The Finance Professor Podcast

Ep, 10: Broken Bucks, Money Funds that Took Taxpayer Guarantees in 2008

Find out about the secret $2.7 trillion bailout of Money Market Mutual Funds MMMFs in 2008. The collapse of Lehman Brothers its commercial paper default caused the Primary Reserve Fund to "break the buck" or sell for less than $1.00 per share. 

Wilson, Linus, Broken Bucks: Money Funds that Took Taxpayer Guarantees in 2008 (August 28, 2015). Available at SSRN: https://ssrn.com/abstract=2195358 or http://dx.doi.org/10.2139/ssrn.2195358

The U.S. Treasury rolled out a bailout guarantee on September 19, 2008 without Congressional approval using the exchange rate stabilization fund led by Hank Paulson, David Nason, and Steve Shafran. Paulson and Shafran were Goldman Sach alums (p. 263) ON THE BRINK by Henry Paulson.

Broken Bucks: Money Funds that Took Taxpayer Guarantees in 2008
42 Pages Posted: 2 Jan 2013 Last revised: 29 Aug 2015
Linus Wilson
University of Louisiana at Lafayette - College of Business Administration

Date Written: August 28, 2015

Abstract
This is the first study to look at the characteristics of funds accepting the $2.7 trillion taxpayer guarantee of money market mutual funds during the 2008 financial crisis. Funds with lower asset maturities were significantly less likely to need federal or sponsor bailouts. Fund shares that benefited from Federal Reserve’s asset-backed commercial paper program were significantly more likely to get bailed out by taxpayers and sponsors. Finally, the paper tests if funds adhering to the SEC’s 2010 liquidity reforms prior to their enactment were less likely to be bailed out in 2008.

Keywords: breaking the buck, bailout, Dodd-Frank, DLA, exchange rate stabilization fund, Financial Stability Oversight Council (FSOC), guarantees, liquidity, money market mutual funds, Primary Reserve Fund, regulation, SEC, Securities and Exchange Commission, U.S. Treasury, WAL, WAM, WLA

JEL Classification: G01, G18, G22, G23, G28, H12, H81, L5

Music by www.BenSound.com
(c) Linus Wilson, 2019
www.linuswilson.com
www.financeprofessor.org

Janna Wilson performs Minuet by Boccherini.

Ep. 9: "A Dove to Hawk Ranking of the Martin to Yellen Federal Reserves" by Linus Wilson

Linus Wilson reads his recently updated working paper entitled "A Dove to Hawk Ranking of the Martin to Yellen Federal Reserves" and talks about the current state of Federal Reserve interest rate policy. He previews his talk with the New York Times Bestselling author Roger Lowenstein which will be released in an upcoming episode.

The paper read is as follows: 

"A Dove to Hawk Ranking of the Martin to Yellen Federal Reserves" 

by

 Dr. Linus Wilson [1]

Associate Professor of Finance
University of Louisiana at Lafayette
B. I. Moody III College of Business
Department of Economics & Finance
Web:  http://www.linuswilson.com

http://www.financeprofessor.org

 

Abstract

This note ranks the Federal Reserves based on the tenure of their chairs from William McChesney Martin, Jr. to Janet L. Yellen, using data from 1958 through 2018.  Inflation “doves” are willing to tolerate more inflation than inflation “hawks.”  Comparing the Taylor (1993) rule and core inflation to the effective fed funds rates, it is found that the Yellen Fed is the most dovish Fed since 1958.

Journal of Economic Literature Codes:  E52, E58

Keywords:  dove, Fed funds rates, Federal Open Market Committee, Federal Reserve, gender hawk, inflation, interest rates, monetary policy, overnight lending, output gap, Janet Yellen, Taylor rule, unemployment

[1]This paper reflects the views of the author alone. The author thanks Zhenbin Liu for providing excellent research assistance.

