News at Smith

UMD Business Experts Available to Expand on Shutdown, Debt Ceiling Comments

Oct 02, 2013
World Class Faculty & Research

Comments

Media Alert: Oct. 2, 2013
Attention:  Financial, economic reporters and editors

COLLEGE PARK, Md. - Financial and economic experts in the University of Maryland’s Robert H. Smith School of Business are available to expand on their comments, below, about implications of the federal government shutdown and debt ceiling debate. 

Cliff Rossi:  Debt Ceiling Impasse ‘Potentially Equivalent to Mutual Assured Destruction’ 

“Financial markets hate uncertainty, financial or political. The shutdown of the federal government will lead to short-term volatility in markets. However, it is unlikely to precipitate a recession on its own.

“Should the political impasse spill over to a failure to pass the debt ceiling later this month, this could lead to far more serious consequences for the health of the U.S. and global financial recovery. Should Congress be unable to act on the debt ceiling, it would be equivalent to mutual assured destruction during the Cold War.” 

Rossi, a UMD Professor of the Practice, has insight from 25 years in senior risk management and credit positions at Citigroup, Washington Mutual, Countrywide, Freddie Mac and Fannie Mae. He can break down financial policy rhetoric encompassing market regulation and related issues involving such sectors as banking, real estate and small business. 

Contact him at 301-908-2536 or crossi@rhsmith.umd.edu 

David Kass:  Debt Ceiling Debate: 'Major Negative Impact Likely to Financial Markets'

 “The current debate over raising the debt ceiling will likely have a major negative impact on the financial markets in the U.S. and abroad. Unless the debt ceiling is raised by October 17, the U.S. could be in default for the first time in its history. 

“The uncertainty of the outcome of the negotiations between the U.S. House of Representatives and the U.S. Senate will likely result in sharply lower prices for equities. When this issue was debated in late July and early August 2011, the Dow Jones Industrial Average declined by approximately 2,000 points (about 15 percent), including a drop of 635 points on August 8 after Standard & Poor’s downgraded the U.S. credit rating. 

“The increasing polarization of Congress decreases the likelihood of reaching compromises and legislating solutions to the country’s major problems. The subsequent loss of confidence by the American people in the ability of Congress to function properly will discourage not only long term investment by business, but also the purchases of consumer durables. The result could be a sharp reduction in the growth of the U.S. economy and in the creation of jobs.” 

Kass, a Tyser Teaching Fellow in finance, has held senior positions with the Federal Trade Commission, General Accounting Office, Department of Defense and Bureau of Economic Analysis. He teaches advanced financial management and business finance, and is the faculty champion for the Sophomore Wall Street Fellows. He also has launched a Smith School “Warren Buffett” blog. 

Contact him at 301-405-9683 or dkass@rhsmith.umd.edu 

Michael Faukender:   Weighing the Shutdown and Treasury Secretary's Debt Ceiling Role 

“Regarding the federal government shutdown, non-essential, non-military discretionary spending is a small part of the budget, and the implications on the macroeconomy will be minimal.  It is the debt ceiling that will be more interesting depending on the Treasury Secretary’s gamesmanship.

"The Treasury Secretary has discretion to prioritize what gets paid from incoming revenues in the case of the debt ceiling not being increased. Provided that interest payments are paid first, default will not happen. Current payments for various spending items will not take place and I presume the Secretary will make it particularly harmful for “Republican” constituencies. But default should be off the table unless the Treasury Secretary wills it."

Faulkender, an associate professor of finance, can discuss the effects on the economy at-large and on how financial executives manage their company’s assets. His research focuses on empirical corporate finance, primarily in the areas of capital structure, risk management, corporate liquidity and executive compensation.

Contact him at 301-405-1064 or mfaulken@rhsmith.umd.edu

Additional Expert: Bill Longbrake 

Longbrake, executive-in-residence for UMD-Smith’s Center for Financial Policy, is a former FDIC chief financial officer, has extensively served academic, business and public policy institutions, covering finance and investments, macroeconomics and monetary policy, risk management, housing and public policy. He comprehensively covers these topics in his newsletter to financial strategists. 

Contact him at 301-405-9622 or Wlongbrake@rhsmith.umd.edu 

About the University of Maryland's Robert H. Smith School of Business 

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, MS in business, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.