The Fed Bailout of CMBS: Toxic Asset Subsidies & the Early Redemption of TALF Loans | MEA Conference

Nonrecourse loans can lead to option payoffs for the borrower. The securitzation market got a boost from the Federal Reserve during the financial crisis. Dr. Linus Wilson, Associate Professor of Finance at the University of Louisiana at Lafayette presents and reads his working paper:

 

“Toxic Asset Subsidies and the Early Redemption of TALF Loans”
at
https://ssrn.com/abstract=1742640

Abstract
This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans.  It finds that subsidy rates on these loans were on average 33.9 percent at origination.  In contrast, by the 3rd quarter of the 2010, there was on average no subsidy in TALF loans.  The theoretical model is used to predict the early redemption of Term Asset-Backed Securities Loan Facility (TALF) loans used to purchase commercial mortgage backed securities (CMBS).  The predictions of the model are strongly supported by the data.  In addition, this paper looks at the determinants of early redemption.  CMBS originated inside the peak bubble years of 2005-2007 were much less likely to be redeemed early.  The giant investment managers, Blackrock and PIMCO, were much more likely to redeem their TALF loans early than smaller investment managers.

Journal of Economic Literature Codes:  G12, G13, G18, G21, G28, G38

Keywords:  alternative investments; bailout; banking; Blackrock; call options; commercial mortgage backed securities; CMBS; CDOs; Dodd-Frank Financial Reform Law of 2010; emergency lending; EESA; Emergency Economic Stabilization Act; lending; Legacy Securities Program; mortgages; PIMCO; Public-Private Investment Partnership; PPIP; put options; TALF; Term Asset-Backed Securities Loan; TARP; Troubled Asset Relief Program; toxic assets

Come and see Dr. Wilson present the paper at the 2018 Midwest Economics Association meeting on March 24, 2018.

The MEA conference in at the Hilton Orrington in Evanston, Illinois.

http://mea.grinnell.edu/conferences

This paper was read on the Finance Professor Podcast episode 8 which is at

https://fnan.podbean.com/
https://itunes.apple.com/us/podcast/the-finance-professor-podcast/id1226939293?mt=2
https://www.stitcher.com/podcast/linus-wilson/the-finance-professor-podcast

Music by http://www.BenSound.com

This paper does not represent the views of the University of Louisiana at Lafayette or the Midwest Economics Association.

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Will “rock star” academics’ video lectures replace live professors?

Distance learning begs the question of whether technology will lead to a great consolidation of the academic ranks as recorded lectures of “rock star” academics displace your local in-person lecturer. My little experiment leads me to think that there is no replacing an in-person lecture. If students’ learning is a priority, make them come to class and don’t assume a video lecture is a substitute.

Class cancellations in the spring 2018 term due to an ice storm meant that one more lecture of my international finance class was cancelled in section 2 versus section 1. This meant that I could record the section 1 lecture on Thursday and post a recording of it before the next Tuesday’s class in section 2. My university allows up to 49% of lectures in non-distance learning classes to be virtual. Up until this time, I had conducted 100% of my lectures as live with no video recording at the University of Louisiana at Lafayette.

I told my section 2 class that they were required to view the video all the way through and take notes from a link that I posted on the class-management, Moodle page only accessible to students. The video was made unlisted so that it did not show up in search and suggested features in YouTube. That link was clicked 31 times out of a class of 35 students. Some students likely clicked the link multiple times, and several did not bother to click it at all. The average watch time on the 75 minute video was 10 minutes or about 13%. Compare that to a typical lecture leading up to the virtual where 31 out of 35 students attend and are in their seats for over 95% of the lecture. Obviously, the in-person lecture is going to lead to better learning outcomes.

It did seem to on the test. I curved the video lecture’s test based on their lower scores so the curved results in the video lecture section and the regular lecture sections curved scores are similar. The raw, uncurved average in the video lecture section was 66% and was 74%. The raw medians in the video and in-person lecture section was 69% and 75% respectively. There were 5 lectures covering the test in question. For the video section, 4-out-of-5 lectures were in-person lectures. For the other section, 5-out-of-5 lectures were in-person. There is every indication that, if I held more video lectures, the video section’s scores would have been abysmal. I do give different test questions in each section and some of the variation in test scores could reflect the different questions, but the question topics were almost identical. The question topics should be entirely predictable to a student taking notes in the lectures.

I used 3 cameras and edited the video with screen shots of the lecture slides at various points in addition to my working out examples on the board. Nevertheless, I did not edit our the normal pauses mid-lecture that an in-person student would have sat through. For fun, I have an entertainment oriented channel with over 4,000 subscribers on YouTube. Its typically, 15 minute videos with a very focused niche audience only average 50% audience retention. Longer videos typically have lower percentages viewed.

