Financial Crisis & Bailout: Professor Yale M. Braunstein: School of Information: U.C. Berkeley

Dr. Yale M. Baunstein
103B South Hall
Berkeley, California
94720-4600
U.S.A.
+1.510.642.2235

Last update:
25 Jan 2010

Home > People > Faculty > Yale Baunstein > PTC

The Role of Information Failures
in the Financial Meltdown

(Summer 2009) This is a PPT presentation (~50 slides) on the key roles information and information failures have played in the current fiancial and economic crisis. This is still a work-in-progress. These slides are being prepared for a talk sponsored by the S.F. Chapter of the Special Libraries Association. It is scheduled for Tuesday, August 4, 2009, 5:30 to 8:30 p.m. Registration information at: http://units.sla.org/chapter/csfo/calendar/regform.htm

Full color PPT file (approx. 4.3 MB)
Text-only version (approx. 300 kB)

Essays on the Financial Crisis and Bailout

(February 2009) Our class, INFO 231: Economics of Information, has put together: Give Us the Information Already: A working primer on the role of information and information failures in the ongoing financial crisis and the proposed bailout plans. This is a 45-page document in nine sections with background on the current financial crisis. As the title suggests, its focus is on the role of information in the financial markets. Below are links to the document and the introduction, as well as the the Table of Contents. (The introduction describes how the document came about.)

Complete primer (45-page pdf file; approx. 350 kB)

Introduction (2-page pdf; approx. 80 kB; included in the above file)

TABLE OF CONTENTS

1. Introduction: history and purpose of this primer

2. The essay that started it all: What we need is information, not billions of dollars

3. Background on the housing finance market

a. How do GNMA obligations differ from those of FNMA (Fanny Mae) and FHLMC (Freddy Mac)? Why has there been no need to bail out GNMA?

b. Describe major past proposals to increase the information in home mortgage applications? What happened to these proposals?

c. What are CMOs and CDOs? Who issues them? How are they valued?

4. All about Credit Default Swaps: What is a CDS? How do they work? Who issues them? Who holds them (including the Fed)? How are they valued? Can one distinguish between "insurance" and "gambling" when dealing with CDSs?

5. Background on risk and attitudes toward risk

a. Define and briefly discuss the relevance of "adverse selection", "moral hazard". What is the role of moral hazard in the design of appropriate bailout or rescue plans?

b. Define "systemic risk" in the context of the financial meltdown. Why do standard risk avoidance measures fail to reduce systemic risk?

6. Who predicted the current crisis? Were they prescient or just "lucky"?

7. What are the major proposals for "solving" the distressed/troubled assets problem? How likely is it that they will work? (Starting list of proposals includes "reverse auctions", exchange plans with or without "haircuts", etc.)

8. Not quite a digression: the twin topics of public/private ownership and domestic vs. international entities. Should corporate structure and corporate ownership affect bailout decisions or plan design? For example, GM and Ford are publicly held while Chrysler is privately owned. Should they be treated differently? What about more complex structures such as that of GMAC? Should it matter that 20% of Chrysler is owned by a foreign corporation?

9. Concluding remarks

About the authors

Revision history

Web design: Patrick Riley

Portrait photos: Peg Skorpinski