Stanford Finance Expert: Federal Interpretation of Volcker Rule Would Lead to Constraints on U.S. Economic Growth and Recovery
Finance professor Darrell Duffie of the Stanford Graduate School of Business proposes alternative capital requirements for banks to eliminate potential unintended consequences of financial reform.
DeansTalk in Finance, Governments, Professor, USA | Permalink
|
Comments (0)
Media news including www.compete.org
The Harvard Business School's U.S. Competitiveness Project, led by Professors Michael Porter and Jan Rivkin, will engage some of the world's greatest thinkers to assess U.S. competitiveness and develop actionable recommendations to change America's trajectory. 15 nov. 2011
In an interview with Justin Fox of Harvard Business Review, Professors Michael Porter and Jan Rivkin define U.S. competitiveness, explain why it's crucial to look at drivers of competitiveness holistically, and call upon all Americans, especially those in business, to meet the competitiveness challenge by turning strategy into action. "While government policy sets the stage, it is companies that ultimately win or lose in the marketplace," says Professor Porter.
DeansTalk in USA, Video | Permalink
|
Comments (0)
Via @TuckSchool, Nov 21, 2011 (Bio, Tuck)
New Data Set Reveals Health of U.S. Economy Professor Matt Slaughter talks about a newly released data set that won't get much media coverage, and yet paradoxically is one of the most important indicators of the health of the U.S. Economy.
DeansTalk in Economics, Tuck, USA | Permalink
|
Comments (0)
Wall Street Journal, August 12, 2011
'What is tax reform?"
That's the Jeopardy-like question matching the answer: "The best step the government could take now to promote growth and employment." The Obama administration has been responding with "What are higher marginal tax rates and more stimulus?" But fundamental tax reform offers three key benefits.
First, reducing marginal tax rates on saving and investment and on work and entrepreneurship will increase capital formation and productivity, raising wages and output. Broadening the tax base and sharply lowering marginal tax rates can raise gross-domestic-product growth by a half to a full percentage point per year over a decade, according ...
Council on Foreign Relations, August 6, 2011.
Francis E. Warnock, Adjunct Senior Fellow for International Finance
Paul M. Hammaker associate professor of business administration at the Darden Business School, University of Virginia. Former senior economist at the Board of Governors of the Federal Reserve System. Author of the Center for Geoeconomics reports How Dangerous Is U.S. Government Debt?, Two Myths About the U.S. Dollar, and Doubts About Capital Controls.
2011-08-04 www.project-syndicate.org
...In the meantime, US politicians might have done just about enough to convince debt markets that America’s credit is still good. For that, Americans – and others around the world – should stop pillorying them and give them their due credit.
Raghuram Rajan, a former chief economist of the IMF, is Professor of Finance at the University of Chicago’s Booth School of Business and author of Fault Lines: How Hidden Fractures Still Threaten the World Economy, the Financial Times Business Book of the Year.
Article of Wharton Today, July 29, 2011.
In a blog posted this week, Jack M. Guttentag, professor of finance emeritus at Wharton, warned of the consequences — both immediate and long-term — of a debt default by the federal government. Asked by Knowledge@Wharton what continues to be the single biggest obstacle to agreement on a plan to increase the debt ceiling, he responded — “an ideological gridlock between different political forces that may be playing a game of chicken to see which one is going to blink first to prevent a catastrophe. To put the country through this horror in the expectation that someone will blink and everything will come out all right is just unbelievably irresponsible.”...
“If a default had the horrendous consequences you describe, and these induce Congress and the Administration to agree finally on an increase in the debt ceiling, how long would it take financial markets to return to normal?”
Markets would never return to a state where U.S. Government obligations are viewed as riskless. We will pay for this loss of grace forever...
Up Against the Debt Ceiling, July 2011.
If the United States defaults on the federal government’s debt, the consequences would be catastrophic. That was the central message in Tuck professor Matt Slaughter’s testimony before the House Democratic Steering and Policy Committee on July 7.
Post of IE Economy Blog, 21 July, 2011.