50% audience retention will lead to failing grades in education. That is why in-person lectures and in-person education will dominate video lectures. Since academic “rock stars” can record videos but cannot appear in-person to thousands of sections across thousands of universities, the local professor or lecturer will be much more effective in educating students than on-demand, video education.

Social pressure keeps most students from walking out mid-lecture. There is no such social pressure when it comes to watching a video. Other parts of the live experience may also facilitate learning in ways we don’t understand. There is no way that every lecture can be as entertaining multi-million dollar budget Hollywood blockbuster. That is why video education will fail, and in-person education is here to stay.

Ep. 8 of the Finance Professor Podcast: The Fed Boosts CMBS Markets “Toxic Asset Subsidies and the Early Redemption of TALF Loans” by Linus Wilson

In this episode you will hear how nonrecourse loans can lead to option payoffs for the borrower. The securitzation market got a boost from the Federal Reserve during the financial crisis. Dr. Linus Wilson, Associate Professor of Finance at the University of Louisiana at Lafayette reads his working paper

Toxic Asset Subsidies and the Early Redemption of TALF Loans

https://ssrn.com/abstract=1742640

Abstract

This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans.  It finds that subsidy rates on these loans were on average 33.9 percent at origination.  In contrast, by the 3rd quarter of the 2010, there was on average no subsidy in TALF loans.  The theoretical model is used to predict the early redemption of Term Asset-Backed Securities Loan Facility (TALF) loans used to purchase commercial mortgage backed securities (CMBS).  The predictions of the model are strongly supported by the data.  In addition, this paper looks at the determinants of early redemption.  CMBS originated inside the peak bubble years of 2005-2007 were much less likely to be redeemed early.  The giant investment managers, Blackrock and PIMCO, were much more likely to redeem their TALF loans early than smaller investment managers.

Journal of Economic Literature Codes:  G12, G13, G18, G21, G28, G38

Keywords:  alternative investments; bailout; banking; Blackrock; call options; commercial mortgage backed securities; CMBS; CDOs; Dodd-Frank Financial Reform Law of 2010; emergency lending; EESA; Emergency Economic Stabilization Act; lending; Legacy Securities Program; mortgages; PIMCO; Public-Private Investment Partnership; PPIP; put options; TALF; Term Asset-Backed Securities Loan; TARP; Troubled Asset Relief Program; toxic assets

Come and see Dr. Wilson present the paper at the 2018 Midwest Economics Association meeting on March 24, 2018, at 1:15PM in session 7E Credit.

The MEA conference in at the Hilton Orrington in Evanston, Illinois.

http://mea.grinnell.edu/conferences

Check out the video presentation of the episode 6 podcast guest:

on the Linus Wilson YouTube channel:

https://www.youtube.com/channel/UCYY02-A8UQ6307k8PPDj5hQ

Professor Andrew Metrick is the Michael H. Jordan Professor of Finance and Management at the Yale School of Management. He is the director, Yale Program on Financial Stability and the Faculty Director, Masters in Systemic Risk program at Yale.

Like the Finance Professor Podcast’s Facebook page to see any Facebook live versions of MEA conference presentations.

https://www.facebook.com/FinanceProfessorOrg/

 

Secrets of Channel Authority in the YouTube Algorithm Revealed

You will unlock the secret of how CHANNEL AUTHORITY is defined in the YouTube Search and Discovery Algorithm in this video. Using official YouTube sources, Linus Wilson speculates that YouTube looks at watch time (the last 28 and 365 days) and subscribers to determine channel authority and how many people see a video in the first 24 hour or week. The YouTube Creator academy defined channel authority as w

Small YouTubers have been dealt a death blow by the January 16, 2018, announcement that they will need at least 1,000 subscribers and 4,000 hours of watch time before they will ever see a dime in AdSense revenue. This is a HUGE change to the YouTube Partner Program (YPP). Most creators never reach 1,000 subscribers. Thus, most will never see ads again after the new policy comes into effect on February 20, 2018. My study of over 400 sailing vloggers found most of these active video creators never broke 1,000 subscribers.
See my video about my study entitled:

“How to Make $ on Patreon Like Sailing LaVagabonde & SV Delos: Tips, Tricks, Facts, and Advice”

My academic study with all the facts is at
https://ssrn.com/abstract=2919840

It is called:

“A Little Bit of Money Goes a Long Way: Crowdfunding on Patreon by YouTube Sailing Channels”
21 Pages Posted: 21 Feb 2017
Linus Wilson
University of Louisiana at Lafayette – College of Business Administration

Date Written: February 17, 2017

Abstract
This study finds that YouTube channels crowdfunding on Patreon have more frequent video creation. The median YouTube channel that crowdfunded on Patreon produced a video every 7.5 days compared to 105 days for the median comparable channel that did not link to Patreon. Crowdfunders have more views per video, are more likely to link to their Facebook pages, and uploaded videos more frequently. While two channels in the sample, each earned over $150,000 in 2016 from Patreon, the typical crowdfunding sailing channel earned $73 per video, per month, or creation. It appears that a little bit of money was associated with a big increase in new video production.

