Kent Smetters - Faculty Research in Knowledge@Wharton

Fighting for Common Ground: Will Business and the New Congress Get Along?

Wed, 02 Feb 2011 15:51:26 EST

Even with a friendlier Congress and conciliatory tones from the White House, businesses face major challenges in Washington as a still-weak economy makes it difficult for a divided government and various industries to push their agendas forward. The U.S. Chamber of Commerce has called for deficit reduction, restraints on government spending, lower taxes, fewer government regulations and improvements in education and infrastructure, while the Obama Administration's top request for businesses is to add more jobs -- all positive goals, but a lot stands in the way of making them a reality.

Broken Promises: Can the World's Stressed-out Pension Plans Be Rescued?

Mon, 06 Dec 2010 13:13:58 EST

From Chicago to the Champs-Elysees, distressed retirement plans are coming under fire as they struggle to keep pace with projected payouts. Responses range from raising national retirement ages to whacking corporate profits to meet funding requirements. With state and local plans facing the widest gaps, some policy makers are taking increasingly risky steps to keep the funds solvent. According to some experts, resolving these pension-plan woes will take years of hard work.

An End to the 'Golden Years': Increasing Longevity Changes the Work-leisure Equation

Mon, 06 Dec 2010 13:14:17 EST

People are working longer and retirement ages are rising everywhere as aging populations, broken nest eggs and distressed pension funds make staying in the workforce a growing necessity. The baby boomers' desire to remain active and engaged further blurs the distinction between work and retirement -- a sharp reversal from attitudes that held sway during much of the 20th century, when retirement was seen as the ticket to an endless weekend.

Election Upheavals: What's the Significance for Business and Beyond?

Wed, 10 Nov 2010 14:15:08 EST

The political landscape in Washington and around the country shifted considerably as a result of the midterm elections, with Republicans taking control of the House, gaining ground in the Senate and claiming several high-profile state offices against incumbent Democrats. What are the elections' implications for the economy and the stock market, health care reform, the Obama administration's leadership strategy and the future of both parties going forward? Knowledge@Wharton spoke with Wharton professors Jeremy Siegel, Kent Smetters and Michael Useem, and Penn political science professor Marc Meredith about these and other issues.

'A Major Transformation': The Pros and Cons of the Dodd-Frank Act

Tue, 11 Jan 2011 15:59:19 EST

According to Wharton experts, the Dodd-Frank Wall Street Reform and Consumer Protection Act is a good start toward future financial stability, but they warn that significant concerns remain unaddressed, and stress that the details of implementation must be handled carefully to avoid creating new problems. "I don't think there's a full appreciation of the major transformation of the financial structure that is upon us," one faculty member says.

Will the Economic Recovery Run Out of Steam?

Wed, 21 Jul 2010 15:16:28 EST

After a year of solid gains, the economic recovery is beginning to slow. Demand is trailing off as inventory levels have been restored and emergency stimulus measures withdrawn. Continued high unemployment and a downtick in housing are weighing on consumer confidence and spending. Add unexpected shocks from Europe and a slowdown in China, and forecasters are now ratcheting down their expectations for growth over the next year. While many still expect economic expansion to continue in the longer term, "we have definitely hit a soft patch," one Wharton faculty member notes.

China's Renminbi Revaluation: Small Step, Big Impact?

Wed, 07 Jul 2010 14:14:17 EST

China's announcement in June that it will abandon the peg tying the renminbi (RMB) to the U.S. dollar and gradually let its currency appreciate was widely applauded in international business and economic circles. The decision is important, experts say, not only in debates about the future clout of the dollar and the RMB in global trade and politics, but also for correcting global economic imbalances. Yet now many observers are wondering what impact the revaluation will have on jobs and prices for the average person -- whether in Boston, Beijing or anywhere in between.

Will Hopes for European Austerity Be Deflated?

Wed, 23 Jun 2010 15:52:02 EST

Following Greece's pledge to reduce its debts dramatically through a combination of government spending cuts and tax increases, others, including Spain, Germany, France -- and just this week, the U.K. -- began the march toward austerity. While many question whether a country like Greece can make good on its promises without resorting to debt restructuring, the bigger question is whether the austerity measures will actually work.

Regulating the Unknown: Can Financial Reform Prevent Another Crisis?

