c
 

 




 


2
 
   
Virtually all OECD countries have introduced discretionary measures in response to the crisis,
though the crisis-driven stimulus packages represent only one among other effects on
government
revenue and spending (e.g. the operation of automatic stabilisers).
Based on a consistent approach to the definition of packages, the size of fiscal packages,
introduced
as a direct response to the crisis and measured by their cumulated impacts on fiscal balances
over the period 2008-10, amounts to about 3½% of area-wide 2008 GDP.4 The crisis-related
fiscal
injection is typically expected to be strongest in 2009, although again with some variations
between
countries.
However, there is considerable variation in the size of packages across countries, partly
reflecting the severity of the economic crisis, the fiscal position before the onset of the crisis and
the
size of automatic stabilisers (see Figure 5 and Table 1). As a share of GDP, the size of the
economic
stimulus packages ranges between 0.1% of GDP to over 5% of 2008 GDP. An unweighted
average of
countries introducing positive stimulus packages implies a typical stimulus package amounting
to
more than 2½% of GDP over the period 2008-10. But five countries (Australia, Canada, Korea,
New
Zealand and the United States) have introduced fiscal packages amounting to 4% of 2008 GDP
or
more, the US package - at about 5½% of 2008 GDP - being the largest. Countries with the
largest
absolute spending are the United States, Germany, Japan, Canada, Spain, Australia and Korea (in
decreasing order) ± see Table 1. A few countries (in particular Hungary, Iceland and Ireland) are
expected to drastically tighten their fiscal stance.
Most countries have adopted broad-ranging stimulus programmes, adjusting various taxes and
spending programmes simultaneously. A majority of countries have given priority to tax cuts
over
boosting spending (although Japan, France, Australia, Denmark and Mexico are clear
exceptions). On
the spending side, virtually all OECD countries have launched and/or brought forward public
investment
programmes. Australia, Poland, Canada and Mexico are projected to be the most pro-active in
this domain, with an increase in public investment as a response to the crisis close to 1% of 2008
GDP or more (see Figure 6). Denmark, France and Japan also have a clear focus on public
investment.
Transfers to households have often been made more generous in particular for those on low
incomes. A few countries (including the Czech Republic, Japan, Korea, Portugal, Mexico and the
Slovak Republic) have also announced larger subsidies to the business sector.
Non-OECD countries are also carrying out significant economic stimulus packages, V
China
(USD 585 billion, 19% of GDP), Brazil (USD 152 billion, 15% of GDP), Russia (USD 101
billion, 8% of
GDP)5, Chile (USD 4 billion, 2.8% of GDP) although definite figures and exact spending details
are
hard to break out for most of these countries.
4. These data capture the impact of fiscal packages and may not reflect all the measures
introduced to boost activity. In
particular, recapitalisation operations and increases in public enterprises¶ investment are not
included. For further
details on how the stimulus packages have been identified, see the OECD V


 , March 2009.
5. This figure is based on Russia's response to the OECD policy questionnaire.
POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION FOR
LONG-TERM GROWTH ±  
´OECD 2009







 
  
 

2008-2010, in absolute USD millions
United States 804 070
Germany 107 789
Japan 99 992
Canada 61 551
Spain 56 754
Australia 45 673
Korea 42 667
United Kingdom 38 003
France 18 568
Netherlands 13 367
Sweden 13 109
Denmark 8 668
Finland 8 575
Belgium 8 016
Czech Republic 6 500
New Zealand 5 404
Poland 5 145
Austria 4 600
Switzerland 2 486
Luxembourg 1 968
Portugal 1 963
Slovak Republic 35
See notes and sources for Figure 5 and footnote 4.
  




 
  
 

2008-2010, as % of 2008 GDP
-5
-3
-1
1
3
5
Tax cuts and other revenue measures
Government investment, transfers to households and businesses (subsidies) and other spending
measures
1. Weighted average of the above countries excluding Greece, Iceland, Mexico, Norway,
Portugal and Turkey. 2. Simple average of above
countries except Greece, Iceland, Mexico, Norway, Portugal and Turkey. *No data available for
2010. V: This information is based on
information up until 24 March 2009. The figures include only discretionary fiscal measures in
response to the financial crisis. Estimates
provided here do not include the potential impact on fiscal balances of recapitalisation,
guarantees or other financial operations. They also
exclude the impact of a change in the timing of payment of tax liabilities and/or government
procurement, a popular measure in several
countries. When applying the accrual principle, such measures are not reflected as part of the
stimulus packages. Still, they affect fiscal
balances measures on a cash basis and may have an impact on the economy. See also footnote 4.
In the case of Mexico and Norway no data are
available for 2010.
J  ± POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION
FOR LONG-TERM GROWTH
´OECD 2009
  

   
  
 


 
J
J  
as % of 2008 GDP
-1.7
-0.2
0.0
0.0
0.0
0.0
0.0
0.1
0.1
0.1
0.2
0.2
0.3
0.3
0.3
0.3
0.3
0.4
0.6
0.7
0.7
0.8
0.8
0.9
1.1
1.3
1.3
2.6
-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3
Iceland
Ireland
Hungary
Italy
Netherlands
Slovak Rep.
Switzerland
Belgium
Austria
UK
France
Czech Rep.
Norway*
Sweden
Japan
USA
Finland
Portugal
New Zealand
Luxembourg
Spain
Germany
Denmark
Korea
Mexico*
Canada
Poland
Australia
Note: See notes and sources for Figure 5 and footnote 4. * For Mexico and Norway, no data are
available for 2010.

A comparison of the absolute or relative size of these stimulus packages and their components
is challenging for various reasons. First, most plans await political ratification and
implementation and thus their details are still changing. Moreover initial plans are often followed
up with additional measures (V
 the case of Australia, Chile, Germany, the Netherlands,
Slovenia, Switzerland, Japan or
India who developed several packages).
Second, the exact financial details and how the priorities are weighted in budgetary terms are
usually still uncertain. In some cases the plans propose new budgetary allocations ( V amounts
which are supplementary to initial 2008, 2009 and 2010 budgets), whereas in many other cases
they also propose to carry planned government spending forward ( V  relabeling of planned
expenditures).
6 Also often the figures quantifying the size of the recovery packages are not for identical time
periods (some covering 2009-2010 whereas others cover shorter or longer time horizons).
Moreover, sometimes defining whether a discretionary measure has been adopted as a response
to the crisis involves an element of judgment. In some cases governments have anticipated the
crisis and factored in responses as part of the usual government budget ( V not within a stimulus
package).
In other cases, governments continue, intensify and accelerate previous competitiveness and
innovation strategies, rather than implementing an explicit recovery package. Although
potentially important and more time-consistent than crisis measures, these are not explicitly
captured by an analysis of stimulus packages.

