December 23, 2003
Lurching Forward with Corporate Control Reform

The pendulum swings a little bit back toward shareholders: FT.com Home US: US regulators have received a record number of comments on controversial proposals that would allow shareholders more easily to oust board directors, with the vast majority of responses in favour of changes that are set to revolutionise company annual meetings. Corporate America's leaders remain implacably opposed to the plans, however, and stepped up their opposition ahead of Monday's deadline for comments to be submitted to the Securities and Exchange Commission. Some 12,000 letters have been posted on the SEC's since the regulator issued its plans two months ago. The previous record was 7,000 letters regarding plans to force institutional investors to disclose how they voted at shareholder meetings. However, about 9,500 of those in favour of the latest plans are on two "form letters" - indicating grassroots campaigns organised by large, unidentified, lobby organisations. The business community is sharply divided on the proposals which seek to reform access to company election materials, known as proxies. In general, the plans would give groups of shareholders more opportunity to contest director elections and nominations after certain "trigger" events at companies have taken place. The triggers could be a small group...

Posted by DeLong at 07:08 AM

October 20, 2003
Department of Synchronicity

Kieran Healy picks up, reads, and recommends George Goodman's The Money Game: Crooked Timber: International Monetary Fun: I picked up a copy of The Money Game over the weekend in a second-hand bookshop in Melbourne. It's a minor classic in the literature on the stock market, so naturally I hadn't heard of it until a few months ago when Daniel mentioned it in a comments thread. The book is thirty five years old and it shows. It's also very good. That shows, too... By synchronicity, I just recommended it to one of my graduate students last week....

Posted by DeLong at 08:51 PM

October 14, 2003
Fidelity Investments Wants Stock Exchange Reform

Fidelity Investments wants to see the end of the New York Stock Exchange "Specialist": from the Wall Street Journal: WSJ.com - Fidelity Urges NYSE to Revamp Trading Operation: ...Fidelity Investments, in a rare public assault on the New York Stock Exchange, called for an end to the human-based system for auctioning stocks that has been the pride of the Big Board for more than two centuries. Scott DeSano, head of global equity trading at the nation's largest mutual-fund company, attacked the exchange's specialist system, in which floor traders match buyers and sellers. Instead, he said, Fidelity would prefer an electronic system such as that used by the Nasdaq Stock Market, in which computers pair buy and sell orders with no human go-between. "That's where we inevitably want it to get," Mr. DeSano said in an interview Monday. Closely held Fidelity, controlled by Boston's billionaire Johnson family, tends to like to work behind the scenes, although Mr. DeSano has long made his frustration with the specialist system known in trading circles, as well as at an SEC forum last November. Fidelity complains that specialists trade for their own accounts at the expense of investors. But now, Fidelity is ratcheting up the...

Posted by DeLong at 06:28 AM

September 30, 2003
The Economist's Buttonwood Tree Speaks

The Economist's Buttonwood Tree column speaks, and apologizes to the rest of us for assuming that "George Bush and his administration were not as stupid, short-sighted, parochial and economically illiterate as they sometimes appear. Buttonwood now realises that this was a mistake and retracts this view as hopelessly optimistic and naive." That's OK. Every young tree is allowed a few mistakes. But don't let it happen again. Economist.com: Underlying some of this column's cheer these few weeks past has been an assumption that President George Bush and his administration were not as stupid, short-sighted, parochial and economically illiterate as they sometimes appear. Buttonwood now realises that this was a mistake and retracts this view as hopelessly optimistic and naive. Over the past couple of weeks, the risks to the world economy and financial markets everywhere have risen as the full force of their economic myopia has visited itself on the world stage. The reason for this column's volte face was the outcome of the G7 meeting in Dubai. The communiqué issued by the group of industrialised rich countries on September 20th called for "more flexibility" in exchange rates, which sounds innocuous enough but most certainly wasn't. Whatever other countries thought...

