructure" width="475" height="342" /> </div> <p> If the nation’s infrastructure needs are apparent, so too are the limits on available funds in federal, state, and local government coffers. In this presidential election year, we can see these limits clearly, as the nation’s spending priorities are magnified by electoral politics. Although significant government funding will likely continue to play a key role in the development of public infrastructure, the scale of our funding needs increasingly compels us to look beyond government to close the financing gap. It is for this reason that public support for private sector infrastructure investment is essential. </p> <p> The good news is that while the federal government struggles to find funds to address its spending needs there is abundant private capital for infrastructure investment. An estimated $400 billion in global funds are available for equity investment in infrastructure, and the funds available to support the debt component amount to several trillion dollars if we include global central bank reserves, global pension funds, and sovereign wealth funds. Rather than focus on these large pools of global capital as a threat, we should view them as an opportunity. So, while we have enormous infrastructure financing needs, there are also enormous pools of capital available for investment. The trick is to bring the two together in a commercial, sustainable, and politically acceptable way.<br /> </p> <p> The U.S. municipal bond markets have functioned well for many years, channeling private capital into financing certain elements of U.S. infrastructure. But current budgetary constraints and other market conditions mean that municipal finance is no longer adequate to meet the challenge of financing the scale of investment needed. And our current financing structures are unable to take advantage of the large pools of capital that are available for infrastructure financing. </p> <p> We recommend two initiatives to help finance U.S. infrastructure needs beyond direct government grants. First, we suggest the enactment of legislation and the development of regulations to facilitate the origination and issuance of public sector covered bonds in the United States, which will provide a market-based, efficient, and secure mechanism to attract capital for infrastructure investment. Second, along the lines of a proposal by Congresswoman Rosa DeLauro (D-CT) last year, we recommend that the federal government consider the creation of a new, government-owned and -capitalized infrastructure financing entity -- a National Infrastructure Finance Enterprise -- that would pool, package, and sell existing and future public infrastructure securities in the capital markets. The proposed entity would also seek to develop an in-house capability to originate infrastructure loans and would be able to fund itself through the international capital markets. We believe that the entity should be capitalized at a far higher level than proposed in the DeLauro bill. Further, its scope should extend beyond that of the National Infrastructure Bank as currently proposed by Senators Christopher Dodd (D-CT) and Chuck Hagel (R-NE). </p> <p> Despite the current climate of suspicion and distrust regarding capital markets and financial engineering techniques, we believe that this should not preclude their responsible use in the future to help address infrastructure problems that require the investment and deployment of large amounts of capital. </p> <p> <em><strong>For the full text of the policy brief, please see the PDF attached below.</strong></em> </p> Douglas Rediker Heidi Crebo-Rediker American Infrastructure Initiative American Strategy Program Economic Growth Program Global Strategic Finance Initiative Economic Growth Foreign Policy Trade &amp; Globalization Public Infrastructure Sun, 08 Jun 2008 23:41:00 -0400 Ron Tang 7271 at http://www.newamerica.net http://www.newamerica.net/publications/policy/do_sovereign_wealth_funds_make_u_s_economy_stronger_or_pose_national_security_risks <p> By way of introduction, I spent most of the last seventeen years working as an investment banker and private equity investor based primarily in London, England. This experience, I believe, gives me a somewhat different perspective on Sovereign Wealth Funds and the role that they play in today’s international capital markets. Currently, I co-direct the Global Strategic Finance Initiative at the New America Foundation. The New America Foundation is a non-profit, post-partisan public policy institute in Washington D.C. </p> <p> Over the past several months, few issues in international finance have generated as much discussion and comment as have Sovereign Wealth Funds. I commend you and your colleagues for the informed and balanced views that you have expressed and the questions that you have posed on this important subject. </p> <p> As a general matter, I believe that both the U.S. and global economies are strengthened through open markets. Overall, economic health is bolstered and fortified by the free flow of investment capital and increased liquidity that open markets provide. As significant providers of capital to these markets, Sovereign Wealth Funds have thus far been a positive influence in U.S. and global markets. Most recently, significant capital injections by Sovereign Wealth Funds in several major financial institutions have been a stabilizing force, potentially averting a significant market downturn at a time of high market uncertainty and volatility... </p> <p> <em><strong>For the full text of Rediker's prepared testimony, please see the PDF attached below. </strong></em> </p> Douglas Rediker New America Foundation Economic Growth Program Global Strategic Finance Initiative Economic Growth Foreign Policy Trade &amp; Globalization Wed, 13 Feb 2008 18:00:00 -0500 Economic Growth 6719 at http://www.newamerica.net http://www.newamerica.net/publications/policy/foreign_investment_and_sovereign_wealth_funds <p>The amount of money now held by governments around the world both in reserves and through sovereign wealth funds (“SWFs”) represents the largest concentration of investment capital the world has ever known. Their sheer size and expected rate of growth raise important issues regarding both the origin of this wealth and how it is to be invested. The origin of these funds rests on two main factors: the global imbalances between debtor nations (like the U.S.) and surplus nations (like China), and the rise of state-owned commodity (oil) funds. As for their uses, these countries have built up sums that dwarf those held by all the hedge funds in the world combined and are set to grow at an unprecedented pace. It is incumbent upon policymakers to not wait, but rather to address this issue now, and to determine what opportunities and threats they present. We should be assessing how best to influence how these funds are utilized and invested. The issues raised involve political, economic, and security considerations.</p><h3>Background</h3><p>Global Central Bank reserves today total approximately $5.5 trillion. In addition to these reserves, SWFs are today estimated to have between $2.5 - 3 trillion under management. </p><p>In the past several months, the Governments of China, Japan, and Russia, among others, have announced the creation of new SWFs with significant re-allocation of present and future reserves to these funds. Independent of reserves, SWFs are conservatively expected to grow to $12 trillion by 2015 -- a figure that will roughly equal the entire U.S. GDP. </p><p>It is the scale, as well as the nature of the funds’ government ownership, that compels analysis of these enormous pools of capital and whether SWFs require new and different standards than those in place today. Existing investments by SWFs, while large by any other standard, have not fundamentally changed the character of the overall market -- but the ownership and size of these new funds requires a fresh look. </p><p>For the full paper, please see the attached PDF below.</p> Douglas Rediker Heidi Crebo-Rediker New America Foundation American Strategy Program Economic Growth Program Global Strategic Finance Initiative Economic Growth Trade &amp; Globalization Wed, 03 Oct 2007 11:02:00 -0400 Economic Growth 6044 at http://www.newamerica.net