How enforcement institutions affect markets

In an experiment we study market outcomes under alternative incentive structures for third-party enforcers. Our transactions resemble an anonymous credit market where lenders can give loans and borrowers can repay them. When borrowers default, judges are free to enforce repayment but are themselves paid differently in each of three treatments. First, paying judges according to lenders votes maximizes surplus and the equality of earnings. In contrast, paying judges according to borrowers votes triggers insufficient enforcement, destroying the market and producing the lowest surplus and the most unequal distribution of earnings. Lastly, judges paid the average earnings of borrowers and lenders achieve results close to those based on lender voting. We employ a steps-of-reasoning argument to interpret the performances of different institutions. When voting and enforcement rights are allocated to different classes of actors, the difficulty of their task changes, and arguably as a consequence they focus on high or low surplus equilibria.

Educational opportunity and the college premium

Since World War II, the United States government has made improved accessto higher education a priority. This e¤ort has substantially increasedthe number of people who complete college. We show that by reducing theeffective interest rate on borrowing for education, such policies canactually increase the gap in wages between those with a college educationand those without. The mechanism that drives our results is the signaling role of education first explored by Spence (1973). We argue that financialconstraints on education reduce the value of education as a signal. Wesolve for the reduced form relationship between the interest rate and thewage premium in the steady state of a dynamic asymmetric information model.In addition, we discuss evidence of decreases in borrowing costs for educationfinancing in the U.S.

Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600

Philip II of Spain accumulated debts equivalent to 60% of GDP. He also defaulted four times onhis short-term loans, thus becoming the first serial defaulter in history. Contrary to a commonview in the literature, we show that lending to the king was profitable even under worst-casescenario assumptions. Lenders maintained long-term relationships with the crown. Lossessustained during defaults were more than compensated by profits in normal times. Defaultswere not catastrophic events. In effect, short-term lending acted as an insurance mechanism,allowing the king to reduce his payments in harsh times in exchange for paying a premium intranquil periods. © 2010 Elsevier Inc. All rights reserved.

The lender of last resort: A 21st Century approach

The object of this paper is to analyze rigorously the role of a Lender ofLast Resort by providing a framework where the distinction betweeninsolvency and illiquidity is not clearly cut. Determining the optimalLender of Last Resort policy requires a careful modeling of the structureof the interbank market and of the closure policy. In our set up, theresults depend upon the existence of moral hazard. If the main source ofmoral hazard is the banks lack of incentives to screen loans, then theLender of Last Resort may have to intervene to improve the e¢ciency of anunsecured interbank market; if instead, the main source of moral hazard isloans monitoring, then the interbank market should be secured and theLender of Last Resort should never intervene.

2008 Annual Report of the Iowa Railway Finance Authority

The Iowa Railway Finance Authority (IRFA) was created in 1980 by the 68th General Assembly to provide for the financing of rail facilities and to enhance and continue the operation of essential rail facilities. IRFA was authorized to offer financial assistance for the acquisition, rehabilitation, construction, refinancing, extension, replacement, maintenance, repair, or leasing of any rail facility. Rail Revolving Loan and Grant Program The 2005 legislative session amended Iowa Code 327H.20 by assigning all repayments of IRFA and other Iowa Department of Transportation (Iowa DOT) rail assistance loans to the Rail Revolving Loan and Grant Program (RRLGP). In addition, the following annual appropriations were allocated to the fund: • FY 2007: $235,000 • FY 2008: $2 million • FY 2009: $2 million Since the creation of the RRLGP in 2005, IRFA has awarded funding to 23 projects totaling over $7.2 million in grants and loans in its three rounds of competitive funding. These projects have pledged to create 1,672 jobs within two years of project completion and 1,361 jobs have been retained. Funded projects are associated with over $2 billion in total private capital investment. In 2008, the IRFA Board directed all available funds be used to help repair railroads devastated by summer flooding. On July 31, $3.9 million in deferred payment loans were offered to seven Iowa based railroads to allow for immediate repair of rail beds, including the cost of materials, labor and equipment.

