Credit-Default-Swaps and the 2008 Financial Crisis: An Inquiry into the Underlying Legal Origins and the European Union’s Regulatory Reforms

After the 2008 financial crisis, the financial innovation product Credit-Default-Swap (CDS) was widely blamed as the main cause of this crisis. CDS is one type of over-the-counter (OTC) traded derivatives. Before the crisis, the trading of CDS was very popular among the financial institutions. But meanwhile, excessive speculative CDSs transactions in a legal environment of scant regulation accumulated huge risks in the financial system. This dissertation is divided into three parts. In Part I, we discussed the primers of the CDSs and its market development, then we analyzed in detail the roles CDSs had played in this crisis based on economic studies. It is advanced that CDSs not just promoted the eruption of the crisis in 2007 but also exacerbated it in 2008. In part II, we asked ourselves what are the legal origins of this crisis in relation with CDSs, as we believe that financial instruments could only function, positive or negative, under certain legal institutional environment. After an in-depth inquiry, we observed that at least three traditional legal doctrines were eroded or circumvented by OTC derivatives. It is argued that the malfunction of these doctrines, on the one hand, facilitated the proliferation of speculative CDSs transactions; on the other hand, eroded the original risk-control legal mechanism. Therefore, the 2008 crisis could escalate rapidly into a global financial tsunami, which was out of control of the regulators. In Part III, we focused on the European Union’s regulatory reform towards the OTC derivatives market. In specific, EU introduced mandatory central counterparty clearing obligation for qualified OTC derivatives, and requires that all OTC derivatives shall be reported to a trade repository. It is observable that EU’s approach in re-regulating the derivatives market is different with the traditional administrative regulation, but aiming at constructing a new market infrastructure for OTC derivatives.

The risk of musculoskeletal disorders for workers due to repetitive movements during tomato harvesting

Tomatoes are the most common crop in Italy. The production cycle requires operations in the field and factory that can cause musculoskeletal disorders due to the repetitive movements of the upper limbs of the workers employed in the sorting phase. This research aims to evaluate these risks using the OCRA (occupational repetitive actions) index method This method is based firstly on the calculation of a maximum number of recommended actions, related to the way the operation is performed, and secondly on a comparison of the number of actions effectively carried out by the upper limb with the recommended calculated value. The results of the risk evaluation for workers who manually sort tomatoes during harvest showed a risk for the workers, with an exposure index greater than 20; the OCRA index defines an index higher than 3.5 as unacceptable. The present trend of replacing manual sorting onboard a vehicle with optical sorters seems to be appropriate to reduce the risk of work-related musculoskeletal disorders (WMSDs) and is supported from both a financial point of view and as a quality control measure.

Loss of insulin-induced activation of TRPM6 magnesium channels results in impaired glucose tolerance during pregnancy

Hypomagnesemia affects insulin resistance and is a risk factor for diabetes mellitus type 2 (DM2) and gestational diabetes mellitus (GDM). Two single nucleotide polymorphisms (SNPs) in the epithelial magnesium channel TRPM6 (V(1393)I, K(1584)E) were predicted to confer susceptibility for DM2. Here, we show using patch clamp analysis and total internal reflection fluorescence microscopy, that insulin stimulates TRPM6 activity via a phosphoinositide 3-kinase and Rac1-mediated elevation of cell surface expression of TRPM6. Interestingly, insulin failed to activate the genetic variants TRPM6(V(1393)I) and TRPM6(K(1584)E), which is likely due to the inability of the insulin signaling pathway to phosphorylate TRPM6(T(1391)) and TRPM6(S(1583)). Moreover, by measuring total glycosylated hemoglobin (TGH) in 997 pregnant women as a measure of glucose control, we demonstrate that TRPM6(V(1393)I) and TRPM6(K(1584)E) are associated with higher TGH and confer a higher likelihood of developing GDM. The impaired response of TRPM6(V(1393)I) and TRPM6(K(1584)E) to insulin represents a unique molecular pathway leading to GDM where the defect is located in TRPM6.

