Financial Economics

ASA of Bangladesh recently topped Forbes Magazine's first ever list of the world's best microfinance banks. This was an extraordinary outcome for an organization that had started life in 1978 as a revolutionary movement aiming to bring a peasant-led government to the newly-created and desperately poor South Asian nation of Bangladesh. The book tells the story of how ASA's determined but practical-minded founder and leader, Shafiqual Haque Choudhury, steered his organization through the maze of competing ideas about how best to develop poor countries. The book sets Choudhury's achievement in the context of Bangladesh's chaotic but inspiring postcolonial history and is rich in its understanding and descriptions of how ordinary village and slum dwellers deal with what politicians, international donors, and development experts throw at them. ASA began by trying to foment a peasant-led revolution, but within a few years it became clear that villagers were not responding. Fearing that his donors would stop supporting him, Choudhury shifted ASA to a more conventional NGO role, delivering basic services in health, education, and legal advice and spending donor money on disaster relief. But by 1991 Choudhury became convinced that microfinance would prove the most sustainable way of developing Bangladesh and of making ASA a permanent institution. There then followed a period of rapid growth until by 2008 ASA was serving more than six million poor Bangladeshis with financial services and was readying a massive privately financed for-profit replication of its work in a dozen poor Asia and African countries.

This book offers an analytical perspective on the policy debate on the design and reform of the international financial architecture. It stresses the role played by coordination problems in the origin and management of crises by relating the insights of the new literature on global games to earlier work on currency crises, bank runs, and sovereign debt default. It draws on recent research and policy work to examine the debate on the design of sovereign bankruptcy procedures, the role of the IMF in influencing the actions of creditors and debtors, and the role of private sector involvement in the management of financial crises.

This book follows the flow of economic thinking from ancient times by observing how moral issues impacted economic ideas and social organization. Over the centuries, thinkers such as Aristotle and Thomas Aquinas emphasized what was right and good more than the pursuit of social efficiency. That changed when scientific methods no longer required moral considerations and economics adopted a values-free scientific methodology. A positive-normative dichotomy has served the profession well in many ways, but there have been voices arguing for a more values-oriented approach to the discipline. Now microeconomics is facing many new challenges as the complications of interdependence increase and behavioral, neurobiological, and other interdisciplinary perspectives need to be addressed. The search to understand and explain behavior is pushing the discipline to enlarge its methodology beyond the standard instrumental prediction goals. This complicates analysis as multiple motivations for behavior are considered and interest in the formation of utility functions begins to creep into economic consciousness again. Moral reflection is relevant as game theory, cooperation models, and theories of trust enter into the discussion. Psychological tendencies and institutional changes involve reference to the moral life as essential for social coordination. The final chapter offers an interdisciplinary framework to incorporate values more directly into economic methods by building on the human passions as discussed by Adam Smith and the behavioral instincts described by Thorstein Veblen. This enlarges the scope of economic actors beyond the homo economicus model without abandoning some of the valuable features of that model.

Mandatory pension systems are a worldwide phenomenon. Many need reform. This book, a summary of a longer book, sets out an extensive but nontechnical explanation of the economics of pension design. The book recognizes the multiple objectives of pension plans—consumption smoothing, insurance, poverty relief, and redistribution. Analysis includes discussion of labor markets, capital markets, risk sharing, and gender and family. This is supplemented by discussion of implementation, and of experiences, both good and bad, in many countries, with particular attention to China and Chile.

This book presents eight essays on financial regulation, focusing on the European context. Essay one examines the concept of market-friendly regulation. Essay two discusses the need for stronger bank licensing principles. Essay three explores the changing attitude towards banking competition. Essay four discusses self-regulation by financial institutions. Essay five explores the increasing links between banking and securities activities. Essay six examines the organisational structure of financial regulatory and supervisory functions. Essays seven and eight discuss the abandonment of the coincidence between the jurisdiction of monetary policy and the jurisdiction of banking supervision, and the important role of central banks in financial stability, respectively.

