Crisis Strikes Research Articles

COVID-19: Is the Great Outbreak a Sign of What the Future Has Stowed for the Human Race?

COVID-19, the novel coronavirus pandemic, placed the U.S. economy (and capitalism) on a ventilator. A new recently published study has revealed that close to 90% of patients who needed ventilators to breathe did not make it. Of course this is a metaphoric inference, but valuable lessons provided by coronavirus crisis should not be ignored as the previous signs were in the past. The Fed must realize that “creating money out of thin air” (i.e. credit expansion) is nothing but “legalized counterfeiting which will only foster even greater pandemics and financial crises in the near future. Since the Fed was created in 1913, financial and economic crises have become more damaging, longer lasting, and costlier. Every time a high-magnitude crisis strikes (financial, economic, or pandemic), to calm people and restore confidence, governments of advance nations and their high profile central banks (Federal Reserve, European Central Bank, Bank of Japan, and Bank of England) rush to enact unprecedented economic relief/stimulus packages which got larger and larger over the years but sources of systemic crises have remained unresolved since the stock market crash of 1929 and the subsequent Great Depression. In today’s economy, $5 trillion or $10 trillion virus relief package is mindboggling, but will it be enough to prevent a looming recession? A better question to ask is, will the Fed’s infinite money creation out of thin air send American capitalism on a ventilator to the burial ground? In the near future (by 2050), global warming induced climate changes and the resultant catastrophes will make the coronavirus pandemic trivial. Unfortunately, one thing that never changes, in the long-run great financial crises and pandemics kill deprived people in developing and poorest countries.

The Disruptive Effect of Distributed Ledger Technology and Blockchain in the over the Counter Derivatives Market

Abstract The market for derivatives is substantially different after the 2007/08 financial crisis. Trust fuels business yet the financial crisis undermined this concept and customers lost faith in financial institutions. The then dichotomy, faced by innovators, was to insist with a system based on trust in financial institutions, or explore others where neither trust nor banks, as intermediaries, were indispensable for the successful and safe completion of financial transactions. The aim of this piece of research is to analyse to what extent innovative technology would change the way the ‘Over The Counter’ (OTC) market operates by providing investors with a trustworthy platform for the efficient assessment of the risk behind certain financial instruments. Consequently, the market may not be caught by surprise when another financial crisis strikes.

Lessons from COVID-19 Responses in East Asia: Institutional Infrastructure and Enduring Policy Instruments

Existing commentaries on government responses to COVID-19 have focused on such factors as competent leadership, policy instruments, or cultural dispositions. Yet few have provided a synthesis that examines how these factors relate to each other. This article fills this gap in the debate by comparing COVID-19 responses among five advanced economies in East Asia: Taiwan, Hong Kong, South Korea, Singapore, and Japan. While agile actions and competence of top leadership are necessary to confront an unprecedented crisis, they are by themselves insufficient. Equally critical is whether a society has the necessary institutional infrastructure in place when a crisis strikes. Policy instruments are more likely to succeed when existing institutional infrastructure supports their administration and implementation. For an instrument to generate enduring impact, it must be compatible with a polity’s underlying culture; instruments that accommodate the underlying cultural orientations are more likely to elicit public cooperation and voluntary compliance over time. Policy instruments must also address equity issues by reaching marginalized groups across all layers of the population. Progress in emergency management may be visible in mainstream society but masking brewing problems among marginalized groups. A comparison across the five advanced economies in East Asia yields several implications for comparative research and policy.

Rumor Has it: The Role of Social Ties in Evacuation to Nearby Shelters after the 2018 Hokkaido Earthquake

When crisis strikes, why do some communities utilize evacuation shelters more than others? This mixed methods study draws on a new dataset of almost-daily tallies of evacuees at 660 local shelters following Japan’s 2018 Eastern Iburi Earthquake in Hokkaido to create a large-N time-series cross sectional (TSCS) dataset of local, short-distance evacuation. We pair time-series cross-sectional data models with qualitative comparative analysis (QCA) of nine affected municipalities to examine why some shelters see higher evacuation rates than others. While past studies have used Facebook user data, post-hoc surveys, or ad-hoc roadside interviews to measure evacuation, this study uses meticulously recorded shelter attendance data to draw inferences about evacuation behavior. Controlling for types of shelters, damage levels, infrastructure quality, social vulnerability, governance capacity, and community resources, we find that in affected communities, stronger bridging social ties, especially when aided by linking ties, motivate greater evacuation to shelters. In unaffected communities, stronger bonding and bridging ties encourage potentially unnecessary evacuation, helping spread rumors during blackouts. These results highlight the necessity of clear, transparent communication with the public, and fostering trust in government during crises.

