Deborah Lucas, the Distinguished Professor of Finance at MIT’s Sloan School of Management, and the Director of the MIT Golub Center for Finance and Policy, will discuss the 10-year anniversary of the financial crisis during an #MITSloanExperts Twitter chat on October 30 at 12 p.m. EDT.
As the 10-year anniversary of the great financial crisis approaches, Lucas will focus on answering what have we learned and whether we have made enough progress to prevent a repeat of something similar. Lucas’ recent research has focused on measuring and accounting for the costs and risks of government financial obligations. Her academic publications cover a wide range of topics including the effect of idiosyncratic risk on asset prices and portfolio choice, dynamic models of corporate finance, financial institutions, monetary economics, and valuation of government guarantees. An expert on federal credit programs, she has testified before Congress on budgeting for Fannie Mae and Freddie Mac, student loans, and on strategically important financial institutions.
The host of the chat will be Amy Resnick, editor of Pensions & Investments. Resnick will ask Lucas questions about the future of financial regulation and housing market finance reform, as well as ideas for fostering stronger ties between the regulatory and the academic communities.
To join the chat, be on Twitter on October 30 at 12 p.m. ET and follow the hashtag #MITSloanExperts. Questions can be submitted in advance or in real-time, using #MITSloanExperts.
When a bank considers a loan, it looks at the borrower’s income, assets, credit history, and plans for the money. On microloan websites, lenders have one other way to evaluate a borrower’s creditworthiness. They can observe the behavior of other lenders.
With a colleague, Peng Liu of Cornell University, I have been studying Prosper.com, the largest of the microlending sites. On Prosper, lending is transparent. Borrowers make requests in public postings and typically rely on multiple lenders. Prosper assigns credit ratings to borrowers, and friends of borrowers can post endorsements. Once the process is under way, lenders can see how other lenders respond to the listing.
We analyzed over 2 ½ years of Prosper data to determine the dynamics of lender behavior. We thought we might see what is known as “irrational herding,” or mimicking. If irrational herding is at work, then a listing that received a strong initial response would attract more and more lenders. As we sifted through the data, we found no evidence this was happening.
In 2009 when my colleagues at the National Bureau of Economic Research and I began planning a conference for a project we’re running on the global financial crisis, we were concerned that the material would no longer be timely when the symposium actually occurred. We needn’t have worried.
I’ve just returned from Washington, DC, where our symposium was held, and again financial crises were the topic of the day. Three years after cracks in the subprime mortgage market erupted into the most severe and synchronized global financial crisis and recession since the Great Depression, the world economy is once more in dangerous territory. What began as a singular sovereign debt problem in Greece has spread to the rest of Europe, and now threatens to become a second act to the first financial crisis. How did we get here? And how can we keep it from happening again?