Author: Josh Adler

This article is about the recent default of municipal bonds. Cities and towns all around the United States have been weighed down by large commitments in pensions and frivolous spending. On March 19^th, Stockton became the largest city to default on its municipal bond loans. This default is important because now investors all around the country are anticipating a large amount of defaults. Municipal governments have been taking drastic cuts to help meet bond demands. The lack of revenues in cities has forced bondholders to take losses outside the bankruptcy process. The default on these bonds is detrimental to cities because it slashes their bond rating and makes it more expensive for cities to borrow money. This borrowed money is used to improve the city and pay for government projects. According to CNBC, Stockton last year had the second highest foreclosure rate of 5.34 percent. Some of the frivolous spending is due to the public employee contracts, the downtown sports arena, and urban revitalization projects. Cities all around the country are now hurting because of the over spending and the commitments made to pensions.

I found this article to be interesting because as the economy starts to improve American citizens forget about the crisis that lurks within the financial condition of municipalities. There are many state and local governments that do not have enough revenue to meet the cost of pensions and other large spending. Harrisburg, PA is another city that defaulted on loans and states such as Illinois, New Jersey, and California are insolvent. I believe the problem is the environment and the way governments do business. It is difficult to force politicians into the same mindset as the private sector. However these municipalities need to cut spending and re-evaluate union contracts. Some ways that local governments are cutting operations expenses is by reducing the police force. According to CNBC Santa Ana saved $10 million a year by closing its fire department and relying on the county fire department. I strongly believe that municipalities need to change their way of business. As the equities market continues to improve and the credit rating of cities decreases it could be a struggle to find outside funding to help improve our cities.

Reuters Link: http://www.cnbc.com/id/46783384

Author: Agustino Fontevecchia

This article is about the soon rally in crude oil prices and the reasons behind the rally. The article states that the markets have underestimated global demand. Another reason for the spike in oil prices is the weak U.S. dollar. Barclays predicts that a barrel of oil can rise up to $118. The article states that West Texas Intermediate contracts for March delivery is trading at $119.39. Brent oil rose to a three-week high of 91.70 Euros. The demand for oil has also increased because Asian demand will increase .98 million barrels of oil a day up to 29.33 million barrels a day. The Asian markets are 92% of the increase in demand for oil. The supply of oil is also jeopardized because of conflicts with Iran. The current market prices reflect a significant risk premium for the potential of a supply disruption from a geopolitical event. The article states how the quick increase in demand and an unstable geopolitical system could create inflated oil prices.

I believe that if the U.S. uses military force against Iran then oil prices will spike. Therefore the race for president in 2012 is critical. Some of the republican candidates have aggressive foreign policies and are looking to take military action against Iran. Rick Santorum is one of the candidates with an aggressive foreign policy. He is one of the republican front runners for president and I believe if he wins presidency then the crude oil futures will see an increase in volatility. This is an important issue because volatile oil prices can be detrimental to business and effect major necessities such as food. Oil is a crucial commodity because it affects all other commodities. The only solution to this problem is to manage oil demand and work with the U.N. to create a delicate foreign policy that Iran can agree with and therefore not cut off oil supply.

Forbes Article: http://www.forbes.com/sites/afontevecchia/2012/02/17/perfect-storm-in-oil-markets-iran-china-will-keep-prices-high/2/

Author: Steve Schaefer

​This article mentions the attorney generals in California and New York pursuit to take back money for families in foreclosed homes. The five major banks in the U.S.: Bank of America, Citigroup, JPMorgan, Wells Fargo, and Ally Financial, agreed to payout a total of $25 billion.  This money will be used to provide relief for families that have delinquent mortgages.  The lawsuit was sparked because of the accusations of robosigning during the housing crisis. Robo signing is the illegal act of a bank signing on the behalf of the mortgage owner.  This signature allowed for the bank to foreclose on homes that were in fact not delinquent.  The article states that this $25 billion settlement will allow $300,000 home owners to refinance their homes.  This is a small portion of the housing crisis considering that 750,000 people lost their homes in foreclosure from September 2008 to the end of 2011.  These 750,000 people will receive a check for $2,000 for their loss. These banks are able to give such a large payout because it is partially offset by reserves they put in for such settlements.  Although the banks are being fined their stocks have been increasing in value at a high speed rate and the financial industry keeps improving.