Wed, 09 Jun 2010 16:48:25 EST

Congressional negotiators are ironing out differences in two mammoth financial reform bills -- one passed in the House in December, the other by the Senate in May. Backers say the result will prevent the kinds of excesses that led to the financial crisis. Yet, while some of the measures likely to become law may help, there would still be plenty of risk left in the system, according to several Wharton faculty members. "[The proposed reform] is not, ultimately, a game-changer in terms of preventing a crisis," says Wharton real estate professor Susan M. Wachter.

Goldman Sachs and Abacus 2007-AC1: A Look Beyond the Numbers

Wed, 28 Apr 2010 14:56:07 EST

Goldman Sachs is the Wall Street mega-firm whose money-making prowess leaves many impressed, envious or suspicious. Now the firm's reputation is on the line, as it fights a fraud suit brought by the U.S. Securities and Exchange Commission over a single deal in 2007, the sale of a complex "synthetic collateralized debt obligation" called Abacus 2007-AC1. The deal lost investors $1 billion but produced $1 billion in profits for Goldman's collaborator, Paulson & Company, a hedge fund betting the housing bubble would collapse. Experts at Wharton and elsewhere analyze the financial, legal and ethical issues raised by a case that has riveted both Wall Street and Main Street.

Betting on Future Movie Receipts: Beware the Hollywood Lemons

Wed, 28 Apr 2010 14:56:07 EST

Wouldn't it be great if you could invest in a new film that you thought might be a real blockbuster? Now maybe you can. On Tuesday, April 20, the U.S. Commodity Futures Trading Commission approved a movies futures exchange -- sponsored by Cantor Fitzgerald investment bank -- that will match buyers and sellers of future movie receipts. But given the way some futures exchanges work, how good an investment is this for individuals? In this personal finance column, Wharton professor Kent Smetters offers some answers.

Inflation: 'Financial Death by a Thousand Cuts'

Wed, 31 Mar 2010 14:51:19 EST

Unlike market crashes such as the Great Depression or the recent economic crisis, "inflation lurks in the shadows," says Wharton insurance and risk management professor Kent Smetters. "It destroys value gradually by eroding real returns over time." In the first installment of a new personal finance column for Knowledge@Wharton, Smetters discusses how investors can guard their portfolios against surges in inflation.

Banking Reform Proposals: Why They Miss the Mark

Wed, 17 Feb 2010 17:36:07 EST

Big banks have been widely blamed for creating the global financial crisis, and last month the Obama administration proposed several reforms aimed at restricting their activities. Among them is the so-called Volcker Rule -- named after former Fed chairman Paul Volcker -- which prohibits banks from trading for themselves. But will these proposals lead to a healthier banking system and help prevent future crises? Several Wharton professors say that while the proposals have some good aspects, overall they miss the big picture.

Seeing Red: What Are the Costs of China's Currency Policy?

Wed, 20 Jan 2010 16:35:09 EST

In the depths of the recession, many critics of China's currency policy -- which keeps the yuan artificially low in value -- held their tongues. After all, that policy allowed other countries, especially the United States, to borrow from China the vast sums they needed to stimulate their economies. But now that the world economy is improving, some are resuming the call for China to let the yuan gain strength, and eventually to float freely -- as the dollar, euro and yen do -- allowing other nations to better compete with China's exports. What is the best currency policy? Are China's interests really at odds with those of the rest of the world? Wharton faculty and other experts weigh in.

So You Want to Live to 100? More of Us Will, and Here Is What Life Might Look Like

Wed, 09 Dec 2009 17:18:52 EST

If your children happened to be born since the year 2000 in developed countries, they will most likely live to be 100, and they will be healthier than elderly people in previous generations, according to a recent article in the medical journal The Lancet. The implications are enormous for everything from retirement planning and health care costs to new models for the workplace and innovative approaches to education. As one Wharton professor says: "This is a demographic revolution the likes of which we have never seen before on earth." What challenges will individuals, organizations and governments confront due to increases in life expectancy that show no signs of slowing down?

The Good, the Bad and the Exaggerated in Michael Moore's New Film, 'Capitalism: A Love Story'

Wed, 14 Oct 2009 15:33:51 EST

Michael Moore's movie, Capitalism: A Love Story, doesn't pull any punches in its depiction of capitalism as the monster that is destroying America. Moore's villains range from Wall Street bankers to Wal-Mart to Treasury Secretary Timothy Geithner, while capitalism's victims include those who are losing their jobs, their houses and, in some cases, their faith in a system that is supposed to reward hard work and playing by the rules. Knowledge@Wharton asked Kent Smetters, a professor of insurance and risk management at Wharton who describes himself as "generally right of center," to review Capitalism: A Love Story.