6. In OECD estimates, where possible, measures changing the timing of payments ( V bringing
forward government payments) are not included. While it is difficult to quantify the effect of
such measures on activity, they do have the merit that over a medium-term horizon their fiscal
implications may be negligible while they may provide an important short-term stimulus.


          !     

 
  "J
# 
J 
Third, the size of these plans usually does not take into account automatic stabilisers which
work as a tool to dampen fluctuations in real GDP without any explicit policy action by the
government.
OECD work shows that there is an inverse correlation between the size of discretionary fiscal
packages announced/implemented among OECD countries and the strength of so-called
automatic
stabilisers (the latter are particularly weak in Korea, Japan, the United States, Switzerland and
New
Zealand). Fourth, these figures do not take into account legislative or regulatory changes which
might
have important impacts (V
 changing rules and procedures to facilitate the acceleration of
planned
investments and public procurement, introduction of new innovative R&D tax credit
mechanisms).
Nonetheless, this is an attempt to provide a comparative, quantitative and qualitative description
and analysis of certain aspects of crisis-related stimulus packages of OECD countries.
  
 
 
Most economic stimulus packages aim to stimulate demand in the short term (injecting cash
into the economy and protecting existing jobs). However, most governments also plan to foster
medium- to long-term growth through investments which have repercussions on the supply side.
Tables 2 and 3 present the main objectives and measures of the currently announced or
concluded crisis-related policy packages for OECD member countries, accession countries7 and
enhanced engagement countries8 (excluding financial measures such as bank bail-outs and
recapitalisation
operations).
Broadly speaking the nature of plans can be distinguished between: measures aimed at saving
banks and the financial system ± excluded from the scope of this document, where possible, 
measures aimed at supporting businesses (tax cuts ± including cuts in value-added tax rates,
shortterm
credit guarantees, reduction of non-wage labour costs, stimuli for retaining or hiring staff),
measures aimed at particular industrial sectors (notably the automobile and the construction
sectors), ) measures to support household consumption and reduce their exposure to the crisis
(including tax cuts, cash payouts to households, unemployment benefits, support to low earners
such
as pensioners, cuts in healthcare costs, home owners' grants), and finally, ) ³Measures relating
to
innovation and long-term growth´, which are the focus of this paper. Certain measures also take
the
form of regulatory adjustments (V
non-financial measures to stimulate green technologies).
7. Chile, Estonia, Israel, Russia and Slovenia.
8. Brazil, India, Indonesia, China and South Africa.
JJ ± POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION
FOR LONG-TERM GROWTH
´OECD 2009
 J
  
$ 
   

 
 
 %  %
 
 
&
' 

 
   
%
   

&%J 

 %
 


  Large infrastructure investments (road, rail, housing, and education infrastructure); tax
measures; support to
construction sector; financial support to pensions, workers, families, home owners and others;
support to small
enterprises (V
temporary business investment tax breaks); and training measures.

  Infrastructure (thermal renovation of public buildings, schools); investment incentives
through tax measures;
support to SMEs (loan guarantees, direct loans, promoting export competitiveness, etc.); regional
employment
programme; additional R&D spending; and measures relating to day-care.
c   Speeding up of public infrastructure projects and encouraging housing investment;
measures to help firms (in
particular small ones) to maintain their operations (alleviate financial burden of companies,
facilitate payments);
safeguarding purchasing power of households; and green technology and energy cost-cutting
measures.
Investments in roads, bridges and public transport, investments in clean water as well as
in knowledge and
health infrastructure (including post-secondary institutions, research equipment, digitisation of
health records,
extension of access to broadband services and green energy infrastructure); investments in the
renovation and
retrofit of social housing and support for home ownership and the housing sector; personal and
business tax
relief; access to financing, support and training to citizens affected by the crisis; and support to
most affected
sectors and communities (V
 targeted funding for the auto, forestry, agriculture, and
manufacturing industries).

 
Increase in public expenditure; lowering of taxes and social insurance contributions and direct
assistance to
households; and improving the functionality of the sickness insurance system. è V

VVV

V

VV
VV 

   Current measures mostly focused on bank aid and financial measures (beyond the
scope of this analysis).


(

Infrastructure projects (trans-European transport projects, high-speed Internet); employment
support initiative
(including for the low-skilled, apprenticeships, training, reduction of social charges, etc.);
investment in R&D,
innovation and education; access to financing for business; reduction of administrative burdens
and promotion
of entrepreneurship; increase of climate change and energy security investments; improvement
of the energy
efficiency in buildings; and promotion of "green products" and the development of clean
technologies for cars
and construction.
 Measures aimed at the infrastructure (transport construction and broadband); energy and
mining sectors;
education, research, and training; and others as part of the Finnish Innovation strategy.
  Mainly investment in public enterprises (post, energy and railways), defense,
investments in strategic areas
(sustainable development and clean technologies, higher education and research and the digital
economy);
investment for regional and local authorities (in partnership investment in hospitals, childcare
facilities and
other social institutions); support to employment, housing, the financing of firms (in particular
SMEs), health,
and some measures for the environment. Special measures targeted at the automobile sector.
 % Infrastructure (particularly schools and universities, also measures to foster
broadband); measures to help
businesses and households retain employment and overcome the crisis (secure funding,
government guarantees,
reduction of non-wage labour costs, income tax cut and other means to ease burden on
households ± V

payments for children); training and upgrading grants (raising levels of education); fostering
innovation and
R&D; green technologies. Special measures targeted at the automobile sector.
 %Accelerating construction projects of national importance; simplifying the application
system of the National
Development Plan; simplifying construction regulation, financial measures to ease financing of
(small) firms
(including microfinance, venture capital and interest subsidies); easing the administrative burden
of firms; and
R&D and Innovation support.
Despite heavy impact of crisis, the full operation of automatic stabilizers is guaranteed;
measures for
unemployed and benefits to the self-employed; improving the financial capacity of households,
mortgage
payment adjustment for homeowners; payment adjustments for businesses (V
 postponing the
payment of
VAT); and measures to stimulate employment, including through the acceleration of labour-
intensive
transportation investment projects.
%Stimulating investments on infrastructures and research (including broadband); supporting
low-income
households (tax cuts for poorer families and pensioners); reducing the tax burden for SMEs;
focus on greening
the automobile sector and support to methane systems and the purchase of ecological cars.
)Support for household consumption; tax reductions on mortgages; benefits for dependent
persons; cutting of
healthcare costs; creation of new public-sector jobs in nursing, retirement homes and childcare,
and jobs relating
to the protection of the environment; raising the self-sufficiency ratio of food; funds on a priority
basis to
research in advanced technologies and related research; and reduction of taxes for eco-friendly
cars.
*
Focus on sustaining green technology and value-added services to build new engines of
growth (including
sustainable energy, technologies to reduce greenhouse gas emissions, information technologies
as well as
healthcare and tourism).
POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION FOR
LONG-TERM GROWTH ± J
´OECD 2009
 J
  
