... that thecostofcapitalofthe firm depends on four factors: the risk free
rate, the aggregate risk tolerance ofthe market, the expected cash flow ofthe firm, and the
covariance ofthe firm’s ... links the disclosure of accounting information
to thecostof capital. Specifically, we examine whether and how the quality of a firm’s
accounting information manifests in its costof capital, ... Again, the impact of
the indirect effects on thecostofcapital is ambiguous. As above, if improved disclosure shifts
only the “fixed” component of managerial misappropriation, firms’ costof capital...
... impact ofthe AAER. If the restatement occurs in conjunction
with, or following, the AAER issuance, it likely does not impact the change in costof equity
capital surrounding the issuance ofthe ... hypothesis, stated in alternative form,
examines this role of severity in determining the change in costof equity capital:
H3: The increase in costof equity capital will be greater when the ... Influence of Severity on the Change in Costof Equity Capital 48
10. Influence of Severity on the Change in Costof Equity Capital
Individual Measures…………………………………… …… 49
11. Impact of SEC...
... the stock market crash of 1990, the Asian crisis ofthe mid-1990s,
the fabulous technology boom/bust cycle at the turn ofthe millen-
nium, and the unprecedented rise and then collapse for U.S. ... economists joined together in a cele-
bration ofthe Goldilocks economy. With the dismal record of the
1970s as their point of comparison, mainstream analysts focused on
the not-too-hot, not-too-cold ... a consequence they led their creators to assert, incor-
rectly, that there was no theoretical justification for the visible hand
of government to come to the rescue of banks and other financial
institutions.
Finally,...
... to the Fed’s list of poten-
tially destabilizing excesses. Why? Sadly, it was not the force of ideas
that carried the day. It was the end ofthe Great Moderation. The breath-
taking nature ofthe ... excessive
uses of risk and concentration of investment. And the interplay of these
two flaws explains each ofthe major economic declines ofthe past
25 years.
In summation, the savvy analyst must be of two ... indeed
shocked by the events of 2008. Shock in hand, they can argue that
their sense ofthe way the world works is intact. Listen to speeches
from representatives ofthe European Central Bank, the ECB,...
... and the economy.
CASH, AT LONG, LONG LAST, IS TRASH
Equity ownership, or a piece ofthe action, is the essence ofthe difference
between capitalist-based economies and the planned economies of the
Soviet ... bubble ofthe proportions of Japan
in the 1980s or the technology bubble in the United States in the
1990s. Indeed, in this case you could argue that the bust was as much
an example of excess as the ... any fun playing the role of party pooper. What fol-
lows is a piece I wrote on the eve ofthe collapse of Nasdaq, in the
spring of 2000.
2
The Brave-New-World Boom Goes Bust: The 1990s Technology...
... handful of other Asian countries were intent on keeping
their currencies pegged to the U.S. dollar. To do so, they needed to
buy U.S. bonds. And they ended up buying trillions of dollars’ worth
of ... in
terms of global savings. I saw it as easy money emanating from the
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to the powers ofthe computer and the cell phone, and envisioned an
extended period of serenity. ... for the timely
and aggressive ease ofthe U.S. Fed last year. . . .
Going forward, the newly emerging reality of rest -of- world
recovery ends the need for booming U.S. spending. Moreover,
the...
... in the soundness ofthe people on
the other side ofthe table, financial business comes to a screeching
halt, and the global economy is not far behind.
Bear Stearns
Appropriately enough, the ... neoclassical synthesis, arguing
that much ofthe genius of Keynes was lost in the attempt to preserve
the lion’s share ofthe classical economic tradition.
To grossly oversimplify, the groups fared ... both the long
run and the short run. Thus, from the perspective of conservative policy
makers, the job was now done. Whatever the economic situation, it
was the best of all possible worlds.
The...
... brain skills. Looking through
the details ofthe question to get to an overarching sense ofthe issue is
at the heart of right brain thinking.
