April 24, 2012
BBC Reports on Diaspora Bonds
He intervies the World Bank economist Dilip Ratha, who has done tremendous work advancing the concept.
June 06, 2011
The Need for Global Coordination in Derivatives Regulation, Asia Included
The Wall Street Journal reports:
Treasury Secretary Timothy Geithner on Monday will call for new global standards on derivatives trades, warning that failure to coordinate internationally would lead to a "race to the bottom" as companies seek out jurisdictions with the weakest rules.
"Just as we have global minimum standards for bank capital—expressed in a tangible international agreement—we need global minimum standards for margins on uncleared derivatives trades," Mr. Geithner is set to tell the International Monetary Conference in Atlanta, according to excerpts of his prepared remarks.
While the news story focuses on Europe and the United States, it is important to keep in mind that the offshoring might drive this market to Asia. Singapore, Tokyo, and Hong Kong must also coordinate to ensure an adequate regulatory framework, lest we see a repeat of 2008.
April 12, 2011
IMF Offers Explanation of Japanese Lost Decade
Aaron Back of the WSJ reports on the IMF's interesting rebuttal of a popular view that an international agreement contributed to Japan's decline in the 1990s:
The International Monetary Fund fired the latest salvo in its long-running campaign for faster yuan appreciation, rejecting an often-heard argument in China that a sharp rise in the yen in the 1980s led to Japan’s economic stagnation.
In its World Economic Outlook released Monday, the IMF cited a report in the People’s Daily from last year, in which Li Daokui, an academic adviser to China’s central bank, is cited as saying that China will not repeat Japan’s mistake in the 1980s of letting its exchange rate surge in response to foreign pressure.
In an unusual move, the IMF devoted an entire three-page section of the report to dissecting and rebutting the argument that the Plaza Accord of 1985—in which Japan agreed to a substantial rise in the yen against the dollar—led to its economic crisis later that decade.
The real problem, the IMF argues, was that Japanese authorities were overly concerned about the effect of yen appreciation and overreacted to a slowdown in the first half of 1986, which led them the implement “a sizeable macroeconomic stimulus” that year.
“Policy interest rates were reduced by about 2 percentage points, a stance that was sustained until 1989. A large fiscal package was introduced in 1987, even though a vigorous recovery had already started in the second half of 1986. By 1987, Japan’s output was booming, but so were credit growth and asset prices, with stock and urban land prices tripling from 1985 to 1989. Then, in January 1990, the stock price bubble burst. Share prices lost a third of their value within a year, and two decades of dismal economic performance followed.
“Put another way, excessive stimulus was adopted in part because there was excessive concern about the impact of appreciation.”
That’s not all. In addition, Japanese banks were undercapitalized prior to the crisis, authorities delayed forcing banks to recognize losses after the bubble burst, and a premature fiscal tightening in 1997 may have choked off recovery, the IMF said, citing several scholarly papers.
The IMF’s version of events serves not only its campaign for greater appreciation of the yuan; it also reinforces the organization’s view that dangerous asset bubbles may currently be forming in China, just as they did in Japan in the late 1980s.
March 09, 2011
The Impact of Law Review Articles, a Rare Example (Diaspora Bonds)
In my first law review article, I analyzed two different debt instruments--one offered by the State of Israel and another by the State Bank of India--and introduced the term "diaspora bond" to describe both. That article, Diaspora Bonds, was published in the NYU Law Review in 2001. At that time, I wrote that diaspora bonds "may prove an attractive model for raising capital for other nations with significant diasporas."
Today, the Greek government filed a shelf registration with the Securities and Exchange Commission of the United States to offer such instruments from time to time in the future:
Estimates about the size of the Greek American community vary. Greece's Ministry of Foreign Affairs puts the U.S. Greek community at around 2.5 million.
Greece also has indicated it will reach out to expats in Australia and Canada, both also home to large Greek populations.
The so-called diaspora bonds will be marketed to U.S. investors of Greek descent during the first half of 2011, a senior Greek finance-ministry official said Wednesday, after the financially strapped Mediterranean nation filed shelf-registration with U.S. regulators to proceed.
Of course, the Greek Ministry of Finance is far more likely to be aware of the work of the superb economists Dilip Ratha and Suhas Ketkar, who have analyzed diaspora bonds in a number of recent papers, than of my paper in a law review. But law review articles continue to have impact, even if indirect. John McDermott of the Financial Times proposes a possible Egyptian diaspora bond--which would likely be ideally timed to capitalize on patriotic feelings of the Egyptian diaspora, and on the desire of others to lend support to Egypt during its transition to democracy.
It is difficult to know at this time whether the Greek diaspora bond will prove successful in the United States. In another paper, Homeward Bound, also published in the NYU Law Review, I discuss some of the strategies that governments might employ over a long term to increase the likelihood of success of such efforts.
May 11, 2010
Nobel laureates debate Economic Development
World Bank Institute hosts upcoming live-streamed debates:
Do you have questions about Globalization and the Economic Crisis?
You can get answers directly from Nobel Laureates at www.developmentdebates.org
On June 2, four Nobel Laureates in economics, Kenneth Arrow, Eric Maskin, James Mirrlees, and Robert Solow, will debate the question "What are the Development Challenges in a Post-Crisis World?" at the Annual Bank Conference on Development Economics (ABCDE) in Stockholm, Sweden. The debate will be moderated by Stephanie Flanders, an award-winning British broadcast journalist, currently the BBC economics editor.
