The Interest Rate Brake on Maturity Transformation

Must banks match asset and liability maturities, as William Barnett and Walter E. Block (2009 Barnett, William and Walter E. Block. “Time Deposits, Dimensions and Fraud.” Journal of Business Ethics 88, 4 (2009): 711–716.[Crossref], [Web of Science ®] , [Google Scholar], 2011 Barnett, William and Walter E. Block. “Rejoinder to Bagus and Howden on Borrowing Short and Lending Long.” Journal of Business Ethics 100, 2 (2011): 229–238.[Crossref], [Web of Science ®] , [Google Scholar]), as well as Ivan Jankovic (2011) Jankovic, Ivan. “Economic Calculation, Maturity Mismatching and the Credit Cycle.” New Perspectives on Political Economy 7, 1 (2011): 105–124. [Google Scholar], surmise? While we agree with these authors that issuances of fiduciary media breed financial instability, we disagree that maturity transformation represents such a case. Maturity transformation — otherwise known as borrowing short-term and lending long-term — guided by several base legal principles, does not result in the issuance of fiduciary media. Most notable among these principles is that any credit issued must be funded by borrowing of a positive duration, i.e., not via a demand deposit. We demonstrate that two factors instigate larger degrees of maturity transformation than would otherwise be the case, breeding potential instability: a continual increase in the credit supply and the provision of a lender of last resort. We also show that the interest rate is a natural stabilizing brake on the over-issuance of longer-dated credit against short-term financing.     

Deposits,Loans, and Banking: Clarifying the Debate

The relationship between banking deposits and loans is contentious. While the defense of a 100 percent reserve clause to eliminate fractional reserves has commonly been asserted on economic and ethical grounds, Huerta de Soto (2006) arguments are largely ignored. Rozeff (2010) is an example. We show that treating a loan and a deposit interchangeably is impermissible due to both established and a priori legal principles. At best, fractional reserves may be considered an aleatory contract but this is incompatible with the reason individuals hold money—mitigating uncertainty. Deposit and loan contracts are distinct, and may not be contractually melded together.     

Knowledge flows and insider trading

Much insider trading literature focuses on the redistribution of monetary rents. This focus has led to ambiguous and conflicting results, unable to identify who the clear winners and losers of insider trading legislation are. Lacking any clearly defined beneficiary, an analysis of the origins and continued support of such legislation is lacking. This paper rectifies this omission by reassessing the involved agents not in light of their relationship to a company, but from all roles of the knowledge transmission process: creator, distributor and user. Information distributors—large news companies and investment houses—are argued to be sufficiently well organized to lobby for maintained and strengthened legislation to protect rents that would otherwise be greatly diminished.     

The impact of trading halts on liquidity and price volatility: Evidence from the Australian Stock Exchange

This study examines market behaviour around trading halts associated with information releases on the Australian Stock Exchange, which operates an open electronic limit order book. Using the Lee, Ready and Seguin (1994) pseudo-halt methodology, we find trading halts increase both volume and price volatility. Trading halts also increase bid-ask spreads and reduce market depth at the best-quotes in the immediate post-halt period. The results of this study imply that trading halts impair rather than improve market quality in markets that operate open electronic limit order books.     

TIME VS. GOODS: THE VALUE OF MEASURING HOUSEHOLD PRODUCTION TECHNOLOGIES

We take U.S. and Israeli household data on expenditures of time and goods, generate an exhaustive set of commodities that households produce/consume using them, and calculate their relative goods intensities. Leisure activities are uniformly relatively time intensive, health, travel and lodging relatively goods intensive. We demonstrate how education and age alter the goods intensity of household production. The results of this accounting can be used as guides to: understanding how goods and income taxation interact to affect welfare; expanding notions of the determinants of international flows of goods; generating models of business cycles and endogenous growth to include interactions of goods and time consumption; and obtaining better measures of the distribution of well being.     

Technological Change and the Production of Ocean Shipping Services

This paper presents results for the estimation of a translog variable profit function for the subsidized U.S. liner shipping industry. In a study of fifteen firms for the period from 1971 through 1982, the estimation results for a translog variable profit function indicate an industry characterized by input-saving technological changes in the cargo-handling input and important scale economies that increase in extent over the period. At the beginning of the period, the U.S. liner shipping industry included fifteen subsidized firms and several unsubsidized firms. At this writing, four subsizied firms and one unsubsidized firm remain. The technological changes examined here and the diffusion of that technology throughout the international shipping industry are major factors in explaining that dramatic restructuring.     