Wilson, Linus, A Dove to Hawk Ranking of the Martin to Yellen Federal Reserves, 2018, Available at SSRN: https://ssrn.com/abstract=2529195 or http://dx.doi.org/10.2139/ssrn.2529195

Ep. 8: The Fed Boosts CMBS Markets "Toxic Asset Subsidies and the Early Redemption of TALF Loans" by Linus Wilson

In this episode you will hear how nonrecourse loans can lead to option payoffs for the borrower. The securitzation market got a boost from the Federal Reserve during the financial crisis. Dr. Linus Wilson, Associate Professor of Finance at the University of Louisiana at Lafayette reads his working paper 

Toxic Asset Subsidies and the Early Redemption of TALF Loans

https://ssrn.com/abstract=1742640

Abstract

This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans.  It finds that subsidy rates on these loans were on average 33.9 percent at origination.  In contrast, by the 3^rd quarter of the 2010, there was on average no subsidy in TALF loans.  The theoretical model is used to predict the early redemption of Term Asset-Backed Securities Loan Facility (TALF) loans used to purchase commercial mortgage backed securities (CMBS).  The predictions of the model are strongly supported by the data.  In addition, this paper looks at the determinants of early redemption.  CMBS originated inside the peak bubble years of 2005-2007 were much less likely to be redeemed early.  The giant investment managers, Blackrock and PIMCO, were much more likely to redeem their TALF loans early than smaller investment managers.

Journal of Economic Literature Codes:  G12, G13, G18, G21, G28, G38

Keywords:  alternative investments; bailout; banking; Blackrock; call options; commercial mortgage backed securities; CMBS; CDOs; Dodd-Frank Financial Reform Law of 2010; emergency lending; EESA; Emergency Economic Stabilization Act; lending; Legacy Securities Program; mortgages; PIMCO; Public-Private Investment Partnership; PPIP; put options; TALF; Term Asset-Backed Securities Loan; TARP; Troubled Asset Relief Program; toxic assets

Come and see Dr. Wilson present the paper at the 2018 Midwest Economics Association meeting on March 24, 2018, at 1:15PM in session 7E Credit. 

The MEA conference in at the Hilton Orrington in Evanston, Illinois.

http://mea.grinnell.edu/conferences

Like the Finance Professor Podcast's Facebook page to see any Facebook live versions of MEA conference presentations.

https://www.facebook.com/FinanceProfessorOrg/

Check out the video presentation of the episode 6 podcast guest:

https://www.youtube.com/watch?v=ZyjqU_vEVHs

on the Linus Wilson YouTube channel:

https://www.youtube.com/channel/UCYY02-A8UQ6307k8PPDj5hQ

Professor Andrew Metrick is the Michael H. Jordan Professor of Finance and Management at the Yale School of Management. He is the director, Yale Program on Financial Stability and the Faculty Director, Masters in Systemic Risk program at Yale. 

Ep. 7: The Federal Reserve's $700 Billion Commercial Paper Bailout with Linus Wilson

Linus Wilson reads his joint work with Wendy Yan Wu of Wilfrid Laurier University and updates the plans for the 2018 for the The Finance Professor Podcast.

 

Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed?

 

32 Pages Posted: 17 Aug 2011 Last revised: 24 Aug 2011

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Yan Wendy Wu

Wilfrid Laurier University

Date Written: August 22, 2011

Abstract

The Commercial Paper Funding Facility (CPFF) bought commercial paper from highly-rated issuers of U.S. dollar commercial paper during the financial crisis of 2008 to 2009. This is the only study to analyze the characteristics of firms selected for this Federal Reserve program. CPFF participants and non-participants differed little in terms of profitability, solvency, or liquidity ratios. Nevertheless, CPFF participants were significantly more likely to come from the financial sector, to pose greater systemic risks, and to have received funds from the Troubled Asset Relief Program (TARP) bailout. The baseline predicted probability of participation in the CPFF jumps from 37.2 percent to 65.9 percent if the commercial paper issuer participated in the TARP bailout.

 

Keywords: ABCP, Asset Backed Commercial Paper, bailout, banks, Capital Purchase Program (CPP), commercial paper, Commercial Paper Funding Facility (CPFF), emergency lending, Federal Reserve, multinational firms, section 13(3), Troubled Asset Relief Program (TARP), U.S. Treasury, unsecured commercial paper

JEL Classification: G01, G18, G2, G28

Suggested Citation:

Wilson, Linus and Wu, Yan Wendy, Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed? (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1911454 or http://dx.doi.org/10.2139/ssrn.1911454

 

The show blog is at 

https://financeprofessorpodcast.wordpress.com/

Like us on facebook at 

https://www.facebook.com/FinanceProfessorOrg/

Ep. 6: Andrew Metrick Presents "Managing and Preventing Financial Crises" at the 2017 Financial Management (FMA) Meetings in Boston

Professor Andrew Metrick is the Michael H. Jordan Professor of Finance and Management at the Yale School of Management. He is the director, Yale Program on Financial Stability and the Faculty Director, Masters in Systemic Risk program at Yale. Professor Metrick was an assistant professor in economics at Harvard University and was an assistant and associate professor of finance at the Wharton School of Business at the University of Pennsylvania. He also served as a senior economist and the cheif economist on President Obama's Council of Economic Advisers while the administration worked on the Dodd–Frank Wall Street Reform and Consumer Protection Act and tried to manage the hugely unpopular bailout of the financial sector, the Troubled Asset Relief Program (TARP). The latter bailout turned a modest profit and many believe it helped to stabilize the financial system.