Reforming the Ratings Agencies: Will the U.S. Follow Europe's Tougher Rules?

Wed, 27 May 2009 17:04:13 EST

New restrictions proposed for ratings agencies -- including Moody's, Fitch and Standard & Poor's -- could have unintended consequences, warn experts in the United States. Europe, however, has clamped down on the agencies, whose stamps of approval on a broad spectrum of subprime mortgage securities helped pave the way to the credit crash of 2007 and the continuing global recession.

Social Security and Medicare: Trying to Tackle Two 800-pound Gorillas

Wed, 13 May 2009 16:53:27 EST

While many people worry about the billions of dollars spent bailing out banks, auto makers and other sectors, shortfalls in Medicare and Social Security are what could ultimately sink efforts to revive the U.S. economy. As 78 million baby boomers begin to retire, funding for the government's two primary old-age security plans grows increasingly precarious, suggest several Wharton faculty. A report released earlier this week by trustees of Social Security and Medicare echoes those concerns.

The 100-day Dash: An Ambitious but Worrisome Start for the Obama Administration

Wed, 29 Apr 2009 14:19:24 EST

As President Obama wraps up his first 100 days in office, he gets high marks from several Wharton and University of Pennsylvania faculty for his reassuring leadership skills. But they also worry about the cost of his ambitious agenda, and wonder when he will start establishing priorities for what gets tackled when.

Attached at the Wallet: The Delicate Financial Relationship between the U.S. and China

Wed, 29 Apr 2009 14:19:24 EST

The financial relationship between China and the U.S. is beginning to look like an unhealthy co-dependency. China holds so much of its foreign reserves in dollar-based assets that it is now vulnerable to shifts in the U.S. economy. And the U.S. has allowed China to purchase so much of its debt that it is now beholden to Chinese interests. Experts disagree, however, about the real motives for China's continuing investments, and whether it would ever sell them off.

A Thought for Tax Day: The Real Fiscal Crisis Is Yet to Come

Wed, 15 Apr 2009 15:21:37 EST

Even the biggest tax hikes will not raise enough money to pay off the national debt or meet coming obligations to retiring baby boomers for Medicare and Social Security. To accomplish the latter, politicians must do something they fear even more than raising taxes: Reduce Medicare and Social Security benefits. In an interview with Knowledge@Wharton, insurance and risk management professor Kent Smetters discussed the impending crisis.

On the Job Training: Can Obama's Huge Infrastructure Program Really Work?

Wed, 07 Jan 2009 16:53:55 EST

President-elect Barack Obama's infrastructure plan has drawn considerable debate, but mostly over the details -- the size of the stimulus program, how to structure the plan to create the most jobs in the shortest time, and how to administer such a large program to limit corruption and pork-barrel projects. The bigger questions remain unanswered, including to what extent new jobs will actually be created, and how all this spending will affect the government's long-term debt.

The Fairness Issue: How to Cope with the Flood of Foreclosures

Wed, 26 Nov 2008 12:34:08 EST

Is the cavalry coming to rescue troubled homeowners? Despite soaring foreclosure rates, President Bush and other Republicans have not made this a top priority. But this could soon change: President-elect Barak Obama and fellow Democrats say reducing foreclosures is crucial to attacking the financial crisis. As one expert notes: "The financial sector weaknesses all originate in the housing market. If we don't solve the housing problem, then the weaknesses in the financial sector are going to continue to multiply."

Dear President-elect Obama: Here's How to Get the Economy out of the Ditch

Wed, 12 Nov 2008 15:57:28 EST

President-elect Barack Obama must lead a nation mired in a worsening recession and burdened by the costs, both financial and human, of two wars and rising debt. Wharton faculty offer some counterintuitive advice: Now may be the time for the government to spend a lot of money.

A Billion Here, A Trillion There: Calculating the Cost of Wall Street's Rescue

Wed, 29 Oct 2008 13:34:46 EST

How will the U.S. pay for its plans to prop up the financial sector? Answer: by borrowing -- raising worries about how the country's ballooning annual budget deficits and aggregating debt will affect the economy and financial markets. Some guidelines, such as interest rates and the ratio of debt and deficits to gross domestic product, suggest the new debt will be digested easily. But some experts think those guidelines are misleading, warning that obligations are piling up like tinder on a forest floor.

