On March 13, the annual Michael Berkowitz Lecture was given by Marco Petta,
from the Bank of Canada. The event is organized and sponsored by the Master of
Financial Economics Program with all details and arrangements wonderfully handled by
Ayesha Alli, The MFE Program Administrative Coordinator. The lecture was attended
by many faculty, alumni and students. Following an introduction by Angelo Melino,
the lecture entitled Reforming OTC Derivatives Markets began.
Marco started with the caveat that the views expressed in the
presentation are his and do not necessarily reflect those of the Bank of Canada's
Governing Council. That disclaimer extends to the discussion of his views presented
here. Marco also noted that this year`s Berkowitz lecture was originally intended
to be delivered by Tim Hodgson who was called away by another commitment that could
not be rescheduled. Tim asked Marco to step in because he now co-leads the
OTC Derivatives Task Force, a position at the Bank that Tim held a short time ago.
A derivative is a contract between two parties that specifies conditions under
which payments are to be made between them. A classic example is forward contracts
on foreign exchange. An individual who has bought goods abroad and has to pay for
them in 90 days can make an agreement to purchase the necessary quantity of foreign
currency in 90 days a a price agreed-upon now. This removes the uncertainty about the price
that will have to be paid. Such contracts are made in order to hedge against potential
losses from future foreign exchange rate movements. Another type of derivative is a
credit default swap in which an individual who stands to lose from default on an asset
can contract with another individual to reimburse him in some form should the default occur,
in return for a fee. In this way, the party buying the swap can hedge against potential
future losses from default on the asset in question.
Derivative contracts also can be used for speculative rather than hedging purposes.
One can purchase a forward contract on foreign exchange, or on the price of a
stock, with a view to gaining from a future change in its price. If the
future price is below the agreed-upon forward price, the party who has
contracted to deliver the item at the forward price can purchase it for less
before delivery. Or, should the future spot price be higher than the agreed-upon
forward price, the party who has agreed to accept delivery can sell
the item in the spot market for more than the forward-determined purchase price
when delivery takes place. And individuals who expect that an entity
will default on its obligations can purchase a credit default swap on
the asset even if they do not own it, and thereby gain from the expected
default if and when it occurs.
The OTC label on derivatives means "over the counter" and refers to a situation
where the parties contract directly with each other and no intermediary is necessarily
involved. Such contracts are are exposed to "counterparty risk," the chance that
the other party to the contract will default on their derivative obligations.
Marco noted that, prior to regulation, the derivative market was huge and had limited
transparency in that many trades occurred between a wide variety
of participants and knowledge of individual trades tended to be restricted
only to the two parties actually involved. Yet each party in many trades was
involved in numerous other trades. As a result, a default on a particular contract
endangers the ability of the non-defaulting party to pay its other contract obligations.
Other market participants, having imperfect information about who has defaulted on whom, would
thereby tend to refuse to trade with a wide variety of participants and the market
would freeze, as occurred in certain OTC derivative markets in 2007 and 2008. Due to the fact that AIG,
for example, had written credit protection involving hundreds of billions of dollars
of complex credit derivatives and had not put up sufficient collateral on those contracts, it
could not make margin calls required by the downgrading of its credit rating. As a
result, because AIG's size and its interconnectedness within the financial system,
the U.S. authorities decided they needed to bail it out at considerable public expense.
A major beneficial form of regulation adopted throughout G20countries, Marco argued, was
the establishment of central clearing houses for standard OTC derivatives. All trades
are cleared with the central counterparty and all resulting contract obligations are with
respect to it. As a result, each trader is liable only for his net obligation and the
clearing house or central counterparty is liable to other parties for any potential future
payments they have contracted to receive. The magnitude of potential future defaults is
thereby reduced and the possibility of market breakdown is significantly reduced.
Clearing houses may choose to require, or be legally bound via government
regulations to impose, initial capital requirements on all parties transacting through it
on the market, thereby reducing their risk of default. In the post-2007 crises in the
U.S., markets that were in this way protected by robust infrastructure enabled participants
and markets to survive collapses like that of Lehman Brothers, leading to a more stable
financial system. Marco argued that default management is a main function of the central
counterparty in OTC derivative markets. It does this by closing out all of a defaulter's
open trades and finding new counterparties to take on the defaulter's obligations.