Social Policy Facing the Problems of Youth Employment

Rumiana Stoilova (Bulgaria). Social Policy Facing the Problems of Youth Employment. Ms. Stoilova is a researcher in the Institute of Sociology in Sofia and worked on this project from October 1996 to September 1998. This project involved collecting both statistical and empirical data on the state of youth employment in Bulgaria, which was then compared with similar data from other European countries. One significant aspect was the parallel investigation of employment and unemployment, which took as a premise the continuity of professional experience where unemployment is just a temporary condition caused by external and internal factors. These need to be studied and changed on a systematic basis so as to create a more favourable market situation and to improve individuals' resources for improving their market opportunities. A second important aspect of the project was an analysis of the various entities active on the labour market, including government and private institutions, associations of unemployed persons, of employers or of trade unions, all with their specific legal powers and interests, and of the problems in communication between these. The major trends in youth unemployment during the period studied include a high proportion of the registered unemployed who are not eligible for social assistance, a lengthening of the average period of unemployment, an increase in the percentage of people who are unemployed for the first time and an increasing percentage of these who are not eligible for assistance, particularly among newly registered young people. At the same time the percentage of those for who work has been found is rising and during the last three years an increasing number of the unemployed have started some independent economic activity. Regional differences are also considerable and in the case of the Haskovo region represent a danger of losing the youngest generation, with resulting negative demographic effects. One major weakness of the existing institutional structure is the large scale of the black labour market, with clear negative implications for the young people drawn into it. The role of non-governmental organisations in providing support and information for the unemployed is growing and the government has recently introduced special preferences for organisations offering jobs to unemployed persons. Social policy in the labour market has however been largely restricted to passive measures, mostly because of the risk that poverty poses to people continuously excluded from the labour market. Among the active measures taken, well over half are concerned with providing jobs for the unemployed and there are very limited programmes for providing or improving qualifications. The nature of youth employment in Bulgaria can be seen in the influence of sustained structures (generation) and institutions (family and school). Ms. Stoilova studied the situation of the modern generation through a series of profiles, mostly those of continuously unemployed and self-employed persons, but also distinguishing between students and the unemployed, and between high school and university students. The different categories of young people were studied in separate mini-studies and the survey was carried out in five town in order to gather objective and subjective information on the state of the labour market in the different regions. She conducted interviews with several hundred young people covering questions of family background, career plans, attitudes to the labour situation and government measures to deal with it, and such questions as independence, mobility, attitude to work, etc. The interviews with young people unemployed for a long period of time show the risk involved in starting work and its link with dynamics of economic development. Their approval of structural reforms, of the financial restrictions connected with the introduction of a currency board and the inevitability of unemployment was largely declarative. The findings indicate that the continuously unemployed need practical knowledge and skills to "translate" the macroeconomic realities in concrete alternatives of individual work and initiative. The unemployed experience their exclusion from the labour market not only as a professional problem but also as an existential threat, of poverty, forced mobility and dependence on their parents' generation. The exclusion from the market of goods and services means more than just exercising restraint in their consumption, as it places restrictions on their personal development. Ms. Stoilova suggests that more efficient ways of providing financial aid and mobilisation are needed to counteract the social disintegration and marginalisation of the continuously unemployed. In measuring the speed of reform, university students took both employment opportunities and the implementation of the meritocratic principle in employment into account. When offered a hypothetical choice between a well-paid job and work in one's own profession, 62% would prefer opt for the well-paid job and for working for a company that offered career opportunities rather than employment in a family or own company. While most see the information gained during their studies as useful and interesting, relatively few see their education as competitive on a wider level and many were pessimistic about employment opportunities based on their qualifications. Very similar attitudes were found among high school students, with differences being due rather to family and personal situations. The unemployed, on the other hand, placed greater emphasis on possibilities of gaining or improving qualifications on a job and for the opportunities it would offer for personal contacts. High school students tend to attribute more significance to opportunities for personal accomplishment. A significant difference that five times fewer high school students were willing to work for state-owned companies, and many fewer expected to find permanent employment or to find a job in the area where they lived, Within the family situation, actual support for children seems to be higher than the feelings of confidence expressed in interviews. The attitudes of the families towards past experience seems to be linked with their ability to cope with the difficulties of the present, with those families which show an optimistic and active attitude towards the future having a greater respect for parents experience and tolerance in communication between parents and children.

