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We consider a dynamic screening model where the agent may go bankrupt due to, for example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever the agent makes a per period loss. This leads to less stringent truth-telling constraints than those considered in the...
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For nearly two years, the two of us have had a running discussion of the costs and benefits of automatic stays in bankruptcy for qualified financial contracts (QFCs) such as derivatives and repurchase agreements, particularly those held by systemically important major dealer banks. Under current...
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I explain the key failure mechanics of large dealer banks, and some policy implications. This is not a review of the Financial crisis of 2007-2009. Systemic risk is considered only in passing. Both the Financial crisis and the systemic importance of large dealer banks are nevertheless obvious...
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