$ 
   

 
 
 %  %
 
 
&
' 

 
   
%
   

&%J 


' 
 
Support of purchasing power through targeted measures; support of business activity through tax
measures and
financial support; of business activity through public investments; direct support of enterprises in
difficulty;
creation of an administrative environment conducive to economic activity; support tackling the
effects of the
crisis on employment; and measures to prepare growth after the crisis.
' 

Transport infrastructure programme; Temporary Employment Programme and the Programme to
Preserve
Employment; protection of family incomes (extending the social health care coverage, freeze on
energy prices,
and supporting households to change old home appliances to energy-saving equipment);
supporting SMEs by
reducing electricity prices, increasing credit availability and using government procurement
targeted at SMEs.
 

Measures focused on problems in the housing market; export credit insurance; help for medium-
sized
companies; and measures aimed at the health care sector. Additional package of measures aimed
at
sustainability, innovation, education, the labour market, infrastructure and construction.

+% Tax relief and measures for employment, welfare and the environment. Emphasis on
municipalities (schools,
nursing homes, churches); construction (in particular transport and buildings with energy
efficiency in mind);
employment, readjustment and skills; business R&D (direct grants and grants for PhD-students)
and ICTs
(infrastructure, digitising of government services, electronic signature, etc.). Also, focus on green
measures.

 Facilitating investment financed from EU funds; stimulating investment in
telecommunication infrastructure;
financing for enterprises, especially SMEs (including credit guarantees, micro-finance); support
to R&D; and
focus on renewable energy.

 Public investment in education (modernisation of schools); energy (especially
transmission infrastructures and
renewable energy) and new-generation technologies (broadband networks); promotion of
economic activity and
employment (creation of fund for industrial restructuring, financing facilities to SME and
exporting enterprises;
new corporate tax benefits; reductions of social contributions in special cases; education/training
programmes);
strengthening of social protection; investments in R&D; and support to the automotive sector.


 
Infrastructure (roads, high-speed broadband, new atomic reactors); transfer of financial sources
from basic
research to applied research and innovation; reallocation of funds to SMEs and venture capital;
and increase
energy efficiency.
  Tax cuts; spending on public works and other stimulus measures to raise employment
rates; liquidity to creditstrapped
companies (especially SMEs) and households (families, in particular); special help to the
automobile
sector and modernising of basic industries such as transportation, energy, services and
telecommunications; and
modernisation of the public civil service.
+   Railway and road infrastructure; energy efficiency of buildings; tourism industry;
and export promotion.
 %Tax cuts (on income, businesses and consumption); other revenue and fiscal measures;
credit facilities and
guarantee schemes for SMEs; contributions for public pensions; measures to reduce
unemployment; support to
health care; and measures targeted at increasing economic competitiveness (details to be
confirmed).
( 
* 

Cut in value-added tax rate; acceleration of capital investment projects (likely to include some
research
infrastructure) and for accelerated roll-out of broadband; credit line and loan guarantees (in
particular for
SMEs); and measures to combat unemployment (V
 paying companies to hire and train the
unemployed).
( 


Direct relief to working and middle-class families (tax credit, expansion of unemployment
insurance, state fiscal
reliefs, etc.); large infrastructure investments (roads, public transit, high speed rail, smart
electricity grid and
broadband); protecting health care coverage of citizens and modernising the health sector
(including its
computerisation and digital health records); increased funding for key scientific and engineering
agencies;
modernisation of classrooms; laboratories and libraries; and fostering renewable energy
production and
investments.
V These tables exclude financial or other measures aimed at the liquidity of the financial
system / the banking sector.
 
V OECD, based on publicly available stimulus plans, announcements and replies to the
OECD questionnaire (cut-off date end of April
2009).
J ± POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION
FOR LONG-TERM GROWTH
´OECD 2009

 
$ 
 


 

 % %
 



 %
 

M
 
  


 Infrastructure (water management, transport, municipal infrastructure, etc.); vocational
education and health
service infrastructure; support to firms (loan and export guarantees, technology and development
incentives,
etc.); support to the construction sector; entrepreneurship measures; occupational training and
active labour
market measures; and energy-saving measures for housing.

Tax reductions; infrastructure investments (desalination plants, railways); credit lines for
business (especially
SMEs) and export credits; funds to hire workers and retraining; and support to R&D.
  Early tax returns; Construction of new public infrastructure and investment by public
companies; financial
resources to SMEs and the economy through fiscal guarantee schemes; subsidies to housing
market; and
employment protection (including subsidies to hire younger workers).


Tax cuts; enhancement of social welfare; provision of healthcare and social guarantees;
state support for
employment; maintenance and development of industrial and technological potential; retraining
and
employment; measures for SMEs; reduction of administrative burdens on businesses: measures
to support R&D;
and measures supporting energy efficiency.

 Measures aimed to infrastructure, energy and environment; support to enterprises ( V 
assuring financial
liquidity and safeguarding existing jobs, helping company investments, etc.); measures to
improve labour
market, life-long learning and social security; and increasing expenditure in research and
education.
M


  
c  Housing for poor families; credits for firms; and support to the automobile sector.


Infrastructure (mainly roads); education spending; and support to affected industries
  Value-added tax cut; infrastructure investments (mostly in rural areas); support to social
security schemes and
housing; measures to help businesses (in particular labour-intensive export sectors, V
.
textiles/handicrafts.
  Low-income housing; rural infrastructure; water; electricity; transportation; the
environment; technological
innovation and rebuilding after disasters such as earthquakes. Support package to auto and steel
industries.


 
Public investment in economic infrastructure; support to low-income workers, the unemployed
and vulnerable
groups; employment and skills development; effective industrial or sector strategies, higher
levels of private
sector investment and entrepreneurship; pursue the transformation of the informal economy
activities; and
improve and streamline government delivery and regulation.
V These tables exclude financial or other measures aimed at the liquidity of the financial
system / the banking sector.
 
