The bankers' new clothes Admati, Anat; Admati, Anat; Hellwig, Martin
2014., 20130215, 2013-02-15, 2014-03-23, 20130101, ♭2013, 2013
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What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would ...require sacrificing lending and economic growth.The Bankers' New Clothesexamines this claim and the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid.
Admati and Hellwig argue we can have a safer and healthier banking system without sacrificing any of the benefits of the system, and at essentially no cost to society. They show that banks are as fragile as they are not because they must be, but because they want to be--and they get away with it. Whereas this situation benefits bankers, it distorts the economy and exposes the public to unnecessary risks. Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises. Yet the lessons from the crisis have not been learned.
Admati and Hellwig seek to engage the broader public in the debate by cutting through the jargon of banking, clearing the fog of confusion, and presenting the issues in simple and accessible terms.The Bankers' New Clothescalls for ambitious reform and outlines specific and highly beneficial steps that can be taken immediately.
•Mass administration of ivermectin is associated with lower COVID-19 incidence.•Ivermectin has been shown to inhibit SARS-CoV-2 replication in vitro.•Ivermectin may have a prophylactic effect against ...COVID-19.•COVID-19 prophylaxis could help bridge the time until a vaccine becomes widely available.
As COVID-19 (coronavirus disease 2019) continues to rapidly spread throughout the world, the incidence varies greatly among different countries. These differences raise the question whether nations with a lower incidence share any medical commonalities that could be used not only to explain that lower incidence but also to provide guidance for potential treatments elsewhere. Such a treatment would be particularly valuable if it could be used as a prophylactic against SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2) transmission, thereby effectively slowing the spread of the disease while we await the wide availability of safe and effective vaccines. Here, we show that countries with routine mass drug administration of prophylactic chemotherapy including ivermectin have a significantly lower incidence of COVID-19. Prophylactic use of ivermectin against parasitic infections is most common in Africa and we hence show that the reported correlation is highly significant both when compared among African nations as well as in a worldwide context. We surmise that this may be connected to ivermectin's ability to inhibit SARS-CoV-2 replication, which likely leads to lower infection rates. However, other pathways must exist to explain the persistence of such an inhibitory effect after serum levels of ivermectin have declined. It is suggested that ivermectin be evaluated for potential off-label prophylactic use in certain cases to help bridge the time until a safe and effective vaccine becomes available.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ
The Leverage Ratchet Effect ADMATI, ANAT R.; DEMARZO, PETER M.; HELLWIG, MARTIN F. ...
The Journal of finance (New York),
02/2018, Volume:
73, Issue:
1
Journal Article
Peer reviewed
Firms' inability to commit to future funding choices has profound consequences for capital structure dynamics. With debt in place, shareholders pervasively resist leverage reductions no matter how ...much such reductions may enhance firm value. Shareholders would instead choose to increase leverage even if the new debt is junior and would reduce firm value. These asymmetric forces in leverage adjustments, which we call the leverage ratchet effect, cause equilibrium leverage outcomes to be history-dependent. If forced to reduce leverage, shareholders are biased toward selling assets relative to potentially more efficient alternatives such as pure recapitalizations.
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BFBNIB, FZAB, GIS, IJS, INZLJ, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
According to Homburg’s (2014) comment on Kim and Lee (1997), a property tax cannot cause dynamic inefficiency in overlapping-generations models with land unless the tax ”confiscates” the entire land ...rent. But then, Homburg claims, land would be intrinsically worthless and the market for land would be closed. The latter claim is invalid because, as a store of value, land can trade at a positive price even though its net return is negative.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ
The paper contributes to the discussion on whether real interest rates below real growth rates can be taken as evidence of dynamic inefficiency so that some fiscal intervention may be called for. A ...seemingly killing objection points to land, a non-produced durable asset in positive supply, as a reason why dynamic inefficiency can be ruled out. If real interest rates were expected to be below real growth rates forever, the value of land would be unbounded, which is incompatible with equilibrium. The paper shows that this objection is not robust to the presence of an arbitrarily small per-unit-of-value transaction cost. The paper also specifies fiscal interventions that provide for Pareto improvements even though they involve a resource cost. For the debate about public debt policy, the land argument is a red herring because it is incompatible with the presence of fiat money and debt denominated in units of fiat money.
The paper provides theoretical foundations for models of strategic interdependence under uncertainty that have a continuum of agents and a decomposition of uncertainty into a macro component and an ...agent-specific micro component, with a law of large numbers for the latter. This macro-micro decomposition of uncertainty is implied by a condition of exchangeability of agents' types, which holds at the level of the prior if and only if it also holds at the level of agents' beliefs, i.e., posteriors. Under an additional condition of anonymity in payoffs, agents' behaviors are fully determined by their beliefs about the cross-section distribution of types and other macro variables, and by their beliefs about the cross-section distribution of other agents' strategies. Any probability distribution over cross-section distributions of types and other macro variables is compatible with a fully specified belief system, but not every function from types to such probability distributions is compatible with a common prior. The paper gives necessary and sufficient conditions for compatibility of such a function with a common prior.
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BFBNIB, CEKLJ, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SBCE, SBMB, UL, UM, UPUK
The paper analyses the causes of the current crisis of the global financial system, with particular emphasis on the systemic elements that turned the crisis of subprime mortgage-backed securities in ...the United States, a small part of the overall system, into a worldwide crisis. The first half of the paper explains the role of mortgage securitization as a mechanism for allocating risks from real estate investments and discusses what has gone wrong and why in the implementation of this mechanism in the United States. The second half of the paper discusses the incidence of systemic risk in the crisis. Two elements of systemic risk are identified. First, there was excessive maturity transformation through conduits and structured-investment vehicles (SIVs); when this broke down in August 2007, the overhang of asset-backed securities that had been held by these vehicles put significant additional downward pressure on securities prices. Second, as the financial system adjusted to the recognition of delinquencies and defaults in US mortgages and to the breakdown of maturity transformation of conduits and SIVs, the interplay of market malfunctioning or even breakdown, fair value accounting and the insufficiency of equity capital at financial institutions, and, finally, systemic effects of prudential regulation created a detrimental downward spiral in the overall financial system. The paper argues that these developments have not only been caused by identifiably faulty decisions, but also by flaws in financial system architecture. In thinking about regulatory reform, one must therefore go beyond considerations of individual incentives and supervision and pay attention to issues of systemic interdependence and transparency.
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CEKLJ, EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
This paper develops a technique for studying incentive problems with unidimensional hidden characteristics in a way that is independent of whether the type set is finite, the type distribution has a ...continuous density, or the type distribution has both mass points and an atomless part. By this technique, the proposition that optimal incentive schemes induce no distortion "at the top" and downward distortions "below the top" is extended to arbitrary type distributions. However, mass points in the interior of the type set require pooling with adjacent higher types and, unless there are other complications, a discontinuous jump in the transition from adjacent lower types.
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We study the relation between mechanism design and voting in public good provision. If incentive mechanisms must satisfy conditions of robust coalition-proofness as well as robust incentive ...compatibility, the participants' contributions to public good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another. For a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold. With more provision levels for the public good, more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants' willingness to pay. The article thus provides a foundation for the use of voting mechanisms.
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BFBNIB, INZLJ, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
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