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On the eve of Barack Obama's inauguration as president of the United States, Wharton finance professor Richard J. Herring discussed with Knowledge@Wharton some of the advice offered to the new chief executive by the Shadow Financial Regulatory Committee, a group of economists, former regulators and lawyers, of which Herring is a co-chair. Among the recommendations: As quickly as possible, unwind federal investments that helped keep U.S. banks afloat.
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On August 1, Mattel recalled approximately 1.5 million toys made by a manufacturer in China because of dangerous levels of lead in their paint. Four days earlier, the Chinese government ordered the country's banks to increase their reserves as part of an effort to cool down its red-hot economy. But quality concerns and rapid growth aren't China's only worries. There is also the government's need to keep forging ahead on preparations for the Olympics next August in Beijing, despite criticism about overdevelopment and unsafe levels of pollution.
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These days, when the U.S. Department of Defense buys a fighter jet from Lockheed Martin, it doesn't simply pay Lockheed for the physical product. Instead, the government has a "performance-based contract" with the defense supplier, according to Serguei Netessine, professor of operations and information management at Wharton. This contract says, in effect, that the government's reimbursement to Lockheed hinges on the jets' performance -- that is, how often the planes are able to fly.
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Freddie Mac, the government-supported mortgage finance company taken over by the government 18 months ago along with Fannie Mae, is waiting for the Obama administration to come up with a plan that will revamp the two agencies along with the whole area of housing finance. Waiting in the wings to implement that plan is Charles "Ed" Haldeman, Jr., who was appointed CEO of Freddie Mac last July and has already moved ahead with a strategy to revive the somewhat demoralized 6,000-employee agency.
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Whenever an industry runs into trouble -- and especially when it starts hemorrhaging jobs -- demands for support and subsidies are heard. But does having an industrial policy really make sense? According to Howard Pack, a professor of business and public policy at Wharton, an interventionist government policy generally plays a limited role in bringing about an improvement. In fact, he adds, government interventions can sometimes lead to harmful results. (Podcast with transcript)
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After refusing to bail out Lehman Brothers, the government agreed to an $85 billion loan to insurance giant AIG, effectively taking over the company. Knowledge@Wharton talked to Wharton insurance professors Olivia Mitchell and Kent Smetters to find out how the world's largest insurer got into this situation and how it can be prevented from happening again.
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Gabon is one of the stable regimes in the African continent, and leaders there have a vision of progress based on being both business- and environment-friendly. Liban Soleman is the president's chief of staff of the government of Gabon. In this interview with Knowledge@Wharton, Soleman says there is enormous opportunity for investors in Gabon, and in Africa as a whole. (Article with audio)
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Almost every day, a new twist seems to appear in the subprime crisis drama. This week, the investment arm of the government of Abu Dhabi announced an infusion of US7.5 billion to acquire a 4.9 percent stake in Citigroup, which has been slammed by enormous losses in the credit market. The announcement came on the heels of a report from Bank of America that the subprime mess is about to get messier as interest rates "reset" -- or rise -- on more than US360 billion worth of adjustable rate subprime mortgages. Has the crisis run its course?
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Progress toward unfettered international commerce stumbled last week with the collapse of the World Trade Organization's Doha talks, a seven-year effort to establish new global trade rules. The lengthy talks were complicated by the rapid emergence of China and India as major economic powers with commercial and strategic interests to protect, and the clout to do so. Many observers say the talks' collapse is a setback for poorer nations, which need access to larger markets in order for their economies to grow.
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The government's rescue of Fannie Mae, Freddie Mac and AIG demonstrated clearly that the financial turmoil continues on Wall Street. In an interview with Knowledge@Wharton, Wharton finance professor Jeremy Siegel says there are some positive signals in stocks and corporate earnings, but it's too soon to say the market has hit bottom. Siegel also talked about inflation and commodities.
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