As the deadline approaches for the US Congress to either raise the debt ceiling or enter into technical default on the huge US public debt, what appears to characterize the debate is a lack of concern for what will happen if the deadline is missed.
Republicans, determined not to raise taxes, refuse to approve any compromise that would violate that objective. Democrats, reluctant to make deep reforms to social programs, want most adjustments to happen on the revenues side. The deadlock has held firm even under the time pressure of looming nonpayment on the debt.
DeansTalk in Crisis, Economics, Faculty, Finance, Governments, IE Business School, Professor, USA | Permalink
|
Comments (0)
Professor Robert Hansen moderates a panel on the ongoing credit
crisis. Hansen asks panelists to discuss such issues as: why this asset
bubble is different from others, what the crisis says about market
management, what direction public policy will take, whether we need
more regulation or regulation of a different kind.
Panelists include: Professor Jonathan Lewellen, Professor Sydney Finkelstein, Matthew Vamvakis T'09, Tuck Overseer John Jacquemin T'73, and Tuck Overseer Harvey Bundy T'68.
Recorded October 11, 2008, during Tuck reunion weekend.
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
Taken in its entirety as posted by Robert Bruner on his own blog
02/10/2009 12:09 AM
“I want to quit the MBA Program. The job situation is miserable. The economy is headed down the drain. I enrolled here with expectations that I would get into brand management—I deserve it! Now, it seems that you can’t deliver. I can’t see doing the work and running up more debt just to go back to the job I had before B-school. I’m outta here.”[1]
These are words that chill a teacher. They reveal a gap between expectations and achievement. They suggest a failure of courage and ambition. They are a symptom of the jarring adjustment required by the current economic crisis. And they imply confusion about the role of professional education in society and in the life of the individual.
Sure enough, these are tough times for everyone. The students now in B-school applied at a time when it looked like school was a sure thing: an entry to a better life. Then came the crunch. Money for student loans became scarce. Job prospects declined. Companies scaled back their recruiting—but they have not tempered the salaries they did offer. The aspirations and outlook of MBA students have shifted. Some openly wonder whether they should quit. I attended a big meeting of B-school Deans last week; this topic was a subject of conversation.
Plainly, there is an alternative to B-school, the school of hard knocks. An article published in the Wall Street Journal makes the pitch: “How to Succeed in Business: Drop Out of School?” It glowingly details the examples of three drop-outs who succeeded: Bill Gates (founder of Microsoft), Mark Zuckerberg (founder of Facebook), and Larry Ellison (founder of Oracle). The odds of hitting it that big are quite small. You should read the comments that follow the article: they tilt on the side of “stay.” Ironically, the article was published on December 21, 2007, about the time that the present recession began. Taking the advice of the Journal, one would have tried to launch his or her small business boat into the face of a rising gale.
I don’t have a lot of experience with this problem. The overwhelming majority of MBA students stick it out; they vote with their feet in favor of the MBA value proposition. Voluntary departures from Darden in mid-program are extremely rare. From my time at
Continue reading "Dean, Darden School of Business, Robert Bruner, A Time to Hang in there." »
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
(Bhopal, India, February 3, 1963)[1] was the "Economic Counselor and Director of Research" (Chief Economist) at the International Monetary Fund from September 2003 until January 2007. He was the youngest individual to hold the position (beginning at the age of 40).
Raghuram G. Rajan served as Chief Economist at the International Monetary Fund between 2003 and 2006. His major research focus is on economic growth, and the role finance plays in it. Rajan believes there is no issue with greater urgency or moral imperative than economic development.
FT.com: "Bankers’ pay is deeply flawed" January 8 2008
Banks have recently been acknowledging enormous losses, yet those losses are barely reflected in employee compensation. For example, Morgan Stanley announced a $9.4bn charge-off in the fourth quarter and at the same time increased its bonus pool by 18 per cent. The justification was that many employees had a banner year and their compensation should not be held hostage to mistakes that were made in the subprime market. The chief executive, John Mack, however, assumed some responsibility and agreed to take no bonus for 2007 – although he got a $40m payout for 2006.
....