To the extent that losses will arise from assuming these obligations the central
counterparty will compensate the new counterparties using the initial and subsequent default
margins provided by the defaulter. Lacking such funds, the clearing house authority can
draw on default contributions from surviving members of the clearing house and possibly
impose additional assessments on them.
Marco went on to argue further that because many clearing houses operate internationally,
rather than just in the nation of their origin, four safeguards should be applied to
international clearing houses. Unlike the situation today, where global central counterparties
are overseen exclusively by their home country regulators, there should be cooperative oversight,
with all the relevant countries involved. Second, there should be a provision making emergency
liquidity available to a central counterparty that may need to liquidate collateral to close
out dealer positions. As a first line of defence there must be access to private-sector
liquidity lines. After that, as a last resort, there should be access to central bank emergency
liquidity for all currencies a central counterparty clears. Third, there should be appropriate
recovery and resolution regimes in the event that a central counterparty goes under. In
particular, market disruption associated with ongoing normal legal bankruptcy proceedings when
a central counterparty goes bankrupt must be minimized. Finally, all central counterparties
should provide fair and open access for all market participants---they should not be allowed
to concentrate the risk in a few large players.
Finally, Marco noted, many jurisdictions are focussing on developing the above four safeguards
to ensure that a system of global central counterparties will be acceptable in the long-run.
At the same time many jurisdictions, including Canada, are currently evaluating whether an onshore
central counterparty would improve their ability to mitigate systemic risk. He concluded
his talk by describing on-going Canadian efforts in relation to what needs to be done, and by
answering questions from the audience.
François joined the Department in 1972 after having done his undergraduate
work at the American University of Cairo and obtained his PhD from the University
of Western Ontario. He has not only been active in research in the field of
international economics and the economics of education, with many publications, but
has also performed a major role in the management of the Department. He was Director
of Graduate Studies in Economics and Economic History and then Graduate Secretary in
the Department of Political Economy in the 1970s and Associate Chair, Undergraduate
Affairs, in the late 1980s and early 1990s and again in the period between 2000 and
2009. He also served on important committees in the Faculty of Arts and Science
and the School of Graduate Studies.
Michael has been a member of the Department since 1972, having come to us with his
PhD from the University of California, Berkeley. Over the years he has published
numerous articles in microeconomic analysis, industrial organization and applied
econometrics. He has also played an important role in the Canadian Economics
Association, having served on the Editorial Board and the Executive Committee, and
as Secretary/Treasurer of the Association from 1994 to 2004. He was also an
organizer of special sessions with Statistics Canada at Canadian Economics Association
meetings for a number of years. Michael has the distinction of having served as a
Visiting Professor at M.I.T. during the fall of 1984.
Don has been a member of the Department since 1971, and retires as Professor of
Economics and Professor of Law. He received his undergraduate degree in engineering
from Swarthmore College and LLB and PhD degrees from Harvard University. He has specialized in
economic analysis of enviromental policies, economic analysis of law and in electrical
restructuring and pricing and has many publications. He has also served as Chair
of the Department, as Dean of the Faculty of Arts and Science and as Associate Dean
of Graduate Studies. In recognition of Don's service to the Department and the
University, the Department has established an undergraduate scholarship award in his name
to be given annually. We are lucky to have had Don among us over all these years.
Greg came to the Department in 1969 with his PhD from the University of Michigan
and has been active in both research and administration ever since. His fields of
research interest are macroeconomics and financial economics and in the past he
has played an important role in forecasting, having been the prime developer of the
FOCUS model which is currently utilized by various governments and government agencies
in Canada as an aid in policy formation and forecasting. Over the years he has served
as director of the Policy and Economic Analysis Program, as director of
undergraduate programs, both in the Department and in the Rotman School of
Management, and was at one time director of the Masters Program in
Financial Economics (MFE). All this is in addition to having published
numerous articles and contributed to several books.
