Liberty Street Economics

January 14, 2019

Creditor Recovery in Lehman’s Bankruptcy

Erin Denison, Michael J. Fleming, and Asani Sarkar

Expectations of creditor recovery were low when the Lehman Brothers bankruptcy process started. On the day the firm filed for bankruptcy in September 2008, the average price of Lehman’s senior bonds implied a recovery rate of about 30 percent for senior creditors. A month later the bond price was implying a recovery rate of 9 percent, consistent with results from Lehman’s CDS auction. Two and a half years later, Lehman’s estate estimated that the recovery rate for holding company creditors would be just 16 percent. So, ten years after the filing, how much did creditors actually recover?

Posted at 7:02 am in Banks, Crisis | Permalink

How Much Value Was Destroyed by the Lehman Bankruptcy?

Erin Denison, Michael J. Fleming, and Asani Sarkar

Lehman Brothers Holdings Inc. (LBHI) filed for Chapter 11 bankruptcy protection on September 15, 2008, initiating one of the largest and most complex bankruptcy proceedings in history. Recovery prospects for creditors, who submitted about $1.2 trillion of claims against the Lehman estate, were quite bleak. This week, we will publish a series of four posts that provide an assessment of the value lost to Lehman, its creditors, and other stakeholders now that the bankruptcy proceedings are winding down. Where appropriate, we also consider the liquidation of Lehman’s investment banking affiliate (which occurred on a separate track in the Securities Investor Protection Act (SIPA) proceedings).

Posted at 7:00 am in Banks, Crisis, Financial Institutions, Financial Intermediation | Permalink | Comments (2)

January 11, 2019

Highlights from the Fourth Bi‑annual Global Research Forum on International Macroeconomics and Finance

Ozge Akinci, Roland Beck, Paola Donati, Linda Goldberg, and Livio Stracca

Achieving and maintaining global financial stability has been at the forefront of policy discussions in the decade after the eruption of the global financial crisis. With the purpose of exploring key issues in international finance and macroeconomics from the perspective of what has changed ten years after the crisis, the fourth bi-annual Global Research Forum on International Macroeconomics and Finance, organized by the European Central Bank (ECB), the Federal Reserve Board, and the Federal Reserve Bank of New York, was held at the ECB in Frankfurt am Main on November 29-30, 2018. Participants included a diverse group from academia, international policy institutions, national central banks, and financial markets. Among the topics of discussion: the international roles of the U.S. dollar, the evolution of global financial markets, and the safety of the global financial system.

Posted at 7:00 am in Financial Markets, International Economics | Permalink

January 9, 2019

The Perplexing Co‑Movement of the Dollar and Oil Prices

Thomas Klitgaard, Paolo Pesenti, and Linda Wang

Oil prices and the exchange rate of the U.S. dollar against the euro have often moved together over the past decade or so, but it is not at all clear why they should. The standard interpretation of oil price movements as a response to global oil supply and demand shifts makes it unlikely that the correlation stems from the dollar’s effect on oil prices. In addition, the notorious difficulty in predicting currency moves makes it hard to believe that oil prices dictate the dollar’s value. Improbability aside, however, in this blog post we document the tendency for the value of the dollar to rise relative to European currencies when oil prices fall, and we consider a possible explanation for the correlation.

Posted at 7:00 am in Exchange Rates, International Economics | Permalink | Comments (6)

January 7, 2019

Coming to Terms with Operational Risk

Gara Afonso, Filippo Curti, and Atanas Mihov

The term “operational risk” often evokes images of catastrophic events like hurricanes and earthquakes. For financial institutions, however, operational risk has a broader scope, encompassing losses related to fraud, rogue trading, product misrepresentation, computer and system failures, and cyberattacks, among other things. In this blog post, we discuss how operational risk has come into greater focus over the past two decades—to the point that it now accounts for more than a quarter of financial institutions’ regulatory capital.

