In The News

2008: Year of Reckoning?

Ernesto Zedillo December 21, 2007
Economists debate whether huge global imbalances are dangerous or matter of course. But a specific financial tool as simple as home loans in the US has revealed the intricate ties linking global financial markets, resulting in “the credit-crunch drama,” explains Ernesto Zedillo, director of the Yale Center for the Study of Globalization. Recklessness in the sub-prime mortgage market has also...

The Global Money Machine

David Roche December 17, 2007
The sub-prime mortgage crisis – the big stack of US home loans that went to people who could not afford payments – has led to a global credit crunch. Record low interest rates created a huge supply of credit, which in turn led to higher prices for homes and other assets. An appetite for risk, rather than actual asset values or funds backing the loans, drove the supply of credit and the price for...

A Queue in the Sand

Stanley Reed December 7, 2007
The Middle East is rich with oil money, ready to invest in all kinds of megadeals, reports BusinessWeek. For example, state-owned Abu Dhabi Investment Authority stepped forward to buy a $7.5 billion stake in Citigroup, a bank ailing from the US sub-prime mortgage crisis. Some borrowers purchased homes with loans that offered low rates for only a year or two; as the rates increase, the homeowners...

Foreclosures Hit a Snag for Lenders

Gretchen Morgenson December 4, 2007
Homebuyers in the US borrowed money, some with adjustable-rate mortgages that offered low payments early in the loan’s term. Mortgage companies and banks packaged these loans into huge pools and resold the securities to global investors eager to cash in on the higher payments promised during the later years of the loans. With the loans secured by people’s homes, investors assumed the deals...

The US Economy: Trying to Guess What Happens Next

Peter S. Goodman November 30, 2007
The US economy relied heavily on its consumers’ willingness to borrow heavily to meet their wants, even as debt mounts. But the recent economic slowdown has dampened the spending spree. Hints of renewed thriftiness in the US contribute to global unease, and pessimists warn of a severe recession, with a plummeting stock market, escalating unemployment and declining value in the dollar. On the...

Who Gains When the Dollar Sinks?

Scott B. MacDonald November 27, 2007
The US currency has sharply declined in value in recent years, which inevitably diminishes the nation’s economic health and influence abroad. So far, the US economy has been spared the full consequences of its struggling currency because the dollar’s historic strength has put it at the center of the world economy since World War II. Many nations' currencies are pegged to the dollar, and the...

The Limits of a Smaller, Poorer China

Albert Keidel November 26, 2007
“Purchasing power parity” is a complex economic theory that suggests identical goods cost the same in different countries and allows economists to account for the influence of exchange rates and inflation on prices. Relying on that system of measurement, an Asian Development Bank report this summer included Chinese participation in price surveys for the first time. As a result of that...