In his budget yesterday (FT's coverage is below), the Chancellor of the Exchequer (click here for the etymology of this title) announced a £12 billion mortgage guarantee scheme. Why is the UK government so keen to stimulate the UK housing market? After all, it was the exuberance in housing markets which was largely to blame for the financial crisis. The mortgage guarantee scheme is aimed at helping borrowers who don't have enough money to put down a deposit on a house. Are these not going to be subprime borrowers of various shade? Click here to read Robert Peston's view on this scheme.
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...