Posted at 7:00 am in Crisis, Financial Institutions | Permalink

January 4, 2019

The Impact of Import Tariffs on U.S. Domestic Prices

Mary Amiti, Sebastian Heise, and Noah Kwicklis

The United States imposed new import tariffs on about $283 billion of U.S. imports in 2018, with rates ranging between 10 percent and 50 percent. In this post, we estimate the effect of these tariffs on the prices paid by U.S. producers and consumers. We find that the higher import tariffs had immediate impacts on U.S. domestic prices. Our results suggest that the aggregate consumer price index (CPI) is 0.3 percent higher than it would have been without the tariffs

Posted at 7:00 am in Household Finance, International Economics, Tariffs | Permalink | Comments (5)

December 7, 2018

Cryptocurrencies, Tariffs, “Too Big to Fail,” and Other Top LSE Posts of 2018

Trevor Delaney

“Cryptocurrency” hit the cultural mainstream in 2018. In March, Merriam-Webster added “cryptocurrency” to the dictionary, and in what was perhaps a greater litmus test of pop culture recognition, “bitcoin” was added to the official Scrabble dictionary in September. With such a surge in interest, it’s not too surprising that the most viewed post on Liberty Street Economics this past year focused on an issue surrounding how digital currencies operate that is not often put in the spotlight—trust. Similarly, as the subject of tariffs has become a more frequent topic of discussion in the news, readers have sought additional info, which fueled interest in another of our most viewed posts of the year. As 2019 approaches, we offer a chance to revisit these posts and the rest of our top five of 2018.

Posted at 7:00 am in Crisis, Cryptocurrencies | Permalink

December 5, 2018

Price Impact of Trades and Limit Orders in the U.S. Treasury Securities Market

Michael J. Fleming, Bruce Mizrach, and Giang Nguyen

It’s long been known that asset prices respond not only to public information, such as macroeconomic announcements, but also to private information revealed through trading. More recently, with the growth of high-frequency trading, academics have argued that limit orders—orders to buy or sell a security at a specific price or better—also contain information. In this post, we examine the information content of trades and limit orders in the U.S. Treasury securities market, following this paper, recently published in the Journal of Financial Markets and earlier as a New York Fed staff report.

Posted at 7:01 am in Financial Markets, Liquidity | Permalink

Just Released: Interactive R‑star Charts

Anna Snider

With the arrival of Bank President John Williams from the San Francisco Fed, we’re now running—and sharing the output of—models he helped develop to obtain estimates of the natural rate of interest, or r-star, for the United States and other advanced economies. In the models’ definition, r-star is the real interest rate that allows an economy to expand in line with its underlying potential while keeping inflation stable.

Posted at 7:00 am in Macroeconomics | Permalink

December 4, 2018

Just Released: Labor Markets in the Region Are Exceptionally Tight

Jaison R. Abel, Jason Bram, Richard Deitz, and Jonathan Hastings

At today’s economic press briefing, we examined labor market conditions across our District, which includes New York State, Northern New Jersey, and Fairfield County, Connecticut, as well as Puerto Rico and the U.S. Virgin Islands. As the island economies continue to recover and rebuild from the destruction caused by last year’s hurricanes, employment has edged up in Puerto Rico and stabilized in the U.S. Virgin Islands. Meanwhile, as has been true throughout the expansion, New York City remains an engine of job growth, while employment gains have been more moderate in Northern New Jersey and fairly sluggish across most of upstate New York. Nonetheless, it has become more difficult for firms to find workers throughout the New York-Northern New Jersey region. It may not be terribly surprising that labor markets have tightened in and around New York City, where job growth has been strong, but labor markets have also tightened in parts of upstate New York, even in places where there has been little or no job growth. This is because labor markets are tightening as a result of changes in both labor demand and labor supply. In upstate New York, a decline in the labor force has reduced the pool of available workers.

Posted at 10:00 am in Employment, Labor Market, New York, Regional Analysis | Permalink

Markets & Policy Implementation

Liberty Street Economics

Creditor Recovery in Lehman’s Bankruptcy

How Much Value Was Destroyed by the Lehman Bankruptcy?

Highlights from the Fourth Bi‑annual Global Research Forum on International Macroeconomics and Finance

The Perplexing Co‑Movement of the Dollar and Oil Prices

Coming to Terms with Operational Risk

The Impact of Import Tariffs on U.S. Domestic Prices

Cryptocurrencies, Tariffs, “Too Big to Fail,” and Other Top LSE Posts of 2018

Price Impact of Trades and Limit Orders in the U.S. Treasury Securities Market

Just Released: Interactive R‑star Charts

Just Released: Labor Markets in the Region Are Exceptionally Tight

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