Professor Ian Bremmer Explains the Evolution and Costs of Cyber Warfare

The following is an excerpt from an recent op-ed by Professor Ian Bremmer published in TIME:

ianbremmerHackers aren’t only in the game to damage governments—sometimes good old-fashioned robbery is enough. The FBI had to notify over 3,000 U.S. companies that they were victims of cyber security breaches in 2013. Victims ranged from small banks to major defense contractors to mega retailers. An astounding 7 percent of U.S. organizations lost $1 million or more due to cyber crime in 2013; 19 percent of U.S. entities have claimed losses between $50,000 and $1 million over the same span. Hacking costs the U.S. some $300 billion per year according to some estimates. Worldwide that figure is closer to $445 billion, or a full 1 percent of global income. The research firm Gartner projects that the world will spend $79.9 billion on information security in 2015, with the figure rising to $101 billion in 2018—and that still won’t be enough.

Read the full article titles “These 5 Facts Explain the Threat of Cyber Warfare” here.

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China’s International Growth Agenda by Prof. Michael Spence

The following is an excerpt from a recent Project Syndicate article by NYU Stern Professor and Nobel laureate Michael Spence:

mspenceFor most of the past 35 years, China’s policymakers have set their focus on the domestic economy, with reforms designed to allow the market to provide efficiency and accurate price signals. Though they had to be increasingly aware of their country’s growing impact on the global economy, they had no strategy to ensure that China’s neighbors gained from its economic transformation.

But now China does have such a strategy, or at least is rapidly developing one. Moreover, it extends well beyond Asia, embracing Eastern Europe and the east coast of Africa.

A key element of China’s strategy is the recently established Asian Infrastructure Investment Bank (AIIB), and to some extent the BRICS’ New Development Bank, established last year by Brazil, Russia, India, China, and South Africa. Both banks are obvious alternatives – and so rivals – to the Western-dominated World Bank and International Monetary Fund.

Read the full article published in Project Syndicate.

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Banks’ Financial Reporting and Financial System Stability by Prof. Viral Acharya

Viral Acharya, NYU SternThe use of accounting measures and disclosures in bank contracts and in regulation suggests that the quality of banks’ financial reporting is central to the efficacy of market discipline and non-market mechanisms in limiting bank debt and risk overhang in good economic times, as well as mitigating the consequences of risk overhang that could compromise the stability of the financial system in downturns. Professors Viral Acharya and Stephen Ryan examine how research on banks’ financial reporting, informed by the financial economics literature on banking, can generate insights about how to enhance the stability of the financial system. The researchers begin with a foundational discussion on how aspects of banks’ accounting for financial instruments, opacity and disclosures may affect stability. They then develop a simple model of fair value and amortized cost accounting with regulatory forbearance that illustrates the complex interactions that can result among banks’ accounting treatments, investors’ willingness to fund banks’ assets, the incentives of banks and investors to gamble, and regulators’ policy of bailing out banks. Next, the researchers evaluate representative papers in the existing empirical literature on banks’ financial reporting and stability, pointing out the research design issues that empirical accounting researchers need to confront to develop well-specified tests capable of generating reliably interpretable findings. The paper concludes with considerations for accounting standard setters and financial system policymakers. Professors Acharya and Ryan presented this paper at the 50th annual Journal of Accounting Research conference at Chicago Booth on May 8.

Read the full paper here.

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The Liquidity Time Bomb by Prof. Nouriel Roubini

The following is an excerpt from Project Syndicate:

nroubiniA paradox has emerged in the financial markets of the advanced economies since the 2008 global financial crisis. Unconventional monetary policies have created a massive overhang of liquidity. But a series of recent shocks suggests that macro liquidity has become linked with severe market illiquidity.

Policy interest rates are near zero (and sometimes below it) in most advanced economies, and the monetary base (money created by central banks in the form of cash and liquid commercial-bank reserves) has soared – doubling, tripling, and, in the United States, quadrupling relative to the pre-crisis period. This has kept short- and long-term interest rates low (and even negative in some cases, such as Europe and Japan), reduced the volatility of bond markets, and lifted many asset prices (including equities, real estate, and fixed-income private- and public-sector bonds).

