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Daily Archives: April 13, 2013

Draft Paper – The Political Foundations of Scarce and Unstable Credit

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Preliminary Conference Draft – The Political Foundations of Scarce and Unstable Credit, by Charles W. Calomiris and Stephen Haber, March 2013 – presented April 9, 2013

  • With respect to banking crises, economists have constructed models capable of explaining such events – despite their undesirable consequences – but those models cannot explain why the influences they identify express themselves in some countries much more than in others. Theories of banking crises posit three aspects of banking, some combination of which are presumed to explain the origins of crises: bank structure, interbank connections, and human nature. Bank structure refers to the maturity and liquidity mismatch between banks’ relatively illiquid and long-lived loans and their relatively liquid and short-lived liabilities. Structural theories regard banki ng crises as the result of the inherent exposure of banks to “liquidity risk” arising from this mismatch. Interbank connections can exacerbate crisis risk through the problem of risk “externalities.” Individual banks will choose their holdings of liquid assets and their leverage (debt relative to equity capital) based on their individual interests, and will not take into account the social costs that arise from the spill over effects (externalities) created by interbank connections. According to this class of crisis theories, the primary role of regulation is to “internalize” externalities by forcing banks to hold more cash assets and to maintain lower leverage ratios than they would choose voluntarily. The absence of sufficient regulation to internalize externalities, therefore, is the cause of banking crises. Other theories see banking crises as symptoms of human nature’s myopia, which drives destructive cycles of greed and fear.”
  • Related postings on the financial system

    • Paper – The Downfall of Extroverts and the Rise of Neurotics – The Dynamic Process of Status Allocation in Task Groups

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    Paper – The Downfall of Extroverts and the Rise of Neurotics – The Dynamic Process of Status Allocation in Task Groups, by Corrine Bendersky and Neha Parikh Shah, Academy of Management Journal, AMJ-2011-0316.R3. “We advance previous research that has associated extraversion with high status and neuroticism with low status in newly-formed task groups by examining… Continue Reading

    Book review – The Invisible Playground: Phone Phreaking and the Criminalization of Curiosity

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    LA Times Book Review by Jason Brown of Exploding the Phone: The Untold Story of the Teenagers and Outlaws Who Hacked Ma Bell by Phil Lapsley “Lapsley’s book is the definitive history of the Golden Age of “phone phreaking” in the 1960s and 70s, when these quirks in the system were the basic tools used… Continue Reading

    Interview explores topic of new book – Givers vs. Takers: The Surprising Truth about Who Gets Ahead

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    Givers vs. Takers: The Surprising Truth about Who Gets Ahead. April 10, 2013. Knowledge@Wharton “A colleague asks you for feedback on a report. A LinkedIn connection requests an introduction to one of your key contacts. A recent graduate would like an informational interview. New research from Wharton management professor Adam Grant reveals that how you… Continue Reading