Frank was an undergraduate here and received his PhD from Stanford University, and been
a faculty member in the Department, and a Research Associate of the Institute for Policy
Analysis, since 1969. He has served as Associate Chairman and Director of Graduate
Studies for the Department and was Director of the Institute for Policy Analysis from
1996 to 2007. He has published widely in the fields of microeconomic theory and
industrial organization and has served on the editorial boards of four Journals. Also,
he has been a Visiting Professor at the University of Chicago on two occasions.
Don received his PhD from the University of Cambridge in England, where he studied after
receiving his undergraduate degree in Political Science and Economics here at the
University of Toronto. He came to the Department after having served for a number
of years as a Fellow and Lecturer at the University of Cambridge. Don has been extremely
active in the study of the history of economics, having written a multitude of articles
on the work of Alfred Marshall, John Maynard Keynes, Harry Johnson, and numerous
others, as well as important books on Keynes and Harry Johnson. He has also served in
an editorial capacity for several Journals in his field and was Managing Editor on
a number of occasions. In 2008, Don was elected Distinguished Fellow of the History
of Economics Society.
Lee came to the Department as an MA student in 1986 and has been teaching
courses for us ever since. He teaches huge sections of the basic courses
at the University of Toronto Mississauga and has an excellent reputation
as a teacher of excellence, who gives tough courses and is nevertheless
loved by students. In recognition of this, and his work in establishing
use of tutorial leaders, Lee was promoted to Senior Lecturer in 2009.
Originally from India, where he did his undergraduate work, Kunal joined us
in 2009 after doing graduate work at Princeton University where he received
his PhD. He specializes in the fields of international economics, economic
growth and urban economics.
Rahul is also originally from and did his undergraduate work in India.
His PhD is from Yale University and he specializes
in economic theory, focusing on game theory and dynamic mechanism design, as well
as in econometric theory. He already has one publication and many working
papers.
Shari joins us with a PhD from the University of California at Berkeley, having
previously done undergraduate work in mathematics and economics at New York
University. Her fields of specialization are economic history, economic demography
and labour economics. She has just published a paper with Nicholas Li in the
American Economic Review.
Kripa joins us from the University of Texas at Austin, where she taught economics
after earning her MA and PhD from Northwestern University. She did her undergraduate
studies at the University of Mumbai in India. Her field of specialty is development
economics.
Yosh received his BA with high honors from Hebrew University in Jerusalem and then
proceded to graduate study at Northwestern University where he obtained his
PhD. His research is in the areas of information economics, political economy
and industrial organization and he teaches applied econometrics, microeconomics
and political economy.
Kory earned his BA and MA degrees at Queen's University and his PhD from the
University of California at Berkely. He joins us after working for three years
as an economist in the private sector and spending a year as Postdoctoral Associate
at Yale University. His fields of specialization are public economics and labour
economics and he has published a number of articles, one of which is in the
American Economic Review.
Burhan originates from Turkey where he did undergraduate work in industrial
engineering at Bilkent University. His graduate work was at the University
of Rochester from which received his PhD. Before joining us as a tenured Associate
Professor, Burhan was assistant professor at the University of Texas at
Austin and served as visiting scholar at the Federal Reserve Bank of St. Louis
and as visiting assistant professor at the University of Western Ontario.
Burhan specializes in macroeconomics and labour economics and has many
publications in top journals.
Nick did his undergraduate work in the University of King's College at Dalhousie
University and his MA at Queen's University. He then went to the University of
California at Berkeley, from where he joins us after obtaining his PhD. His fields of
specialization are international economics and development economics and he has
just published a paper with Shari Eli in the American Economic Review.
Migiwa did her undergraduate work in Japan and her graduate work at Johns Hopkins
University where she received her PhD. Before joining us she served as an
economist in the Institute for Monetary and Economic Studies at the Bank of
Japan and as assistant professor at the Hong Kong University of Science and
Technology. Migiwa's research focuses on industrial organization and applied
microeconomics and she teaches courses in these areas as well.
Marcin joins us as an Associate Professor, having held academic
appointments at at the University of Chicago and the University of Texas at
Austin and spending a year as Visiting Fellow at Princeton University. He
obtained BA and MA degrees from Warsaw University in Poland and MA and PhD degrees
from Northwestern University. Marcin has published several papers in journals in
game theoretic and theoretical econometric issues.