Posted by DeLong at 08:36 PM

September 26, 2003
Stephen Roach Has Hopes and Fears

Morgan Stanley's Stephen Roach likes Treasury Secretary Snow's new policy of talking down the dollar: Morgan Stanley: As expressed in Dubai, the G-7's vision of market-determined exchange rates fit the script of global rebalancing like a glove.  It promised the one shift in relative prices -- a weaker dollar -- that a lopsided, US-centric world so desperately needs.  For a world beset by massive and unsustainable external imbalances, the G-7 recipe offered the best possible endgame -- a balanced global economy.  It was the perfect ending to my bad dreams of the past four years. It's not clear why he likes it. As I've said before, there are two ways of announcing changes in exchange rate policy. The first is to announce that monetary policy will be different--say, if Chairman Greenspan were to say something like: One of the considerations impelling the Open Market Committee toward continued monetary ease for a considerable period of time is the sense that the appropriate value of the exchange rate should produce a trade balance equivalent to desired fundamental long-term capital flows; and that the current level of the U.S. exchange rate seems to be associated with a perhaps excessive inflow of short-term finance...

Posted by DeLong at 09:17 AM

September 23, 2003
The Weak Dollar Policy

One of the many things Robert Rubin has been is a bond salesman. That, I believe, accounts for his "strong dollar policy"--Rubin's promise to people thinking of buying U.S. Treasury and other dollar-denominated bonds that the U.S. government was in the business of trying to keep the value of its securities high, and was not thinking of pursuing a policy of dollar depreciation that would boost exports while eroding the wealth of foreign bondholders. But this Treasury Secretary is different. Over the weekend, Treasury Secretary John Snow persuaded the G-7 nations to issue a communique largely--and correctly--perceived as calling for a "market-based" rather than a "strong" dollar. In response, the value of the dollar fell. U.S. interest rates jumped. The stock market declined: Markets Fall on Declining Dollar | Jerry Knight: The stock market skidded, the value of the dollar fell and interest rates today rose as financial markets responded to a weekend meeting of world economic leaders. At the meeting in Dubai, representatives of leading industrialized countries in the Group of Seven proclaimed that markets rather than governments ought to determine currency values. Such a strategy is usually endorsed by most economists and governments, but the statement aroused concern...

Posted by DeLong at 09:23 AM

September 21, 2003
Corporate Control

Vince Boland writes: FT.com Home US: Amid all the weeping and gnashing of teeth on Wall Street this week as Richard Grasso was forced out at the New York Stock Exchange, one aspect of the drama didn't get the attention it deserved. This was that the trigger for his departure was pulled by institutional investors. There was much sniggering among Mr Grasso's supporters that those investors were the California public employees' and teachers' pension funds (Calpers and Calstrs). And who was Philip Angelides - treasurer of California, hardly a paragon of fiscal rectitude - to criticise any institution over what it did with its money? The sniggering has stopped now. Calpers, Calstrs and the New York State Pension Fund, which joined the criticism, are the three largest public pension funds in the US, and, with a combined portfolio of $340bn, are among the NYSE's largest customers......

Posted by DeLong at 12:52 PM

September 03, 2003
Corporate Control

A serious rebalancing of the power of the Board of Directors at MCI: Economist.com: ...Mr Breeden's solution is to hand more power both to the board and to shareholders. MCI's current chief executive, Michael Capellas, must relinquish his role as board chairman to an outside director, a power sharing that remains deeply unpopular with American bosses. All other directors must demonstrate their full independence from management (the New York Stock Exchange insists only that half of the directors be independent). Director qualifications and workload will increase, as will salary: WorldCom paid directors $35,000 a year; MCI will give them $150,000. Mr Breeden also places big constraints on the freedom of management and board to act independently from shareholders. Mr Capellas must declare an explicit dividend policy, which he can change only with the consent of shareholders. To prove the purity of its accounting, Mr Breeden suggests that MCI pays out 25% of net profits. The board may not pay Mr Capellas more than a specified amount each year (Mr Breeden suggests a paltry $15m or less) without shareholder approval. Big shareholders also help to choose new directors. If no agreement with the board is reached, the firm must run contested...