V OECD based on publicly available stimulus plans, announcements and replies to the
OECD questionnaire in the case of accession
countries (cut-off date end of April 2009). Information for the OECD enhanced engagement
countries is provisional and not based on
replies to the OECD questionnaire.
When it comes to ³Measures relating to innovation and long term growth´, OECD and non-
OECD
economies focus on the following themes in existing economic stimulus packages:
‡ Improving the infrastructure (V
roads, mass transit, information and communication
technologies [ICT]).
‡ Support for science, research and development (R&D) and innovation.
‡ Investment in human capital, education/training (including schools, teachers).
‡ Promoting the investment in and uptake of green technologies and innovations to foster
energy-efficiency and sustainable economic growth.
‡ Support for innovation and entrepreneurship (including support for innovation and
investment in small and medium-sized enterprises [SMEs], venture capital, etc.).
Most countries announce that they are implementing the above measures in order to emerge
stronger from the crisis through sustainable investments in infrastructure, research and other
means to secure competitiveness and a new foundation for growth in the future.
POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION FOR
LONG-TERM GROWTH ± J
´OECD 2009

 
  
 


 
+
The second part of this paper discusses the planned measures relating to innovation and longterm
growth in more detail while providing country examples.
In terms of financial weight, infrastructure investments, education and sometimes green
technologies are the first and second most important of these spending items in stimulus
packages
(Table 4). Yet, in many cases the above components of economic stimulus packages are related:
V

additional financial measures in favour of infrastructure overlap with spending on R&D (new
laboratories) and spending on the education category (new schools). Similarly, investments in
green
technology contain some spending for more energy-efficient housing ( V infrastructure) or R&D
(fostering research in renewable energy). Some more medium-term impacts also exist, V

scientific
research results fostered by increased R&D budget might later prove useful for the development
of
³smarter´ infrastructures (V
intelligent transport systems) or greener technologies.
 
    + 


& 
  
  
  
 
 %
 


&%J 
 
   &,
 


 

%

  AUD 9.7 billion AUD 2.9 billion AUD 15.7-17 billion AUD 5.7 billion
% of GDP 0.82% 0.25% up to 1.4% 0.48%
CAD 20.3 billion CAD 800 million 1.9 billion CAD 2.8 billion
% of GDP 1.27% 0.05% 0.12% 0.18%
 USD 700 million USD 8.8 million USD 147 million USD 0
% of GDP 0.50% 0.01% 0.10% 0%
 EUR 910 million EUR 25 million1 EUR 30 million EUR 38 million
% of GDP 0.48% 0.01% 0.02% 0.02%
 EUR 4.7 billion EUR 46 million2 EUR 731 million EUR 30 million
% of GDP 0.24% 0.00% 0.04% 0.00%
 %3 EUR 11.5 billion4 EUR 1.4 billion EUR 14.5 billion5 EUR 5.7 billion
% of GDP 0.5% 0.1% 0.6% 0.2%
*
 KRW 50 trillion (USD 36 billion) of green investments (5.14% of GDP) ± distributed
throughout these
categories although a detailed break-down is not yet available.

+%NOK 3.8 billion NOK 170 million2 NOK 270 million NOK 1.6 billion
% of GDP 0.16% 0.01% 0.01% 0.06%
+SEK 8.6 billion SEK 9 billion SEK 500 million SEK 2 billion
% of GDP 0.27% 0.29% 0.016% 0.06%

PLN 91,3 billion PLN 16,8 billion n.a. PLN 2.5 billion
% of GDP 0.072% 0.013% n.a. 0.002%

EUR 50 million EUR 224 million EUR 682 million6 EUR 260 million
% of GDP 0.03% 0,13% 0.41% 0.16%
(USD 100 billion USD 16 billion USD 83 bill USD 59 billion
% of GDP 0.70% 0.11% 0.58% 0.41%
V: Based on 2008 GDP. Figures are only indicative as applying identical, clear-cut definitions
to these categories and making them
comparable across countries is very difficult. For instance, a certain degree of double-counting
may still occur between spending on items
such as infrastructure and education (V
 building schools) as measures could fit in multiple
categories.
1. Finland has high public R&D support outside of its stimulus package and has pledged to
maintain it.
2. The R&D figures for France, Norway and Portugal do not include carrying forward their R&D
tax credit payments.
3. In Germany, some expenditures remain to be determined on the sub-federal level.
4. This figure contains EUR 0.3 billion additional funding for a programme for modernising
insulation of buildings and roughly
EUR 0.8 billion for energy-use modernisation of federal buildings.
5. This figure contains EUR 8.6 billion of investments in energy efficient school and other
education-related buildings.
6. In the case of Portugal EUR 500 million for the modernisation of schools is only included in
³Education´.
 
V: OECD estimates based on publicly available data, replies to the OECD questionnaire
and consultations with member countries.
The policies discussed below are only part of the government responses to the economic crisis
and only a broader analysis can yield an understanding of all public measures and their impacts.
J ± POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION
FOR LONG-TERM GROWTH
´OECD 2009
‰
  


