Do the GSEs expand the supply of mortgage credit? New evidence of crowd out in the secondary mortgage market

The dramatic government takeover of Fannie Mae and Freddie Mac in September, 2008 was motivated in part by a desire to ensure a continued flow of credit to the mortgage market. This study examines a closely related issue: the extent to which GSE activity crowds out mortgage purchases by private secondary market intermediaries. Evidence of substantial crowd out suggests that government support for the GSEs may be less warranted, whereas the absence of crowd out implies that GSE loan purchases enhance liquidity.Using 1994–2008 HMDA data for conventional, conforming sized loans, three distinct periods with regard to GSE crowd out are apparent. From 1994 to 2003, the share of loans sold to the secondary market increased from 60 to over 90%, private sector and GSE market shares of loan purchases were roughly similar for most market segments, and IV estimates indicate relatively little GSE crowd out of private secondary market purchases. From 2004 to 2006, private loan purchases boomed and dominated those of the GSEs, while IV estimates indicate crowd out jumped to 50% at the peak of the boom. This is especially true in the market for home purchase as opposed to refinance loans. With the crash in housing and mortgage markets in 2007, private sector intermediaries pulled back, the GSEs regained market share, and evidence of GSE crowd out disappeared in both the home purchase loan and refinance markets. These patterns suggest that the degree of GSE crowd out varies with market conditions and that the federal takeover of Fannie Mae and Freddie Mac likely served to enhance liquidity to the mortgage market during the 2007–2009 financial crisis.     

Towards Holistic "Front Ends" In New Product Development

Any firm that hopes to compete on the basis of innovation clearly must be proficient in all phases of the new-product development (NPD) process. However, the real keys to success can be found in the activities that occur before management makes the go/no-go decision for any NPD project. In other words, the most significant benefits can be achieved through improvements in the performance of the front-end activities—product strategy formulation and communication, opportunity identification and assessment, idea generation, product definition, project planning, and executive reviews. Noting the inherent difficulty of managing the front end, Anil Khurana and Stephen R. Rosenthal discuss findings from in-depth case studies of the front-end practices in 18 business units from 12 U.S. and Japanese companies. They offer a process view of the activities that the front end comprises, and they discuss the insights that their case studies provide regarding key success factors for managing the front-end activities. The case studies involved companies in industries ranging from consumer packaged goods to electronics and industrial products. Foremost among the insights provided by the case studies is the notion that the greatest success comes to organizations that take a holistic approach to the front end. A successful approach to the front end effectively links business strategy, product strategy, and product-specific decisions. Forging these links requires a process that integrates such elements as product strategy, development portfolio, concept development, overall business justification, resource planning, core team roles, executive reviews, and decision mechanisms. The case studies suggest that firms employ two general approaches for achieving these links. Some companies rely on a formal process to lend some order and predictability to the front end. Other companies strive to foster a company-wide culture in which the key participants in front-end activities always remain focused on the following considerations: business vision, technical feasibility, customer focus, schedule, resources, and coordination. This cultural approach is more prevalent among the Japanese firms in the study; the U.S. firms tend to rely on formality of the front-end process. The case studies also suggest that the front-end approach must be compatible with the firm's product, market, and organizational contexts. For example, standardized approaches seem to work best for incremental innovations.     

Global New Product Development Processes: Preliminary Findings and Research Propositions

This study examines the processes and routines firms employ for developing new global products. Observations from 13 Japanese, American and European multinational companies reveal that global new product development processes vary in terms of the involvement of overseas subsidiaries in project teams and the generation of new product concepts. In particular, when the knowledge about different product design requirements among overseas markets or plants is tacit, firms employ cross-national product development teams and use overseas subsidiaries as sources of new product concepts. Anchoring these findings on information processing theory, we develop a set of research propositions on global new product development processes and suggest directions for future research.     