This book explores how rising pension and healthcare costs, along with workforce aging, are affecting pension and retirement planning around the world. Many middle-aged workers now realize that they will have to work longer than intended, as they begin to recognize that their retirement resources will not be inadequate to finance retirement consumption. Volatile capital markets, rising medical-care costs, and low saving rates make retirement behaviour and policy a moving target. This book explores these themes, touching on a diverse set of issues ranging from employment trends to pension accounting and investment, to retirement system overhaul. It illustrates how employers are actively reformulating the meaning of work and retirement, seeking to encourage more people to work longer than ever before in the face of projected labour shortages. At the same time, public and private trust in traditional pension offerings is rapidly eroding, as companies alter, amend, and terminate their conventional plans in the face of poor investment performance and new methods of pension accounting.

This book posits that retirement security is the central policy concern of our time. A generation of ‘Baby Boomers’ is on the verge of retirement, yet pension systems confront crushing challenges, and governments often appear confused about which direction they should move in. The book addresses the question: ‘What are the new risks and rewards in pensions, and what paths can stakeholders chose to solve these problems?’ In doing so, it explores three aspects of the evolution of risk and reward-sharing in retirement in order to offer guidance to pension fiduciaries, plan participants, and policymakers. First, it focuses on new perspectives for assessing retirement risks and rewards. Second, it evaluates efforts to insure retirement plans. Lastly, it provides several new strategies for managing retirement system risk.

The book describes the developments that caused mutual funds to go from a virtually unknown financial product in the 1920s to the largest financial industry in the world today. It covers the formation of the first mutual funds in the roaring ’20s; how the 1929 stock market crash, a disaster for most financial institutions, spurred the growth of mutual funds; the establishment in 1934, over FDR's objection, of the Securities and Exchange Commission, the federal agency that regulates mutual funds; enactment of the Revenue Act of 1936, the tax law that saved mutual funds from extinction; passage of the Investment Company Act of 1940, the constitution of the mutual fund industry; creation of money market funds, which totally transformed the U.S. financial system; the accidental development of 401(k) plans, which revolutionized the way Americans save for retirement; and the late trading and market timing abuses, the greatest scandal ever in the history of the fund industry. The author was personally involved in developments over the past forty years, and much of the book is a personal narrative regarding the people and events that have shaped the mutual fund industry.

In 1940 few Americans had heard of mutual funds. Today, US mutual funds are the largest financial industry in the world, with over 88 million shareholders and over $11 trillion in assets. This book describes the developments that have produced mutual funds' long history of success. Among these are: the formation of the first mutual funds in the 1920s; how the 1929 stock market crash, a disaster for most financial institutions, spurred the growth of mutual funds; the establishment in 1934, over FDR's objection, of the United States Securities and Exchange Commission, the federal agency that regulates mutual funds; and the enactment of the Revenue Act of 1936, the tax law that saved mutual funds from extinction. In addition the book details the passage of the Investment Company Act of 1940, the “constitution” of the mutual fund industry; the creation in 1972 of money market funds, which totally changed the mutual fund industry and the entire US financial system; the enactment of the Employee Retirement Income Security Act of 1974, which created Individual Retirement Accounts; the accidental development of 401(k) plans, which have revolutionized the way Americans save for retirement; and the 2003 trading abuses, the greatest scandal ever in the history of the mutual fund industry. Many events have never been discussed in detail; others have been discussed in works on other subjects.

The ruling class plays a major role in our societies. It makes possible what would otherwise be infeasible, by shifting out those constraints that stand in the way of long-term growth. Historically, economists devoted far less attention than sociologists to the study of ruling classes. Using the theoretical tools of economists, this book provides an understanding of what drives the formation of a ruling class, and the relationship between politics and business firms. Focusing on Italy, it uses labour economics to analyse the selection of the ruling class, the labour market of politicians, the allocation of managers' time, and their incentives, remunerations, and career paths. It draws on contributions from two teams of leading scholars and on research undertaken by the Fondazione Rodolfo DeBenedetti. Part I focuses on the labour market of politicians. It uses detailed information on personal characteristics, incomes, performance in office, and career paths (before, as well as after, the Parliamentary mandate) of all the politicians elected to the Italian Lower Chamber (Camera) between 1948 and 2008. Part II is devoted to the managerial class. It includes cross-country surveys of managers across a sample of European countries, surveys carried out in cooperation with the largest union of managers in the service sector, social security records, and, for the first time, surveys on the allocation of time of top executives.