The typical manager of financial assets generates returns based on the systematic risk he takes – the so-called beta risk – and the value his abilities contribute to the investment process – his so-called alpha. Shareholders in asset management firms, such as commercial banks, investment banks and private equity or insurance companies are unlikely to pay the manager much for returns from beta risk. For example, if the shareholder wants exposure to large traded US stocks she can get the returns associated with that risk simply by investing in the Vanguard S&P 500 index fund, for which she pays a fraction of a per cent in fees. What the shareholder will really pay for is if the manager beats the S&P 500 index regularly, that is, generates excess returns while not taking more risks. Hence they will pay for alpha.
In reality, there are only a few sources of alpha for investment managers. One of them comes from having truly special abilities in identifying undervalued financial assets. Warren Buffett, the US billionaire investor, certainly has it, yet this special ability is, by definition, rare.
A second source of alpha is from what one might call activism...
Raghuram G. Rajan, draws the distinction between “liquidation values” and those of calmer times, or “going concern values.” In a troubled time for banks, Mr. Rajan said, analysts are constantly scrutinizing current and potential losses at the banks, but that is not the norm.
“If they had to sell these securities today, the losses would be far beyond their capital at this point,” he said. “But if the prices of these assets will recover over the next year or so, if they don’t have to sell at distress prices, the banks could have a new lease on life by giving them some time.”
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
Tuck Biography of Robert Hansen
Selection of posts:
Welcome to the Treasury Amateur Hour, Tuesday, February 10, 2009
So our new Treasury Secretary comes out after having plenty of time to work out some details, and what do we get?
More uncertainty. Just what the markets and the economy need.
There is a beast in the room, and nobody wants to move because they don't know which way the beast will run. The beast of course is the Federal Government, doing their best to avoid the laws of unintended consequences.
A few quotes from the Wall Street Journal's story are very illuminating:
"But critical details of the plan remained unanswered, despite the weeks of planning leading up to Tuesday's announcement."
"Mr. Geithner said the plan to stem foreclosures would be announced in coming weeks."
"He also provided few details of the asset-purchase plan, which is designed to be done in partnership with the private sector."
"The absence of detail speaks to the thorny issues that lie at the heart of the financial crisis: how to value the toxic assets causing banks to report losses and how to shuffle aid to homeowners and stem the rise of foreclosures."
OK, these are not new issues.
The Government has two choices: One, come up with a credible and specific plan to buy toxic assets from financial institutions and support the ones that become insolvent as a result of having to take losses on the sales. Or two, step aside, and let natural market forces restore equilibrium.
Right now, the Government is effectively blocking mutually beneficial trades from taking place. Who wants to argue that financial institutions are the natural holders of these risky mortgage assets right now, instead of private investors? They never should have had such a concentration in the first place, so let's get on with the business of transferring that risk to those who are most willing and able to bear it...
The 2004 Banking Leverage Rule Change, Monday, February 09, 2009
We can expect a lot of revisionist history in the next several months, as policymakers and pundits attempt to spin the historical record to fit their interests.
We had a speaker at Tuck today who mentioned the SEC's 2004 rule change, which eliminated some leverage restrictions on investment banks in favor of capital requirements by type of asset as well as more reliance on self-regulation and reporting to the SEC. A good reference for a similar story is here in the NYT.
I have been meaning to look into this "smoking gun" for some time as it did sound intriguing. Of course, the headline is usually something like the NYT's: "Agency's '04 Rule Let Banks Pile Up New Debt." The subheading is, naturally, that we need more regulation not less and that the Bush administration was at fault.
Now there might be some issues about regulation of the banks, and I myself am very surprised at how poorly market forces seemed to enforce reasonable behavior on the part of the banks. Like Alan Greenspan, I have I guess a nostalgic view of how self-regulation should work (well).
But as to the story on the 2004 deregulation -- it simply does not hold water. I pulled out the Bear Stearns 2003 and 2006 annual reports -- before and after the regulatory change, but before falling asset prices caused an endogenous increase in liquidity.
In 2003, Bear had an overall leverage ratio of 26.4, and a net adjusted leverage ratio of 12.4. In 2006, the respective numbers were 26.5 and 13.6.
