Contagion 1855: How the Crimean War Felled San Francisco’s Largest Banks

2019-02-09T14:50:11+00:00

When policymakers analyze banking crises, they often search for diagnostic clues in the specific environment in which they occurred. This paper analyzes the 1855 failures of the largest banks in Gold Rush San Francisco, arguing that the antecedents of those failures — excessive leverage, interlocking ownership, inadequate segregation of assets, and concentration of risk in non- banking enterprises — were independent of the monetary and economic regime in place at the time. Those antecedents exposed Gold Rush bankers to external risks originating in events in which they had no involvement, and over which they had no control. The external events that felled the largest banks in San Francisco emerged from the Crimean War.

Cannon to right of them,
Cannon to left of them,
Cannon in front of them
Volleyed and thundered

—Alfred, Lord Tennyson,
“The Charge of the Light Brigade”, 1854

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Why the Debt Ceiling Debate Matters

2018-04-04T12:48:43+00:00

US Congressional hardliners have been threatening not to raise the debt limit again.  They may not understand how central US Treasury securities are to the US and global monetary and banking system.  Dr. Tiemann explains the importance of raising the debt ceiling and the catastrophic consequences that could result from a failure by Congress to act in a timely manner.

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Is Bond Market Liquidity Really Falling?

2018-04-04T12:53:43+00:00

In this note, Dr. Tiemann analyzes the assertion that Dodd-Frank financial reform legislation, passed in the aftermath of the financial crisis, has contributed to a decline in the liquidity in the bond market.  Dodd-Frank set out to moderate the risks that banks might take with their balance sheets but Wall Street has tried to argue that the law’s restrictions impair the profitability of bond dealing, resulting in declining liquidity of the bond market and therefore could cause a market disruption.  Dr. Tiemann utilizes the underlying data of bond trading before and after to evaluate Wall Street’s assertion and used the show boxplot to show how bond trading liquidity has increased since Dodd-Frank was implemented.

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