Safety and exercise tolerance of acute high altitude exposure (3454 m) among patients with coronary artery disease

OBJECTIVES: To assess the safety and cardiopulmonary adaptation to high altitude exposure among patients with coronary artery disease. METHODS: 22 patients (20 men and 2 women), mean age 57 (SD 7) years, underwent a maximal, symptom limited exercise stress test in Bern, Switzerland (540 m) and after a rapid ascent to the Jungfraujoch (3454 m). The study population comprised 15 patients after ST elevation myocardial infarction and 7 after a non-ST elevation myocardial infarction 12 (SD 4) months after the acute event. All patients were revascularised either by percutaneous coronary angioplasty (n = 15) or by coronary artery bypass surgery (n = 7). Ejection fraction was 60 (SD 8)%. beta blocking agents were withheld for five days before exercise testing. RESULTS: At 3454 m, peak oxygen uptake decreased by 19% (p < 0.001), maximum work capacity by 15% (p < 0.001) and exercise time by 16% (p < 0.001); heart rate, ventilation and lactate were significantly higher at every level of exercise, except at maximum exertion. No ECG signs of myocardial ischaemia or significant arrhythmias were noted. CONCLUSIONS: Although oxygen demand and lactate concentrations are higher during exercise at high altitude, a rapid ascent and submaximal exercise can be considered safe at an altitude of 3454 m for low risk patients six months after revascularisation for an acute coronary event and a normal exercise stress test at low altitude.

Tolerance of human placental tissue to severe hypoxia and its relevance for dual ex vivo perfusion

In the dual ex vivo perfusion of an isolated human placental cotyledon it takes on average 20-30 min to set up stable perfusion circuits for the maternal and fetal vascular compartments. In vivo placental tissue of all species maintains a highly active metabolism and it continues to puzzle investigators how this tissue can survive 30 min of ischemia with more or less complete anoxia following expulsion of the organ from the uterus and do so without severe damage. There seem to be parallels between "depressed metabolism" seen in the fetus and the immature neonate in the peripartum period and survival strategies described in mammals with increased tolerance of severe hypoxia like hibernators in the state of torpor or deep sea diving turtles. Increased tolerance of hypoxia in both is explained by "partial metabolic arrest" in the sense of a temporary suspension of Kleiber's rule. Furthermore the fetus can react to major changes in surrounding oxygen tension by decreasing or increasing the rate of specific basal metabolism, providing protection against severe hypoxia as well as oxidative stress. There is some evidence that adaptive mechanisms allowing increased tolerance of severe hypoxia in the fetus or immature neonate can also be found in placental tissue, of which at least the villous portion is of fetal origin. A better understanding of the molecular details of reprogramming of fetal and placental tissues in late pregnancy may be of clinical relevance for an improved risk assessment of the individual fetus during the critical transition from intrauterine life to the outside and for the development of potential prophylactic measures against severe ante- or intrapartum hypoxia. Responses of the tissue to reperfusion deserve intensive study, since they may provide a rational basis for preventive measures against reperfusion injury and related oxidative stress. Modification of the handling of placental tissue during postpartum ischemia, and adaptation of the artificial reperfusion, may lead to an improvement of the ex vivo perfusion technique.

Emergence of Financial Intermediaries in Electronic Markets: The Case of Online P2P Lending

We analyze the role of intermediaries in electronic markets using detailed data of more than 14,000 originated loans on an electronic P2P (peer-to-peer) lending platform. In such an electronic credit market, lenders bid to supply a private loan. Screening of potential borrowers and the monitoring of loan repayment can be delegated to designated group leaders. We find that these market participants act as financial intermediaries and significantly improve borrowers' credit conditions by reducing information asymmetries, predominantly for borrowers with less attractive risk characteristics. Our findings may be surprising given the replacement of a bank by an electronic marketplace.

Mergers, executive risk reduction and stockholder wealth

Among the possible consequences of agency problems between owners and managers is a tendency by managers to make investment decisions for their firms that are deliberately aimed at reducing firm risk, as a means to control managers' personal wealth risk. The literature has suggested that such behavior may occur to the detriment of shareholder wealth, and that mrgers may be a particular class of investment decisions for which the behavior would be observable. We test these hypotheses empirically, but find no evidence from our merger sample that risk reduction for the aqquiring firm is the typical outcome nor that, when it occurs, it is differentially costly for shareholders.

Neural correlates of anticipation risk reflect risk preferences

Individual risk preferences have a large influence on decisions, such as financial investments, career and health choices, or gambling. Decision making under risk has been studied both behaviorally and on a neural level. It remains unclear, however, how risk attitudes are encoded and integrated with choice. Here, we investigate how risk preferences are reflected in neural regions known to process risk. We collected functional magnetic resonance images of 56 human subjects during a gambling task (Preuschoff et al., 2006). Subjects were grouped into risk averters and risk seekers according to the risk preferences they revealed in a separate lottery task. We found that during the anticipation of high-risk gambles, risk averters show stronger responses in ventral striatum and anterior insula compared to risk seekers. In addition, risk prediction error signals in anterior insula, inferior frontal gyrus, and anterior cingulate indicate that risk averters do not dissociate properly between gambles that are more or less risky than expected. We suggest this may result in a general overestimation of prospective risk and lead to risk avoidance behavior. This is the first study to show that behavioral risk preferences are reflected in the passive evaluation of risky situations. The results have implications on public policies in the financial and health domain.