While most folks don’t make more than $100 getting to their first 1,000 subscribers 240,000 minutes of watch time is only achievable for low 1,000 subscriber channels that are active. Less active small channels will be kicked out of the program. Linus Wilson not only discusses the big change to YouTube monetization he reads the two blogs at the end of the video.

The YouTube blogs are:
https://youtube-creators.googleblog.com/2018/01/additional-changes-to-youtube-partner.html

Creator Blog
Additional Changes to the YouTube Partner Program (YPP) to Better Protect Creators
Tuesday, January 16, 2018
by Neal Mohan, Chief Product Officer and Robert Kyncl, Chief Business Officer

and

“A New Approach to YouTube Monetization”
Tuesday, January 16, 2018
by Paul Muret, VP, Display, Video & Analytics

https://adwords.googleblog.com/2018/01/a-new-approach-to-youtube-monetization.html

These changes make the April 2017 requirement of 10,000 views to be a new AdSense partner no longer in force. That was announced in the blog below:

https://youtube-creators.googleblog.com/2017/04/introducing-expanded-youtube-partner.html

Ep. 7: The Federal Reserve’s $700 Billion Commercial Paper Bailout with Linus Wilson on the Finance Professor Podcast

Merry X-mas everybody! Linus Wilson reads his joint work with Wendy Yan Wu of Wilfrid Laurier University and updates the plans for the 2018 for the The Finance Professor Podcast.

 

Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed?

32 Pages Posted: 17 Aug 2011 Last revised: 24 Aug 2011

Linus Wilson

University of Louisiana at Lafayette – College of Business Administration

Yan Wendy Wu

Wilfrid Laurier University

Date Written: August 22, 2011

Abstract

The Commercial Paper Funding Facility (CPFF) bought commercial paper from highly-rated issuers of U.S. dollar commercial paper during the financial crisis of 2008 to 2009. This is the only study to analyze the characteristics of firms selected for this Federal Reserve program. CPFF participants and non-participants differed little in terms of profitability, solvency, or liquidity ratios. Nevertheless, CPFF participants were significantly more likely to come from the financial sector, to pose greater systemic risks, and to have received funds from the Troubled Asset Relief Program (TARP) bailout. The baseline predicted probability of participation in the CPFF jumps from 37.2 percent to 65.9 percent if the commercial paper issuer participated in the TARP bailout.

 

Keywords: ABCP, Asset Backed Commercial Paper, bailout, banks, Capital Purchase Program (CPP), commercial paper, Commercial Paper Funding Facility (CPFF), emergency lending, Federal Reserve, multinational firms, section 13(3), Troubled Asset Relief Program (TARP), U.S. Treasury, unsecured commercial paper

JEL Classification: G01, G18, G2, G28

Wilson, Linus and Wu, Yan Wendy, Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed? (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1911454 or http://dx.doi.org/10.2139/ssrn.1911454

 

The show blog is at

https://financeprofessorpodcast.wordpress.com/

Like us on facebook at

https://www.facebook.com/FinanceProfessorOrg/

See my CV and sign up for our free newsletter at

http://www.financeprofessor.org

 

 

Ep. 6: Andrew Metrick Presents “Managing and Preventing Financial Crises” at the 2017 Financial Management (FMA) Meetings in Boston on the Finance Professor Podcast

Professor Andrew Metrick is the Michael H. Jordan Professor of Finance and Management at the Yale School of Management. He is the director, Yale Program on Financial Stability and the Faculty Director, Masters in Systemic Risk program at Yale. Professor Metrick outlines the responses to the 2008 financial crises in the USA and abroad and speaks about the tension between regulation and shadow banking.

The YouTube version of this talk is on the Linus Wilson channel at

https://www.youtube.com/watch?v=ZyjqU_vEVHs&t=220s

Professor Metrick was an assistant professor in economics at Harvard University and was an assistant and associate professor of finance at the Wharton School of Business at the University of Pennsylvania. He also served as a senior economist and the cheif economist on President Obama’s Council of Economic Advisers while the administration worked on the Dodd–Frank Wall Street Reform and Consumer Protection Act and tried to manage the hugely unpopular bailout of the financial sector, the Troubled Asset Relief Program (TARP). The latter bailout turned a modest profit and many believe it helped to stabilize the financial system.