Do you think the NYT reporter could have looked that up and told us as well?
TARP: Take Two (Hopefully in Earnest This Time!), January 21, 2009
It appears that the core of the original TARP idea is being resurrected: buying bad assets and securities from banks and putting them into a government-controlled vehicle with the intent of reselling at a later point. From the WSJ over the weekend:
"The U.S. government, recognizing that the banking crisis is far larger than originally thought, is laying the groundwork for a second phase of its rescue attempt, with plans to purge bad assets that are paralyzing the financial system.
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
In an interview recorded in Paris on January 9, 2009 Columbia University's Nobel laureate economist Joseph Stiglitz tells Lionel Barber, editor of the Financial Times, why tax cuts are not the way to fix the global economy, why China´s contribution to the solution could be "small peanuts" and why banks are to blame for all the major economic shocks of the past 25 years.
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
Video highlights of lectures and television interviews
"Wharton professor analyzes the crisis" Philly.com, October 2008
The Economy & TARP - Interview with Jeremy Siegel
Knowledge@Wharton, 2009.02.04
Lesson One: What Really Lies Behind the Financial Crisis?
What was the true cause of the worst financial crisis the world has seen since the Great Depression? Was it excessive greed on Wall Street? Was it mark-to-market accounting? The answer is none of the above, says Jeremy Siegel, a professor of finance at Wharton. While these factors contributed to the crisis, they do not represent its most significant cause.
Here is the real reason, according to Siegel: Financial firms bought, held and insured large quantities of risky, mortgage-related assets on borrowed money. The irony is that these financial giants had little need to hold these securities; they were already making enormous profits simply from creating, bundling and selling them. "During dot-com IPOs of the early 1990s, the firms that underwrote the stock offerings did not hold on to those stocks," Siegel says. "They flipped them. But in the case of mortgage-backed securities, the financial firms decided these were good assets to hold. That was their fatal flaw."
Speaking in Philadelphia on January 20, Siegel, author of Stocks for the Long Run and The Future for Investors, provided a detailed analysis of the factors that fueled the worldwide financial meltdown. His talk was the inaugural lecture of a 15-session course on the financial crisis that Wharton is offering MBA and undergraduate students. Siegel's mission was to detail the factors that sparked the crisis that has caused the U.S. stock market to lose more than a third of its value in a year, while sending unemployment to its highest level since the 1980s. Siegel's lecture was on the same day that millions of Americans expressed optimism over the inauguration of President Barack Obama, even as the Dow plunged another 300 points.
Explaining his theory further, Siegel pointed out that many troubled banks and insurers continued to prosper in almost every other aspect of their businesses right up to the 2008 meltdown. The exception was the billions of dollars in mortgage-backed securities that they bought and held on to or insured even after U.S. home prices went into a free-fall more than two years ago. American International Group (AIG), the insurer that received an $85 billion federal rescue package last September, is a prime example. Some 95% of its business units were profitable when the company collapsed. "AIG has 125,000 employees," Siegel noted. "Basically, 80 of them tanked the firm. It was the New Products Division, which had an office in London and a small branch office in Connecticut. They came up with the idea of insuring mortgage-backed assets, and nobody at the top decided it wasn't a good idea. So they bet the house -- and the company went under."...
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
The GOP Mortgage Plan: Con and Pro February 5, 2009.
Congressional Republicans are proposing that the government offer people 4 percent mortgages, which is below current market rates for mortgages but above the current government bond rate. Harvard economist Ed Glaeser is opposed...
Feldstein on Fiscal Stimulus February 4, 2009.
Interview with Marty (Felstein) December 13, 2008.
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
J. Bradford DeLong´s blog (his profile)
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
David B Allen´s blog "Strat Op. Ed."
January 30, 2009
President Obama called the bonuses paid to banking sector executives, "shameful". He then said,“There will be time for them to make profits, and there will be time for them to get bonuses.”
