As the stock market continues to shake following the crash of the subprime market, all eyes are on the Federal Reserve. Now more than ever it’s important to understand how the Fed works. For example, what is the federal funds rate and how does it differ from the discount rate? Here with a primer on how the Federal Reserve operates is Herbert Kaufman, professor of finance at the W. P. Carey School of Business.
The meltdown of the subprime mortgage industry, often associated with the lower end of the U.S. housing market, continues to spread upward, bringing uncertainty into the jumbo mortgage loan market (loans above $417,000). Luxury home communities are impacted, but so are less fancy neighborhoods in cities such as Los Angeles, where mortgages on small homes occupied by middle income families fall into the jumbo category. At this point the severity and duration of the impact on the high-end market are still unknown. The surprise is how far the subprime contagion has already spread, say experts at the W. P. Carey School of Business.
IRS officials estimate some $290 billion dollars that should have come into federal coffers in 2001 never made it into Uncle Sam’s pockets. But, take heart. The IRS has a seven-component strategy for bringing in the bucks. In the second part of a series on the tax gap, Charles Christian, director of the School of Accountancy at the W. P. Carey School of Business, points to the agency’s goal of expanding information-reporting vehicles as one change that might bring in a healthy payback.
According to IRS estimates, there is a $345 billion gross "tax gap" for 2001. The tax gap is the difference between taxes the IRS thinks should have been paid and taxes that actually were paid. Not surprisingly, "the tax gap is, on and off, seen as a revenue source," says Charles Christian, professor of accountancy at the W. P. Carey School of Business.
The collapse of the subprime market has hit hedge funds hard. According to Anthony Sanders, professor of finance and real estate at the W. P. Carey School of Business, many hedge funds forgot due diligence when the real estate market was hottest, and are now stuck with bad paper. Although the long term effects have yet to be seen, some consumers will feel the repercussions in constrained lending policies. An upturn in the housing market would help, and Sanders thinks that may happen sooner than some have predicted.
Too often, Chinese customers buy wealth management products without a real understanding of what they’re getting into, according to Xiaoling Wu, deputy governor of the People’s Bank of China. Wu was speaking at the Fourth Annual Executive Forum, hosted by the W. P. Carey School of Business and the Shanghai National Accounting Institute. To grow wealth management services in the next decade, she said, Chinese institutions would do well to clarify regulations, communicate with customers, and offer a higher level of service to China’s new investors.
