This paper discusses the impact that globalization in general and offshoring in particular have on US employment and income. Most recent discussions of offshoring (defined here as the transfer of existing jobs to foreign locations) in the press and by politicians have focused on lost US employment. Economists, in contrast, generally believe that labor markets will adjust and create new jobs to replace the lost ones. The first part of this paper documents the empirical evidence that the US economy generally has replaced the jobs that have been lost to technological change and offshoring activity.

Stipulating that lost jobs will be replaced, the key question then concerns the quality of the jobs, specifically the wage rates, that will apply in a globalized world. The question must be posed carefully, however, since different meanings of globalization may lead to very different answers for the possible convergence of incomes. Finally, the paper considers whether national economic policy can influence the outcome, as an application of the New Trade Theory, with comparative advantage an endogenous variable.

This paper evaluates a current policy proposal to limit the size of the retained mortgage portfolios held by Fannie Mae and Freddie Mac (hereafter F&F). The proposal is a response to the growing concerns that the interest rate risks contained in the F&F portfolios create a serious threat to the US financial system. The analysis begins with a review of data on how F&F operate and on the role they play within the US mortgage market. Special attention is paid to the manner in which the firms hedge their interest rate risk. Key questions regarding the policy proposal include (1) what fund sources will replace F&F as mortgage investors, how will the interest rate risk be covered after it is removed from the F&F portfolios, and (3) what is the likely impact of the change on US mortgage interest rates. The conclusion is to endorse legislation that will limit the F&F retained mortgage portfolios.

The goal of this paper is precisely to consider how the banking regulation and mortgage market reforms could and should interact. In doing so, I take as the starting point, on one hand, the bank regulation initiatives already present in the Dodd-Frank Act and the Basel III proposal, and on the other hand, the mortgage market reform principles presented in the Treasury/HUD (2011) White paper. I then consider what additional reform elements should be considered in view of the interaction of bank regulations and mortgage market activity. The paper is organized as follows. In Section (2), I provide an overview of the failed U.S. bank regulation system that has been in place for approximately the last 20 years, and identify the key components of bank regulation that created the systemic dimensions of the subprime mortgage losses. In Section (3), I analyze the Treasury/HUD White Paper proposal and identify the primary issues it raises for regulatory reform. In Section (4), I compare securitization with covered bonds and analyzes the appropriate regulatory rules if mortgage-backed covered bonds are to become an important element of the U.S. mortgage markets. The positions I take on securitization and covered bonds are at variance with some parts of the Dodd-Frank Act and the current policy position of the Federal Deposit Insurance Corporation (FDIC). Section 5 summarizes the key components of bank regulation and mortgage market reform that must be in place if the full reform package is to be successful.

The financial distress of investment banks and the GSEs (government sponsored enterprises, namely Fannie Mae and Freddie Mac) has received intense focus recently in both financial markets and regulatory circles. As a result, there is a consensus that new methods of regulation are necessary to minimize the likelihood of future governmental bailouts. This paper explores the benefits of reregulating the investment banks and the GSEs by applying the monoline principles that have been long established in regulating catastrophe insurance firms.

This paper offers a framework and a specific proposal for the reregulation of Fannie Mae and Freddie Mac (hereafter F&F) in the aftermath of the subprime mortgage crisis and their conservatorship. Reforming financial regulations after a major financial crisis is the norm in US financial history, and a process with generally very positive results. Actions to reregulate have typically solved the problem at hand, while maintaining an overall efficient and innovative financial system. In this spirit, this paper develops a framework and analyses alternative proposals for the reregulation of F&F, and recommends one specific plan. The recommended plan continues the firms’ mortgage guarantee and securitization programs in support of middle-income borrowers. The programs, however, would now operate within government agencies, in a format parallel to the current Federal Housing Administration (FHA) and GNMA programs that support lower-income borrowers. At the same time, the remaining net assets and technology of the F&F retained mortgage portfolios are to be returned to the firms’ investors, who would operate the new entities as private firms with no government connection.

This paper considers three sets of possible solutions for the future role of Fannie Mae and Freddie Mac within the U.S. mortgage markets: reestablishment as government sponsored enterprises (GSEs), transfer of key activities to the government, and privatization. The two firms have now operated as GSEs for decades without significantly mitigating any market failures, while their risk-taking ultimately led to a government bailout and conservatorship. I conclude that a GSE format, combining a public mission with private incentives to take risks, is basically untenable. My proposal, therefore, is a combination of a government agency and privatization. The government agency would, at least temporarily, take over the core GSE activity of securitizing prime, conforming, mortgages. The privatization would transfer any remaining net assets and any intellectual proper to the firms’ shareholders, with the firms then being reorganized as private sector entities with no further links to the U.S. government. The ultimate goal is for the private markets to take over all mortgage securitization.

This paper offers a framework and a specific proposal for the re-regulation of the US investment banks and government sponsored enterprises (GSEs, Fannie Mae and Freddie Mac) in the aftermath of the subprime mortgage crisis. The paper starts with a review of the key factors that led to the subprime crisis firms. It then looks at the special features of the investment banks and GSEs that led to their bailout. Finally, the paper proposes a special solution to avoid future bailouts.