Cicada Update

Want the latest scope on everything #finance? Listen and read what #AaronKlein of the The Brookings Institution has to report.

"Dear Friends,

#Cicada summer is here. A lot has changed in 17 years and a lot hasn’t. Heck, the world was radically different 17 months ago. Here is what I’ve been up to the last few months and a look ahead: 

#COVID-19

The #pandemic devastated industries and cities that depend on the movement of people, but not the movement of information. In partnership with #BrookingsMountainWest, #EmberSmith and I examined major metros economically dependent on the movement of people (@Las Vegas, @Orlando) and compared to those that depend on the movement of information (@Seattle, @San Francisco, and @Washington, D.C.). We found significant employment impacts across industries and cities, as well as major differences across #racial lines: #Latino workers faced a double whammy from both industry and geography.  Our work was cited by the #DepartmentofJustice, by the #CentersforDiseaseControlandPrevention, and the #DepartmentofHealthandHuman Services in justifying #Covid policies, and in the Las Vegas Sun and Nevada Current.

Financial and Physical Health

Covid exposed serious gaps in #America’s ability to navigate a #publichealthcrisis, including our inability to address the financial ramifications of a health crisis.  As part of a multi-year grant from the #RobertWoodJohnsonFoundation to investigate the impact of emerging #financialtechnologies (FinTech) on physical health, Brookings commissioned and published two groundbreaking papers. The first report by #DanMurphy, Policy Manager of the Financial Health Network, examined the time it took Uncle Sam to actually reach people with their first Covid emergency payment. The report found that, even after four months, one out of ten #Americans still had not received their emergency funds. The report estimates $66 million of #CARES Act stimulus money went to check cashing fees, as Americans could not afford to wait any longer to feed their families. The report was covered by #TheWallStreetJournal, #CNBC, and some unusual suspects like The #Gothamist. As I noted in #Forbes, “It’s a stark reminder that we have a payment system of government benefits that is slow and inefficient in the best of times, and grossly unprepared for the worst of times.” ICYMI, we had a fantastic launch event for the report with Representative Jesús “Chuy” García (D-IL), Sonal Shah, Professor of Practice at #GeorgetownUniversity, and Dan Murphy. Watch it here.

The second paper by #UniversityofPennsylvania’s #LisaServon and #MinaAddo of the University of Pennsylvania analyzed how people living paycheck to paycheck were prioritizing health care decisions in the wake of financial volatility. Addo and Servon’s research found that for many middle-class Americans, with average income, health insurance, and active #financialbudgeting, it simply was not possible to afford basic #healthservices, including #dentalwork, #counseling, and other forms of care. Financial volatility, poor quality insurance, and uncertainty of cost from seeing the doctor or dentist top the list of problems they found. These issues were discussed in greater depth at a launch event for the paper featuring Dr. Kavita Patel and moderated by #NPR’s Stacey Vanek Smith. Watch the authors lay out the paper and the debate that ensued, here.  

 What gets measured gets managed, and the financial health of American families is not properly measured, argue Jennifer Tescher and David Silberman in a new paper, published by Brookings Center on Regulation and Markets where I am housed. The paper looks at approaches to measuring economic wellbeing, arguing to collect new data and synthesize it to account for financial health. These ideas were debated at a recent event, featuring former Comptroller Gene Ludwig, Milken’s Michael Piwowar, JPMorgan Chase Institute’s Sarah Willis Ertur, and Brookings’ own Carol Graham. Binyamin Appelbaum of the New York Times moderated the discussion, and I was pleased to organize, which you can find here. 

Enhancing Our Financial Infrastructure

It wouldn’t be an update without a plug for #real-timepayments. I was heartened that the top #Republicans on the House Financial Services Committee released a Report citing my work on the importance of creating a real-time payment system to help working families. This is not a partisan issue, as I told #AmericanBanker and #Bloomberg: America cannot afford to wait for the #FederalReserve to eventually build a new system. Instead, one simple legal or regulatory fix can do the trick. Businesses going cashless continue to make news, and my work was discussed in detail in PopSugar, as payment policy becomes hip. 

 Every #bank and #creditunion in America should be required to offer a simple, low-cost, account, as I argue in a new piece with #Prosperity Now’s Myrto Karaflos. Universal, low-cost bank accounts for all Americans can increase financial accessibility and allow the government to pay American families, quickly and cheaply, which is needed now as monthly #ChildTaxCredit payments start in July, and Uncle Sam still doesn’t know how to get money to 1 out of every 8 families in the nation! 