Optimal Policy for Macro-Financial Stability

In this paper we study whether policy makers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. We study this question in a relatively simple dynamic stochastic general equilibrium model in which crises are endogenous events induced by the presence of an occasionally binding borrowing constraint as in Mendoza (2010). First, we show that the same set of taxes that replicates the constrained social planner allocation could be used optimally by a Ramsey planner to achieve the first best unconstrained equilibrium: in both cases without any precautionary intervention. Second, we show that the extent to which policymakers should intervene in a preemptive manner depends critically on the set of policy tools available and what these instruments can achieve when a crisis strikes. For example, in the context of our model, we find that, if the policy tools is constrained so that the first best cannot be achieved and the policy maker has access to only one tax instrument, it is always desirable to intervene before the crisis regardless of the instrument used. If however the policy maker has access to two instruments, it is optimal to act only during crisis times. Third and finally, we propose a computational algorithm to solve Markov-Perfect optimal policy for problems in which the policy function is not differentiable.

Sensemaking questions in crisis response teams

Purpose When a crisis strikes, responders need to make sense of it to gain an understanding of its origins, nature and implications. In this way, crisis sensemaking guides the implementation of the response. The purpose of this paper is to focus on the sensemaking questions that responders need to address for achieving effective and efficient crisis management. Design/methodology/approach Data are drawn from six exercises, in which teams of professionals from different crisis organizations were confronted with two terrorist attacks. Just like in real incidents, these professionals convened in tactical response teams and formulated their response collectively. Findings The exercises demonstrate that crisis responders do not just have to make sense of the crisis, but also of their own roles and actions. They raise and address three sensemaking questions: What is happening in this crisis? (i.e. situational sensemaking), Who am I in this crisis? (i.e. identity-oriented sensemaking) and How does it matter what I do? (i.e. action-oriented sensemaking). Practical implications Crisis preparation tends to focus on plans and systems that accelerate or improve the construction of a situational understanding, while this study suggests the need of more preparatory attention for crisis responders’ roles and actions. Originality/value The research extends crisis sensemaking literature beyond the restricted focus on the incident itself by showing that responders are also trying to grasp their own role and how their actions matter when they are engaged in crisis response.

When a clinical crisis strikes: Lessons learned from the reflective writings of nursing students.

The following is a qualitative study of reflective journaling related to an unexpected crisis situation as it unfolded through the eyes of nursing students. In September 2014, nursing students in clinical rotations at a Texas hospital were faced with the arrival of the first unplanned patient soon to be diagnosed with Ebola virus disease (EVD) in the United States. Reflective journaling was a technique used by nursing students to help process thoughts and feelings during this public health crisis. The students' unedited experiences were captured through the technique of reflective journaling and written comments were analyzed using qualitative design with thematic analysis. Three main themes were identified as an array of emotions, nursing as a calling, and personal protection. This study demonstrates how reflective journaling can help reduce the stress of an unexpected clinical situation involving nursing students and encourages immediate coping strategies for those affected. With recent reports from Africa of patients newly diagnosed with EVD, being aware of how to facilitate the learning of nursing students in all clinical settings becomes essential.

Optimal Policy for Macro-Financial Stability

This paper studies whether policymakers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. This question is examined in a relatively simple dynamic stochastic general equilibrium model in which crises are endogenous events induced by the presence of an occasionally binding borrowing constraint as in Mendoza (2010). First, the paper shows that the same set of taxes that replicates the constrained social planner allocation could be used optimally by a Ramsey planner to achieve the first best unconstrained equilibrium: in both cases without any precautionary intervention. Second, the paper shows that the extent to which policymakers should intervene in a preemptive manner depends critically on the set of policy tools available and what these instruments can achieve when a crisis strikes. For example, in the context of the model, it is found that, if the policy tools are constrained so that the first best cannot be achieved and the policymaker has access to only one tax instrument, it is always desirable to intervene before the crisis regardless of the instrument used. If, however, the policymaker has access to two instruments, it is optimal to act only during crisis times. Third and finally, the paper proposes a computational algorithm to solve Markov-perfect optimal policy for problems in which the policy function is not differentiable.

