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  • Author: John H. Makin
  • Publication Date: 04-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In October 1907, J. P. Morgan stemmed a financial panic by coercing other banks to join him in providing credit to Wall Street brokerage firms teetering on the edge of bankruptcy.[1] This year, over the weekend including March 15—the ominous Ides of March—James Dimon, head of JPMorgan Chase, was the one to act. With the Federal Reserve squarely behind him and assuming the risk, he prevented a Bear Stearns bankruptcy by agreeing to purchase the firm, providing it with a decent burial, at a price of $2 per share. Bear Stearns's stock had been valued at over $160 per share just a year ago. The $2 price virtually wiped out the value of that stock, one-third of which is owned by its 14,000 employees. This was clearly not a bailout for Bear Stearns shareholders, and whether or not the steps taken by the Fed on March 16 were sufficient to arrest a further collapse of available credit and the economy remains to be seen. As long as house prices keep falling, the underlying problem for credit markets and the economy remains.
  • Topic: Economics, Government, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 05-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The desire to enhance and store wealth has been present ever since income rose above subsistence levels. In ancient times, prior to the creation of symbolic financial claims on wealth, wealth storage was, quite literally, the storage of intrinsically valuable articles in temples, pyramids, or other such formidable structures. Even today in Tibet, which was long a theocracy, a major repository of wealth can be seen in religious statues of solid gold resting in temples.
  • Topic: Civil Society, Economics
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 01-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The bursting of every bubble is followed by statements suggesting that the worst is over and that the real economy will be unharmed. The weeks since mid-March have been such a period in the United States. The underlying problem—a bust in the residential real-estate market—has, however, grown worse, with peak-to-trough estimates of the drop in home prices having gone from 20 to 30 percent in the span of just two months. Meanwhile, the attendant damage to the housing sector and to the balance sheets tied to it has grown worse and spread beyond the subprime subsector.
  • Topic: Economics, Government, International Trade and Finance, Political Economy
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 07-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The Fed is in a bind, pulled toward easier monetary policy by a weak economy and fragile credit markets, while simultaneously needing to resist higher inflation. On Monday, June 9, after a weekend of headlines regarding a half-percentage-point rise in the unemployment rate, Federal Reserve chairman Ben Bernanke gave a pathbreaking speech entitled "Outstanding Issues in the Analysis of Inflation" at the Federal Reserve Bank of Boston's fifty-third Annual Economic Conference. In that speech, after suggesting that the risks of a substantial  economic downturn had diminished over the past month and citing further progress in the repair of financial and credit markets, he proceeded to address the problem of rising inflation. In two sentences, he contributed to a sharp, fifty-basis-point rise in two-year bond yields and boosted the market's assessment of the chance of a fifty-basis-point rise in the federal-funds target rate at the September 16 meeting of the Federal Open Market Committee (FOMC) from virtually zero to nearly 70 percent.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Ted Brennan, Robert "Bobby" Charles, Henry Cuellar, Roberta Jacobson, Armand Peschard-Sverdrup
  • Publication Date: 03-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Drug abuse and related crime claim nearly thirty-five thousand American lives and sap $180 billion from our economy every year.1 Although the United States is understandably preoccupied with the threat of Islamic terrorism, it must never let down its guard against the well-financed, bloodthirsty, illicit drug cartels that exact a staggering price on our well-being and economy. President George W. Bush's fiscal year 2009 budget proposes to spend well over $14 billion for federal programs to suppress demand and attack supply. Because most cocaine and heroin find their way to the U.S. market through Mexico, it is essential that Mexican authorities confront the illegal drug syndicates whose cross-border crime threatens both countries. The Mérida Initiative—named for the Yucatan city where Bush, then-president of Guatemala Óscar Berger, and Mexican president Felipe Calderón met in March 2007—proposes to make a $1.4 billion multiyear U.S. contribution to support Mexican law enforcement and judicial reforms in their antidrug efforts. The challenges are formidable: Mexico's relatively weak judicial institutions are hard-pressed to take on these well-heeled gangsters on their own, and both sides are protective of their national sovereignty. Nevertheless, both countries have signaled their commitment to this cause: at a February 7, 2008, hearing, the Drug Enforcement Agency's chief of intelligence, Anthony Placido, praised the tangible measures being taken and sacrifices being made by Mexico today and urged skeptical U.S. lawmakers to seize the opportunity to cooperate with Mexican allies against a common foe. Despite heavy media focus on the counternarcotics elements of the initiative, when the specifics of the initiative are examined, it is clear that its aim is to strengthen Mexico's security institutions, enabling them to deal with the threat nonstate actors—be they terrorists, organized crime, criminal gangs, or domestic radical groups—pose to the country's security.
