Public Knowledge and Financial Regulation: Two Post Crisis Periods

Abstract:

Since at least the days of Adam Smith there has been the recognition of essentially two forms of capitalism: in their theoretical extremes, one in which private companies determine the conditions of the social provisioning of credit and money, and one in which the State representing the general interest does. As we argue, the zeitgeist of the 1930s was a high water mark in the popular understanding of money and banking and its relationship with society. In contrast, today the general population is woefully ignorant on these points. As we argue, the relationship between financial governance and those governed hinges on the knowledge of the latter. Today’s public discourse reveals a widespread ignorance over financial matters that must accompany a likewise extreme moment of private control over nations’ money and credit. As we argue, the first steps towards a capitalism at the service of humanity and under public control, the first priority is publicly diffused knowledge.     

Organizational governance and TMT pay level adjustment

This paper analyzes how the characteristics of boards and structure of ownership moderate a firm's capacity to adjust top management team (TMT) pay levels in the face of changes in its economic and complexity conditions. Using panel data from Spanish listed companies between 2003 and 2007, the results indicate that, over time, characteristics of corporate governance system contribute to give a fundamental importance to boards and ownership structure in the determination and adjustment of TMT pay. These associations appear to be even stronger than those that in other Western European and North American countries. Both the Spanish cross-holding and concentrated firms' ownership structure, and socially intervened boards play a major role in the high levels of pay received by the TMT, which, in turn, reflect a moderate adjustment of compensation practices to variations of surrounded environment factors.     

Women on the Board and Managers’ Pay: Evidence from Spain

The current literature shows great interest in the issue of gender diversity on boards of directors. Some studies have hypothesized a direct relationship between diversity and the value of the firm, but not many examine the intermediate mechanisms that may exert an influence on such relationships. We employ two stages of GMM estimation methodology to exhibit evidences of the relationship between gender diversity and compensation of top managers in the Spanish context. Results show that gender diversity positively affects the effectiveness of boards—in terms of composition, structure, size and functioning—influencing a proper design of top managers compensation linked to company performance. Evidences suggest that legislative actions aimed at increasing the presence of women on boards of directors are justified not only for ethical reasons, but also for reasons of economic efficiency.     

Vested Interests and the Common Man as Seen Through Monetary and Fiscal Policy: Flooding Wall Street or Main Street?

There are many angles through which a critical observer can analyze the divergent class interests in most aspects of macroeconomic management. We examine the insistence of financial authorities of all major economies on reviving economic activity through monetary — and not fiscal — policy as a particularly clear example of favoring vested interests over the interests of the common man. Nearly a century after Thorstein Veblen wrote on the subject, one can find many parallel elements to the political landscape of the times. Today, the common man is often expressed by the “99%,” and many accept that the dominant vested interest is that of global banks. Unlike in Veblen’s times, economists today have many historical experiments in economic management that they can consult. By employing logic, historical experience, and an understanding of our current global finance-led capitalism, we offer a preliminary institutionalist analysis of the mechanisms of current monetary policy that “flood” Wall Street, while leaving employment, production, and investment — Main Street — all but forgotten. We then explain how vested interests have abandoned fiscal policy and left a deflationary macroeconomic environment.     

The Stochastic Seasonal Behaviour of Natural Gas Prices

Previous studies have explored the seasonal behaviour of commodity prices as a deterministic factor. This paper goes further by proposing a general (n+2m)‐factor model for the stochastic behaviour of commodity prices, which nests the deterministic seasonal model by Sorensen (2002) . We consider seasonality as a stochastic factor, with n non‐seasonal and m seasonal factors. The non‐seasonal factors are as defined in Schwartz (1997) , Schwartz and Smith (2000) and Cortazar and Schwartz (2003) . The seasonal factors are trigonometric components generated by stochastic processes. The model has been applied to the Henry Hub natural gas futures contracts listed by NYMEX. We find that models allowing for stochastic seasonality outperform standard models with deterministic seasonality. We obtain similar results with other energy commodities. Moreover, we find that stochastic seasonality implies that the volatility of futures returns follows a seasonal pattern. This result has important implications in terms of option pricing.     

Inflation Stabilisation and the Consumption of Durable Goods

Exchange rate-based stabilisations in chronic-inflation countries have often been characterised by an initial consumption boom (which is most evident in the behaviour of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect which induces many consumers to bring forward their purchases of durable goods, thus generating an aggregate consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the programme, a later slowdown follows.     

Credit Rationing, Group Lending and Optimal Group Size

I develop a model of credit rationing with effort unobservable by lenders where borrowers can choose among projects of different riskiness. In such a set-up rationing that can be relaxed if borrowers put up physical collateral arises. Group lending proves to be a possible means to relax rationing and improve efficiency when physical collateral is not available. The optimal size of groups is here analysed as a function of social factors. It turns out that groups can be neither too small nor too large because in both cases the effectiveness of social sanctions on behaviour is too low to offset the negative effect on effort due to profit sharing and free riding. Individual sensitivity to social sanctions is the crucial element determining whether groups can be formed or not.