Professor Metrick outlines the responses to the 2008 financial crises in the USA and abroad and speaks about the tension between regulation and shadow banking.

The YouTube version of this talk is at

https://www.youtube.com/watch?v=ZyjqU_vEVHs&t=220s

The Finance Professor Podcast's facebook page is 

https://www.facebook.com/FinanceProfessorOrg/

Subscriber to the youtube channel at

https://www.youtube.com/channel/UCYY02-A8UQ6307k8PPDj5hQ?sub_confirmation=1

Check out Dr. Metrick's CV at
http://faculty.som.yale.edu/andrewmetrick/documents/cv.pdf

The Financial Management Association 2017 program from its Boston meeting is at
http://fmaconferences.org/Boston/BostonProgram.htm
This was session 214 at the Marriot Copley Place.
#FMABoston2017
www.facebook.com/FMA.org
The next meeting is in San Diego.

Dr. Linus Wilson is an associate professor of finance at the University of Louisiana at Lafayette. He has published extensively on the TARP bailout and has studied the bailouts orchestrated by the U.S. Federal Reserve and the FDIC during the financial crisis of 2008. You can see his research at
www.linuswilson.com
www.financeprofessor.org

I mentioned the following papers whose working paper versions are at 

Wilson, Linus, Debt Overhang and Bank Bailouts (September 12, 2009). Available at SSRN: https://ssrn.com/abstract=1336288 or http://dx.doi.org/10.2139/ssrn.1336288

Wilson, Linus and Wu, Yan Wendy, Common (Stock) Sense about Risk-Shifting and Bank Bailouts (January 1, 2010). Financial Markets and Portfolio Management, Vol. 24, No. 1, pp. 3-29, 2010. Available at SSRN: https://ssrn.com/abstract=1321666

Wilson, Linus, Broken Bucks: Money Funds that Took Taxpayer Guarantees in 2008 (August 28, 2015). Available at SSRN: https://ssrn.com/abstract=2195358 or http://dx.doi.org/10.2139/ssrn.2195358

Wilson, Linus and Wu, Yan Wendy, 'Escaping TARP' (September 21, 2010). Journal of Financial Stability, Vol. 8, No. 1, 2012. Available at SSRN: https://ssrn.com/abstract=1619689 or http://dx.doi.org/10.2139/ssrn.1619689

Wilson, Linus and Wu, Yan Wendy, Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed? (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1911454 or http://dx.doi.org/10.2139/ssrn.1911454

Wilson, Linus, Toxic Asset Subsidies and the Early Redemption of TALF Loans (August 17, 2011). Available at SSRN: https://ssrn.com/abstract=1742640 or http://dx.doi.org/10.2139/ssrn.1742640

Look to my CV for the full citation of published papers.

Professor Linus Wilson is the host of the Finance Professor Podcast at
https://www.stitcher.com/podcast/linus-wilson/the-finance-professor-podcast
https://itunes.apple.com/us/podcast/the-finance-professor-podcast/id1226939293?mt=2

Dr. Jeffry L Coles a Professor of Finance at the David Eccles School of Business at the University of Utah and served as the Vice President of the 2017 Annual Meeting Program .

Ep. 5: Discrete Portfolio Adjustment with Fixed Transaction Costs

Professor Linus Wilson reads his paper "Discrete Portfolio Adjustment with Fixed Transaction Costs"

Suggested Citation:

Wilson, Linus, Discrete Portfolio Adjustment with Fixed Transaction Costs (January 3, 2016). Available at SSRN: https://ssrn.com/abstract=2406021 or http://dx.doi.org/10.2139/ssrn.2406021

Abstract

This paper presents a closed form solution to the portfolio adjustment problem in discrete time when the investor faces fixed transaction costs. This transaction cost model assumes a mean-variance investor who wants to adjust her holdings of a risky and risk-free asset. It is shown how this model can be calibrated to be used with a variety of risk models such as life cycle portfolio weights and value at risk (VaR) models. The decision problem can easily be inputted into and calculated in Excel.