Laura was an undergraduate at Dalhousie University and did her M.Sc in Economics
at the University of Essex as a prelude to her PhD work at the University of
British Columbia, from where she joins us. Her research interests are in
labour economics, family economics, economics of disability and life cycle
economics. She teaches courses in labour economics and special topics in
family economics.
Yuanyuan comes to us from Pennsylvania State University, where has just
received his PhD, after previously obtaining his BA and MA degrees at Peking
University. His research interests are in the field
of econometrics where he has already published two papers.
Ron joins us from the University of Chicago where he was an instructor and
post-doctoral fellow. He did both his undergraduate and graduate work in
his native Holland at the University of Amsterdam where he received his
PhD. Ron specializes in macroeconomics, where he has a number of published
and working papers, and teaches both microeconomics and macreconomics at
advanced levels.
Kathleen joins us as Lecturer on the Mississauga Campus, having done
undergraduate studies at the University of California, San Diego and her
PhD work at the University of California, Irvine. Her research interests
and published work is the area of labour economics, health economics,
economics of education and applied econometrics and she teaches macroeconomic
theory and policy and microeconomic theory and applications.
by Don Dewees
Samuel A. Rea, Jr., was born in Indianapolis, Indiana on November 10, 1944, received his B.A. (Magna Cum Laude)
from Harvard in 1966 and, six years later, his Ph.D. in Economics. In 1971 he and three classmates from the
Harvard PhD program, Don Dewees, David Foot and Tom Rawski, accepted jobs as Assistant Professors at the Economics
Department at the University of Toronto. Sam, along with the rest of us, was attracted by the excellence of
the Department (which, we all liked to believe, we enhanced), by the great city, and by an improbable but
alluring tax treaty that exempted us from income tax in both countries for two years. Sam had one problem
upon arrival at the university: at 27 he still looked 17. His initial attempt to secure a UofT faculty
library card failed because the library simply refused to believe that he was a faculty member.
Sam's undergraduate teaching centred on the University's Erindale campus while his graduate teaching and
research in labour economics and the new field of law and economics took place on the St. George campus. In
addition to work in the Department, he was soon given a cross-appointment with the Faculty of Law where he
taught courses on economics for non-economists and on the economic analysis of law. He was a highly productive
and well-respected scholar, publishing four books and dozens of scholarly articles, thereby making major
contributions to the theoretical and empirical literature in labour economics on the effects of unemployment
insurance, worker's compensation, and disability insurance on the supply of labour, the welfare of workers,
and workplace safety. Three of his papers, published over two decades beginning in 1971, with an article in
the Canadian Journal of Economics, followed in 1987 by "Unemployment Insurance and Male Unemployment Duration
in Canada" in the Journal of Labor Economics (with John Ham) and concluding in 1998 with "Employment Spells
and Unemployment Insurance Eligibility Requirements" in the Review of Economics and Statistics (with Michael
Baker), continue to this day to influence discussions of unemployment insurance policy design. He also worked
on disability insurance and offered policy advice through a study published in 1981 by the Ontario Economic
Council, "Disability Insurance and Public Policy" in which he showed that mandatory disability insurance may
lead workers to reduce their demands for workplace safety, increasing risks.
In 1982-83, in an effort to expand his contacts and enrich his background in law and economics, Sam spent a
sabbatical year as a Civil Liability Fellow at the Yale Law School. His interest in this area led to major
publications on the incentive effects of different doctrines for computing the damages to be awarded for breach
of contract and, subsequently, on negligence law and its incentive effects. He extended our understanding of
the role of comparative negligence by showing that not only is it efficient in a simple model of perfect
information, it is efficient even if actors are imperfectly responsive. Thus the dominance of comparative
negligence doctrine in US law could be explained by efficiency as well as by fairness, the traditional explanation.
He explored insurance law and the extent to which insurance law and policies can induce or discourage efficient
care by potential injurers and victims. He examined no-fault auto insurance schemes. The definitive empirical
study of Quebec's no-fault insurance regime is by one of his PhD students, Rose-Ann Devlin. As testimony to
Sam's high standing in the law and economics community, he was asked to write three articles for the 1998 New
Palgrave Dictionary of Law and Economics: "Insurance Law", "Penalty Doctrine in Contract Law," and "Personal
Bankruptcy." He was also interested in policy problems. He served as consultant and advisor to governments
on pension, unemployment insurance and law and economics matters.
