Asymmetric Information and Financial Crises: a Historical Perspective
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Of Crashes, Corrections, and the Culture of Financial Information- What They Tell Us About the Need for Federal Securities Regulation
Missouri Law Review Volume 54 Issue 3 Summer 1989 Article 2 Summer 1989 Of Crashes, Corrections, and the Culture of Financial Information- What They Tell Us about the Need for Federal Securities Regulation C. Edward Fletcher III Follow this and additional works at: https://scholarship.law.missouri.edu/mlr Part of the Law Commons Recommended Citation C. Edward Fletcher III, Of Crashes, Corrections, and the Culture of Financial Information-What They Tell Us about the Need for Federal Securities Regulation, 54 MO. L. REV. (1989) Available at: https://scholarship.law.missouri.edu/mlr/vol54/iss3/2 This Article is brought to you for free and open access by the Law Journals at University of Missouri School of Law Scholarship Repository. It has been accepted for inclusion in Missouri Law Review by an authorized editor of University of Missouri School of Law Scholarship Repository. For more information, please contact [email protected]. Fletcher: Fletcher: Of Crashes, Corrections, and the Culture of Financial Information OF CRASHES, CORRECTIONS, AND THE CULTURE OF FINANCIAL INFORMATION-WHAT THEY TELL US ABOUT THE NEED FOR FEDERAL SECURITIES REGULATION C. Edward Fletcher, III* In this article, the author examines financial data from the 1929 crash and ensuing depression and compares it with financial data from the market decline of 1987 in an attempt to determine why the 1929 crash was followed by a depression but the 1987 decline was not. The author argues that the difference between the two events can be understood best as a difference between the existence of a "culture of financial information" in 1987 and the absence of such a culture in 1929. -
ISFIRE an Exclusive Interview With: Islamic Nancereview.Co
Special Focus on Risk and Trust in Islamic Banking & Finance ISFIRE An Exclusive Interview with: islamicnancereview.co DATO’ ADNAN ALIAS Volume 4 - Issue 4 | November 2014 - £20 CEO, IBFIM A Special Report on GLOBAL ISLAMIC FINANCE AWARDS 2014 Sponsored by: Published by: ibm.com edbizconsulting.com EDBIZ CORPORATION Product Development Shari’a Advisory Edbiz Consulting (London) Edbiz Research & Analysis Edbiz Corporation Consulting (Pakistan) Publications Training & Conferences Our products and services are underpinned by a common goal: promoting and advocating the ethical values inherent in Islamic nance Edbiz Consulting is a truly unique, international Islamic nance think tank, committed to engendering the value proposition that Islamic nance serves to oer in the global nancial markets. Edbiz Consulting provides multiple services that balance the dual purpose of developing thought leadership in this niche industry and strengthening the Islamic nance capacity for businesses and banks. Our client base is diverse and includes nancial institutions, governments, education providers, established businesses and entrepreneurs. Global Islamic Finance ISFIRE Report islamicnancereview.co 2015 ISLAMIC FINANCE LEADERSHIP PROGRAMME www.edbizconsulting.com ’ala Wa’d Gha l Ju rar M Visit us on: www.gifr.net afu ai ak sa at anking Mud r R c B a ib an ic at Mu ra a B ba Zak amlat b m r Ri Taw a Z l a isa ar a fu l a ru M k a Is M q a ar Is u t k r la a e ha m d M T G - c ic a u d F e n ’ i r a a n i m R a W a b n l a c l n l e a u i a ’ t f I R u s a -
Is Japan 'Back'?