And yet investors have reason to be concerned. Their fears started with the “flash crash” of May 2010, when, in a matter of 30 minutes, major US stock indices fell by almost 10%, before recovering rapidly. Then came the “taper tantrum” in the spring of 2013, when US long-term interest rates shot up by 100 basis points after then-Fed Chairman Ben Bernanke hinted at an end to the Fed’s monthly purchases of long-term securities.

Likewise, in October 2014, US Treasury yields plummeted by almost 40 basis points in minutes, which statisticians argue should occur only once in three billion years. The latest episode came just last month, when, in the space of a few days, ten-year German bond yields went from five basis points to almost 80.

Read the full article on Project Syndicate here.

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3 Questions for NYU Stern Prof. David Yermack on Digital Currencies

dyermackDavid Yermack is the Albert Fingerhut Professor of Finance and Business Transformation at the NYU Stern School of Business and is the Director of the NYU Pollack Center for Law and Business. He is co-instructor for the NYU course on Bitcoin and Electronic Currencies. His essay “Is Bitcoin a Real Currency?” was published in The Handbook of Digital Currencies (Elsevier, 2015).

Prof. Yermack will be teaching a 2 day intro to digital currency course at NYU Stern on Nov 9-10, 2015. Learn more and apply today!

1.  How do you think digital currency is disrupting monetary payment systems?

“Companies in the payment processing industry are worth more than $500 billion, led by the big credit card companies such as Visa, MasterCard, and American Express.  The large commercial banks also have significant businesses in international money transfers, and there is a further industry of hardware and software companies such as ATM manufacturers.  All of these firms are vulnerable to the new technology underlying digital currency, which brings major innovations to the way that money is tracked, transferred, and secured.  You are starting to see the major players try to co-opt this technology before it undermines their business models.”

2.  What do you predict is the future of Bitcoin?

“There are about 100,000 Bitcoin transactions every day, and the growth rate is fast.  However, the Bitcoin network has too many bottlenecks and delays to handle worldwide commerce on a large scale, and there is no one who has the authority or responsibility to upgrade it.  So I think Bitcoin is likely to be displaced by successor digital currencies that build on its more clever aspects.  However, it’s not clear that money on a large scale will ever move beyond the control of national governments and be issued by autonomous computer networks, which is what Bitcoin’s creator envisioned.  There are too many macroeconomic problems that could occur if a government could not control its own money supply.”

3.  What should business leaders to be thinking about in terms of Bitcoin?

“Bitcoin relies on a radical change in information technology known as the “blockchain,” and this can be adapted to handle many business transactions involving property registration, self-executing contracts, derivative securities, and so forth.  A lot of organizations are doing research on blockchain applications, and that seems to be where the opportunities lie.”

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Prof. Nouriel Roubini: The Dollar Joins the Currency Wars

nroubiniIn a recent opinion editorial on Project Syndicate, Professor Nouriel Roubini argued that governments shouldn’t use currency wars to boost economic growth. While many central banks around the world have eased monetary policies to jumpstart growth, the US dollar has simultaneously strengthened against both advanced-country commodity exporters and fragile emerging markets.

However, in his op-ed, Professor Roubini warns of the dangers of the US joining the “currency war” to prevent the dollar’s appreciation:

…the US has effectively joined the “currency war” to prevent further dollar appreciation. Fed officials have started to speak explicitly about the dollar as a factor that affects net exports, inflation, and growth.‎ And the US authorities have become increasingly critical of Germany and the eurozone for adopting policies that weaken the euro while avoiding those – for example, temporary fiscal stimulus and faster wage growth – that boost domestic demand.

…Currency frictions can lead eventually to trade frictions, and currency wars can lead to trade wars. And that could spell trouble for the US as it tries to conclude the mega-regional Trans-Pacific Partnership. Uncertainty about whether the Obama administration can marshal enough votes in Congress to ratify the TPP has now been compounded by proposed legislation that would impose tariff duties on countries that engage in “currency manipulation.” If such a link between trade and currency policy were forced into the TPP, the Asian participants would refuse to join.

To read the entire opinion article on Project Syndicate, please click here.

Professor Roubini’s op ed was also covered by The GuardianLivemintMarketWatch and The Wall Street Journal.