On the Choice of Fiscal Adjustment to Financial Crises: Expansionary vs. Contractionary Policies

[full article and abstract in English]
 An everlasting debate over the economic policies to be implemented in the face of economic recessions tends to intensify every time such a crisis strikes. Two notably opposite schools have emerged: one that represent those who advocate for quantitative easing and increased government spending, and another that calls for austerity measures and disciplined public finance. The available empirical evidence cannot supply a definite solution to the spending vs. austerity debate if just one answer is to be provided, as there are numerous historical experiences when either strategy had worked or failed. The aim of this paper is to examine and assess the arguments of both schools of economic policies, to highlight the essential drawbacks and limitations of both and to identify the specific conditions under which each of the policy type can bring the desired impact. It is argued that both of the policy approaches rely on particular implicit assumptions and, if implemented recklessly, are liable to fail or create negative side-effects. A discussion of the relative merits and shortcomings of both types of recipes for curing economic recessions is illustrated by the references to the empirical historical cases. The main conclusion that stems out of the analysis is that a somewhat “medical approach” should be followed while attempting “to cure” ailing economies: regardless that the symptoms of a slump might be quite similar, one should start with an attempt to diagnose the underlying causes of the economic malady at hand, followed by the assessment of a “patient’s” health status, and only then proceed to the selection of an appropriate “cure” and treatment procedure.

Cultivating a longitudinal learning process through recurring crisis management training exercises in twelve Swedish municipalities

AbstractThis study illustrates how crisis management capability is developed in series of recurring exercises, rather than in one single exercise. Over one hundred table‐top and role‐playing exercises were performed and evaluated in a longitudinal cross‐case action research study in 12 Swedish municipalities. By consciously adapting training formats, municipalities were lead through three learning phases: obtaining role understanding (phase 1: knowing what to do), developing information management skills (phase 2: knowing how to do it), and mastering self‐reflection in regular time‐outs (phase 3: knowing when and why to do something). This final learning outcome, being able to concurrently execute, evaluate, and reorganize an ongoing crisis management performance, may be the most valuable capability of a crisis management organization when crisis strikes.

Connectedness of Stress in EMU Bank and Sovereign CDS: The Role Policy Measures 2008-2014

This paper measures the connectedness in European Economic and Monetary Union (EMU) sovereign and bank CDS between April 2008 and December 2014, in order to understand the transmission of stress during the euro crisis. To this end, we perform a connectedness analysis using the framework proposed by Diebold and Yilmaz (2014). Second, we make use of a dynamic analysis to evaluate the net directional connectedness for each country and bank. Finally, we interpret the policy conclusions that stem from the results. We find that core countries' contribution to stability was particularly significant since Draghi's 'whatever it takes' speech. Bank risk played a role in enhancing sovereign risk. However, the systemic impact of banks changes rapidly once a crisis strikes, rendering the ex-ante determination of which banks are systemic and which banks will have a higher impact on the sovereign difficult.