Posted by DeLong at 06:58 AM

August 19, 2003
Decoupling Equity and Bond Markets?

The Economist's Buttonwood column wonders how it can be that wild swings in the bond market can leave the stock market unaffected: Economist.com ...Normally, high interest-rate volatility leads to high equity volatility (though not necessarily the other way round, because when equities are having a tough time, investors flock to Treasuries, which tends to depress volatility). There are good reasons for this: think of the effects volatile interest rates have on borrowing; on planning; on equity-valuation models that plug in interest rates; and on banks' risk-management models, which force them to dump positions--wherever they may be--when losses mount and volatility rises in one part of their trading business. Oh, and then there are the systemic concerns and rumours about this or that investment bank or hedge fund getting into trouble when markets move sharply. In recent years the VIX, widely used as a proxy for systemic concerns, has spiked sharply at such times. This time, it has fallen. Perhaps the Treasury market is now at one with the equity market: higher rates simply reflect a healing economy and higher demand for capital. On this view, as the economy recovers--and the evidence that it is enjoying at least a short-term fillip...

Posted by DeLong at 12:26 PM

August 17, 2003
What Makes Financial Markets Work?

I've been thinking about this argument by Daniel Davies for nearly two weeks now. I've concluded that it is either a brilliant innovative analysis, or utterly barking mad. Unfortunately, I don't know which: Crooked Timber: Hayekian markets reconsidered : A week late and a couple of dollars short, here are my thoughts on the now defunct Policy Analysis Market.... [N]obody seems to be at all clear on the details of what this market was meant to achieve (was it open to the general public? Only to specialists? Was it going to trade “assassination futures”? Or just derivatives on the EIU political stability indices?), let alone on its clearing arrangements, confidentiality clauses, etc.... However, I do want to comment on the fact that a number of bloggers analysed it in terms of Hayek’s concept of tacit knowledge and markets as information-creating social entities.... I'm not inclined to take seriously those critiques based on bubbles or based on supposed inefficiencies of market behaviour, at least not unless they have some explanation of why these are particular flaws of market behaviour, rather than general organisational pathologies of groups of homo sapiens. I am always in favour of people being made to put their...

Posted by DeLong at 05:19 PM

Bullish on Bonds...

The Economist's "Buttonwood" is very bullish on bonds: Economist.com: ...the yield on ten-year Treasuries popped up to almost 4.5%--some 140 basis points (bps, or hundredths of a percentage point) above their lows in June. This move has been both big and fast: bigger and faster, indeed, than the infamous rout in early 1994, when the market took twice as long to fall a similar amount.... Treasury yields are more volatile than they have ever been. This is a bit odd in some ways, since nobody expected the Fed to do anything anyway, and very few (the Fed included) entertain the prospect of its putting up short-term rates from their present 1% for the foreseeable future. In 1994, the economy was motoring and the Fed ended up doubling rates, to 6%. This time, the recovery, if any, will be weak.... What, then, has turned a small correction into a sharp sell-off? The biggest cause seems to have been the hedging activities of holders of mortgage-backed securities.... When Treasury yields fall, the duration of mortgage-backed portfolios also falls because homeowners swap old mortgages for new, cheaper ones. To hedge against this, fund managers buy Treasuries. Conversely, when yields rise, they sell Treasuries....

Posted by DeLong at 08:41 AM

July 22, 2003
Panic in the Bond Market?

Morgan Stanley's Stephen Roach sees a bond-market panic driven by depressed "animal spirits" on the part of bond traders. The Federal Reserve needs to keep long-term interest rates low to spur investment and recovery. How it can do this if it is indeed the case that long-term bond interest rates are now being set by panicked traders rather than forward-looking economists is a mystery: Morgan Stanley: ...There are a number of alternative explanations to this dramatic sell-off in the bond market.  There are those, of course, who claim that signs of incipient economic recovery have turned the bond market inside out.  While I'm hardly objective on that point, even the diehard growth optimists concede that the evidence remains mixed at this point and that the vigorous recovery call is still a forecast (see Dick Berner’s July 18 dispatch, "Recovery Signs").  Others have argued that the rapidly deteriorating federal budget deficit is the culprit, sparked by the administration’s midyear confession that the budget shortfall is likely to hit $455 billion in the current fiscal year.  While I would be the last to minimize the significance of this development, it hardly qualifies as the singular surprise that can explain the bond market’s...

