The Nonprime Mortgage Crisis: Willful Blindness and Positive Feedback Lending

The Wall Street Journal recently reported that federal prosecutors are pursuing criminal cases against bank executives for allegedly selling flawed mortgage securities. The crux of the cases? That the bankers ignored warnings they were packaging too many shaky mortgages into invest­ment securities and failed to disclose the risks to others. The result, they claim, was fraud.

In a recent paper, The Nonprime Mortgage Crisis and Positive Feedback Lending, we collected evidence that the risk of a nonprime housing bubble (not the certainty, but a meaningful risk) should have been obvious to the originators, securi­tizers, rating agencies, money managers, and … Read more

Which Aspects of Corporate Governance Matter in Emerging Markets: Evidence from Brazil, India, Korea, and Turkey

Emerging markets are increasingly important destinations for international capital flows. Yet these markets pose important risks for investors, in addition to the business risks present in every market. For example, in some countries, many public firms are part of family business groups, raising the risk of self-dealing by the controllers. Thus, firm-level corporate governance can be an important factor in investors’ decisions on which countries and firms to invest in, and how much to pay for shares. Yet, despite the important role of corporate governance in affecting firm value, little is known about what aspects of governance are valued by … Read more