 Keywords: adjustment costs, alpha models, brokerage commissions, fixed costs, lifecycle funds, portfolio selection, portfolio theory, risk management, transaction costs, Value at Risk (VaR)

JEL Classification: G11

Click the orange download button to get the full paper on SSRN.

 

 

Ep. 4: Overpaid CEOs Got FDIC Debt Guarantees

Linus Wilson reads his joint work at 

https://ssrn.com/abstract=1977345

"Overpaid CEOs Got FDIC Debt Guarantees"

By Linus Wilson, University of Louisiana at Lafayette and Yan Wendy Wu, Wilfrid Laurier University

abstract

From 2008 to 2009, the FDIC guaranteed hundreds of billions of dollars of newly issued bank debt through the Temporary Liquidity Guarantee Program (TLGP). We find that CEOs making more than their peer groups were significantly more likely to steer their companies to obtain federal guarantees for their banks’ debt. The average bank in our sample with a debt guarantee had a CEO who was paid $1.6 million per year more than the average CEO in his or her peer group. In addition, there is strong evidence that large, systemically important banks were more likely to obtain FDIC debt guarantees.

Keywords: bailout, banks, CDS, Citigroup, CEO Compensation, corporate governance, credit default swaps, debt, debt guarantees, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, emergency lending, FDIC, Federal Deposit Insurance Corporation, Federal Reserve, financial crisis, FOIA, Freedom

Get the show notes blog at www.financeprofessor.org and sign up for the free newsletter. There will be links to the facebook page. The podcast is on iTunes

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Ep. 3: How to Compare Faculty Pay Across the Business School by Linus Wilson

In the latest episode, I read my new working paper:

 How to Compare Faculty Pay Across the Business School by Linus Wilson

You can download it by hitting the orange download button at the link.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2954800

The abstract is below:

"By scaling pay by AACSB averages pay across business school disciplines can be analyzed. This study looks at a unique data set of business school professors at the University of Louisiana at Lafayette. It finds large disparities in pay between the business disciplines that cannot be explained by the market price of scholars in the disciplines, research productivity, or faculty to major ratios. The finance professors were the lowest paid of six disciplines as a percent of AACSB pay, but had the highest research productivity and majors per research faculty member at the Moody College of Business Administration (MCOBA). Finance professors were paid about 20 percent less as a percent of the AACSB average for their rank and discipline than other research faculty at the MCOBA. Members of the management department were paid significantly higher percent of AACSB average pay than other professors in the business school. This data may be indicative of a misallocation of resources. The approach in this paper could be applied to analyze pay practices at many other business schools and over many other time periods."

The video version of the paper is at https://youtu.be/A7vM2qNj-h4

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Subscibe and write a rating or review on iTunes. Like us on facebook, follow on twitter, or subscibe on YouTube.

 

Ep. 2: Crowdfunding on Patreon on The Finance Professor Podcast with Linus Wilson

The JOBS Act opened up a lot of crowdfunding opportunities for entrepreneurs. That also means much more research opportunities for finance professors. In the second episode, I read my recent working paper "A Little Bit of Money Goes a Long Way: Crowdfunding on Patreon by YouTube Sailing Channels". The abstract says:

"This study finds that YouTube channels crowdfunding on Patreon have more frequent video creation. The median YouTube channel that crowdfunded on Patreon produced a video every 7.5 days compared to 105 days for the median comparable channel that did not link to Patreon. Crowdfunders have more views per video, are more likely to link to their Facebook pages, and uploaded videos more frequently. While two channels in the sample, each earned over $150,000 in 2016 from Patreon, the typical crowdfunding sailing channel earned $73 per video, per month, or creation. It appears that a little bit of money was associated with a big increase in new video production."

 

 

I believe my study is the first academic study about this rapidly crowdfunding platform called Patreon. 

Ep. 1: Introducing the Finance Professor Podcast by Linus Wilson

The Finance Professor Podcast is hosted by Linus Wilson. Dr. Wilson earned his Ph.D. in 2007 from Oxford University. He has taught thousands of finance students at all levels. His research is in banking, financial crises, CEO pay, and corporate finance. I’ll be reading my academic research initially.