​I believe this $25 billion payout is actually beneficial for the banking industry.  The banks have easily agreed to payout this settlement which shows that they admit they were wrong and are trying to improve the housing market that they have destroyed.  This payout also shows that the banks have enough cash on hand to payout $25 billion without being financially hurt.  These banks have come out of the banking crisis stronger and leaner.  Banking stocks have increased at high speeds since the beginning of 2012.  The improvement in the economy and stock market will encourage these banks to take the large amounts of cash on hand and invest into the stock market.  However the Forbes article mentions that the uncertainty in Greek debt deals will keep uncertainty on U.S. banks fresh.  I believe that once the Greek debt is settled then these banks will be able to see real growth.

Forbes Article: http://www.forbes.com/sites/steveschaefer/2012/02/08/report-attorneys-general-near-25b-foreclosure-settlement-with-big-banks/

Author: Nishant Sheth

As some of you may already know, on February 1^st Facebook decided to announce plans for an initial public offering. The IPO could value at up to $100 billion. This is a landmark figure for a company like Facebook, who is into social networking. Facebook is a very useful and integral tool in today’s world. It has a very broad user base all over the world. Facebook generated $3.7 billion in revenue just last year. The main question entering investor’s minds is, does this justify the possible $100 billion IPO? Facebook is not only an important tool for teenagers and college students but also one that is very important in today’s corporate world. Companies know that Facebook is a way for them to reach their target audience and promote their products. It has become essential for companies to utilize social media to remain competitive in their market. The one at the top of the list: Facebook. Some people worry about the IPO because Facebook only has 3,200 employees. Many of these employees would become millionaires after its IPO. This may curb employee motivation as they have already made it big. Also, all this new money will drive Facebook to add more products and services which will focus on profit making. Since Facebook relies on advertisements, more and more products and services means more information from users. This could raise privacy and trust issues. Another big issue brought up is antitrust regulation and technology competition. What do you think about Facebook’s IPO and analysts concerns?

Economist Article: http://www.economist.com/node/21546012

Author: Tyler Stoffers

As the Euro-debt crisis continues to haunt the markets across the globe we have seen a lot of political changes with high level officials stepping down.  For one, the former prime minister of Italy Silvio Berlusconi has decided to resign from his role.  He had originally denied his resignation via Facebook but as pressure continued to mount he eventually relinquished his position.  As a replacement, Italian president Napolitano has named Mario Monti to be the new PM in hopes to encourage change that will allow the country to survive the current economic storm.  With this appointment, it is likely that the political majority will be held by the Technocrat party.  However, the logistical details of the cabinet and expected reform programs have yet to be disclosed.  In addition to the switch in Italy, Greece is also undergoing political change. Former PM Papandreou has step down from his position and Lucas Papademos has been chosen to succeed him on behalf of the new unity government. The new coalition government has been received very positively by citizens as more than 70% approved of the action in a recent poll.  He will have his work cut out for him right from the beginning as Greece looks to secure their 6th tranche in order to be able to pay for its upcoming maturities.  The Euro-crisis has directly led to major changes in governments across Europe, but will merely switching political parties and a few key officials be able to solve the structural debt issues of these countries?  How do you think this political action will play out going forward, and do you think that this political shake-up will continue to other Euro-countries as well?

Article: http://www.bloomberg.com/news/2011-11-14/monti-asked-to-lead-new-italian-government-to-fight-debt-crisis-contagion.html

Welcome back to a new semester! We hope you all made the most of your summer.

A few things lined up for the upcoming months:

- General Body Meeting: 9/22, 7-8 pm, Back Bay Room C

- Guest Speaker: Oct. 6

- Professor Networking Night: Oct. 27

- Professor Debate: Nov. 10

- Office Visit: Nov. 30 or the following Wednesday.

Details will be released as the date of each comes closer. Watch out for them!

At our last E-Board meeting, the following events were hashed out:

- General Body Event (for the beginning of the semester)

- Activities Fair (before General Body Meeting)

- Office Visit (to an as of yet unspecified Financial Institution - last time was the Fed)

- Up Down Competition

- Professor Networking Event

We still need to get tentative dates set out over the summer, but this is what next semester currently looks like for the Economics-Finance Society. Any inputs are most definitely welcome!