Most OECD and non-OECD economic stimulus packages contain a focus on improving the
national infrastructure ± mostly through public works ± see Tables 2 and 3. The targeted
infrastructure
investments are mostly concerned with roads, railroads (including freight networks), public
transport, airports, childcare facilities, schools and universities, hospitals, energy networks and
security, and a modern ICT infrastructure (see Box 2).
In its Nation Building Package, Australia, for instance, plans development work on projects in
housing, health and hospitals, and transport (with a focus on rail networks) and communications
(approximately AUD 10 billion worth of infrastructure investment, excluding plans relating to
nextgeneration
networks). New Zealand has factored in spending USD 100 million on roads and
USD 87 million on housing, with a focus on initiating about USD 70 million-worth of fast-
tracked
projects before July 2009. Japan has offered a subsidy to municipalities of JPY 4 billion to repair
and
quakeproof public facilities. In the context of its plan to improve the environment for rivers,
Korea
plans to establish a green transport network, a green information infrastructure and to secure
alternative water sources and build eco-friendly mid-sized dams.
Canada has assigned CAD 6.4 billion to renew infrastructure in partnership with provinces and
municipalities and CAD 515 million to accelerate projects such as construction of schools, water
and
waste-water projects and critical community services infrastructure. The United States will be
devoting a total of USD 100 billion to infrastructure (in addition to research infrastructure): over
USD 17 billion in public transit and high-speed rail, USD 40 billion for roads, bridges, dams,
water,
and USD 7 billion to expand broadband access. Mexico plans to rebuild the nation¶s highways,
bridges and other public-use facilities (USD 42 billion). Chile¶s special infrastructure plan worth
USD
700 million (10% increase on the 2009 budget) is focused on an extensive housing investment
plan,
road construction and maintenance, and investments in different areas such as health-related
initiatives, schools and stadiums, among others.
The EU has proposed to modernise its infrastructure with a focus on trans-European energy
interconnections and broadband projects, mostly through the frontloading of existing budgets.
Germany announced EUR 18 billion for infrastructure, mostly educational infrastructure
(childcare
facilities, schools, and universities), hospitals, transport and ICTs. The Netherlands has
announced
EUR 1.2 billion in infrastructure and construction investments (V
 health care buildings,
schools,
bridges, ports). Building on its crisis-related EUR 4.7 billion infrastructure spending, Spain plans
to
invigorate merchandise transport by high-speed railway and to improve the road infrastructures.
Italy is to fund railway investments (EUR 960 million), and the quality of the public transport
service
(about EUR 1.5 billion over the three-year period 2009-2011). The Slovak Republic is building
highways, new energy infrastructure and speeding up broadband Internet access whereas the
Czech
Republic is spending CZK 14.4 billion on infrastructure and Estonia EUR 670 million. South
Africa is
committed to maintaining the planned high levels of investment in public sector infrastructure
(mainly
transport, energy, water and sanitation infrastructure, housing construction, ICT infrastructure, as
well
as education and health infrastructure).
Most of these infrastructure investments have the express aim to add to resource-preservation
and sustainability. For instance, the construction of more energy-efficient buildings is privileged,
along with retro-fitting and updating of public buildings and schools. A few countries have
announced
investment in thermal renovation of public buildings and households (V
 Australia's plan to
insulate
2.7 million homes). In many plans, the construction of roads and public transport is expected to
lead
to reduced traffic congestion and gas consumption.
Non-regulatory measures in the field of infrastructure are also heavily concerned with the
streamlining of the approval process of (large) infrastructure projects.
POLICY RESPONSES TO THE ECONOMIC CRISIS: INVESTING IN INNOVATION FOR
LONG-TERM GROWTH ± J
´OECD 2009
c
'J
-+
 
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Many of the existing stimulus packages put some emphasis on deploying ICT infrastructure and
a 'networked recovery'
±  V the notion that ICT infrastructure and its use are a tool to revive the economy through new
innovative services and offer
solutions to pressing social challenges.
Existing references to communications infrastructure in stimulus plans cover two key areas:
extending broadband to
areas without connectivity and upgrading existing networks to support very high-speed
communications. The focus of many
plans is on closing the broadband gap by providing universal broadband coverage throughout the
country, but mostly in rural
and remote areas. Some plans also devote resources to building out new, very high-speed
networks (next-generation
networks). In most cases, the exact meaning of µbroadband¶ and µunserved¶ or µunderserved' is
mostly not yet defined in terms
of geography, speeds or technology. In all cases, the deployment of broadband is to ensure
connectivity of most if not all
businesses and households. The table below illustrates these initiatives, including details on the
planned financial investment
and policy goals. Other OECD countries have developed new broadband plans in parallel to the
development of their stimulus
packages (V
France, Hungary, Japan, Ireland, Korea, and Spain). Other OECD work deals with
key considerations to take into
account when public funding is used to support broadband.9
 
 

 
 
 


  AUD 40 billion
(USD 33.4 billion)
Fibre all the way to the premises 90% of Australians 100 MB/s
CAD 225 million
(USD 211 million)
Extending broadband coverage to un-served rural and remote
communities
n.a. n.a.
 EUR 66 million of
EUR 200 million
(public-private)
Extending high-speed
broadband
Every household by 2016 At least 1 MB/s
by 2010, 100
MB/s by 2016
 n.a. Development of broadband network in small or medium-sized
cities, extending (fixed / mobile) broadband.
Internet on TGV Est lines (EUR 15 million), and development
or networks for education and research
Access to broadband by
2010 and mobile
broadband by 2012 for
everyone
n.a.
(EUR 1 billion
(USD 1.46 billion)
Extending and upgrading high-speed Internet (focus on rural
communities)
100% coverage of high
speed internet by 2010.
n.a.
 %estimated EUR 150 million
(USD 219 million)
Accelerating the spread of broadband networks. By 2010 all
unserved areas connected. nationwide capable broadband
access by no later than the end of 2010
By 2014, ¾ of households
should have access to
high-speed Internet (all
by 2018).
Target is 50
MB/s
)JPY 3 trillion
(USD 29 billion)
Intelligent transport systems, improving IT infrastructure in
the medical sector (new fibre-optic network), training of IT
personnel, the promotion of e-government, and the creation of
new industries such as environment-related IT.
n.a. n.a.

' 
 
EUR 195 million
(USD 285 million)
Accelerating the build-out of Luxconnect information highway,
including through boosting public telecommunications works
n.a. n.a.

EUR 50 million ± fiscal
incentives1
(USD 73 million)
Subsidised investments in new generation broadband
networks
Optic fibre that will allow
1,5 million users to
connect
n.a.

  over EUR 15 million Extending broadband to households and public institutions
Connecting households
and public institutions
At least 1 MB/s
by end of 2010
 n.a. Measures for overseeing the installation of new generation
fibre and regulating broadband
n.a. Up to 30 MB/s
throughout
Spain, ³at costoriented
prices´
( 
* 
J
to be announced Universal service commitment for broadband Virtually every
community
2 MB/s per
second by 2012
( 


USD 7.2 billion
(EUR 4.9 billion)
To foster broadband service to unserved / underserved areas,
promote broadband in schools, libraries, health-care
providers, and other entities.
n.a. Not set minimum
data speeds
1. In parallel to its stimulus package, Portugal is planning to increase broadband Internet and
local area network access in schools (EUR 61 million).
2. The UK also pursues the 'Digital Region' project, a GBP 10

Speaking at a Labor Day event in Milwaukee, Wis., President Barack Obama unveiled a new
stimulus package designed to jump-start the economy before the November elections, as polls
show Democrats lagging.

Obama is not pressing for a payroll tax holiday ² the most stimulative tax cut, as it encourages
employers to hire workers within a given time frame. Instead, the Obama administration is
proposing $50 billion in new infrastructure investment. Here is the relevant portion of the
speech.