The Boardds Responsibility for Crisis Governance

A clear strategy and implementation plan for reasonably foreseeable industry disasters--- before they take place, helps to prevent mistakes made under conditions of severe stress. Survival-threatening disasters such as the BP Gulf of Mexico oil spill or natural disasters such as hurricanes, fires, or the March 11, 2011 Japanese earthquake and tsunami, constitute any board’s worse nightmare. I have attempted to draw upon lessons from each of these disasters and explore how they may be applied more generally across all industries when crisis strikes. While effective risk management is perhaps the topic highest on every board's agenda, it is imperative that thought be given to crisis management and what a board might expect to confront when a corporate disaster strikes. This paper proceeds as follows. First, a few thoughts about contemporary threats are offered. Second, is an examination of the board of director’s responsibility in crisis. Third, is a discussion of the necessity of commitment at the top of every enterprise if progress is to be made toward crisis preparation, mitigation, and response. Fourth, an examination of several major corporate disasters is presented: the Japanese earthquake and tsunami of 2011; Deepwater Horizon drilling rig debacle; and General Motors ignition switch crisis. Fifth, a framework for analysis is offered, followed by some thoughts about what to do when crisis hits. Sixth, I discuss what to do in those situations where management is implicated, use of special committees of the board, and emergence of the role for special counsel. Workplace and data security issues are then discussed with emphasis on Toyota’s 2010 social media recall strategy, and the Target, Sony, and U.S. Office of Personnel Management data breaches. Next, the following enterprise nightmare scenarios are presented: supply chain disruptions; Foreign Corrupt Practices Act (FCPA) violations; internet failure, or data loss from virus or hacker attack; nationalization of assets; natural disasters; adverse political developments; pandemics such as the 2014-15 ebola scare; prolonged power disruption; strikes and labor actions; and war. Succession planning is the next topic discussed having corporate crisis implications. And last, I conclude.

What is a resilient health system? Lessons from Ebola

What is a resilient health system? Lessons from Ebola

Subprime Mortgage Crisis in the United States in 2007–2008: Causes and Consequences (part II)

This is the second part of the qualitative and quantitative research on the subprime mortgage crisis in the United States in 2007–2008. The main purpose of this research is to determine the factors and how they contributed to the subprime mortgage crisis, what their causal links and effects on the markets and the whole economy were, and to assess what actions could have been taken by the Federal Reserve and the Government in order to mitigate or prevent the consequences of the subprime mortgage crisis and the housing bubble. In order to obtain the results, the authors performed a qualitative analysis of the scientific literature on the course of events and their development that led to the subprime mortgage crisis and focused on insufficiently regulated home mortgage market expansion, the impact on subprime mortgage crisis of financial innovations and financial engineering, poorly evaluated systemic risks and policy undertaken by both the U.S. Government and the Federal Reserve before and after the crisis. The quantitative research focused on two main parts: firstly, the analysis of dependencies between the causes of subprime mortgage crisis and the consequences using the statistical and regression analysis; secondly, an alternative path the Government and the Federal Reserve could have taken in their policy actions, and the results they could have produced have been explored. The authors believe that the results of the research could give useful guidelines to the central bankers and government officials on how to make long-term decisions that can help in preparing for the financial distress, mitigating the consequences when the crisis strikes, accelerating the recovery and even preventing the crisis in the future.

SUBPRIME MORTGAGE CRISIS IN THE UNITED STATES IN 2007–2008: CAUSES AND CONSEQUENCES (PART I)

The main purpose of this article is to determine which factors and how contributed to the subprime mortgage crisis in the United States in 2007–2008, what their causal links and effects on the markets and the whole economy were, and to assess what actions could have been taken by the Federal Reserve and the Government in order to mitigate or prevent the consequences of subprime mortgage crisis and housing bubble. In order to obtain the research results, the authors performed a qualitative analysis of the scientific literature on the course of events and their development that led to the subprime mortgage crisis, and focused on the insufficiently regulated home mortgage market expansion, the impact on the subprime mortgage crisis of financial innovations and financial engineering, poorly evaluated systemic risks and policy undertaken by both the U.S. Government and the Federal Reserve before and after the crisis. The quantitative research focused on two main parts: firstly, analysis of the dependence between the causes of subprime mortgage crisis and the consequences, using a statistical and regression analysis, and secondly, an alternative path the Government and the Federal Reserve could have taken in their policy actions and the results they could have produced. The authors believe that the results of the research could give useful guidelines to the central bankers and government officials on how to make long-term decisions that can help in preparing for the financial distress, mitigating the consequences when the crisis strikes, accelerating the recovery and even preventing the crisis it in the future. The second part of the qualitative research will appear in the next issue of the journal.