Clinically relevant quality measures for risk factor control in primary care: a retrospective cohort study

BACKGROUND Assessment of the proportion of patients with well controlled cardiovascular risk factors underestimates the proportion of patients receiving high quality of care. Evaluating whether physicians respond appropriately to poor risk factor control gives a different picture of quality of care. We assessed physician response to control cardiovascular risk factors, as well as markers of potential overtreatment in Switzerland, a country with universal healthcare coverage but without systematic quality monitoring, annual report cards on quality of care or financial incentives to improve quality. METHODS We performed a retrospective cohort study of 1002 randomly selected patients aged 50-80 years from four university primary care settings in Switzerland. For hypertension, dyslipidemia and diabetes mellitus, we first measured proportions in control, then assessed therapy modifications among those in poor control. "Appropriate clinical action" was defined as a therapy modification or return to control without therapy modification within 12 months among patients with baseline poor control. Potential overtreatment of these conditions was defined as intensive treatment among low-risk patients with optimal target values. RESULTS 20% of patients with hypertension, 41% with dyslipidemia and 36% with diabetes mellitus were in control at baseline. When appropriate clinical action in response to poor control was integrated into measuring quality of care, 52 to 55% had appropriate quality of care. Over 12 months, therapy of 61% of patients with baseline poor control was modified for hypertension, 33% for dyslipidemia, and 85% for diabetes mellitus. Increases in number of drug classes (28-51%) and in drug doses (10-61%) were the most common therapy modifications. Patients with target organ damage and higher baseline values were more likely to have appropriate clinical action. We found low rates of potential overtreatment with 2% for hypertension, 3% for diabetes mellitus and 3-6% for dyslipidemia. CONCLUSIONS In primary care, evaluating whether physicians respond appropriately to poor risk factor control, in addition to assessing proportions in control, provide a broader view of the quality of care than relying solely on measures of proportions in control. Such measures could be more clinically relevant and acceptable to physicians than simply reporting levels of control.

Application, tolerance and safety of fondaparinux therapy in a German hospital: a prospective single-centre experience.

INTRODUCTION The pentasaccharide fondaparinux is widely approved for prophylaxis and treatment of thromboembolic diseases and therapy of acute coronary syndrome. It is also used off-label in patients with acute, suspected or antecedent heparin-induced thrombocytopenia (HIT). The aim of this prospective observational cohort study was to document fondaparinux' prescription practice, tolerance and therapy safety in a representative mixed German single-centre patient cohort. PATIENTS AND METHODS Between 09/2008 - 04/2009, 231 consecutive patients treated with fondaparinux were enrolled. Medical data were obtained from patient's records. The patients were clinically screened for thrombosis (Wells score), sequelae of HIT (4T's score), and bleeding complications (ISTH-criteria) and subjected to further assessment (i.e. sonography, HIT-diagnostics), if necessary. The mortality rate was assessed 30 days after therapy start. RESULTS Overall, 153/231 patients had a prophylactic, 74/231 patients a therapeutic, and 4/231 patients a successive prophylactic/therapeutic indication. In 11/231 patients fondaparinux was used due to suspected/antecedent HIT, in 5/231 patients due to a previous cutaneous delayed-type hypersensitivity to heparins. Other indications were rare. Three new/progressive thromboses were detected. No cases of HIT, major bleedings, or fatalities occurred. CONCLUSIONS Fondaparinux was well tolerated and was safe in prophylaxis and therapy; prescriptions mostly followed the current approval guidelines and were rarely related to HIT-associated indications (<5% of prescriptions), which is in contrast to previous study results in the U.S. (>94% of prescriptions were HIT-associated). A trend towards an individualised fondaparinux use based on the compound's inherent properties and the patients' risk profiles, i.e., antecedent HIT, bone fractures, heparin allergy, was observed.

Expected Shortfall is jointly elicitable with Value at Risk - Implications for backtesting

In this note, we comment on the relevance of elicitability for backtesting risk measure estimates. In particular, we propose the use of Diebold-Mariano tests, and show how they can be implemented for Expected Shortfall (ES), based on the recent result of Fissler and Ziegel (2015) that ES is jointly elicitable with Value at Risk.