Finding Generators for Markov Chains via Empirical Transition Matrices, with Applications to Credit Ratings

In this paper we identify conditions under which a true generator does or does not exist for an empirically observed Markov transition matrix. We show how to search for valid generators and choose the "correct" one that is the most compatible with bond rating behaviors. We also show how to obtain an approximate generator when a true generator does not exist. We give illustrations using credit rating transition matrices published by Moody's and by Standard and Poor's.     

Intergenerational Mobility and the Process of Development

This paper offers an explanation for some evidence that intergenerational earnings mobility is higher in more developed economies and that mobility is positively correlated with wage equality. In the model mobility promotes economic growth via its effect on the accumulation and allocation of human capital. Growth influences mobility via its effect on incentives to acquire education and its effect on liquidity constraints upon such acquisition. In the process of development mobility increases and the distribution of education becomes better correlated with ability. Redistributive policy has a negative effect on growth in developed economies and a positive effect in developing economies.     

Do mortgage rates vary based on household default characteristics? Evidence on rate sorting and credit rationing

Credit screening models suggest that lenders vary loan rates and debt ceilings across applicants on the basis of credit risk. We argue that regulatory constraints such as Fair Lending Laws may preclude rate sorting while increasing lender use of debt ceilings to adjust for applicant credit risk. Using household data from the 1983 SCF, we find that mortgage rates do not vary with applicant credit risk whereas related studies find that debt ceilings vary with borrower risk attributes. Together, these findings support arguments that regulatory constraints reduce rate sorting while increasing the use of non-price terms in the mortgage contract.     

The Unholy Alliance of Business and Science

This paper will build on a recent article appearing in the Harvard Business Review that blamed the alleged crisis in management education on the scientific model that has been adopted as the sole means of gaining knowledge about human behavior and organizations. The solution, they argue, is for business schools to realize that business management is not a scientific discipline but a profession, and deal with the things a professional education requires. We will expand on this article and discuss its implications by looking at the scientific model from a philosophical perspective and dealing with the issue of whether management is a profession. Our discussion of these issues has implications for our understanding of business in society and the design of the business school curriculum. Rogene A. Buchholz is the Legendre-Soule Chair in Business Ethics Emeritus in the College of Business Administration at Loyola University of New Orleans. He has published over seventy-five articles and is the author of ten books in the areas of business and public policy, business ethics, and the environment. He is on the editorial board of several journals and served as chair of the Social Issues in Management Division of the Academy of Management. Sandra B. Rosenthal is Provost Eminent Professor of Philosophy at Loyola University of New Orleans. She has published approximately 200 articles and 11 books on various dimensions of American pragmatism and its relevance for other areas of philosophy, and in both books and articles has applied pragmatism to a wide range of business ethics issues. She is a member of the editorial board of several journals, and has served as president of numerous philosophical societies.     

Toward a Contemporary Conceptual Framework for Stakeholder Theory

Atomic individualism is embedded in most definitions of stakeholder theory, and as a result, stakeholders are not integral to the basic identity of the corporation which is considered to be independent of, and separate from, its stakeholders. Feminist theory has been suggested as a way of developing a more relational view of the corporation and its stakeholders, but it lacks a systematically developed conceptual framework for undergirding its own insights. Pragmatic philosophy is offered as a way of providing this theoretical undergirding for ^. a relational understanding of the firm and its stakeholders.     

The Value of Secondary School Quality*

Improving the quality of state‐funded secondary school education has become a major policy aim in the UK. However, without a valuation of the social benefits derived from public provision of educational services, the rational evaluation of policy to this end is difficult. Utilizing the argument that dwellings near better schools command a price premium, this paper presents results from an empirical exercise aimed at providing such a social valuation of increased school quality. Using a large set of data for England, and an instrumental variable approach, results indicate an elasticity of dwelling purchase price with respect to exam performance by schools at around +0.05. One implication is that society would value a general increase of five percentage points in exam performance by about £450 million per annum.