 A few small banks have become overdraft giants, as I demonstrated in new research that I am particularly proud of. Parsing through bank call report data, I uncovered multiple small banks that made more than 50 and even 100 percent of their profit on overdraft fees alone. Operating like check cashers with a banking charter, these institutions generate 10 to 20 times in overdraft fees per bank account than some of the nation’s largest banks, often preying upon vulnerable populations like enlisted military and the working poor. The New York Times interviewed me on how some banks are moving away from overdraft fees (and others are sticking with them). As I told Government #Technology, “We created a system in America where we eliminated the sale of #unsafe #meat. We didn’t create a system in America where we tried to teach everyone which meat was rotten.” Why are the bank and credit union regulators allowing an overdraft business model to pass regulatory scrutiny? 

I sent in a public comment responding to Treasury’s #FinancialCrimesEnforcementNetwork (FinCEN) Advance Notice of Proposed Rulemaking on #AntiMoneyLaundering Program Effectiveness. I argue that current #AML methods have become a lose-lose: raising costs for providing basic banking to #middleclass consumers while failing to effectively identify risky activity. A solution lies by combining financial technology with a clear prioritization of criminal activity of highest interest. I further argue that FinCEN needs to more effectively reduce AML requirements for cannabis banking (Google maps can tell you where the pot shops are) while increasing attention to financial crimes against senior citizens, a growing problem in our society where financial institutions and data can be particularly valuable in identifying malfeasance and protecting vulnerable seniors. 

Physical Infrastructure

When it comes to infrastructure the solution is simple: Invest. More. Wisely. In a recent opinion piece for #CNN, I discuss solutions to pay for the infrastructure plan while raising a more fundamental question: will this be bipartisan? Are Republicans still the party of Ronald Reagan who acknowledged that freeways aren’t free and raised the gas tax to pay for infrastructure, or are they now the party of #antitax zealot Grover Norquist? The fate of #PresidentBiden’s #infrastructure plan and America’s future economic growth may hang in the balance.  

 I joined CNBC to talk about this infrastructure, as well as talking with Politico about the potential to bring back #BuildAmericaBonds (#BABs) as an important way to lower the cost of infrastructure for state and local governments and help tap more private capital that wants to invest in infrastructure. My former boss and friend, the late Alan Krueger, was a huge BABs fan, and I was heartened at the recent progress made in Congress to bring back BABs. 

One of the many mistakes we keep making in infrastructure is stove piping different modes and underappreciating (or ignoring) the interaction. America’s maritime policy is an example where we ignore the intersection between commercial shipping and shipbuilding, the Navy, and ways to reduce congestion and pollution on our roads from trucking. Joining my Brookings colleague Bruce Jones, I weighed into this debate with a piece on #FixGov examining how the infrastructure bill presents an opportunity to fix our maritime system and reinvigorate American #shipbuilding. 

Housing

#FHFA Director Dr. Mark A. Calabria joined Brookings Center on Regulation and Markets to discuss a new regulation requiring ‘living wills’ for the #governmentsponsoredenterprises (GSEs). Always lively and provocative, Director Calabria and I discussed the issues, followed by a panel featuring Michael Calhoun (Center for Responsible Lending), Dr. Edward Golding (MIT Golub Center for Finance and Policy), and Erin Barry (Wells Fargo). You can check out the event here and should read a fascinating paper that Calhoun and Lewis Ranieri published through Brookings Reg Center laying out a path for the GSEs to exist conservatorship while creating a $50 to $100 billion profit for taxpayers to address housing affordability and tackle the racial homeownership gap. 

Looking Ahead

I have several exciting projects in the works, including serving as a knowledge partner with #GeorgetownLaw's #InstituteofInternationalEconomicLawCenter on the role of #FinTech in helping community development financial institutions and #minoritydepositoryinstitutions better serve minority communities. Register now for this blockbuster event on June 15th as part of the Juneteenth observation. 

Next month, I will release new research, tentatively titled, “The Great Student Swap” demonstrating how state universities are swapping students between themselves, increasing revenue (and student debt) while leaving America no better educated. Later this summer, Brookings Center on Regulation and Markets will likely host events looking at how banks and credit unions are or are not moving away from overdraft, how to consider sustainability in investments, and further exploring findings on how FinTech is or is not improving financial and physical health outcomes. 

Ending on a good note, I was made a Senior Fellow at Brookings on January 1. We can all celebrate getting to the other side of the pandemic and look forward to a return to normalcy in the summer and fall. 

Aaron Klein, Senior Fellow, Economic Studies, Brookings Institution"