First-trimester glycosylated hemoglobin in women at high risk for gestational diabetes.

INTRODUCTION Our aim was to investigate the prognostic value of first-trimester glycosylated hemoglobin (HbA1c) in pregnant women with risk factors for developing gestational diabetes mellitus (GDM). MATERIAL AND METHODS This is an observational retrospective cohort study conducted at the Department of Obstetrics and Gynecology, University Hospital Bern, Switzerland. We included pregnant women at high risk for GDM (n = 208), who had an HbA1c measurement in the first trimester. We compared HbA1c values of women who later developed GDM with those who did not develop GDM. Diagnosis of GDM was made on the basis of a 75-g oral glucose tolerance test performed between 24 and 28 weeks of gestation. We further examined the prevalence of GDM in relation to the first-trimester HbA1c value. RESULTS The prevalence of GDM in our high-risk group was 14.7%. Women who developed GDM had significantly higher first-trimester HbA1c values [5.43 ± 0.31% (36 ± 3 mmol/mol) vs. 5.23 ± 0.28% (34 ± 3 mmol/mol); p = 0.0026]. Moreover, all pregnant women with HbA1c ≥6.0% (42 mmol/mol) developed GDM, whereas those with <4.5% (26 mmol/mol) did not. CONCLUSIONS Women at risk for GDM have higher first-trimester HbA1c levels and values ≥6.0% (42 mmol/mol) are predictive of GDM. This information may be useful for counseling these women and providing appropriate advice on diet and lifestyle modification early in pregnancy.

Risk Factors for Whole Carcass Condemnations in the Swiss Slaughter Cattle Population

We used meat-inspection data collected over a period of three years in Switzerland to evaluate slaughterhouse-level, farm-level and animal-level factors that may be associated with whole carcass condemnation (WCC) in cattle after slaughter. The objective of this study was to identify WCC risk factors so they can be communicated to, and managed by, the slaughter industry and veterinary services. During meat inspection, there were three main important predictors of the risk of WCC; the slaughtered animal's sex, age, and the size of the slaughterhouse it was processed in. WCC for injuries and significant weight loss (visible welfare indicators) were almost exclusive to smaller slaughterhouses. Cattle exhibiting clinical syndromes that were not externally visible (e.g. pneumonia lesions) and that are associated with fattening of cattle, end up in larger slaughterhouses. For this reason, it is important for animal health surveillance to collect data from both types of slaughterhouses. Other important risk factors for WCC were on-farm mortality rate and the number of cattle on the farm of origin. This study highlights the fact that the many risk factors for WCC are as complex as the production system itself, with risk factors interacting with one another in ways which are sometimes difficult to interpret biologically. Risk-based surveillance aimed at farms with reoccurring health problems (e.g. a history of above average condemnation rates) may be more appropriate than the selection, of higher-risk animals arriving at slaughter. In Switzerland, the introduction of a benchmarking system that would provide feedback to the farmer with information on condemnation reasons, and his/her performance compared to the national/regional average could be a first step towards improving herd-management and financial returns for producers.

Empirical Analysis of Credit Risk Regime Switching and Temporal Conditional Default Correlation in Credit Default Swap Valuation: The Market liquidity effect

In this paper, we extend the debate concerning Credit Default Swap valuation to include time varying correlation and co-variances. Traditional multi-variate techniques treat the correlations between covariates as constant over time; however, this view is not supported by the data. Secondly, since financial data does not follow a normal distribution because of its heavy tails, modeling the data using a Generalized Linear model (GLM) incorporating copulas emerge as a more robust technique over traditional approaches. This paper also includes an empirical analysis of the regime switching dynamics of credit risk in the presence of liquidity by following the general practice of assuming that credit and market risk follow a Markov process. The study was based on Credit Default Swap data obtained from Bloomberg that spanned the period January 1st 2004 to August 08th 2006. The empirical examination of the regime switching tendencies provided quantitative support to the anecdotal view that liquidity decreases as credit quality deteriorates. The analysis also examined the joint probability distribution of the credit risk determinants across credit quality through the use of a copula function which disaggregates the behavior embedded in the marginal gamma distributions, so as to isolate the level of dependence which is captured in the copula function. The results suggest that the time varying joint correlation matrix performed far superior as compared to the constant correlation matrix; the centerpiece of linear regression models.