Posted by DeLong at 12:53 PM

July 16, 2003
Fannie Mae and Freddie Mac

The Economist cannot decide whether the concentration of so much of America's mortgage-backed securities (half?) in the hands of Fannie Mae and Freddie Mac is a good thing or not. I don't know enough to have an informed opinion: Economist.com: ...Now fast-forward to the early part of 2003. Long- and short-term rates have been falling fast; investors are similarly hungry for duration because yields have been falling and the stockmarket looks unappetising. Then, in the middle of June, long-term yields rise sharply. You can see why nervous eyes might be cast at the mortgage market. For the moment, though, all is relatively calm: mortgage spreads have actually tightened. Perhaps this is because (worryingly) no one expects short-term rates or long-term yields to rise much. Or it may be because much of the mortgage market is now in the hands of Fannie and Freddie. Is this concentration a good thing? The optimistic view is: of course it is. The 1994 debacle was not a one-off. The mortgage market suffers periodic blow-ups because it is inherently flawed. There are no natural buyers of the embedded options (the option to prepay) because they are so hard to price; though they are rewarded for...

Posted by DeLong at 10:39 AM

July 07, 2003
Holderness, Kroszner, and Sheehan (1999)

Note to self: need to reread Clifford Holderness, Randall Kroszner, and Dennis Sheehan (1998), "Were the Good Old Days That Good? Changes in Managerial Stock Ownership since the Great Depression" (Cambridge: NBER Working Paper No. 6550)....

Posted by DeLong at 07:11 PM

June 30, 2003
International Capital Mobility

The Commerce Department reports on how foreigners have invested much more in the U.S. than U.S. citizens have invested abroad: Forbes.com: US net debtor gap grew to record $2.387 trillion in '02: WASHINGTON, June 30 (Reuters) - The shortfall between U.S.-owned investments abroad and foreign investments here widened again in 2002, to a record $2.387 trillion, the government said in a report Monday. In its annual report on the nation's international investment position, the Commerce Department said the gap between U.S. and foreign investments had increased by $407.31 billion from a revised $1.980 trillion seen in 2001... In the series of linked short runs, we understand why the U.S. is now a debtor nation: the Reagan-Bush deficits, the difference between near-full employment in the U.S. and stagnation in Europe and Japan, the extraordinary attractiveness of investing in U.S. high-tech in the 1990s, fear by rich in other countries that in some future decade political instability will make them glad to have a big bank account in New York, plus a good old-fashioned bubble. All of these contributed to the large capital inflows that have made the U.S. a massive debtor nation. But we neoclassical economists believe that the short runs...

Posted by DeLong at 10:42 AM

June 22, 2003
Notes: Intro to History of American Corporate Control

I'm going to talk about the rise of American financial and bank-group capitalism, and Marco is going to talk about its fall. Together we'll talk about the waxing of the House of Morgan and the Dynasty of Rockefeller and their other peers, and then their waning. How the U.S. first becomes and then moves from being, a century ago, a "normal" country--with family pyramids and powerful investment banks--as far as corporate control and financial organization is concerned to being a distinctly abnormal country. Our general rhetorical strategy is to take refuge in historians' standard argument #3: that things are really complicated, and all neat, clean theories by people like our friends Mark Roe (1993) and Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (1998) are only partial and incomplete because they do great violence to historical reality and ignore complexity, contingency, just dumb luck, and sheer chance. So let me start with a passage from the tallest Canadian economist. A generation ago on the very first page of his New Industrial State John Kenneth Galbraith wrote about--perhaps mourned?--the passing of the influence of the great business families of America: Seventy years ago the corporation was the instrument of its owners...