Out ofthe Mouths of Babes
The best right brain thinking ... even amidst the imposing shadow ofthe 2008 crisis, the
record of free market capitalism over the past 50 years is striking. The
postwar reality—good gains in living standards in the developed ... of course, puts me at odds with many ofthe most vociferous fans
of Hy Minsky. What follows is a brief sketch ofthe experiences that
led me to the prejudices that I hold.
was that neither of...
... part ofthe mainstream formulation. The simple
truth is that theorists owe this to the policy-making world. The sooner
they deliver it, the better.
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Cushioning the ... leading up to the crisis of 2008, many champions of
free market capitalism warned about the tenuous nature ofthe global
credit markets. Warren Buffett, the sage of Omaha, labeled the mar-
kets ... the basic responsibilities of central bankers. A worldwide
commitment to keeping inflation low emerged in the aftermath of
the Great Inflation ofthe 1970s. Central bankers, in the aftermath of
the...
... economists joined together in a cele-
bration ofthe Goldilocks economy. With the dismal record of the
1970s as their point of comparison, mainstream analysts focused on
the not-too-hot, not-too-cold ... wit-
nessed the 1987 stock market crash, the S&L crisis ofthe early 1990s,
the Long-Term Capital Management meltdown, and the spectacular
technology boom and bust dynamic ofthe late nineties. ... when they were needed, as singular one-
off events. Somehow these crises were independent from the gener-
ally healthy backdrop they could point to before the serious recession
of 2008 arrived. These...
... lower
than the value of what is owed to them—their assets. When they
subtract their liabilities from their assets, the remainder is their
equity.
The problem for banks arises if the banks have lots of ... gone bust
and the bank now owns the home. But the loan was for $588,000, and
the house is worth $538,000. If lots of home loans go the way of
Hanna’s loan, then the total value ofthe bank’s assets ... change. Indeed, if one embraces the efficient market
hypothesis, the price of a capital asset is the embodiment of the
present value of incomes to be received in the future. Thus, every
decision...
... excessive
uses of risk and concentration of investment. And the interplay of these
two flaws explains each ofthe major economic declines ofthe past
25 years.
In summation, the savvy analyst must be of two ... to the Fed’s list of poten-
tially destabilizing excesses. Why? Sadly, it was not the force of ideas
that carried the day. It was the end ofthe Great Moderation. The breath-
taking nature ofthe ... Novem-
ber of 2008, on the heels of widespread evidence of economic retreat.
At that time the NBER, theof cial arbiter, also declared that the
United States was in recession. It set the start...
... any fun playing the role of party pooper. What fol-
lows is a piece I wrote on the eve ofthe collapse of Nasdaq, in the
spring of 2000.
2
The Brave-New-World Boom Goes Bust: The 1990s Technology ... T
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of these companies looked shaky. The value of bank assets, therefore,
had to be reduced. And banks, in need of additional capital, curtailed
their lending.
Japan in the early ... and the economy.
CASH, AT LONG, LONG LAST, IS TRASH
Equity ownership, or a piece ofthe action, is the essence ofthe difference
between capitalist-based economies and the planned economies of the
Soviet...
... even the most creative mortgage providers to lift their teaser
rates thecostof money forced them to make the adjustment.
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In the United States, a vocal group of ... gripped the United States and then became a
world recession. The dynamics that precipitated the U.S. recession,
the global capital markets crisis, and the worldwide downturn, are the
subject ofthe ... Fosters the Housing Bubble • 125
banks holding mortgage products had to radically reduce the values
of these products on their balance sheets. The first in a succession of
crises about the state of...
... and a writer ofthe insurance. If things go as planned, the buyer
pays the insurer the premium. If things go awry, the insurer pays the
buyer. Either way, one ofthe two parties gets the money promised ... regulated free market capitalism does the best job of
delivering growth to the citizenry ofthe world.
2. Financial system excesses are the root cause of many boom and
bust cycles.
The previous 12 ... both the long
run and the short run. Thus, from the perspective of conservative policy
makers, the job was now done. Whatever the economic situation, it
was the best of all possible worlds.
The...