He was right about "shameful", but he fudged it on bonuses, as if there were good old days we could go back to when a CEO received an "honest day's pay for an honest day's work". In a complex economy, this is close to impossible. It is inevitable earnings of investment bankers, hedge fund managers and CEOs of large companies will depend far more on social norms than long-term economic performance. Don't get me wrong. The elite of big business and finance are talented people; there is, however, scant economic justification for the pay they receive.
Fixing America: Obama's To Do list
January 14, 2009
The TO DO list for Barack Obama put together by our best and
brightest is clear. When he gets the Oval Office on Day 1 on desk all
he will be asked to fix ... everything.
We all know why there is so much to be done. The foundations of society are off kilter. Education and work, the two things that take up most our lives, need to be retooled -- from pre-school imagination building to post-doc innovating. We need to rethink what is worth doing and worth learning how to do...
1. Get out of Iraq and Afghanistan now.
2. Provide all American children with the world's best health care and education.
3. End U.S. dependence of foreign oil.
December 27, 2008
Nice, nice, very
nice;
Nice, Nice, very
nice;
Nice, nice, very nice
--
So many different
people
In the same
device.
-- Kurt
Vonnegut
BACKGROUND
There are lots of smart people describing the mess we are in. I read The New York Times and The New Yorker mostly, where professional journalists have incomparable access to the world’s most important decision-makers and our best minds. These journalists, the media elite, work hard to do their job monitoring the elites of the other estates.
Thomas
Friedman, of the flat world, is fixated on our collapsing infrastructure,
fractured educational system, and inane business culture. His articles detail
failure upon failure made palatable by a dash of optimism and a catchy title
like "Time
to Reboot America
".
He and his colleagues, in an attempt
to veil despair, regularly finish up their missives with a plea to the Office of
the President-Elect to save our skins. Paul Krugman is a pro at it (see "Barack be
good"). Though as a Nobel-prize winner he
is smart enough to have figured out that Obama ain’t off to such a great start,
vacationing in a luxury beach home, taking the Clintons and most of their team
on board in this winter of discontent, and signing Rick Warren for a dose
insipid truth for our inaugural prayer.
We, the people, would like, and deserve, something better from our elites.
For years I believed that managerial incompetence in the U.S. automobile industry had no limits. I was right. But that was only part of the story. Now these giants of industry and their million lobbyistreplicant march on Washington is on the cusp of a monster bailout that promises to suck $15 - $25 billipn out of the American taxpayer in the first tranche. (This is peanuts, of course, compared to what was wasted on AIG, but I have already exhaled sufficient spleen on that topic.)
The three big automakers are singly and collectively underserving of a red cent, but the most undeserving of all is Cerberus, the savior of Chrysler. Cerberus is run by Stephen Feinberg, who by all accounts is smart and, by the standards of superrich hedge fund moguls, modest in his impudent arrogance.
DeansTalk in Crisis, USA | Permalink
|
Comments (0)
|
TrackBack (0)
Is the U.S. a Japan 2? The Return of Japan’s “Free Fallin” Stag-Deflation and the Risks of a U.S.
The sad case of Japan free fall is a cautionary tale of what happens when a high flying economy has a real estate and equity bubble that goes bust and avoids for too long doing the painful structural reforms and clean-up of the financial system that is necessary to avoid a long-term L-shaped near depression. Japan had over a decade of stagnation and deflation, then a mild sub-par growth recovery that lasted only three years and is now spinning into another severe stag-deflation. Keep alive zombie banks and zombie corporations whose balance sheets and debts are not restructured as in Japan (zombie banks and zombie insolvent households in the US today) and you end up in a L-shaped near depression.
Let me explain next in this note why the US and the global economy face the risk of an L-shaped near depression if appropriate policy actions are not undertaken…
DeansTalk in Asia, Crisis, Economics, USA | Permalink
|
Comments (0)
|
TrackBack (0)
“In practice it is seldom very hard
to do one’s duty when one knows what it is, but it is sometimes exceedingly
hard to find this out.” Samuel Butler (Note Books,
1912)
DeansTalk in Asia, Crisis, Economics, Governments, USA | Permalink
|
Comments (0)
|
TrackBack (0)