Credit derivatives in emerging markets

Credit Derivatives are securities that offer protection against credit or default risk ofbonds or loans. The credit derivatives emerging market has grown rapidly and creditderivatives are widely used. This paper describes the emerging credit derivativesmarket structure. The current market activity is analyzed through elementary pricingdynamics and the study of the term structure of default risk. Focusing on theperformance of credit derivatives in stress situation, including legal and market risks,we discuss the potential consequences of a debt restructuring in a large emergingmarket borrower. The contribution of credit derivatives to the risk sharing in emergingmarkets is also examined.

The State of the Judiciary, 2009

Thank you for inviting me again this year to talk with you about the condition of Iowa’s judicial branch. As your partner in government, we look forward to working with you on issues affecting the administration of justice. If I could capture the condition of our courts, indeed the condition of our state, in a few words, it would be: “We live in challenging times.” No one knows the true meaning of this phrase better than those Iowans hit by natural disasters. But my focus today is, of course, on the courts. Ensuring the delivery of equal, affordable and accessible justice is always challenging work, but it will be especially so this year and the next in light of the State’s budget problems. Given the magnitude of this challenge, it is even more imperative that we work together in the spirit of unity, candor and cooperation. And I address you today in this spirit. We are deeply concerned, as you are, about the present financial situation and its effect on individual Iowans. Naturally, we are particularly troubled about its impact on the delivery of justice to our citizens. Even in good economic times, the administration of justice is difficult to fulfill given the sheer volume and complexity of problems Iowans bring to their courthouses. Because of the effects of the nation’s economic downturn, people will need access to justice now more than ever. We already see this happening. The number of mortgage foreclosure cases in Iowa rose 14% in the past year. Debt collection cases increased 20% in the same time. An increase in these types of cases is predictable in tough economic times, but other types of problems may escalate as well. Some experts fear that a recession may also give rise to more crime, child abuse, domestic violence, and substance abuse. Naturally, for the sake of the people who may be harmed by these problems, we hope they do not occur. If they do, however, these matters will demand our immediate attention.

Banks, government bonds, and default: what do the data say?

We use data from Bankscope to analyze the holdings of public bonds by over 18,000 banks located in 185 countries and the role of these bonds in 18 sovereign debt crises over the period 1998-2012. We find that: (i) banks hold a sizeable share of their assets in government bonds (about 9% on average), particularly in less financially developed countries; (ii) during sovereign crises, banks on average increase their bondholdings by 1% of their assets, but this increase is concentrated among larger and more profitable banks, and; (iii) the correlation between a bank's holdings of public bonds and its future loans is positive in normal times, but turns negative during defaults. A 10% increase in bank bond-holdings during default is associated with a 3.2% reduction in future loans, and bonds bought in normal times account for 75% of this effect. Our results are consistent with the view that there is a liquidity benefit for banks to hold public bonds in normal times, which is critical for understanding bank fragility during sovereign crises.

Is bank debt special for the transmission of monetary policy? Evidence from the stock market

We combine existing balance sheet and stock market data with two new datasets to studywhether, how much, and why bank lending to firms matters for the transmission of monetarypolicy. The first new dataset enables us to quantify the bank dependence of firms precisely,as the ratio of bank debt to total assets. We show that a two standard deviation increase inthe bank dependence of a firm makes its stock price about 25% more responsive to monetarypolicy shocks. We explore the channels through which this effect occurs, and find that thestock prices of bank-dependent firms that borrow from financially weaker banks display astronger sensitivity to monetary policy shocks. This finding is consistent with the banklending channel, a theory according to which the strength of bank balance sheets mattersfor monetary policy transmission. We construct a new database of hedging activities andshow that the stock prices of bank-dependent firms that hedge against interest rate riskdisplay a lower sensitivity to monetary policy shocks. This finding is consistent with aninterest rate pass-through channel that operates via the direct transmission of policy ratesto lending rates associated with the widespread use of floating-rates in bank loans and creditline agreements.