Knowledge shifts and the business cycle: When boom turns to bust

Informational cascades can be used to augment the existing Austrian business cycle theory. As first-order users of knowledge know the direct causes of a price change, they transmit this knowledge to second-order users through the price system. Banks with direct knowledge of the sources of the fresh liquidity during a credit-induced boom have knowledge of the boom’s artificial and unsustainable nature. Higher order users lack this direct knowledge and hence continue investing largely ignorant of underlying developments. When first-order users of knowledge sense the boom has run its course, they exit the market, sending a strong signal to higher order knowledge users that the boom has ended—a fragile situation built upon an informational cascade begins collapsing. Simultaneously, the boom is characterized by an influx of capital and knowledge into the financial sector owing to increased profits relative to the real economy stemming from Cantillon effects surrounding the credit injection. As knowledge pertaining to real production has also exited, the bust commences with a misallocated productive structure requiring equilibration to become consistent with consumers’ wants. Actions which inhibit this knowledge from returning to the productive structure will unnecessarily lengthen the time to recovery.     

Cost-effectiveness of angiotensin-converting enzyme inhibitors versus angiotensin II receptor blockers as first-line treatment in autosomal dominant polycystic kidney disease

Background: Autosomal dominant polycystic kidney disease (ADPKD) is a rare kidney disorder impacting ～1:2,500 individuals among the general US population. Hypertension is a significant predictor of ADPKD progression, and a risk factor for development of cardiovascular disease (CVD), the most common cause for mortality among ADPKD patients. Angiotensin-converting enzymes inhibitors (ACE-I) are widely used as first-line treatment in ADPKD for the management of hypertension. However, their cost-effectiveness relative to other hypertensive medications, such as angiotensin II receptor blockers (ARB), has never been assessed.

Objective: To determine if ARB are more cost-effective than ACE-Is as first-line treatment in ADPKD.

Methods: A Markov-state decision model was constructed for estimation of cost and outcome benefits in hypertensive ADPKD patients. Transition probabilities were extrapolated from a retrospective cohort study comparing chronic kidney disease (CKD) stage transitions in ADPKD patients. Annual pharmaceutical costs per average daily dose per CKD stage were extracted from a US healthcare claims database. Median total healthcare costs per CKD stage or transplant were extracted from the published literature. The time horizon was set to 30 years, with 1-year duration to cycle shift. A cost-effectiveness analysis was conducted to estimate the incremental cost-effectiveness ratio (ICER) of ACE-I vs ARB per additional year of prevented transplant and/or death. A one-way probabilistic sensitivity analysis was conducted, with 10% variation in probabilities and cost.

Results: Total annual healthcare costs accrued after 30 years among ADPKD patients taking ACE-Is was estimated to be $3,505,028.41, compared to ARB at $3,644,327.65. Life expectancy was increased by 1.39 years among patients taking ACE-I. Approximate 10-year survival in patients taking ACE-Is was 47% compared to ARB at 34%.

Conclusions: ACE-I dominated ARB and displayed greater cost-effectiveness due to lower cost and increased capacity to prolong years of life without transplant or death among hypertensive ADPKD patients. This model strengthens the value of ACE-I over ARB as first-line treatment for hypertension management in ADPKD patients.     

Leading a supply chain turnaround

Just five years ago, salespeople at Whirlpool were in the habit of referring to their supply chain organization as the "sales disablers." Now the company excels at getting products to the right place at the right time--while managing to keep inventories low. How did that happen? In this first-person account, Reuben Slone, Whirlpool's vice president of Global Supply Chain, describes how he and his colleagues devised the right supply chain strategy, sold it internally, and implemented it. Slone insisted that the right focal point for the strategy was the satisfaction of consumers at the end of the supply chain. Most supply chain initiatives do the opposite: They start with the realities of a company's manufacturing base and proceed from there. Through a series of interviews with trade customers large and small, his team identified 27 different capabilities that drove industry perceptions of Whirlpool's performance. Knowing it was infeasible to aim for world-class performance across all of them, Slone weighed the costs of excelling at each and found the combination of initiatives that would provide overall competitive advantage. A highly disciplined project management office and broad training in project management were key to keeping work on budget and on benefit. Slone set an intense pace--three "releases" of new capabilities every month--that the group maintains to this day. Lest this seem like a technology story, however, Slone insists it is just as much a "talent renaissance." People are proud today to be part of Whirlpool's supply chain organization, and its new generation of talent will give the company a competitive advantage for years to come.