How the Credit Crisis Could Forge a New Financial Order

Wed, 15 Oct 2008 16:48:07 EST

As officials worldwide scrambled to contain the spreading financial virus, hopes are rising that the latest government plans to purchase equity stakes in banks may finally offer the right medicine. And with the patient showing intermittent signs of improving, thoughts turn towards next steps, including new restrictions on the markets. In addition, expect individuals and business to have a tougher time getting loans for years -- not just months. And watch for authorities to prescribe greater transparency, stricter capital requirements to reduce leveraging, and more standardized financial contracts to push opaque securities into the sunlight.

Avoiding the Tough Issues: The Candidates on Health Care and Entitlements

Wed, 15 Oct 2008 16:48:07 EST

"We were so concerned about the $700 billion in the bailout bill, but nobody is talking seriously about the $12 trillion we need to make Social Security whole and the $65 trillion we need to make Medicare whole," says Wharton professor Olivia Mitchell, referring to issues being debated in the U.S. presidential campaign. Meanwhile, the candidates promise to expand health care coverage without offering details about how they can finance their proposals.

AIG Rescued: Was an $85 Billion Loan the Right Answer?

Wed, 17 Sep 2008 20:25:57 EST

After refusing to bail out Lehman Brothers, the government agreed to an $85 billion loan to insurance giant AIG, effectively taking over the company. Knowledge@Wharton talked to Wharton insurance professors Olivia Mitchell and Kent Smetters to find out how the world's largest insurer got into this situation and how it can be prevented from happening again.

The Candidates on Taxes: Finding the Devil in the Details

Wed, 03 Sep 2008 17:03:03 EST

The two U.S. presidential candidates may paint themselves as agents for a new, more bipartisan attitude in Washington, but Republican Sen. John McCain and Democratic Sen. Barack Obama both tend to adhere to their parties' usual approaches to tax policy. Obama proposes to raise taxes on the wealthy and reduce them for the middle class; McCain proposes to sustain the tax cuts enacted by the Bush administration. But neither candidate fully explains how they will pay the bills. This is the first in a series of articles from Knowledge@Wharton examining economic and fiscal policies proposed by the candidates.

Obama and McCain: Different -- and Evolving -- Visions for the U.S. Economy

Wed, 25 Jun 2008 15:56:24 EST

Presidential candidates John McCain, Republican senator from Arizona, and Barack Obama, Democratic senator from Illinois, are staking out contrasting positions, mostly along traditional party lines, in their campaign to win election in November as the 44^th president of the United States. One thing they have in common: Both offer tax and spending plans that would deepen the deficit. Wharton professors, as well as commentators from around the globe, weigh in on the economic views of each candidate.

The Economic Stimulus Package: Will It Work, and for Whom?

Wed, 20 Feb 2008 15:24:45 EST

Congress and the White House recently settled on an economic stimulus package with unusual speed, pushing the throttle to pull the economy out of a nosedive. Is this just election-year grandstanding, or does economic stimulus really work? While some experts argue that priming the economy now is unnecessary or even counter-productive, others support the $168 billion package and its emphasis on low and moderate-income recipients. As for the health of the economy overall, experts agree that no economic boom is in the near-term forecast.

Fantasy Sports: The Players, the Platforms and the Profits

Wed, 07 Feb 2007 15:59:14 EST

According to some industry estimates, fantasy sports is now a $4 billion industry and growing quickly. What is fantasy sports, who provides fantasy sports platforms, what are the most popular fantasy sports, and -- coming off the Indianapolis Colts' recent Super Bowl win -- can we assume there will be a Super Bowl for fantasy football, or for baseball, basketball or hockey? Knowledge@Wharton asked Kent Smetters, professor of insurance and risk management, to bring us up to speed on the future of this industry.

Do Americans Save Enough? It Depends on What Calculator You Use

Wed, 07 Feb 2007 15:59:14 EST

Every week one financial services firm or another releases findings of its latest retirement study: Americans aren't saving enough. Americans are saving too much. The savings rate is abysmal. People are borrowing against their homes to pay for luxuries, and so forth. Who's right? It turns out, not surprisingly, that the future is hard to predict, and that many calculators designed to make those predictions are flawed in their basic assumptions. Wharton experts try to help navigate the challenges of planning for retirement.

