T HE P ENNSYLVANIA S TATE U NIVERSITY E CONOMICS A SSOCIATION P RESENTS :

T HE O PTIMAL B UNDLE
S PRING 2014:
WEEK OF

M ARCH 6 TH

E DITOR : C OLE LENNON P RINT EDUCATION COORDINATOR C ONTRIBUTORS : L EAH G ALAMBA , J OE K EARNS , C OLE L ENNON , R YAN S OSNADER , E LEANOR T SAI

Upcoming Events: General Body Meeting: 3/6

Consumer Credit Report: 3/7

Psuea.org EA Homepage Psuea.org/blog Education Blog

REINSTATE GLASS-STEAGALL
The Glass-Steagall Act of 1933 was a law designed to prevent bank runs and panics. It established the Federal Deposit Insurance Corporation to guarantee bank deposits up to $2,500, an amount raised to $250,000 today. It also separated commercial and investment banking. The laws decline began with the Depository Institutions and Monetary Control Act of 1980, when the Federal Reserve was stripped of its power to regulate interest rates on savings accounts and sub-prime lending became more feasible for lenders. The Gramm-Leach-Bliley Act, signed by President Clinton in 1999, allowed commercial and investment banks to merge again. Yaron Brook and Don Watkins argue that the 2007-2008 financial crisis has nothing to do with the Gramm-Leach-Bliley Act. They ascribe its causes solely to investments in residential mortgages and mortgage-backed securities, neither of which were regulated under Glass-Steagall. Their argument makes a misleading conclusion; they say that because merging commercial and investment banks did not directly trigger the 2007-2008 financial crisis, reinstating that provision would damage the efficiency of our financial system. Reinstating the wall between commercial and investment banks by restoring the Glass-Steagall Act would not impair financial efficiency, but it would prevent excessive financial risk-taking and another financial crisis. Consolidation permitted by the Gramm-Leach-Bliley Act of 1999 resulted in too big to fail firms and created a moral hazard: These institutions excessively leveraged their federally guaranteed deposits and caused the 2007-2008 financial crisis. Removing the wall between commercial and investment banking exacerbated that risk-taking as financial firms merged. Since 1984, risk-taking has been enabled by a 50% decrease in the number of commercial banks and a 70% decrease in the number of savings institutions, largely due to merging. Research from economist Joseph Stiglitz and business leader David Brodwin confirms reinstating the wall between commercial and investment banks would mitigate financial risk-taking by breaking up these larger banks. Legislation restoring the wall between commercial and investment banking by bringing back the GlassSteagall Act offers much-needed financial stability, and it will prevent future financial crises.JK
CHECK OUT THE ARTICLES: ONFORB.ES/1CLQA2V ; BIT.LY/NL3BZV ; TO.PBS.ORG/1HVOSQT
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; 1.USA.GOV/1FB41PM ;

B LAME IT ON THE P OLAR V ORTEX

This relentlessly cold winter continues to cause problems for the U.S. economy. Disappointing reports on retail sales and new home construction led economists, including Janet Yellen, to blame it on the weather. Research from Goldman Sachs economist David Mericle shows that over 50% of this economic decline is due to bad weather. He states that GDP will fall 0.5% in the first quarter but experience a 0.5-0.75% boost in the second quarter as terrible weather subsides. Harsh climates arent just bad for economies today; they are often long-lasting and affect nearly everything in the economy, meaning that putting climate at the forefront of economic discussions should be a new priority.LG
Check out the articles: cnnmon.ie/1hHbMYs ; read.bi/1dirwAh

Hope for some thawing of the economy.

T HE Y OUNG , T HE O LD , T HE H OUSEHOLD
Massive economic inequality exists not just between the rich and the poor, but the young and the old. Recent research from the St. Louis Fed shows that households led by people under age 40 have only recuperated about 1/3 of their wealth lost during the Great Recession. Older generations have recovered all of their wealth, and a main disparity is housing. Young families suffered harsher falls in home values than older families, and home valuation in the younger cohort is still 35% below its top value. Economic recovery is leaving the youngest behind, condemning this entire generation of people to lower standards of living.CL
Check out the Article: wapo.st/1hzcbwX

The youngest could certainly use a hand.

S USTAINING THE C APTIAL G AINS

The S&P 500 rose 4.3% in February, its best monthly gain since October 2013. 2013s 29 percent gain had some investors worried about a potential bubble. In February, stocks showed no signs of slowing down. Positive readings on consumer sentiment and manufacturing activity spurred gains in the S&P 500, despite Fed Chairwoman Janet Yellen saying that the Feds tapering would continue. Analysts appear confident that the Fed would step in if the economy takes a turn for the worse, and investors appear more assured than ever in economic recovery without quantitative easing. These recent gains prove that the Feds tapering has not stopped stocks from rising.RS
Despite ebbing and flowing, the gains keep growing.

Check out the Article: on.wsj.com/1hVvpLf