Sam was much more than an academic. Among other things, he was a competitive sailor in the summer and an avid
skier in winter. In 1974 Sam and I both bought Shark sailboats and joined the Royal Canadian Yacht Club where
he met Wendy Thompson, co-owner of yet another Shark. Wendy's family has a long connection with the Club---her
great-great-grandfather was a founder. Sam and Wendy married in 1981 and continued racing Sharks, both separately
and together, in fair weather and foul. They participated, for example, in several harrowing overnight races
across Lake Ontario in inclement conditions, struggling with high wind, waves, equipment problems and sleep
deprivation. Undaunted, they sold their Sharks and bought a larger boat, Samba, which they sailed in the Great
Lakes and, one year, to New Haven and back. In 2005, they traded up yet again, this time to a 50-foot sloop,
Maestro, which served as their winter home for the next four years, as they cruised the US east coast and the
Caribbean, logging more than 20,000 miles. To indulge their other outdoor passions, Sam and Wendy bought a
"farm" near the Mansfield ski area in the 1970s. They spent many weekends there with their daughter Sarah, skiing
in the winter, enjoying the life of recreational farmers in the summer, and, in all seasons, fending off the
assaults of porcupines and deer.
As a Harvard undergraduate Sam had studied celestial navigation and developed an interest in computers. The
challenge of navigating his sailboat combined with his interest in computing lead him to develop software for
navigation using GPS and personal computers---and, in effect, launched a new career. He incorporated Northport
Systems Inc. which produced navigational software, sold under the name Fugawi. Sam retired early from
the University of Toronto in 1998 to devote more time to Fugawi and his many other interests. His technical
knowledge of computers and software, his long sailing experience, and his business skills, inherited from his
father, combined to make Fugawi a success. The company was one of the first to offer high quality navigation
products of this type. It has sold products in 130 countries and is still in business today.
Sam also enjoyed music. He was a member of the Harvard Glee Club as an undergraduate and he later sang with
the Harvard Glee Club Alumni Chorus, taking trips to Japan and Hawaii. For many years he was a member of the
North Toronto Players and he sang in a number of their adaptations of Gilbert and Sullivan classics. As with
his other interests, when Sam got involved in something, he worked hard, became an expert and did it well.
In 2009 Sam was diagnosed with incurable brain cancer. He sought aggressive treatments, survived in good health
for two years, and was able to celebrate Sarah's marriage at the RCYC in the summer of 2010. During the last
two years of his life, he continued to pursue his love of singing, with the Annex Singers in Toronto and with
the Harvard Glee Club Alumni Chorus on a trip to Hawaii. He also sailed in weekly club races in 2010 and 2011.
He finally succumbed to the disease on December 18, 2011, three weeks after his final appearance at the
Economics Department holiday party. His life was celebrated in a touching ceremony on December 23 with his
family and many colleagues in attendance.
Our annual 2010 undergraduate awards reception was held on November 9, 2011 to
honour the accomplishments of our best undergraduates. As usual, many of
our faculty attended, among them two colleagues, Emeritus Professor Ed Safarian,
together his wife Joan, and William Wolfson who endowed awards, as well as
Ushvendra Choudhry, the widow of our late colleague Nanda Choudhry who
endowed two awards, and her guest, Dr. Cicely Watson of OISE. Also present were
Elizabeth Jagdeo from the Department of Political Science and Lanor
Mallon, Manager, Faculty Governance and Curriculum. Food and Beverages,
arranged for and organized by our
Undergraduate Program Administrator Robbie Innes, were enjoyed by all both
before and after the presentation of the Awards. Following introductory remarks by
our Chair, Arthur Hosios, our Associate Chair responsible for the Undergraduate
Program, Dwayne Benjamin and the donors present gave out the awards.
We are very proud of these students and extremely grateful to the individuals
and institutions that endowed these awards. The awards and their recipients
are as follows:
Economics GRADitude Scholarship (to a student in a major or specialist
program in Economics) --- Petre Vladimir Radulescu.
