Resaleable debt and systemic risk

Many debt claims, such as bonds, are resaleable, whereas others, such as repos, are not. There was a fivefold increase in repo borrowing before the 2008 crisis. Why? Did banks’ dependence on non-resaleable debt precipitate the crisis? In this paper, we develop a model of bank lending with credit frictions. The key feature of the model is that debt claims are heterogeneous in their resaleability. We find that decreasing credit market frictions leads to an increase in borrowing via non-resaleable debt. Borrowing via non-resaleable debt has a dark side: it causes credit chains to form, since if a bank makes a loan via non-resaleable debt and needs liquidity, it cannot sell the loan but must borrow via a new contract. These credit chains are a source of systemic risk, since one bank’s default harms not only its creditors but also its creditors’ creditors. Overall, our model suggests that reducing credit market frictions may have an adverse effect on the financial system and may even lead to the failures of financial institutions

Restructuring vs. Bankruptcy

We develop a model of a firm in financial distress. Distress can be mitigated by filing for bankruptcy, which is costly, or preempted by restructuring, which is impeded by a collective action problem. We find that bankruptcy and restructuring are complements, not substitutes: Reducing bankruptcy costs facilitates restructuring, rather than crowding it out. And so does making bankruptcy more debtor-friendly, under a condition that seems likely to hold now in the United States. The model gives new perspectives on current relief policies (e.g., subsidized loans to firms in bankruptcy) and on long-standing legal debates (e.g., the efficiency of the absolute priority rule)

Adjunctive rifampicin for Staphylococcus aureus bacteraemia (ARREST): a multicentre, randomised, double-blind, placebo-controlled trial

Background Staphylococcus aureus bacteraemia is a common cause of severe community-acquired and hospital-acquired infection worldwide. We tested the hypothesis that adjunctive rifampicin would reduce bacteriologically confirmed treatment failure or disease recurrence, or death, by enhancing early S aureus killing, sterilising infected foci and blood faster, and reducing risks of dissemination and metastatic infection. Methods In this multicentre, randomised, double-blind, placebo-controlled trial, adults (≥18 years) with S aureus bacteraemia who had received ≤96 h of active antibiotic therapy were recruited from 29 UK hospitals. Patients were randomly assigned (1:1) via a computer-generated sequential randomisation list to receive 2 weeks of adjunctive rifampicin (600 mg or 900 mg per day according to weight, oral or intravenous) versus identical placebo, together with standard antibiotic therapy. Randomisation was stratified by centre. Patients, investigators, and those caring for the patients were masked to group allocation. The primary outcome was time to bacteriologically confirmed treatment failure or disease recurrence, or death (all-cause), from randomisation to 12 weeks, adjudicated by an independent review committee masked to the treatment. Analysis was intention to treat. This trial was registered, number ISRCTN37666216, and is closed to new participants. Findings Between Dec 10, 2012, and Oct 25, 2016, 758 eligible participants were randomly assigned: 370 to rifampicin and 388 to placebo. 485 (64%) participants had community-acquired S aureus infections, and 132 (17%) had nosocomial S aureus infections. 47 (6%) had meticillin-resistant infections. 301 (40%) participants had an initial deep infection focus. Standard antibiotics were given for 29 (IQR 18–45) days; 619 (82%) participants received flucloxacillin. By week 12, 62 (17%) of participants who received rifampicin versus 71 (18%) who received placebo experienced treatment failure or disease recurrence, or died (absolute risk difference −1·4%, 95% CI −7·0 to 4·3; hazard ratio 0·96, 0·68–1·35, p=0·81). From randomisation to 12 weeks, no evidence of differences in serious (p=0·17) or grade 3–4 (p=0·36) adverse events were observed; however, 63 (17%) participants in the rifampicin group versus 39 (10%) in the placebo group had antibiotic or trial drug-modifying adverse events (p=0·004), and 24 (6%) versus six (2%) had drug interactions (p=0·0005). Interpretation Adjunctive rifampicin provided no overall benefit over standard antibiotic therapy in adults with S aureus bacteraemia

Selfduality in geometry : Yang-Mills connections and selfdual lagrangians

The convex theory of selfdual Lagrangians recently developed by Ghoussoub analyses junctionals rooted in an expanse of partial differential equations and finds their minima not variationally but rather by realizing that they assume a prescribed lower bound. This is exactly the circumstance in the selfdual and anti-selfdual Yang-Mills equations that arise in the physical field theory and the study of the geometric and topological structure of four-dimensional manifolds. I expose the Yang-Mills equations, building up the geometry from student-level and subsequently outline the setting of selfdual Lagrangians. The theories are clearly analogous and the last section feints at the exact link.Science, Faculty ofMathematics, Department ofGraduat

The Paradox of Pledgeability

We develop a model in which collateral serves to protect creditors from the claims of competing creditors. We find that borrowers rely most on collateral when cash flow pledgeability is high, because this is when it is easy to take on new debt, diluting existing creditors. Creditors thus require collateral for protection against being diluted. This causes a collateral rat race that results in all borrowing being collateralized. But collateralized borrowing has a cost: it encumbers assets, constraining future borrowing and investment, i.e. there is a collateral overhang. Our results suggest that the absolute priority rule, by which secured creditors are senior to unsecured creditors, may have an adverse effect — it may trigger the collateral rat race

Deadlock on the Board

AbstractWe develop a dynamic model of board decision-making akin to dynamic voting models in the political economy literature. We show a board could retain a policy all directors agree is worse than an available alternative. Thus, directors may retain a CEO they agree is bad—deadlocked boards lead to entrenched CEOs. We explore how to compose boards and appoint directors to mitigate deadlock. We find board diversity and long director tenure can exacerbate deadlock. We rationalize why CEOs and incumbent directors have power to appoint new directors: to avoid deadlock. Our model speaks to short-termism, staggered boards, and proxy access.</jats:p