IS JAPAN ‘BACK’? Japan Society of Northern California/Federal Reserve Bank of San Francisco, May 9th 2013 SOME PRELMINARY OBSERVATIONS SOME PRELMINARY “It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find any one agreeing with you, change your mind.” Keynes, speaking of Investment, 1937 5/8/2013 2 SUMMARY o Causes of Japan’s “Lost Decades” o First – Strategic irrelevance post-1989 o Second – early ‘90s headwinds strong in proportion to the size of the bubble o Third - 1997-2012- persistent macro-economic policy mistakes. o No insuperable “structural problems o Last headwinds dropped to nothing in 2009 o Senkaku spat marks Japan’s recovery of a strategic role o “Abe-nomics” represents reversal of the mistakes of 1997-2012 o Anyway, monetary policy has actually been loose since 3/11 o Deflation may already be over o PM Abe may just be “in the right place at the right time” o Both the initial, long period of error and its reversal echo the ‘30s. 5/8/2013 3 WHAT ACTUALLY HAPPENED? Is Real Life lived in Real or Nominal Numbers? Year Nominal GDP Population Nominal GDP/head Real GDP Real GDP/head (Y mil) (Thou) (Y mil) (Y mil) (Y mil) 1995 501,707 125,570 4.00 455,460 3.63 2000 509,860 126,926 4.02 474,847 3.74 2005 503,903 127,768 3.94 503,921 3.94 2010 482,384 128,057 3.77 512,364 4.00 2011 470,623 127,799 3.68 509,450 3.99 Period Nominal GDP per Capita Real GDP per Capita Change 1995-2011 -7.8% 9.9% 2000-2011 -8.3% 6.6% Note: GDP for Fiscal Years, Seasonally -
“To Establish a More Effective Supervision of Banking:” How the Birth of the Fed Altered Bank Supervision
“To Establish a More Effective Supervision of Banking:” How the Birth of the Fed Altered Bank Supervision Abstract Although bank supervision under the National Banking System exercised a light hand and panics were frequent, the cost of bank failures was minimal. Double liability induced shareholders to carefully monitor bank managers and voluntarily liquidate banks early if they appeared to be in trouble. Inducing more disclosure, marking assets to market, and ensuring prompt closure of insolvent national banks, the Comptroller of the Currency reinforced market discipline. The arrival of the Federal Reserve weakened this regime. Monetary policy decisions conflicted with the goal of financial stability and created moral hazard. The appearance of the Fed as an additional supervisor led to more “competition in laxity” among regulators and “regulatory arbitrage” by banks. When the Great Depression hit, policy-induced deflation and asset price volatility were misdiagnosed as failures of competition and market valuation. In response, the New Deal shifted to a regime of discretion-based supervision with forbearance. 100th Anniversary of the Jekyll Island Conference Federal Reserve Bank of Atlanta Eugene N. White Rutgers University and NBER Department of Economics New Brunswick, NJ 08901 USA Phone: 732-932-7363 Fax: 732-932-7416 [email protected] October 2010 “An Act to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.”—the title of the Federal Reserve Act of 1913 [emphasis added] While the formation and development of the Federal Reserve has been intensively studied, histories of the Fed, from Milton Friedman and Anna J. -
The Case for a Limited Central Bank Yeareen
The case for a Limited Central Bank Yun The Case for a Limited Central Bank Yeareen Yun [email protected] MOUNT HOLYOKE COLLEGE Volume 5, Number 1 Journal for Global Business and Community http://jgbc.fiu.edu Consortium for Undergraduate International Business Education The case for a Limited Central Bank Yun In his book, The Alchemists, Neil Irwin (2013) follows the history of the recent financial crisis of 2007, examining the difficult decisions made and the bold actions carried out by three central bankers: Ben Bernanke of the Federal Reserve, Mervyn King of the Bank of England, and Jean-Claude Trichet of the European Central Bank (ECB). Irwin not only justifies the unconventional methods such as quantitative easing, that was used by these three men, but applauds them, for “peace and prosperity… require people like Bernanke, King, and Trichet to safeguard them, often by doing things that are widely unpopular” (p.388). He accepts the expanding role of the central banks as a necessary measure given the changing times. He believes “central banks [should not] let precedent or politics stop them from doing what they need to do to keep their economies healthy” at all costs even, if it means bailing out investment banks, telling Parliament how to manage its books, and propping up financially troubled economies (p.390). Irwin believes we shouldn’t expect perfection, but rather progress, and trust intelligent men to handle economic crises and manage the economies in ways that they best see fit because they are so “technically complex that we can’t put them to a vote” (p.390). -
