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BEGIN:VEVENT
UID:a3ec3e1a8df93ecae9dacc61c35e3665
CATEGORIES:Seminars
CREATED:20180305T093429
SUMMARY:Lunch Seminar: Robert Chirinko - University of Illinois
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:What Went Wrong?: The Puerto Rican Debt Crisis and the ‘Treasury Put’\n\n\n
 Abstract:\nWhat went wrong? Why did seemingly rational bond investors conti
 nue to purchase Puerto Rican debt with only a modest risk premium, even tho
 ugh macroeconomic fundamentals were dismal? Investors were either stunningl
 y myopic or Puerto Rican debt was implicitly insured by the U.S. Treasury. 
 The rational investor model rules out the former. This project examines the
  latter hypothesis, labeled the “Treasury Put.” The expectation of a federa
 l bailout was perfectly reasonable given past behavior by the Federal Gover
 nment, especially the prior bailout of the city of New York. Evaluating the
  “Treasury Put” hypothesis with a minimal set of assumptions is possible gi
 ven two fortuitous features – a unique characteristic of Puerto Rican bonds
  and a “seismic shock.” Puerto Rico issued both uninsured and insured gener
 al obligation bonds. These bonds were issued on the same day and, in many c
 ases, with the exact same maturity. These features allow us to compute accu
 rately the risk premia. The second feature was the non-bailout of Detroit i
 n 2013 that effectively extinguished the Treasury Put. Preliminary calculat
 ions indicate that Puerto Rican risk premia were stable before the Detroit 
 bankruptcy and bracketed by the risk premia on Corporate Aaa and Baa bonds,
  but widened dramatically thereafter, thus supporting the existence of a “T
 reasury Put” and a misallocation of capital to Puerto Rico. \n
DTSTAMP:20260406T174300Z
DTSTART:20180508T130000Z
DTEND:20180508T140000Z
SEQUENCE:0
TRANSP:OPAQUE
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