Posted by DeLong at 10:56 AM

June 10, 2003
Becht and DeLong Oozes Under the Door

Marco Becht and I are writing a paper for a conference that is now a... frighteningly short number of days away. On the other hand, we have some truly neat stuff. Here is a graph of our estimates of the the smallest number of the shareholders of Standard Oil (NJ) you need in order to have 50% of the vote at the annual meeting. It shows strikingly and remarkably the transformation from personal or family or financial capitalism early in the century to "managerial" capitalism--the situation in which ownership is so dispersed that it is very hard indeed to even think about how one would try to replace an entrenched, incumbent management--at mid century. The least number of shareholders needed for 50% control goes from 7 in 1912 to more than 650 by 1950. So this makes me happy......

Posted by DeLong at 03:04 PM

June 09, 2003
New Online Column From the Economist

The Economist is starting a new online column about the daily ticking and tocking of financial markets. Economist.com: AN ODD thing is happening in the market for risk and the market of the riskless, also known as the equity and government-bond markets: prices are rising in both. The S&P 500 share index, up by over 20% from its low earlier this year, continues to soar. Meanwhile, rising prices in the bond market have driven yields on the ten-year note down to 3.35%--a level last seen when Elvis Presley was a youngster. The same, broadly, is true in Europe: both stocks and government-bond prices are up. It has happened before, of course; indeed, there have been long periods where the two have moved in tandem, in part because lower interest rates reduce the financial burden on companies and make investment cheaper. But the coupling is a perplexing one right now, nonetheless, because the reasons that investors are buying the two markets appear to be diametrically opposed: in effect, bond-market investors seem fearful that the American economy will remain sluggish, while the equity market thinks it is over the worst... Such a column is a hazardous exercise to undertake. It violates Bob...

Posted by DeLong at 03:26 PM

June 07, 2003
Eurostasis

The Economist covers the apparent collapse of European Commissioner Frits Bolkestein's effort to make hostile corporate takeovers somewhat easier in Europe. In the Economist's view, German politicians (and managers, and bankers) don't want German industries owned by foreign companies, and Swedish politicians are very happy with having their industries run by the Wallenberg family. Both are extremely suspicious of the neoliberal proposition that lots of social value is generated by a hostile takeover. Economist.com: EUROPEAN commissioners often have to put on a brave face. Part of their job is to cajole and charm national politicians into signing up to new Europe-wide projects or rules, and they do not always succeed. Pity then Frits Bolkestein, the commissioner in charge of the single market. On May 19th, his latest effort to introduce a directive on corporate takeovers was stymied by what amounted to pork-barrel politics. He put on a brave face, but must have been utterly dismayed. It is quite likely that the directive is dead. The effort to create it has lasted some 14 years. The fate of the directive reveals the failings of Europe's business-reform programme. A previous directive almost became law in 2001, but fell at the final hurdle...

Posted by DeLong at 08:29 AM

June 05, 2003
Gains From International Trade and Investment

An Irish-Arizonian-Australian cross-disciplinary alliance of Kieran Healy and John Quiggin is thinking about Pierre-Olivier Gourinchas and Olivier Jeanne's brand-new "The Elusive Benefits of International Financial Integration"--the conclusion of which is that in standard neoclassical models freeing up capital flows across nations has the capability to boost economic welfare by an amount on the order of magnitude of one percent: John Quiggin: (Small) gains from trade: (Small) gains from trade: Kieran Healy links to a paper by Pierre-Olivier Gourinchas and the missing-from-the-web Olivier Jeanne in which a calibrated growth accounting model is used to show that the gains from unrestricted capital mobility are likely to be of the order of 1 per cent of GDP. Gains from risk sharing aren't mentioned but other papers are cited to say that these are of a similar magnitude. Those who listen to the general pronouncements of economists might be surprised by the modest size of the estimated gains. But for those who have looked at similar exercises in the past there is no surprise here. One of the better-kept secrets of economics is the fact that most studies suggest that the replacement of a typical high-tariff regime (say Australia's in the 1960s) will yield...

