Hedging Our Bets: Exploring Issues in America’s Financial Services Industry

Jul 10, 2007Jul 12, 2007


Session One: Tuesday, July 10th
Exploring the Economics of GSEs

Lawrence J. White
Professor of Economics
New York University

Click Here to view Dr. White's presentation.

Session Two: Wednesday, July 11th
The Economics of Hedge Funds
Houman Shadab

Senior Research Fellow
Mercatus Center at George Mason University 

Click Here to view Houman Shadab's presentation.

Session Three: Thursday, July 12th
Exploring issues in the Subprime Market
Todd Zywicki
Professor of Law
George Mason University 

Click Here to view Todd Zywicki's presentation. 

So far, 2007 has not been a banner year for financial institutions. Following the lackluster figures resulting from a stalled first quarter, the economy has begun to pick up pace. However, not everyone is convinced that we are out of the woods just yet. With the not so subtle crash of the subprime housing market, slowing housing figures, and concerns over hedge fund stability, many in Congress are beginning to ask questions and propose solutions.

The U.S. housing market has been the engine of domestic economic growth over the past few years. During this time, the "Big Three" Government-Sponsored Enterprises (GSEs) - Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System - became giants in the mortgage industry. This massive growth, along with several accounting scandals and a cooling housing market has caused concerns among policy makers regarding the oversight of these enormous organizations.

In addition, with the recent woes of the subprime market, and the subsequent slowing of the housing market in general, concerns are emerging about the potential for broader spillover into financial markets. Proponents of subprime lending have defended the role it plays in extending credit to consumers who would not otherwise have had access to the credit market. But opponents have criticized the lending industry for predatory practices that target borrowers who are unable to carry such loans.

While the housing market rebounds, hedge funds have become the new darlings of Wall Street.  By using innovative and sometimes risky trading methods, this inventive industry has been able to produce stunning profits. However, because hedge funds are subject to fewer regulations than most investment companies, important concerns have been raised by policy makers about the risks the funds pose to investors and the their ability to destabilize the economy. These concerns have led some in Congress to call for more regulation and oversight in an effort to increase investor protection.

In order to provide some economic insights into these complex issues, the Mercatus Center will host a three day course for congressional staff. Participants will address such questions as:

  • What is the extent of the subprime crisis? How does subprime lending differ from prime lending? What are some possible remedies for the failing subprime market? What are their costs and benefits?

  • What is the role of hedge funds in the changing world of global capital? What are the possible costs and benefits of regulation?

  • How do GSEs' congressional charters confer privileges on their operations? What benefits have these charters provided to US housing markets?

  • What would proposed reforms mean for GSEs and the housing market as a whole?