THE PRESIDENT: Now, let me tell you, another thing we¶ve done is to make long-overdue
investments in upgrading our outdated, our inefficient national infrastructure. We¶re talking
roads. We¶re talking bridges. We¶re talking dams, levees. But we¶re also talking a smart electric
grid that can bring clean energy to new areas. We¶re talking about broadband Internet so that
everybody is plugged in. We¶re talking about high-speed rail lines required to compete in a 21st
century economy. I want to get down from Milwaukee down to Chicago quick. Avoid a traffic
jam.

We¶re talking investments in tomorrow that are creating hundreds of thousands of private sector
jobs right now. Because of these investments, and the tens of thousands of projects they spurred
all across the country, the battered construction sector actually grew last month for the first time
in a very long time.

But, you know, the folks here in the trades know what I¶m talking about ² nearly one in five
construction workers are unemployed. One in five. Nobody has been hit harder than construction
workers. And a lot of those folks, they had lost their jobs in manufacturing and went into
construction; now they¶ve lost their jobs again.

It doesn¶t do anybody any good when so many hardworking Americans have been idled for
months, even years, at a time when there is so much of America that needs rebuilding.

So, that¶s why, Milwaukee, today, I am announcing a new plan for rebuilding and modernizing
America¶s roads and rails and runways for the long term. I want America to have the best
infrastructure in the world. We used to have the best infrastructure in the world. We can have it
again. We are going to make it happen.

Over the next six years, over the next six years, we are going to rebuild 150,000 miles of our
roads -± that¶s enough to circle the world six times. That¶s a lot of road. We¶re going to lay and
maintain 4,000 miles of our railways ±- enough to stretch coast to coast. We¶re going to restore
150 miles of runways. And we¶re going to advance a next-generation air-traffic control system to
reduce travel time and delays for American travelers. I think everybody can agree on that.
Anybody want more delays in airports?

AUDIENCE: No!

THE PRESIDENT: No, I didn¶t think so. That¶s not a Republican or a Democratic idea. We all
want to get to where we need to go. I mean, I¶ve got Air Force One now, it¶s nice. But I still
remember what it was like.

This is a plan that will be fully paid for. It will not add to the deficit over time -± we¶re going to
work with Congress to see to that.  + 

    
    
  
 





 
 
 

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The administration is also asking for $100 billion to make permanent a research and
development tax credit and $200 billion to let companies to deduct the full cost of the capital
investment next year. Finally, the White House is pushing hard for the Senate to pass the small
business bill that has languished for months when it returns from recess next week

2009 Stimulus Package Overview.

The economic stimulus package was the primary source for the Presidential debates in
November 2008²what the package would entail and how the money would be divvied out
became the major concern of the economy. President George W. Bush outlined the new stimulus
package and now it remains that President Barak Obama must issue out nearly a trillion dollars
worth of funds. Thus, it is imperative to understand how the economic stimulus package is meant
to perform, and what went wrong in past stimulus packages, particularly the most recent package
from 2008, before looking into the impact that it will have on the residential real estate market in
the future.

It was well-known that the stimulus package of 2008 failed considerably as it ³consisted
primarily of tax rebates«and surveys showed that much of the extra money was saved or used to
pay debts, neither of which generates direct economic activity´ (New York Times, ³Economic
Stimulus´). According to the same article by the New York Times, the economic stimulus
package of 2009 will total $825 billion (or more) and will include a combination of funding
solutions. The numbers have been changed drastically for the past eight months, and even the
New York Times doesn¶t have the exact breakdown, but they do comment that a basic
breakdown of the finances will include ³$507 billion in spending programs and $282 billion in
tax relief´ (New York Times). They have solid information, but the question remains: will this
economic stimulus package have the same faults as the package that caused so much economic
and public dissent in 2008?

³Spending programs´ and ³tax relief´ mean virtually nothing for an economy seeking answers,
but as David Leonhardt wrote in his article, ³when governments have taken aggressive steps to
stop an economic decline, they have succeeded. The Germans did it in the 1930¶s«even the
limp Japanese recovery plan of the 1990¶s makes the case²although dithering over a bank
rescue kept Japan in a slump, government spending«made things better than they would
otherwise have been.´ Leonhardt makes the case that since the Germans and Japanese could
make a stimulus package work, then the US should have similar success. His theory is based
upon the history during the ³summer of 1933 [when heads of government and their finance
ministers met in London to talk about a global economic crisis. They accomplished little and
went home to battle the crisis in their own ways´ (Leonhardt). The story continues that ³more
than any other country, Germany.. then set out on a serious stimulus program. The government
built up the military«put up stadiums for the 1936 Berlin Olympics and built monuments
[leading Germany to] escape the Great Depression faster than other countries´ (Leonhardt).
Because of Germany¶s efforts, ³corporate profits boomed and unemployment sank´ (Leonhardt).
Leonhardt is making the example from history because it worked, and he comments, ³ it is still
relevant.´

One question that has given the 2009 stimulus package so many political difficulties is that the
public doesn¶t know where the money is going. According to an article on SeekingAlpha.com by
Ockham Research, the Bank of America alone needed $200 billion just to stave off bankruptcy in
2008 And, even worse, this amount is far from what they really need to get back to where they
were before 2008. The article goes further to say that ³there is still considerable risk in these
companies, even though nationalization is not likely, there could be more pain yet to come in the
consumer credit and commercial real estate markets. These commercial banks have a lot of
exposure to both of these areas. We are not saying whether Bank of America will need to raise
capital again or not, but we do not see a rapid recovery for them either´ (Ockham Research). The
problem facing Bank of America right now, and all the other banks that haven¶t failed or merged
with others, is a newly distrusting economy.

It seems, to an outside observer at least, that there is a great deal of spending occurring that is
unrelated to the housing crisis now plaguing the economy. A New York Times article by
Edmund Andrews and Peter Baker does much to explain what went wrong when insurance giant,
AIG, decided to give out bonuses after their $150 billion bailout from the first stimulus package
in 2008. In fact, AIG planned ³to pay about $165 million in bonuses by [March 14, 2009] to
executives in the same business unit that brought the company to the brink of collapse last year.´
Moreover, ³word of the bonuses stirred such deep consternation inside the Obama administration
that [the] Treasury Secretary«told the firm they were unacceptable and demanded they be
renegotiated. But the bonuses will go forward because lawyers said the firm was contractually
obligated to pay them´ (Andrews and Baker). It seems an easy way for AIG to keep their
bonuses, by claiming they are backed by the law²when the President himself is in charge of
issuing the money and determining how it is spent, especially since, ³less than a week after the
taxpayers rescued AIG, company executives could be found wining and dining at one of the most
exclusive resorts in the nation´ (Whoriskey), spending close to a million dollars on entertainment
and spa treatments.