Posted by DeLong at 07:09 AM

April 10, 2003
Notes: LTCM

A short summary of what went wrong at LTCM....

Posted by DeLong at 09:35 PM

Notes: On the Efficient Frontier

William J. Bernstein's Efficient Frontier....

Posted by DeLong at 08:58 PM

Notes: More Finance Demand Curves Sloping the Wrong Way

Notes: Teaching: Econ 236: Behavioral: Finance: Yet More Demand Curves That Slope the Wrong Way This time it's due to performance-based arbitrage: PBA: circumstances in which the fact that prices move against fundamentals leads investors to think that their smart-money managers aren't so smart, and so withdraw funds: From Andrei Shleifer and Robert Vishny (1995), "The Limits of Arbitrage" (Cambridge: NBER Working Paper 5167). One model of risky arbitrage is that of a large number of investors taking small positions against the mispricing. Fama's (1965) classic analysis of efficient markets and Ross's (1976) Arbitrage Pricing Theory are based on this model. An alternative, and in many cases more realistic view, is that arbitrage is conducted by a few professional, highly-specialized investors who combine their knowledge with resources of outside investors to take large positions. They operate in markets where fundamentals are difficult to ascertain and correct hedging strategies are hard to implement, such as the currency and derivative markets. The fundamental feature of such arbitrage is that brains and resources are separated by an agency relationship. the money comes from wealthy individuals, banks, endowments, and other investors with only a limited knowledge of individual markets, and is invested by arbitrageurs...

Posted by DeLong at 03:49 PM

Notes: Risk Aversion

Teaching Notes for Econ 236: April 9: What do different risk aversion parameters imply about gambles? Kocherlakota (1995) [Narayana R Kocherlakota (1995), "The Equity Premium: It’s Still a Puzzle," Journal of Economic Literature, 1996-1, pp. 42-72.] reports that the raw "equity premium puzzle" implies a coefficient of relative risk aversion of 18... (and then there is the risk-free rate puzzle: at a crra of 18, you need a raw time preference factor of -8% per year to fit average per-capita consumption growth to the average real risk-free rate of interest. What does such a high risk aversion parameter mean? Well... ...At a coefficient of relative risk aversion of 1... you are indifferent between a this year's consumption level of $30,000 for certain and a 58% chance of $40,000 coupled with a 42% chance of $20,000. ...At a coefficient of relative risk aversion of 5... you are indifferent between a this year's consumption level of $30,000 for certain and a 86% chance of $40,000 coupled with a 14% chance of $20,000. ...At a coefficient of relative risk aversion of 10... you are indifferent between a this year's consumption level of $30,000 for certain and a 97.6% chance of $40,000 coupled with...

Posted by DeLong at 03:44 PM

March 04, 2003
Those Who Do Not Remember History...

Those who do not remember history are condemned to repeat it, and the rest of us are condemned to repeat it with them. Gerardo della Paolera and Alan M. Taylor point out that those who have studied the 1929 collapse of the gold standard in Argentina would have found few surprises indeed in the 2001 collapse of the currency board. Yet another brick in the wall suggesting that it is long-lasting institutional deficiencies that are the causes of the "bad policies" that overoptimistic economists like me think stand in the way of successful development and growth. Gaucho Banking Redux: Gerardo della Paolera, Alan M. Taylor | NBER Working Paper No. w9457 | Issued in January 2003 | Argentina's economic crisis has strong similarities with previous crises stretching back to the nineteenth century. A common thread runs through all these crises: the interaction of a weak, undisciplined, or corruptible banking sector, and some other group of conspirators from the public or private sector that hasten its collapse. This pampean propensity for crony finance was dubbed 'gaucho banking' more than one hundred years ago. What happens when such a rotten structure interacts with a convertibility plan? We compare the 1929 and 2001...