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MSRM Professors to Teach in Upcoming Contemporary Finance Executive Short Course

PGB 190x190In an upcoming five day short course beginning June 1st 2015, MSRM Professors Ingo Walter, Edward Altman, Holger Mueller, Viral Acharya, and Stijn Van Nieuwerburgh will join NYU Stern Professors Aswath Damodaran, David Yermack and Baruch Lev to teach Contemporary Finance: Key Topics for Senior Executives and Board Members. Learn more about the course here.

Regulatory and market developments over the past decade have materially raised the bar on the degree of financial expertise demanded of senior managers and board members. Support of this belief can be found in McKinsey & Company’s recently released interview of ADP’s Jan Siegmund on broader expectations of the finance chief’s role.

Contemporary Finance: Key Topics for Senior Executives and Board Members provides an intensive five-day overview of modern Finance at a level that today must be mastered by senior executives and board members of financial and nonfinancial firms.

In this short course, participants will:

  • Acquire and/or update skills in modern financial diagnostics and their application
  • Understand current dynamics of global financial markets and their strategic impact
  • Gain insight into structured finance and its role in creating and destroying value
  • Learn about the new regulatory environment, and how it is likely to evolve going forward
  • Engage in new thinking and evidence on Finance in corporate restructurings
  • Assess new insights in corporate valuation, failure prediction and the cost of capital

If you are interested in attending Contemporary Finance: Key Topics for Senior Executives and Board Members from June 1 – 5, 2015 (Monday – Friday), there are still a limited number of seats available. Applications are still being accepted and should be submitted here.

Please email ExecEd@stern.nyu.edu with any questions. We hope to see you there!

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Prof. Robert Engle Discusses Recent “Flash Crash” Arrest

rengleIn a recent article on Reuters, Professor Robert Engle shared his perspective on the arrest of Navinder Singh Sarao, a UK trader who is though to be responsible for the 2010 “flash crash.” In this crash on May 6th, 2010, almost $1 trillion was temporarily wiped out from U.S. stock markets in minutes.

However, the five years it took to make an arrest shows the difficulty of finding wrongdoing in such fast-paced markets, and suggests that regulators may not be able to detect or prevent future crashes.

“This will raise concerns about the stability of financial markets,” said Robert Engle, finance professor at New York University’s Stern School of Business. “That this trader could put the markets in a tailspin with actions that are hard to detect is bad news.”

To read the entire article on Reuters, please click here.

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Prof. Ian Bremmer Discusses an Opened Cuba

ianbremmerIn a recent opinion editorial on Time, Global Research Professor Ian Bremmer discussed the economic benefits of opening Cuba to international business. Now that Cuba has been removed from the list of nations that sponsor terrorism, several industries will have more advantages in the opened country.

To begin, Prof. Bremmer explained how better relations with Cuba would increase permitted remittance flows. He also discussed an increase in flights and tourism in the country, as Cuba would be a convenient vacation spot for Americans.

Prof. Bremmer also discussed the advantages of opening Cuba in the telecommunications industry:

Only one in ten Cubans regularly use mobile phones and only one in twenty have uncensored access to the Internet. Even state-restricted Internet penetration currently stands at just 23.2%. The telecom infrastructure is so underdeveloped that an hour of regulated Internet connectivity can cost up to 20% of the average Cuban’s monthly salary. There’s serious demand for the major infrastructure investments needed to improve these numbers.

To read more on the economic benefits of an opened Cuba, please click here.

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Class of 2015 Abu Dhabi Module Featured on NYU Stern Homepage

Discover-Possible_Abu-DhabiNYU recently featured the MSRM Class of 2015′s Global and Sovereign Risk Module in Abu Dhabi on the NYU Stern homepage! The feature, as part of a series titled Tales in Possible, discussed the courses, global location, and guest speakers of the module.

John Heywood, a current student in the Class of 2015, also contributed his thoughts on the module in the Middle East:

“Studying in Abu Dhabi was truly a life changing experience for me,” described MSRM student John Heywood, managing director and board member of Rose Rock Group in California. “Together with my classmates, it was a great privilege to be educated by global thought leaders at NYU’s newest world-class campus combined with a unique opportunity to learn about a new country with its rich culture, history and economic growth.”

To read the entire feature, click here.

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