The debates rage over the scruples of AIG and their daring in a time of economic crisis. They
have countered that the bonuses are legally warranted, despite the fact that they have been caught
spending stimulus money on wasteful entertainment. This alone is enough to cause severe
distrust for the government within the economy²especially since the government seems to have
their hands tied in regulating AIG. But, as the New York Times has commented, the government
is still obligated to help AIG financially, despite their misdeeds this past year.

Moving on, while indeed the stimulus package itself might seem complex and vague, the rules of
the tax incentive are simple. Les Christie of CNNMoney explains that ³first-time buyers can
claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or
2009 taxes´ if they purchase their new home before December 1, 2009. Christie goes on to
clarify that ³buyers may not have owned a home for the past three years to qualify as [a] µfirst
time¶ buyer. They must also live in the house for at least three years, or they will be obligated to
pay back the credit.´

Meaning that, for the people who have been providing stimulus for the economy by buying old
homes, renovating them, and flipping them, the tax credit does not exist. Further stipulations say
that they get to keep the credit if they can make the payments without defaulting or being late, or,
of course, going into foreclosure.

The problem with this tax incentive is that, offered to such a select group of people as it is, it
may not provide enough stimulation for the economy. To truly stimulate this economy,
something must first be done about the three million people who just lost their homes to
foreclosure last year (Armour, USA Today). Where are they living? Did they become part of the
³renting´ community, are they back living with their parents, or are they homeless? There is a
much deeper issue at stake here, and one which it appears the stimulation coordinators are
adeptly ignoring. Of course, they do not want additional foreclosures on their hands by providing
stimulation to the wrong people, but as Armour makes note, some consideration must be given to
those who foreclosed last year.

As Tyler Cowen said in his recent article, ³I don¶t see much of a huge confidence boost
following the passage of the stimulus bill. I don¶t blame President Barak Obama here. Rather,
there¶s too much bad news from other quarters. Spending towards recovery is like trying to catch
the proverbial µfalling knife.¶ ´ What Cowen means is that this new economic stimulus bill might
be too little too late. A person can hardly get out of debt when taking on more credit cards to do
so, and if this is the case, which it most usually is, how can the economy be saved by yet another,
much larger loan? Cowen goes further to make the prediction that the economy will face yet
another recession when these stimulus funds run out.

Foreclosure Crisis.

Reviewing the affect on home loans within the last six years, a look will now be taken into the
root cause of the recent foreclosures and the resulting housing crisis of 2009. For now, to
understand how the housing crisis became such a grave concern, a search to find the source of
the foreclosure crisis between 2006 and 2009 must be undergone. The experts all seem to agree
that by 2007, the emphasis on lending hit an all-time high²and perhaps this should have been
viewed as a foreshadow into the future. Such free-lending practices, it can be said, caused the
slow spiral into debt and foreclosures now seen in the economy today.

Moreover, for the first time in economic history, predatory lending may be the root cause in this
current housing crisis. In 2007, a Field Hearing entitled ³The Effect of Predatory lending and the
Foreclosure Crisis on Twin Cities¶ Communities and Neighborhoods,´ was given before the US
House of Representatives. Sharon Glover was called before the stand to give her testimony on
predatory lending practices in her city. Glover testified that her husband dies in 1994 and it soon
became difficult to make her $1200 mortgage payment. They purchased the home in 1984 for
$94,000; and, in 10 years of payments, Glover was looking to refinance to lower her monthly
costs.

Ocwen Mortgage Company approached her and she signed the paperwork without really
knowing what she had agreed to. Later, Glover discovered that her home was refinanced for
$162,000²of which $70,000 was missing and her new payments rose to $1550. In 2003, her
payments went up to $1945 a month and Glover was forced into foreclosure a short time later.
Glover¶s story is like numerous others called to testify before the House of Representatives in
2007 and serves to highlight the beginning of the foreclosure crisis.

Moreover, ³back at the start of 2004, America¶s banks discovered that they could borrow money
cheaply from Asia and lend it out to higher-yielding domestic mortgages while using
sophisticated financial engineering to control their risks´ (Brad Delong, ³The Stimulus
Package´). Overall, ³financial markets are thus voting that the Obama deficit-spending package
will succeed: that its implementation will not raise interest rates«and that the increase in
government spending will not be neutralized by a corresponding fall in private spending´
(Delong). This brings up the time-honored philosophy of supply and demand. The more money
given out by the banks, the less money the banks have and the higher interest rates, by this
process, have to climb.

Any time free lending is introduced into an economy, there will be an eventual and unavoidable
end. Money is not an endless resource. At the time, however, free lending was seen as a way to
revive a waning economy. Lower interest rates and less stringent application requirements had
more people buying homes than ever before. All in all, the economy, it could have been said by
2006, was looking promising for the United States.

As Delong mentions, free-lending began in 2004, as banks realized it would be cheaper to freely
borrow great sums of money and turn it into residential and corporate real estate loans for a great
profit. Between 2004 and 2006, ³spending on housing roared upward from a pace of $624 billion
to a pace of $798 billion a year´ (Delong). The word ³flipping´ soon hit the American vernacular
as many realized how easy it was to obtain a home loan, fix up the house, and sell it for a mass
profit. However, soon there came a point where not only did the houses stop selling, but the
flippers could no longer afford the massive mortgages while waiting for buyers that just weren¶t
coming.

Two reality shows called ³Flipping Out´ and ³Property Ladder´ both highlight the lives of
flippers and depict them buying homes for bargain prices, fixing them up with high-scale
appliances and features, and selling them rapidly for high profits. Both shows have seen quite a
few seasons, but both shows have also seen a very significant decline in how properties are
selling, which will be discussed fully in the next section when a look is taken at the decline of
home values.

The reality shows highlight very clearly that fewer homes, especially in the last year, have been
selling. It is not uncommon to catch a new episode of either show and watch as the flippers go in
with high hopes only to be left with an excessive mortgage payment and no potential buyers on
the horizon. What the shows do, perhaps by accident²or maybe by design²is to emphasize the
fact that not only are more homes than ever in foreclosure, but also, less people than ever are
buying.