  • Topic: Crime, War on Drugs
  • Political Geography: United States, Latin America, Mexico
  • Author: Roger F. Noriega
  • Publication Date: 03-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: One step ahead of the devil himself, Fidel Castro is proposing to pass the baton to his revolutionary partner and younger brother, Raúl. With characteristic audacity, the old dictator is hoping that he can bamboozle a gullible international community into recognizing such a succession as a fait accompli. Of course, there is no reason that the successor regime will be able to consummate this arrangement as long as the rest of the world gives the welfare of the Cuban people a second thought. Fidel's disintegration makes way for an extraordinarily expectant time in Cuba's history. Men and women of good will on the island may yet snatch their future from a decrepit and discredited regime, and outsiders' only role should be to help them in every way possible. We should bear in mind at this critical hour that one false move—by the United States, in particular—could confer legitimacy on a “new” Cuban dictator and consign 11 million Cubans to prolonged desperation.
  • Topic: Foreign Policy, Communism
  • Political Geography: United States, Latin America
  • Author: Megan Davy
  • Publication Date: 05-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Latin American and Caribbean (LAC) economies, usually susceptible to international financial turmoil, are especially vulnerable to even minor tremors in U.S. markets. Regional policymakers and entrepreneurs, therefore, have been closely watching the current U.S. subprime credit crisis. Here is the good news: all signs point to relatively minor symptoms in LAC countries—despite a rocky financial history during the 1980s and 1990s—thanks in large part to reforms undertaken in response to previous financial crises, as well as continued high commodity prices that will likely buoy export markets. Although the economic downturn in the United States and other global markets will likely expose lingering weaknesses in the region's economy, this latest crisis can provide an impetus to complete the unfinished business of building more modern, resilient economies.
  • Topic: Development, Economics, Emerging Markets
  • Political Geography: United States, South America, Latin America, Central America
  • Author: Nicholas Eberstadt
  • Publication Date: 01-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: With a newly elected South Korean president willing to join the United States in standing up to North Korea, the Bush administration now has a unique opportunity to put pressure on Kim Jong Il to abandon his country's nuclear program and desist from its human rights abuses. In this article, AEI's Nicholas Eberstadt asks whether the administration will seize the opportunity.
  • Topic: Diplomacy, Human Rights, Nuclear Weapons
  • Political Geography: United States, Asia, South Korea, North Korea
  • Author: Douglas J. Besharov
  • Publication Date: 01-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Finding that an op-ed by Michael Gerson poorly defined the conservative approach to social problems, Douglas J. Besharov outlined six principles that underlie the conservative position on government social programs. Besharov notes that being cautious about the possible ill effects of government intervention is not unique to conservatives. It is simply realistic to be skeptical about the federal government's ability to mitigate serious social welfare problems.
  • Topic: Civil Society, Government, Human Welfare
  • Political Geography: United States
  • Author: Amity Shlaes
  • Publication Date: 01-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Democratic presidential candidates are invoking the New Deal as a model for addressing infrastructure, economic, and employment problems in the United States. But a careful look at New Deal spending suggests, in the words of Amity Shlaes, "not how much the public works achieved . . . [but] how little." Advocates for new federal government spending on highways, buildings, and roads should carefully weigh the need against the damage that comes from projects and jobs created for political reasons.
  • Topic: Government, Industrial Policy, Political Economy, Politics
  • Political Geography: United States