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The Financial System and Global Socioeconomic Cbanges Yuichiro Nagatomi Occasional Paper No.4 Yuichiro Nagatomi is President of the Institute of Fiscal and Monetary Policy, Ministry of Finance, Japan This paper originated as a lecture given at the "Regulating International Financial Markets: Issues and Policies" conference, held at the Waldorf-Astoria Hotel in May, 1990. The conference was sponsored by the Center on Japanese Economy and Business and the Center for the Study of Futures Markets at Columbia University, the Institute of Fiscal and Monetary Policy of the Ministry of Finance, Japan, and the Foundation for Advanced Information and Research (FAIR), Japan. Occasional Paper Series Center on Japanese Economy and Business Graduate School of Business Columbia University June 1990 I have a few comments on some recent changes in financial structure and also changes in the effects of monetary policy which perhaps need more discussion. 1. Socio-Economic Structure Changes: "Softnomization" The industrialized countries - the United States, Japan, and Europe - attained modernization and industrialization after the Industrial Revolution. In recent years, their socio-economic structures have been changing in a way we call "softnomization". In pre-modern times, people lived with nature's cycle - the "path of nature" or the "soft path". The "path of mechanization and automation" or the "hard path", pursued in the process of modernization and industrialization has blessed mankind with material affluence. It also has brought about "global environmental problems and maladies to advanced nations, such as drug use and other urban crimes, and it has deteriorated the vitality and quality of the society. "Softnomization" means a softening of the hard path, by seeking harmony between the "hard path" of modern times and the "soft path" of pre-modern times. -
Speech: Would More Regulation Prevent Another Black Monday?, July 20, 1988
u.S.Securities and Exchange Commission [N]@\Wl~ Washington,D. C. 20549 (202) 272-2650 ~@~@@~@ WOULD MORE REGULATION PREVENT ANOTHER BLACK MONDAY? Remarks to the CATO Institute Policy Forum Washington, D.C. July 20, 19.88 Joseph A. Grundfest Commissioner The views expressed herein are those of Commissioner Grundfest and do not necessarily represent those of the Commission, other Commissioners, or Commission staff. WOULD MORE REGULATION PREVENT ANOTHER BLACK MONDAY? Remarks to the CATO Institute Policy Forum July 21, 1988 Joseph A. Grundfest It's a pleasure to be here this afternoon to deliver an address on such a noncontroversial topic. Government regulators in Washington, D.C. have a well deserved reputation for dancing around difficult issues and not giving straight answers to simple questions. Well, I'd like to prove that I'm not your typical Washington, D.C. regulator and give you a straight answer to the question, "Would more regulation prevent another Black Monday?" The answer is an unequivocable yes, no, and maybe. The answer also depends on what you mean by more regulation and why you believe the market declined on Black Monday. With that issue cleared up, I'd like to thank all of you for attending and invite you to join the reception being held immediately after this speech. Thank you very much. It's been a pleasure. Actually, the question of whether more regulation could prevent another Black Monday is not as difficult as it seems, if you keep three factors in mind. First, it is important to distinguish between fundamental factors that initiated or contributed to the decline, and regulatory or structural factors that may have unnecessarily exacerbated the decline. -
October 19, 1987 – Black Monday, 20 Years Later BACKGROUND
October 19, 1987 – Black Monday, 20 Years Later BACKGROUND On Oct. 19, 1987, “Black Monday,” the DJIA fell 507.99 (508) points to 1,738.74, a drop of 22.6% or $500 billion dollars of its value-- the largest single-day percentage drop in history. Volume surges to a then record of 604 million shares. Two days later, the DJIA recovered 289 points or 16.6% of its loss. It took two years for the DJIA to fully recover its losses, setting the stage for the longest bull market in U.S. history. Date Close Change Change % 10/19/87 1,738.70 -508.00 -22.6 10/20/87 1,841.00 102.30 5.9 10/21/87 2,027.90 186.90 10.2 Quick Facts on October 11, 1987 • DJIA fell 507.99 points to 1,738.74, a 22.6% drop (DJIA had opened at 2246.74 that day) o Record decline at that time o Friday, Oct. 16, DJIA fell 108 points, completing a 9.5 percent drop for the week o Aug. 1987, DJIA reached 2722.42, an all-time high; up 48% over prior 10 months o Today, DJIA above 14,000 • John Phelan, NYSE Chairman/CEO -- Credited with effective management of the crisis. A 23-year veteran of the trading floor, he became NYSE president in 1980 and chairman and chief executive officer in 1984, serving until 1990 NYSE Statistics (1987, then vs. now) 1987 Today (and current records) ADV - ytd 1987 (thru 10/19): 181.5 mil ADV – 1.76 billion shares (NYSE only) shares 10/19/1987: 604.3 million shares (reference ADV above) 10/20/1987: 608.1* million shares (reference ADV above) Oct. -
The Skyscraper Curse Th E Mises Institute Dedicates This Volume to All of Its Generous Donors and Wishes to Thank These Patrons, in Particular
