Capital Markets Initiative

At dinner tables, around water coolers, and in political debates around the country, many are confused about what capital markets do and if they matter to Main Street. Many in Washington, D.C. question the value of capital markets.

Third Way’s Capital Markets Initiative (CMI) was launched to help answer many of the questions surrounding what capital markets do in order to have a more nuanced, thoughtful policy debate, and help policymakers understand the value capital markets provide to all Americans.

Leading Market Indicators Leading Market Indicators: What You Need to Know

The TED Spread: Monitoring Banking Sector Health
The TED Spread is a mystery to most on Capitol Hill but it speaks to folks in finance. In this paper we explain what it is and how it offers policymakers valuable insight into credit conditions in the banking sector, credit markets, and wider economy.

There’s No Place Like Home – Housing Market Indicators
Ever wonder how the housing market is doing? Whether it is stuck, moving full speed ahead, or stuck somewhere in between? In this report we review 20 housing market indicators, why they matter, what they tell us.

Covering the Spread: Credit Spreads as Leading Indicators
Spreads are blowing out! Spreads are razor thin! These phrases mean little inside the Beltway. But on Wall Street credit spreads are a crucial indicator of the health of the economy.

The Yield Curve: An Economic Crystal Ball
The U.S. Treasury bond yield curve is a powerful economic crystal ball, and policymakers can use it to help gauge the direction of the U.S. economy.

The VIX: Measuring Uncertainty in Financial Markets
How do you measure fear in the markets? Check the VIX (Volatility Index)—it can tell investors whether to walk, run, or sprint to the nearest exit.

Hot Issue Briefs Hot Issue Briefs: Capital Markets In the Headlines

A Liquid Bank is a Solid Bank
Though federal deposit insurance has mostly ended depositor-led runs on banks, there are other ways banks become illiquid. One is when investors take their money and flee, which is deeply destabilizing. In this report we define bank liquidity, describe what happens during a crisis when bank investors take their funds and flee, and discuss two new tools that help keep banks solid: the Dodd-Frank Liquidity Management Standards, and the Liquidity Coverage Ratio (LCR).

Last Call: The End of Quantitative Easing
The Federal Reserve is our national economic ‘chaperone.’ In the wake of the financial crisis, the Fed has used unconventional monetary policy tools, namely Quantitative Easing or ‘QE’, to spike the economic punch and revive the pace of economic growth. In this report we explain the basics of monetary policy, the purpose of QE, and the eventual culmination of the QE program.

Derivatives: The Risks and Rewards
Derivatives allow investors and businesses to reduce their exposure to specific financial or commercial risks and rewards. Sounds good, but during the financial crisis the derivatives market became a source of the risk that no one wanted: systemic risk. The Dodd-Frank Act enacted some key reforms to increase the safety of the derivatives market. In this report we explain what derivatives are, how they work, how they sometimes don’t work, and highlight two critical Dodd-Frank reforms.

Capital Requirements and Bank Balance Sheets: Reviewing the Basics
The way bank capital requirements are discussed in the media and DC policy circles can be confusing. Getting a handle on them has become critical for policymakers. To that end, this memo answers the following questions: What is on a bank’s balance sheet? What does bank capital mean? Why is capital important for the safety and stability of the financial system?

Banking Crash Tests
Five years ago, Lehman Brothers failed and triggered a global financial market meltdown. As a result, bank stress tests are now an annual requirement. But have they made banking safer? In this report, we explain how regulators test banks and what the results mean for our banking system.

Dark Pools: Fear of the Dark
Dark Pools have a spooky name. Should you be afraid of them? This report explains what dark pools actually are, what makes dark pools different from stock exchanges, and why pension and mutual fund managers value trading in the dark.

The Need for Speed
A speed revolution has transformed the capital markets. Is the need for speed a positive development that has benefited investors? Or has ultra-fast trading made the markets unstable? In this report, we explain what High Frequency Trading is, how it works, what benefits investors get from ultra-fast trading, and why some are skeptical.

