tag:blogger.com,1999:blog-5624436327404149621.post1888688244761734184..comments2024-03-28T06:10:48.758-07:00Comments on Quantitative Ease by Carola Binder: Underneath the Bankers' New ClothesCarolahttp://www.blogger.com/profile/12783977056485775882noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-5624436327404149621.post-48526613058777580642015-03-03T23:59:03.664-08:002015-03-03T23:59:03.664-08:00Not certain if I can get more like this. So please...Not certain if I can get more like this. So please put some more Thanks for this wonderful post,<br />High School Diploma Programhttp://www.prlog.org/12417613-begin-your-professional-career-with-stanley-high-school-online.htmlnoreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-5598269501878291332014-10-14T01:04:15.489-07:002014-10-14T01:04:15.489-07:00I really love your site, it give me a lot of infor...I really love your site, it give me a lot of information and knowledge.High School Diploma Onlinehttp://www.stanleyhighschool.comnoreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-70073324218705762722014-09-10T03:17:41.611-07:002014-09-10T03:17:41.611-07:00Thanks For sharing this Superb article.I use this ...Thanks For sharing this Superb article.I use this Article to show my assignment in college.it is useful For me Great Work.<br /> <a href="http://itsagreatloan.com/" rel="nofollow">buying in orange county</a><br />Anonymoushttps://www.blogger.com/profile/16906058993154949909noreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-1630773001673721122013-03-15T13:09:56.032-07:002013-03-15T13:09:56.032-07:00The old hot chestnut toss here
Between equity an...The old hot chestnut toss here <br />Between equity and debt <br />Is off base<br /><br />The real divide is inside vs outside<br /><br />As vague as that seems<br /><br />The paper patterns are customizable <br /><br />A good thought frame<br /><br />Powerless Equity holders are just <br />Creditors too <br />And treated as the opposition by insiders Owen Painehttps://www.blogger.com/profile/13675803406994867138noreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-8328178787709869192013-03-15T08:19:08.349-07:002013-03-15T08:19:08.349-07:00Yes, bank defenders are often accused of being eit...Yes, bank defenders are often accused of being either crooks or morons on the grounds that they don't know or are ignoring the M-M result. And if memory serves, Admati has produced empirical work that suggests that M-M works pretty well for banks.<br /><br />But it seems to me that this style of analysis is disregarding an important social function of banks; they provide not only <i>funding</i>, but also <i>deposit</i> facilities. That is, investors are not indifferent between investing in equity and deposits. If they are obliged to reduce their deposits, the funding will not be entirely made up by new equity investment because some investors are also borrowers and will have the ability to destroy unwanted bank money by extinguishing their own liabilities.<br /><br />So even if the cost-of-capital argument is wrong, that does not prove that bank lending will be conserved.Phil Koopnoreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-23057091012123423112013-03-14T23:54:28.177-07:002013-03-14T23:54:28.177-07:00Right, I suppose that would be the systemic extern...Right, I suppose that would be the systemic externality associated with debt. Though I, like you, have no idea what that exactly is, and it seems particularly difficult to calculate. I suppose there might be some stress-test like model that could calculate the risk of various events and check that against systemic fallout and base capital requirements on this cost – not sure.<br /><br />In any case, Modigliani and Miller show that it doesn't much matter whether a firm wants to finance itself with debt or equity. I suppose they just picked an arbitrarily high value to avoid any chance of systemic failure. That's certainly the conclusion John Cochrane reaches in his review:<br /><br />"Ms. Admati and Mr. Hellwig do not offer a detailed regulatory plan. They don't even advocate a precise number for bank capital, beyond a parenthetical suggestion that banks could get to 20% or 30% quickly by cutting dividend payments. (I would go further: Their ideas justify 50% or even 100%: When you swipe your ATM card, you could just sell $50 of bank stock.)"<br /><br />And thanks for the tip to my blog !<br />Ashok Raohttp://ashokarao.comnoreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-78115203905892516092013-03-14T21:14:24.151-07:002013-03-14T21:14:24.151-07:00Ashock, thanks for your comments. One thing about ...Ashock, thanks for your comments. One thing about the last part-- if "the market decides" levels of debt versus equity, the market is shareholders, so the level of debt will be higher than optimal, is the point of the paper. There is some optimal level that is not what the market would decide, but I also don't know if it is 30%.<br /><br />By the way readers, click on Ashock's name to go to his blog. Interesting topics there.Carolahttps://www.blogger.com/profile/12783977056485775882noreply@blogger.comtag:blogger.com,1999:blog-5624436327404149621.post-49973489242325825952013-03-14T17:43:17.230-07:002013-03-14T17:43:17.230-07:00This is also something that puzzled me for a long ...This is also something that puzzled me for a long time. Ideally, if debt is being subsidized by interest rate tax deductions, the "too big to fail" promise, and FDIC the market would reorganize itself and sell enough equity to finance its operations were these subsidies to be removed.<br /><br />However, the tax credits are a relatively small part of the total subsidy, and FDIC is as much for the savers as it is for the bank (though, if banks were sufficiently financed with equity, there's no reason they would default on their creditors in a catastrophic manner).<br /><br />With TBTF being so established a phenomenon, there's no way "removing" the subsidy is subgame perfect, especially because there's no legal precedent, but a silent agreement. The government can't credibly threaten markets that it would let them fail. Because they can't do this, banks will be leveraged to hell which, then, forces a bailout, further eroding the chances of a future credible threat against the subsidy.<br /><br />Reading Admati over the past several weeks, this question has really puzzled me as well. I'd like the market to decide what's an optimal level of debt versus equity, and 30% or 50% just seems plainly arbitrary.<br />Ashok Raohttp://ashokarao.comnoreply@blogger.com