Alexander Mackenzie Scholarship in Economics (to a student enrolled in an
Economics program who has completed at least two full courses in Economics)
--- Nirvani Sookdeo.
Brian Mulroney Award (to the student with highest mark in ECO230Y (International
Economic Institutions and Policy), HIS263Y (Introduction to Canadian History), or POL214Y
(Canadian Government and Politics)) --- Bradden Skippen.
Stefan Stykolt Scholarship in Economic Theory (to the student in a
specialist or major program in Economics who has the highest average in
Intermediate Microeconomics (ECO200) and Intermediate Macroeconomics(ECO202))
--- Chunyue (Joyce) Yin
Banker's Scholarship in Economics (to the student with the highest
standing in the intermediate macroeconomics course) --- Rubaiya Khan.
Nanda Choudhry Prize in Economics, Second Year (to the student in
a specialist program in Economics who has obtained the highest average mark
in at least two of the second year courses in microeconomics, macroeconomics
and quantitative methods) --- Xueying Liu.
Nanda Choudhry Prize in Economics, Third Year (to the student in a
specialist program in Economics who has obtained the highest average mark
in at least two full Economics courses at the 300 or 400 level) ---
Sai Ma.
Paul L. Nathanson Scholarship in Economics (to an outstanding student
whose program includes at least three courses in Economics) --- Linda Wang.
Mary Child Scholarship (to the outstanding graduating student in the
Economics specialist program, based on the average mark in the courses
that are required in the program) --- Adriana Robertson.
Mary Keenan Award (to two students who have successfully completed the
first year in the Faculty of Arts and Science and who have enrolled in a
specialist program in Economics) --- Simon Quach and Fang Guo.
Noah Meltz Undergraduate Award in Labour Economics (to an outstanding
undergraduate student in our third year course the economics of labour, ECO339) ---
Erik Sarkisyan.
Ramsay Scholarship in Economics (to an outstanding student whose
program of study includes at least three courses in Economics) ---
Jiaqui Lu.
Safarian Scholarship in Economics (to an outstanding student in a
specialist program in Economics) --- Chuan Du.
Reza Satchu Award for Excellence in Economics (to the best student
in the course on the economics of entrepreneurship) --- Daniel Rodic.
William G. Wolfson Scholarship in Economics (to an outstanding Economics
major who has completed second year and taken intermediate microeconomic
and macroeconomic theory) --- Zhiying Zhang.
The Lorn T. Morgan Gold Medal in Economics (to the leading graduating
student in a specialist or joint specialist program in Economics, based on the
performance in fourth year) --- Adriana Robertson
On September 30, 2009, colleagues Ettore Damiano and Jennifer Murdoch
extended their framily, becomming the proud parents of Lucia, who was born 11 weeks
prematurely. Mother and Daughter are both fine!
Department of Economics
Welcome Page
Communications, suggestions, and information about alumni and other
matters should be addressed to:
Prof. J. E. Floyd
Email the Editor
Marco Petta gives the 2012 Michael Berkowitz Lecture
Retirements
François Casas
Michael Denny
Don Dewees
Gregory Jump
Frank Mathewson
Don Moggridge
New Colleagues
Lee Bailey
Photo of Lee
Kunal Dasgupta
Photo of Kunal
Rahul Deb
Photo of Rahul
Shari Eli
Photo of Shari
Kripa Freitas
Photo of Kripa
Yosh Halberstam
Photo of Yosh
Kory Kroft
Photo of Kory
Burhan Kuruscu
Photo of Burhan
Nicholas Li
Photo of Nick
Migiwa Tanaka
Photo of Migiwa
Marcin Peski
Photo of Marcin
Laura Turner
Photo of Laura
Yuanyuan Wan
Photo of Yuanyuan
Ronald Wolthoff
Photo of Ron
Kathleen Wong
Photo of Kathleen
-->
What's Happening in the Department of Economics
A Sad Passing! Emeritus Professor Sam Rea 1944-2011
Undergraduate Awards Reception in 2011
New Additions to the Department Family
From the Editor
Department of Economics
University of Toronto
150 St. George Street
Toronto, Ontario, M5S 3G7