Unlike Death and Taxes, Pensions Are No Longer Guaranteed

Wed, 08 Feb 2006 16:31:18 EST

IBM. Verizon. Sears. Hewlett-Packard. Motorola. The list of corporations that have put a halt to guaranteed pension plans comes as a jolt to Baby Boom employees entering what they thought would be their peak pension-building years. At the same time, new accounting rules and Congressional legislation are being drafted to close the U.S. pension-funding gap, now estimated at $450 billion. While some proposals under discussion could make it easier for companies to discontinue defined-benefit plans, others would create incentives to support defined-contribution programs, such as 401(k) plans, according to Wharton faculty and pension experts. Amid all this flux, they add, one thing seems certain: Pension plans have become risky business.

Is Social Security in Trouble? Depends on Whom You Ask

Wed, 26 Jan 2005 13:49:48 EST

President Bush has launched his promised campaign to revamp Social Security, arguing that future funding shortfalls could be made up by allowing workers to put part of their contributions into investments under their own control. Opponents such as AARP, the organization for retired people, say his plan would destroy the 65-year old safety net, slashing benefits received by older Americans. Differences on the issue are so wide that the two sides cannot even agree on the threshold question: Is the Social Security system really in financial trouble?

Insurance Industry Conference Looks at Terrorism, Drug Coverage, Malpractice Insurance and M&As

Wed, 28 Jan 2004 13:48:21 EST

The role of government in supplementing the private insurance industry and the industry’s response to terrorism were recurrent themes at the seventh annual conference of Wharton’s Financial Institutions Center and the Brookings Institution held earlier this month in Washington, D.C. The conference, titled “Public Policy Issues Confronting the Insurance Industry,” included discussion of such topics as mergers and acquisitions in the European insurance industry, insurers’ and legislators' response to the Sept. 11, 2001, terrorist attacks, Medicare prescription drug benefits and medical malpractice insurance.

Underfunded Pensions: Causes, Cures and Questions

Wed, 20 Oct 2004 17:11:02 EST

Battered by a triple whammy of falling interest rates, a stalled stock market and an anemic economy, U.S. corporate pension plans face an estimated shortfall of $300 billion. The crisis, which affects mainly defined benefit plans, came to a head last week when the federal Government Accounting Office described the Pension Benefit Guaranty Corp., a quasi-government insurer of last resort, as a "high risk" program. The Bush Administration is staking its credibility on finding a solution to the crisis, which affects some 43 million workers and retiree''''s. Experts at Wharton and elsewhere examine the causes of the crisis and the proposed solutions.

Restructuring Medicare Is a Riskier Operation than First Thought

Wed, 20 Oct 2004 17:07:33 EST

After years of promises, the U.S. Congress is finally weighing House and Senate bills that would restructure Medicare to provide prescription drug coverage to 40 million elderly, but could also shift management of the program to private insurers as America�s baby boomers reach retirement. Hailed as a bipartisan success when passed in late June, the two bills are losing some of their luster as they face closer scrutiny by a conference committee charged with reconciling the legislation this fall.

Fate Worse than Debt: Can the U.S. Deficit Rise to $45.47 Trillion?

Wed, 18 Jun 2003 00:00:00 EST

The U.S. government�s future obligations outweigh its projected revenues so heavily that it would need a permanent income tax increase of 66% or the immediate elimination of all federal discretionary spending to put it on track for balancing its finances. Such is the startling conclusion of a report by Wharton insurance and risk management professor Kent Smetters and Cleveland Federal Reserve Bank economist Jagadeesh Gokhale. The two argue that the government�s accounting system is backward looking and so has failed to properly account for future outlays such as Social Security and Medicare.

Analyzing Likely Tax Cuts in 2003: Can Bush Kickstart the Economy?

Wed, 18 Dec 2002 00:00:00 EST

When Congress returns from the holiday break, President Bush is expected to unveil his plan for using tax cuts to stimulate the economy. But would the proposals under discussion provide the kind of short-term economic boost the White House says the country needs? And will the final package constitute a new strategy, or just a continuation of the old one?

Gore and Bush on the Issues: Long on Assumptions, Short on Details

Wed, 19 Jul 2000 14:03:01 EST

When Gov. George W. Bush and Vice President Al Gore wrap up their nominating conventions in the next few weeks they will get back to campaigning in earnest, and voters are sure to hear plenty of talk about the state of the U.S. economy, the future of Social Security, health care, electronic commerce and foreign trade, among other issues. But so far, the candidates for the American presidency have been somewhat vague on the details. Wharton professors analyze what�s been said so far, and what hasn�t.