Friday, September 11, 2009

[The Lehman Anniversary] Academia

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Lehm-educate yourself this weekend with our selection of academic papers and speeches examining the fall of the investment bank.

Financial crisis, global conditions, and regime changes
In this VoxEU paper, IMF economist Heiko Hesse and IMF deputy division chief for global financial stability, Brenda González-Hermosillo, use quantitative analysis to show that the Lehman Brothers failure was a watershed event in the crisis, although signs of heightened systemic risk could be detected as early as February 2007.

Deleveraging after Lehman — Evidence from reduced hypothecation
Rehypothecation means that collateral posted by a prime brokerage’s clients can be used as collateral by the prime broker for its own purposes. When Lehman fell, it took its prime brokerage with it — causing a world of pain for the unit’s mostly hedge fund clients, which saw their assets frozen in the bank’s bankrupcty. IMF economist Manmohan Singh and UBS executive director James Aitken examine how Lehman’s collapse changed the prime brokerage business and collateral supply, in this IMF working paper.

Hedge funds as liquidity providers: Evidence from the Lehman bankruptcy
The BIS’s Michael R. King and Bank of Canada’s Philipp Maier look at the parallels between the highly leveraged business models of banks at the time of the credit crisis and hedge funds. The authors argue for the need for direct regulation of hedge funds, given the industry’s vulnerability to external shocks like Lehman Brothers’ collapse.

The use (and abuse) of CDS spreads during distress
The IMF’s Manmohan Singh and American University’s Carolyne Spackman offer up a look at Lehman CDS and cash bonds in the run-up to the bank’s collapse. Unusually, Lehman CDS spreads did not widen before bond prices fell, in the week’s before its fall. The authors thus argue that during times of stress financial regulators need to monitor the stochastic nature of recovery rates — including things like cash bond prices.

The financial crisis and the policy response: An empirical analysis of what went wrong
Stanford University’s John Taylor takes an empirical look at the development of the financial crisis. He finds that the US government’s decision to allow Lehman to fail was not necessarily the sole cataclysm for an escalated financial crisis. Instead, the professor of economics argues that a long line of government actions and missteps caused, prolonged and worsened the crisis.

An assessment of financial sector rescue programmes post-Lehman
A host of staff from the BIS and the Bank of Italy examine the often distorting effects of government bank bail-outs on things like financials’ CDS, bonds etc. They find that the various rescue measures helped the world’s financial system avoid a `worst case scenario’, but the interventions were not enough to create a a `virtuous circle’ for banks, such as a mutually reinforcing increase in capital and borrowing, and lending and profits on the other.

Rethinking the financial network
The Bank of England’s executive director for financial stability, Andrew Haldane, examines how financial panics spread, comparing the fall of Lehman Brothers to the outbreak of SARS or swine flu.

Dumping Russia in 1998 and Lehman ten years later: Triple time-inconsistency episodes
Columbia University’s Guillermo Calvo introduces the idea of “Triple time-inconsistent” episodes in this VoxEU paper. First, a public institution is expected to cave in and offer a bail-out to prevent a crisis. Then, in an attempt to regain credibility, it pulls back. Finally, it resumes bailing out the survivors of the wreckage caused by the policy surprise. This “triple time-inconsistent” approach characterised the 1998 Russian crisis and Lehman’s collapse, he argues.

The social reasoning of letting Lehman Bros collapse
ECB executive board member, Lorenza Bini Smaghi, talks about why he believes the investment bank was allowed to fall, in this speech with the Unione Cristiana Imprenditori e Dirigenti.

From turmoil to crisis: dislocations in the FX swap market before and after the failure of Lehman Brothers
When the investment bank collapsed last year, sending ripples through the financial system, non-US banks experienced a shortage of short-term dollars as they took huge impairments on dollar-denominated assets and American banks hoarded their USDs. The Federal Reserve started an unlimited dollar swap line with its counterparts in Europe and other regions, to combat the shortage. Naohiko Baba and Frank Packer, of the Bank for International Settlements, look at the Lehman-sparked dollar shortage problem and the effect of the swap lines on currencies.

1 comment:

Joseph Tibman said...

i WOULD ALSO SUGGEST MY SOON-TO-BE-RELEASED BOOK, THE MURDER OF LEHMAN BROTHERS, AN INSIDERS TAKE ON THE GLOBAL MELTDOWN.

IT EXPLAINS NOT JUST WHAT WENT WRONG AT LEHMAN, BUT TRACES BACK TO THE MID 1990'S WHAT FACTORS IN THE OUTSIDE WORLD CREATED CONDITIONS THAT ENABLED THE LEHMAN BANKRUPTCY. I WROTE THIS, IN PART, SO THE AVERAGE PERSON CAN UNDERSTAND EXACTLY WHY WE ARE IN THE CONDITION WE ARE IN TODAY.