Safe Collateral, Arm's-Length Credit: Evidence from the Commercial Real Estate Mortgage Market *

Abstract When collateral is safe, there are fewer opportunities for lenders to suffer economic losses. We develop a model to show how risky and safe collateral naturally pair with different types of lenders according to how informed the lenders are in states where borrowers are in financial distress. Our application is to the commercial real estate mortgage market where we compare loans funded by commercial mortgage-backed securities (CMBS) to bank loans. We model CMBS investors as lower cost providers of funding, but less informed, and vice-versa for banks. This leads to a separating equilibrium where only safe collateral is funded by CMBS and risky collateral is funded by bank lenders. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment, where suddenly collateral usually funded with CMBS were instead financed with bank loans. Our results show that loans with CMBS-like qualities that were "counterfactually" funded by banks were less likely to default or be renegotiated. We conclude that the securitization channel in this market, when available, funds safer collateral

Electro-kinetic technology as a low-cost method for dewatering food by-product

Increasing volumes of food waste, intense environmental awareness, and stringent legislation have imposed increased demands upon conventional food waste management. Food byproducts that were once considered to be without value are now being utilized as reusable materials, fuels, and energy in order to reduce waste. One major barrier to the valorization of food by-products is their high moisture content. This has brought about the necessity of dewatering food waste for any potential re-use for certain disposal options. A laboratory system for experimentally characterizing electro-kinetic dewatering of food by-products was evaluated. The bench scale system, which is an augmented filter press, was used to investigate the dewatering at constant voltage. Five food by-products (brewer’s spent grain, cauliflower trimmings, mango peel, orange peel, and melon peel) were studied. The results indicated that electro-kinetic dewatering combined with mechanical dewatering can reduce the percentage of moisture from 78% to 71% for brewer’s spent grain, from 77% to 68% for orange peel, from 80% to 73% for mango peel, from 91% to 74% for melon peel, and from 92% to 80% for cauliflower trimmings. The total moisture reduction showed a correlation with electrical conductivity (R2¼0.89). The energy consumption of every sample was evaluated and was found to be up to 60 times more economical compared to thermal processing

Overconfident Investors, Predictable Returns, and Excessive Trading

The last several decades have witnessed a shift away from a fully rational paradigm of financial markets toward one in which investor behavior is influenced by psychological biases. Two principal factors have contributed to this evolution: a body of evidence showing how psychological bias affects the behavior of economic actors; and an accumulation of evidence that is hard to reconcile with fully rational models of security market trading volumes and returns. In particular, asset markets exhibit trading volumes that are high, with individuals and asset managers trading aggressively, even when such trading results in high risk and low net returns. Moreover, asset prices display patterns of predictability that are difficult to reconcile with rational-expectations–based theories of price formation. In this paper, we discuss the role of overconfidence as an explanation for these patterns

A decision logic framework for investigating subsidence problems potentially attributable to gypsum karstification

Karst regions, especially gypsum ones, are prone to subsidence; this can cause severe problems in urban areas. However, this subsidence may have causes other than active karstification. A decision-logic framework designed to tackle this issue is presented. It comprises subsidence description identification of causal mechanisms; construction and evaluation of conceptual models; evaluation and parameterization of fundamental processes and development of a management strategy. This framework is applied to an area of active subsidence in the UK underlain by gypsiferous rocks. In this example, particular attention is paid to the evaluation of gypsum dissolution using four criteria: presence of evaporite; presence of undersaturated water; energy to drive water through the system; and an outlet for the water. Gypsum palaeokarst was identified from borehole evidence and contemporary karstification is indicated by groundwaters containing up to 1800 mg/l of dissolved sulphate. Strontium/sulphate ratios enabled the discrimination of gypsum and non-gypsum-derived sulphate ions and correlation with the hydrostratigraphy. Continuous measurement of groundwater levels showed differential potentiometric surfaces between stratigraphical horizons and indicated a complex pattern of groundwater movement. Integration of these data in a physically and chemically based groundwater model, incorporating a void evolution capability, is suggested