Relationship and transaction lending in a crisis

We study how relationship lending and transaction lending varyover the business cycle. We develop a model in which relationshipbanks gather information on their borrowers, which allows them toprovide loans for profitable firms during a crisis. Due to the servicesthey provide, operating costs of relationship-banks are higher thanthose of transaction-banks. In our model, where relationship-bankscompete with transaction-banks, a key result is that relationship-banks charge a higher intermediation spread in normal times, butoffer continuation-lending at more favorable terms than transactionbanks to profitable firms in a crisis. Using detailed credit registerinformation for Italian banks before and after the Lehman Brothers'default, we are able to study how relationship and transaction-banksresponded to the crisis and we test existing theories of relationshipbanking. Our empirical analysis confirms the basic prediction of themodel that relationship banks charged a higher spread before the crisis, offered more favorable continuation-lending terms in response tothe crisis, and suffered fewer defaults, thus confirming the informational advantage of relationship banking.

Le prêt à intérêt dans l'Antiquité préchrétienne : Jérusalem, Athènes, Rome : étude juridique, philosophique et historiographique

Le prêt à intérêt était pratiqué par tous les peuples de l'Antiquité préchrétienne, à l'exception du peuple d'Israël. L'auteur examine d'abord l'interdiction du prêt à intérêt dans l'Ancien Testament. Il expose ensuite la pratique du prêt à intérêt en Grèce, avant de détailler les critiques d'Aristote. Enfin, l'auteur retrace l'évolution du prêt (mutuum) et de la réglementation de l'intérêt à Rome, des origines à Constantin. Il met l'accent sur trois grandes controverses parmi les romanistes modernes (XVIe - XXIe s.) : sur le nexum, sur la centesima et, surtout, sur le mystérieux fenus unciarium, le taux d'intérêt fixé par les Douze Tables, pour lequel l'éventail des interprétations va de 1 à 100 % par an ! L'auteur recense les opinions de plus de 400 juristes et historiens, discute les plus importantes et propose sa conclusion. The loan at interest was used by all the peoples of pre-Christian Antiquity, excepting the people of Israel. The author first focuses on the prohibition of lending at interest in the Old Testament. He then explores the use of loans at interest in Greece before examining Aristotle's criticism. Eventually, the author follows the evolution of loan (mutuum) and interest regulation in Rome, from the origins to Constantine. Three great controversies among modern Roman law scholars (16th - 21th) are considered: nexum, centesima and above all, the mysterious fenus unciarium, the interest rate defined by the Twelve Tables, for which the range of interpretations varies between 1 and 100% per year! The author gives an inventory of more than 400 opinions expressed by jurists and historians, discusses the most important ones and suggests a solution.

La fi del censal: reducció de l'interès o vaga de pensions? (1750-1861)

La reducció de l'interès del 5 % al 3 % ha estat considerada el principi de la fi dels censals. Però aquest argument no té en compte que la de 1750 va ser només l'última d'una sèrie de reduccions del for de censal, que també es produïren a Anglaterra, França o Castella, i que els primers símptomes de retracció de l'oferta de préstecs censals no apareixerien fins a la darreria del segle XVIII o principi del segle XIX. L¿article proposa una explicació alternativa d¿aquelles reduccions, que ajustaven l'interès a l'alça coetània del valor patrimonial de la terra i la minva de la rendibilitat del seu esmerç, i de la fi del censal a partir de l'impagament de pensions que es desencadenà a les acaballes del segle XVIII, juntament amb la vaga de delmes i rendes de la terra, quan s'havien esgotat, en bona part, les possibilitats d'expansió agrària del segle XVIII.

Procedimientos de gestión: Tarifas, facturación e IVA

Ponència presentada a "I Jornada Rebiun de Préstamo Interbibliotecario", Campus de Toledo de la Universidad de Castilla-La Mancha, 27 de marzo de 2009

Issue review : projected impact of elimination of the Federal Family Education Loan Program.

The federal Health Care and Education Reconciliation Act of 2010 ended the Federal Family Education Loan Program, or FFELP, and no new FFELP loans will be issued after June 30, 2010. The Iowa College Student Aid Commission received approximately 14 million dollars of its 14.7 million dollar fiscal year 2010 administrative budget from the various fees associated with the FFELP program and services. With the cessation of FFELP loans, the commission project's revenues will decline, as the currently existing FFELP loans are paid off, beginning with a 2.7 million dollar decline in fiscal year 2011. This issue review examines the prison system fiscal year 2010 budget, including receipts and expenditures, average annual costs, personnel and inmate assaults.