If you have specific questions for the Nobel Laureates participating in the June 2 debate, please post them on an online interactive platform before May 25, 2010. You will also find background papers, video clips, and other resource materials on this platform.
You can watch the debate LIVE on June 2, from 11.30 a.m. to 12.45 p.m. Swedish time. Please calculate what time it will be in your country here: http://timeanddate.com/worldclock/converter.html
The debate will be recorded and posted online at: www.developmentdebates.org
Follow four easy steps to join the discussion:
1. go to www.developmentdebates.org 2. click Sign Up > fill in your email address, a password you can remember, other required information > Click Sign Up
3. fill in the profile form, and click join.
4. To join discussions for a specific event, simply click join the debate under that event, and post your comments/questions.
The World Bank has been conducting a Series of Development Debates in which top analysts and policymakers share their insights and best practices for dealing with the new challenges posed by the global crisis. This year's theme is Rethinking Globalization after the Crisis.
September 22, 2009
Will Standard Chartered Be the First Foreign Company to List on an Indian Exchange?
According to the Wall Street Journal:
U.K.-based financial-services company Standard Chartered PLC is expected to file paperwork with Indian securities regulators as soon as this week to become the first foreign company to list its shares on an Indian stock exchange, according to people familiar with the matter.
October 29, 2008
What Can Constitutional Law Learn from Corporate Law?
In 2003, I argued in the Yale Law Journal that constitutional law can learn much from corporate law with respect to the protection of minorities. The Yale Law Journal has now revisited my argument in Minorities, Shareholder and Otherwise, by inviting three leading scholars--Steve Bainbridge, Richard Delgado, and Kevin Johnson to comment on the piece. I introduce this online symposium and also respond to the comments.
October 05, 2008
Is a Lifeline Offer Enforceable, When It Comes for a Financial Institution?
In its merger arrangements with Wachovia, Citi required Wachovia to sign an "exclusivity agreement," which Citi is now accusing Wachovia of breaching.
According to the Financial Times, the exclusivity agreement provides in pertinent part as follows:
Wachovia “shall not ... solicit, initiate or take action to facilitate or encourage the submission of any acquisition proposal [or] enter into or participate in any discussions or negotiations”.
Wachovia's board has now snubbed Citi, preferring a higher offer from Wells Fargo. According to Wachovia, all Citi now has to do is trump Wells' offer.
But what of future white knights that come to the rescue of a financial institution at risk of failing? If Wachovia is allowed to walk away, will companies be less willing to promise mergers in the future with vulnerable financial institutions?
The New York Times makes the same observation:
The litigation could put regulators in a tough spot. The Wells Fargo deal may be better for taxpayers, but if it succeeds, in the future other financial institutions may not be willing to help the government, as Citigroup did, because of the risk that they might not reap the anticipated benefit.
A few questions:
1. Did Wachovia violate the exclusivity agreement?
2. Did Wells Fargo tortiously interfere with Wachovia's contract with Citi?
3. If either 1 or 2 above, then what is the remedy? Should the damages be limited to the additional amount of money that Wachovia is demanding to consummate the merger with Citi? (I realize that we don't really know that amount, because a higher Citi offer will likely be met by yet another trumping offer by Wells Fargo, and on and on.)
4. Was Wachovia vulnerable to failing, had it not been for Citi's public merger offer? Would depositors have withdrawn funds from Wachovia, or institutional counterparties from deals with Wachovia, including short-term funding?
5. Will a failure by Citi deter future rescuers, or simply cause them (a) to offer better deals from the get-go, or (b) more tightly contractually locked in deals (with the possibility that these might face scrutiny from a corporate governance perspective)?
September 25, 2008
A Critique of the Paulson Plan
A Plan for Addressing the Financial Crisis <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1273241>
by Lucian Bebchuk
Below please find the abstract of the paper.
Abstract: This paper critiques the proposed emergency legislation for spending $700 billion on purchasing financial firms' troubled assets to address the 2008 financial crisis. It also puts forward a superior alternative for advancing the two goals of the proposed legislation – restoring stability to the financial markets and protecting taxpayers.
I show that the proposed legislation can be redesigned to limit greatly the cost to taxpayers while doing much better in terms of restoring stability to the financial markets. The proposed redesign is based on four interrelated elements:
• No overpaying for troubled assets: The Treasury's authority to purchase troubled assets should be limited to doing so at fair market value.
• Addressing undercapitalization problems directly: Because the purchase of troubled assets at fair market value may leave financial firms severely undercapitalized, the Treasury’s authority should be expanded to allow purchasing, again at fair market value, new securities issued by financial institutions in need of additional capital.
• Market-based discipline: to ensure that purchases are made at fair market value, the Treasury should conduct them through multi-buyer competitive processes with appropriate incentives.
• Inducing infusion of private capital: to further expand the capital available for the financial sector, and to reduce the use of for public funds for this purpose, financial firms should be required or induced to raise capital through right offerings to their existing shareholders.
Compared with the proposed legislation, the alternative proposal put forward in this paper would provide a far better way to use taxpayers’ money to get the financial sector out of its current predicament.
September 24, 2008
Maybe to better understand the magnitude of figures, we should endeavor to write them out, rather than using shorthand words. To my eye, $700,000,000,000 might seem a bit more daunting than $700 billion. That's 7 followed by 11 zeros.