Posted by DeLong at 02:02 PM

The Equity Premium Puzzle

Rajnish Mehra has a nice new working paper out explaining why all the attempts to resolve the "equity premium puzzle" (the puzzle of the large gap between expected returns on stocks and government bonds that he and Ed Prescott singlehandedly brought to the forefront of economists' concerns nearly two decades ago) are unconvincing: The Equity Premium: Why is it a Puzzle?: Rajnish Mehra | NBER Working Paper No. w9512 | Issued in February 2003 | This article takes a critical look at the equity premium puzzle the inability of standard intertemporal economic models to rationalize the statistics that have characterized U.S. financial markets over the past century. A summary of historical returns for the United States and other industrialized countries and an overview of the economic construct itself are provided. The intuition behind the discrepancy between model prediction and empirical data is explained. After detailing the research efforts to enhance the model's ability to replicate the empirical data, I argue that the proposed resolutions fail along crucial dimensions. Normally I'd just quote the abstract, and I'd be done. But Rajnish's abstract stops just where things get interesting. "I argue that the proposed resolutions fail along crucial dimensions"--sheesh! So let me...

Posted by DeLong at 01:32 PM

September 12, 2002
Ken Rogoff on the IMF

Ken Rogoff on the claim that IMF bailouts take the money of rich-country taxpayers, give it to the unworthy, and so create "moral hazard". (He also covers a host of other issues.) Economist.com: ...It would be hard to overstate the influence of the popular perception that IMF crisis loans are thinly disguised bail-outs, with the tab paid mainly by ordinary taxpayers in the industrialised world. The presumed need to limit such bail-outs, and their adverse long-term incentive effects, is a central element of virtually every important plan out there to improve the way the IMF does business. The challenge posed by the bail-out view is not simply lack of transparency—that IMF loans are really outright transfers and should be called such. No, the deeper and more troubling implication is the “IMF moral hazard” theory. Simply put, if lenders are confident they will ultimately be bailed out by heavily subsidised IMF loans, they will extend too much credit to emerging-market debtors at rates that do not reflect the true underlying risk. The result? Bigger and more frequent crises than if the IMF did not exist. Giving the IMF more resources, it is argued, exacerbates the crises it was designed to alleviate....

Posted by DeLong at 02:21 PM

September 09, 2002
Alan Murray on IPO Underpricing

Alan Murray wrestles with the problem of IPO--Initial Public Offering--underpricing. On the one hand, why should the rest of us care if entrepreneurs wish to sell 10 percent of their companies at a half-off discount to the friends and clients of their investment bankers when their firms go public? Entrepreneurs are giving a rather large present to those on the IPO list, but if they did not wish to do so they could always use Hambrecht and Quist and run a true auction to sell off the initial tranche of shares. And they get benefits--a bunch of people who will have made money by investing in their stock, and who are likely to hold onto it and talk it up. Murray comes down on the side of the--highly plausible--theory that IPO underpricing is a way that investment banks get their going-public client corporations to bribe those from whom they want to be thrown other prices of investment banking business. WSJ.com - Article ...When the price of a stock jumps to $20 from $10 in the first day of trading, reaping instant profits for the lucky few who have been allocated shares, the investment bankers celebrate a "hot" offering. They ought...

Posted by DeLong at 09:18 PM

June 01, 1990
J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Positive-Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance 45: 2 (June), pp. 374-397.

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Positive-Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance 45: 2 (June), pp. 374-397....

Posted by DeLong at 03:12 PM

Robert B. Barsky and J. Bradford DeLong (1990), "Bull and Bear Markets in the Twentieth Century," Journal of Economic History 50: 2 (June), pp. 1-17.

Robert B. Barsky and J. Bradford DeLong (1990), "Bull and Bear Markets in the Twentieth Century," Journal of Economic History 50: 2 (June), pp. 1-17....

Posted by DeLong at 03:10 PM

July 01, 1989
J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1989), "The Size and Incidence of Losses from Noise Trading," Journal of Finance 44: 3 (July), pp. 681-696.

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1989), "The Size and Incidence of Losses from Noise Trading," Journal of Finance 44: 3 (July), pp. 681-696....

Posted by DeLong at 12:21 PM