Money Market Mutual Funds: Investments or Cash?
Is a money market mutual fund as safe as a bank account? This paper explains the value of Money Market Mutual Funds (MMFs) and why regulators have been taking a closer look at the role they play in our financial system.

What the Dell?! Why a Publicly Traded Company Chooses to Go Private
The delisting of Dell from the NASDAQ stock exchange is the latest example of a leveraged buyout—taking the company from public to private. In this memo, we explore why a company would want to delist from a public exchange, examine why shareholders sometimes disagree, and lay out the pros and cons of a leveraged buyout deal.

Financial Fear Factor
The likely increased volatility and uncertainty from fiscal cliff negotiations could roil the markets. But can you measure uncertainty? Yes! This paper explains the “fear gauge” and explains why even a short term failure to avert a fiscal cliff crisis could have a serious impact on the economy.

Rate Reality
This report explains why interest rates on U.S. government debt are likely to rise in the future absent a balanced budget deal that changes our fiscal trajectory, and why by the time markets signal that the U.S. has too much debt, it will likely be far too grave to readily correct.

Understanding LIBOR
Why is everyone talking about Libor? This memo explains what it is and what it means for consumers, businesses, and our financial sector.

Breaking Even on TARP
INFOGRAPHIC: Breaking Even on TARP TARP is reviled by all but is it really that bad? Actually, no. Our analysis reveals that TARP is just about breaking even. Instead of a handout, nearly all of the TARP money was issued as loans. And most of these loans have been paid back—with interest. Our accompanying infographic illustrates why it’s time to stop treating TARP like it’s been a disaster and call it the success that it’s been.

What You Need to Know About the ‘Watch List’ and a Potential Downgrade
This memo explains exactly what it means to be on the S&P watch list, what a downgrade would mean for the U.S. economy, and what needs to be done to preserve America’s AAA credit rating. Check out our accompanying chart, AAA or AA—In Which Club Do We Want to Belong?”

The Dominoes of Default
INFOGRAPHIC: The Dominoes of Default Media headlines and the debate in Washington have both been dominated by talk about whether, when, and how to raise the debt ceiling. But there’s been far less focus on exactly what would happen in U.S. capital markets and how a default would affect Main Street. This memo and our accompanying infographic explain likely economic consequences for America if we default on our debt.

Capital Markets Around the World Globe Trotting: Capital Markets Around the World

Who Really Cares About Cyprus?
Why should you care about Cyprus? One word: precedent. This report explains the principles behind deposit insurance, why a guarantee isn’t always a guarantee, and why the recent Cypriot bailout saga could threaten its future in the Eurozone.

Making Plain the Rain in Spain: A Cheat Sheet on Spain
Spain’s troubles indicate that the European debt crisis has moved to a more dangerous stage. This paper explains the situation in Spain, and what it could mean for our economy.

Why Italy Matters—Could Europe’s Debt Wash Up On Our Shores?
Italy is the world’s 8th largest economy and has the 3rd largest outstanding debt. Creditors are banging on their door. Due to its size, an Italian bailout is out of the question. Because of its interconnectedness to the European and world economy, an Italian default could cripple the European banking sector and cause an economic catastrophe. In this memo, we explain three key reasons why America needs to pay attention.

United States vs. Europe — Through the Looking Glass
Ten years ago, Europe faced a looming debt crisis but economically, fiscally, and demographically they buried their heads in the sand, were afraid to confront voters with the truth about their fiscal situation, and now face draconian measures that may not even be enough. In this memo we explain that it’s not too late for America to make modest changes today. And we warn that our future is Europe if we don’t.

Why Greece Matters
As if DC policymakers don’t have enough to worry about with our own debt, we argue that the Greek bailout may not stop the bleeding. In this memo we dissect and explain how a default in Greece could affect the American economy—from Wall Street titans to widows on pensions—due to the interconnectedness of the global financial system.