The Finance Professor Podcast’s facebook page is 

https://www.facebook.com/FinanceProfessorOrg/

Subscriber to the YouTube channel at

https://www.youtube.com/channel/UCYY02-A8UQ6307k8PPDj5hQ?sub_confirmation=1

Check out Dr. Metrick’s CV at
http://faculty.som.yale.edu/andrewmetrick/documents/cv.pdf

The Financial Management Association 2017 program from its Boston meeting is at
http://fmaconferences.org/Boston/BostonProgram.htm


This was session 214 at the Marriot Copley Place.
#FMABoston2017
www.facebook.com/FMA.org

The next meeting is in San Diego.

Dr. Linus Wilson is an associate professor of finance at the University of Louisiana at Lafayette. He has published extensively on the TARP bailout and has studied the bailouts orchestrated by the U.S. Federal Reserve and the FDIC during the financial crisis of 2008. You can see his research at
http://www.linuswilson.com
www.financeprofessor.org

I mentioned the following papers whose working paper versions are at 

Wilson, Linus, Debt Overhang and Bank Bailouts (September 12, 2009). Available at SSRN: https://ssrn.com/abstract=1336288 or http://dx.doi.org/10.2139/ssrn.1336288

Wilson, Linus and Wu, Yan Wendy, Common (Stock) Sense about Risk-Shifting and Bank Bailouts (January 1, 2010). Financial Markets and Portfolio Management, Vol. 24, No. 1, pp. 3-29, 2010. Available at SSRN: https://ssrn.com/abstract=1321666

Wilson, Linus, Broken Bucks: Money Funds that Took Taxpayer Guarantees in 2008 (August 28, 2015). Available at SSRN: https://ssrn.com/abstract=2195358 or http://dx.doi.org/10.2139/ssrn.2195358

Wilson, Linus and Wu, Yan Wendy, ‘Escaping TARP’ (September 21, 2010). Journal of Financial Stability, Vol. 8, No. 1, 2012. Available at SSRN: https://ssrn.com/abstract=1619689 or http://dx.doi.org/10.2139/ssrn.1619689

Wilson, Linus and Wu, Yan Wendy, Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed? (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1911454 or http://dx.doi.org/10.2139/ssrn.1911454

Wilson, Linus, Toxic Asset Subsidies and the Early Redemption of TALF Loans (August 17, 2011). Available at SSRN: https://ssrn.com/abstract=1742640 or http://dx.doi.org/10.2139/ssrn.1742640

Look at Linus Wilson’s CV for the full citation of published papers.

http://nebula.wsimg.com/8f47995b8c3f7bf45dc9bbf4543b4fc9?AccessKeyId=9D13B676921FF385D2F1&disposition=0&alloworigin=1

Professor Linus Wilson is the host of the Finance Professor Podcast at
https://www.stitcher.com/podcast/linus-wilson/the-finance-professor-podcast

https://itunes.apple.com/us/podcast/the-finance-professor-podcast/id1226939293?mt=2

Dr. Jeffry L Coles a Professor of Finance at the David Eccles School of Business at the University of Utah and served as the Vice President of the 2017 Annual Meeting Program.

https://faculty.utah.edu/u0982804-JEFFREY_L._COLES/research/index.hml

Ep. 5: Discrete Portfolio Adjustment with Fixed Transaction Costs on The Finance Professor Podcast

Professor Linus Wilson reads his paper “Discrete Portfolio Adjustment with Fixed Transaction Costs”

Wilson, Linus, Discrete Portfolio Adjustment with Fixed Transaction Costs (January 3, 2016). Available at SSRN: https://ssrn.com/abstract=2406021 or http://dx.doi.org/10.2139/ssrn.2406021

Abstract

This paper presents a closed form solution to the portfolio adjustment problem in discrete time when the investor faces fixed transaction costs. This transaction cost model assumes a mean-variance investor who wants to adjust her holdings of a risky and risk-free asset. It is shown how this model can be calibrated to be used with a variety of risk models such as life cycle portfolio weights and value at risk (VaR) models. The decision problem can easily be inputted into and calculated in Excel.

Keywords: adjustment costs, alpha models, brokerage commissions, fixed costs, lifecycle funds, portfolio selection, portfolio theory, risk management, transaction costs, Value at Risk (VaR)

JEL Classification: G11

Click the orange download button to get the full paper on SSRN.