The Skyscraper Curse Th e Mises Institute dedicates this volume to all of its generous donors and wishes to thank these Patrons, in particular: Benefactor Mr. and Mrs. Gary J. Turpanjian Patrons Anonymous, Andrew S. Cofrin, Conant Family Foundation Christopher Engl, Jason Fane, Larry R. Gies, Jeff rey Harding, Arthur L. Loeb Mr. and Mrs. William Lowndes III, Brian E. Millsap, David B. Stern Donors Anonymous, Dr. John Bartel, Chris Becraft Richard N. Berger, Aaron Book, Edward Bowen, Remy Demarest Karin Domrowski, Jeff ery M. Doty, Peter J. Durfee Dr. Robert B. Ekelund, In Memory of Connie Th ornton Bill Eaton, Mr. and Mrs. John B. Estill, Donna and Willard Fischer Charles F. Hanes, Herbert L. Hansen, Adam W. Hogan Juliana and Hunter Hastings, Allen and Micah Houtz Albert L. Hunecke, Jr., Jim Klingler, Paul Libis Dr. Antonio A. Lloréns-Rivera, Mike and Jana Machaskee Joseph Edward Paul Melville, Matthew Miller David Nolan, Rafael A. Perez-Mera, MD Drs. Th omas W. Phillips and Leonora B. Phillips Margaret P. Reed, In Memory of Th omas S. Reed II, Th omas S. Ross Dr. Murray Sabrin, Henri Etel Skinner Carlton M. Smith, Murry K. Stegelmann, Dirck W. Storm Zachary Tatum, Joe Vierra, Mark Walker Brian J. Wilton, Mr. and Mrs. Walter F. Woodul III The Skyscraper Curse And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century M ARK THORNTON M ISESI NSTITUTE AUBURN, ALABAMA Published 2018 by the Mises Institute. Th is work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 4.0 International License. http://creativecommons.org/licenses/by-nc-nd/4.0/ Mises Institute 518 West Magnolia Ave. -
Bubbles, Manias and Market Failures
7 February 2019 Bubbles, Manias and Market Failures PROFESSOR D’MARIS COFFMAN transcribed by Mr Imad Uddin Ahmed Thank you all, it’s a great honour to be here. This is actually my second time lecturing in this hall. I was first here about 5 years ago in 2013 when I was talking about something else entirely. I’m thrilled to be back, and I would like to thank Michael Mainelli, who is not here, for in fact convincing me to do this for a second time. Tonight, I’ll talk about bubbles, manias and market failures and particularly about the unintended consequences of regulatory responses to these events. And I think when you begin talking about the subject, it’s almost imperative that you start with Tulipmania which is the paradigmatic early-modern financial crisis. Some of you may recognise this wonderful print from 1637/38 by Peter Nolpe which shows a fool’s cap in which people are playing a gambling game that was played in the inns near the flower markets. It was a kind of auction game, bit of a spread-betting game in which they bid up the price of tulips. And this print shows the devastation that Tulipmania was supposed to have caused to the morals and the economic welfare of the Dutch republic. Now most of when we actually see copies of this print, don’t see the copies from the 1636-37 but rather recycled copies from the 1720s in a much different context. We’ll talk in a moment about that context. -
A Crash Course on the Euro Crisis∗
A crash course on the euro crisis∗ Markus K. Brunnermeier Ricardo Reis Princeton University LSE August 2019 Abstract The financial crises of the last twenty years brought new economic concepts into classroom discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12. ∗Contact: [email protected] and [email protected]. We are grateful to Luis Garicano, Philip Lane, Sam Langfield, Marco Pagano, Tano Santos, David Thesmar, Stijn Van Nieuwerburgh, and Dimitri Vayanos for shaping our initial views on the crisis, to Kaman Lyu for excellent research assistance throughout, and to generations of students at Columbia, the LSE, and Princeton to whom we taught this material over the years, and who gave us comments on different drafts of slides and text. 1 Contents 1 Introduction3 2 Capital inflows and their allocation4 2.1 A model of misallocation..............................5 2.2 The seeds of the Euro crisis: the investment boom in Portugal........8 3 Channels of funding and the role of (shadow) banks 10 3.1 Modern and shadow banks............................ 11 3.2 The buildup towards the crisis: Spanish credit boom and the Cajas..... 13 4 The financial crash and systemic risk 16 4.1 Strategic complementarities, amplification, multiplicity, and pecuniary ex- ternalities...................................... -
Stopping Contagion with Bailouts: Microevidence from Pennsylvania Bank Networks During the Panic of 1884
16-03 | March 30, 2016 Stopping Contagion with Bailouts: Microevidence from Pennsylvania Bank Networks During the Panic of 1884 John Bluedorn International Monetary Fund [email protected] Haelim Park Office of Financial Research [email protected] The Office of Financial Research (OFR) Working Paper Series allows members of the OFR staff and their coauthors to disseminate preliminary research findings in a format intended to generate discussion and critical comments. Papers in the OFR Working Paper Series are works in progress and subject to revision. Views and opinions expressed are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury. Comments and suggestions for improvements are welcome and should be directed to the authors. OFR working papers may be quoted without additional permission. Stopping Contagion with Bailouts: Microevidence from Pennsylvania Bank Networks During the Panic of 1884 John Bluedorn1 International Monetary Fund Haelim Park2 Office of Financial Research March 30, 2016 Forthcoming in the Journal of Banking and Finance Abstract Using a newly constructed historical dataset on the Pennsylvania state banking system, detailing the amounts of “due-froms” on a debtor-bank-by-debtor-bank basis, we investigate the effects of the Panic of 1884 and subsequent private sector-orchestrated bailout of systemically important banks (SIBs) on the broader banking sector. We find evidence that Pennsylvania banks with larger direct interbank exposures to New York City changed the composition of their asset holdings, shifting from loans to more liquid assets and reducing their New York City correspondent deposits in the near-term.