In September 2007, a Hearing was called before the House of Representatives entitled ³Recent
Events in the Credit and Mortgage Markets and Possible Implications for US Consumers and the
Global Economy.´ Congressman Gary Ackerman was called to the stand to explain how free-
lending was responsible for the current and future real estate market¶s decline. Ackerman said
that ³from 1995 until not so long ago, America¶s subprime mortgage market seemed to be in the
midst of a boom«subprime products were so lucrative that brokers approved the loans hastily
and sometimes recklessly, sometimes without requiring complete and proper documentation.´

Ackerman explained that ³subprime products were being marketed to individuals who were not
credit-worthy enough for a mortgage«by all accounts, this rush to pass out high-risk loans was
the first mistake. Individuals who had no business being approved for car loans were moving into
new houses.´ Ackerman was then asked to comment on the outcome of the loans, to which he
responded that ³originators then took these loans²many of which should have been assessed as
much riskier than they were²and packaged them into securities to sell to investors.´
When further questioned, Ackerman stated that ³in an effort to deliberately mislead investors,
however, some originators and credit-rating agencies«called Nationally Recognized Statistical
Rating Organizations (or, NRSRO¶s), colluded. First, the credit rating firms would consult«with
the originators«to advise the originators how to design the packaged securities to ensure that the
riskiest piece of the product was adequately masked. Then, the credit raters would
assign«favorable ratings to these mortgage-backed bonds, giving investors the impression that a
neutral, unbiased party with a proven track record of assessing risks thought highly of these
volatile products.´

Ackerman finished by commenting that ³most perplexing of all is that Congress already
identified problems stemming from NRSRO¶s and passed legislation seeking to increase
statutory authority to oversee the credit-rating agency industry«the Credit Rating Reform
Act«was signed into law by President Bush [in 2006]«but [Congress] has not acted to either
discipline these NRSRO¶s«or to make certain that these insidious practices are thwarted in the
future.´

However, despite Ackerman¶s testimony in 2007, unprecedented ³defaults and the prospect that
more than two million families may lose their home in 2008 alone, signals capitalism¶s biggest
test in the post-war era´ (Turner, 1). In fact, current numbers estimate for 2008, to paraphrase
Stephanie Armour of USA Today, that there were more than three million foreclosures in 2008,
to which they estimate that nearly one in fifty-four homes were foreclosed upon.

A report in the same article by USA Today titled, ³2008 Foreclosure Fillings Set Records,´ also
details the numbers, quoting that ³foreclosures [in 2008] were up 81% from 2007 and 225%
from 2006, according to a report from RealtyTrac.´ Which, in looking at foreclosure
percentages, reiterates that the US has not seen such numbers in close to a century.

Figure 1: Source Stephanie Armour of USA Today

As the figure above shows, the darkest color is where foreclosure numbers were at their highest,
the lightest color being the smallest amount of change. The figure also shows that the foreclosure
rate in 2006 was at 1.8%, and the change between 2007 and 2008 reached 81.2%.

Moreover, ³foreclosures remain a dominant concern for federal policymakers as Congress

weighs the release of the second $350 billion from the $700 billion Troubled Asset Relief
Program it passed in October. The House is expected to vote on a bill that would require at least
$50 billion of that money to be spent on mitigating foreclosures´ (Armour). Furthermore, ³with
foreclosures continuing to rise and the economy in a downward spiral, it¶s not surprising you see
increased foreclosures because of increased unemployment«the question is what shape and
form the help for homeowners will take´ (Armour). In fact, Armour is right that unemployment
is at an all time high. The Financial Forecast Center shows that the unemployment rate is
currently at around 8%, but, by the end of this year, the rate could reach as high as 10.3%. Rates
this high haven¶t been seen in years. The rates have been steadily maintaining around 6% since
1984, and in just 2004 rates were around 4% (Financial Forecast Center). A rise of nearly 6% in
just five years is dramatic.
The USA Today article goes on to say that ³as foreclosures mount, other homeowners are
jumping on falling interest rates to lower their monthly mortgage payments. Refinancing
applications, now about 85% of all mortgage applications, have surged to levels not seen since
2003.´ In attempt to pay looming bills, people are often introduced to the process of refinancing
their homes. For many, this process works well²a new interest rate is granted for the term of
their loan and money can be cashed out of the equity paid into the loan itself. Home owners get
money in their pocket and banks get money back into theirs as a result. Refinancing, in any case,
stimulates both the lender and the borrower, and both can reintroduce that money back into the
economy.

An article by Kelly Curran made notice that refinancing giant, Fannie Mae, experienced a
³refinancing [jump] to $77 billion in March, nearly twice the refinancing volume it experienced
during the month of February and its largest refinance month since 2003.´ Curran interviewed
Tom Lund, the executive vice president who said that ³the volumes we are seeing are very
encouraging«a majority of our business volume in March was in refinanced loans, and we
anticipate that volumes will increase even more as millions of additional homeowners become
eligible to refinance under the President¶s Making Home Affordable plan.´ As money gets
flooded back into the housing market from the stimulus bill, perhaps even more home owners
will be able to refinance.

As it stands, ³the Making Home Affordable program is made up of two levels of aid ² one
being a refinance program effective for an estimated 4 to 5 million homeowners. And given the
recent historically low mortgage rates, homeowners have a strong incentive to try and refinance´
(Curran). Refinancing, whenever possible, is a great option for re-infusing the economy and
stimulating the housing boom once again.

Luke Mullins of US News writes that ³it wasn¶t too long ago that mortgage rates were expected
to move sharply higher in the coming months thanks to rattled investors and mounting inflation.
But while falling home prices and jittery financial markets have done little to assuage investor
fears, a number of recent developments have combined to create a decidedly optimistic
mortgage-rate outlook for 2009.´ He goes on to say that ³the National Bureau of Economic
Research recently announced that the United States did indeed enter a recession in December
2007. While predictions as to the duration and depth of the recession vary, economists at
Goldman Sachs revised their original forecast in the face of deteriorating economic
news«[which] deepens and extends the expected recession´ (Mullins).

Mullins predicts that the ³recession is likely to put additional downward pressure on mortgage
rates in two key ways. First, the economic contraction will work to stifle inflation. And second, it
will support the ongoing µflight to quality,¶ whereby investors move cash from more risky
investments²like stocks²to ultra-safe government securities.´ In doing so, more money leaves
the stock market, which means businesses²like banks²lose their value and will, as a result,
have less money to lend.

Moreover, ³although mortgage rates are likely to remain attractive next year, not everyone will
be able to take advantage of them. Many homeowners with adjustable-rate mortgages that would
like to refinance into more-affordable, fixed-rate home loans have negative equity, meaning...