Gold prices: Analyzing its cyclical behavior

Gold is a commodity that is seen as a safe haven when a financial crisis strikes, but when stock markets are prosperous, these are more attractive investment alternatives, and so the gold cycle goes on and on. The DJIA/GF (Dow Jones Industrial Average and Gold Fix ratio) is chosen to establish the evolution of gold prices in relation to the NYSE. This paper has two goals: to prove that the DJIA/GF ratio is strongly cyclical by using Fourier analysis and to set a predictive neural networks model to forecast the behavior of this ratio during 2011-2020. To this end, business cycle events like the Great Depression along with the 1970s crisis, and the 1950s boom along with the world economic recovery of the 1990s are contrasted in light of the mentioned ratio. Gold prices are found to evolve cyclically with a dominant period of 37 years and are mainly affected by energy prices, financial markets and macroeconomic indicators.

State Mandated Disability Insurance as Salve to the Consumer Bankruptcy Imbroglio

From Main Street to Wall Street, Americans are hurting. In 2009, over 1.4 million families filed for bankruptcy. Researchers examining the causes of bankruptcy discovered that as many as sixty-two percent of all bankruptcies were precipitated by a medical crisis. Because many Americans are living paycheck to paycheck and lack disability insurance, when a medical crisis strikes, bank accounts are quickly depleted by the amalgam of high medical bills and lost wages. Disability insurance provides needed wage replacement when a worker is unable to work due to an illness or injury. This Article presents the case for state mandated disability insurance as a solution for combating the rising number of consumer bankruptcies. It describes the prevalence of medical bankruptcies and the impact of disabilities on American families, as well as the most commonly available substitutes for comprehensive disability insurance and explains why these substitutes do not provide workers with adequate wage protection. Then, this Article presents state-mandated disability insurance as a solution to the medical bankruptcy imbroglio and provides statistical evidence demonstrating that states mandating disability insurance for most workers have on average a lower per capita bankruptcy rate than the national average. Finally, this Article argues that the best alternative for increasing access to disability insurance is for more states to mandate disability insurance and provides a blueprint for designing state disability insurance programs.

Financial crisis, contagion, and the British banking system between the world wars

In a globalised world, when financial crisis strikes, can countries which are well-integrated into the world financial system escape? Recent experience suggests not. In the early 1930s, Britain's openness at the centre of the world financial system left it vulnerable, particularly to the central European financial crisis. Yet there was no financial crisis in Britain in 1931, rather an exchange-rate crisis, and sterling left the exchange-rate regime of the gold exchange standard. The most important financial institutions, the joint-stock commercial banks, the central part of the payments system, remained robust and contributed to the stability of the British economy.

First things first: sustaining political will for public governance change

This revised text of the Braibant lecture delivered in Helsinki addresses the widely shared difficulty of creating enough political will to reform public institutions, before crisis strikes and not after, and then to sustain the reforms through to completion. There is virtually no incentive for politicians or governments to do this: interests (including the administration itself) will most likely be hostile; meaningful change is only measured in years; few votes can be won. Yet the complex problems faced today by both individual countries and at planetary level, summarized in the beginning of the article, are so serious that it is vital to find ways to alleviate this difficulty without which all public policies and programmes suffer. The principal means must be much sharper and more articulately organized pressures for change so as to make it politically inconvenient to ignore them, and thus provide a genuine incentive to act. Nine propositions are made. Points for practitioners There are no obvious answers to the problem of getting the sustained interest of the political class to prosecute reform of public governance. Can sharper pressures along with the necessary fora and processes be developed? The difficulty is compounded by the trend to cynicism and outright dismissal as regards public authorities. On the other hand, the growing perception of dramatic problems shared across the planet introduces a potential for new institutional initiatives, mobilization of external groupings, incentive structures or attitude changes. As one example, could the trend to independent, more transparent responsibilities in such domains as monetary or fiscal policy be relevant?

Business continuity management in large construction companies in Singapore

PurposeThe aim of this study is to determine whether large construction companies practise business continuity management (BCM), the type of crises which companies deem impactful for their organizations and their reactions to certain crises.Design/methodology/approachA survey of 22 large construction companies in Singapore was conducted.FindingsThe survey suggests that, although the importance and usefulness of having BCM are clear, the receptiveness of BCM among large construction firms is far from ideal. In today's unpredictable environment, there is a tendency for catastrophes to occur unexpectedly and to bring about undesired consequences. A large majority of the respondents did not have any form of BCM practices within their organization. This is mainly because they were unaware of what constitutes a business continuity plan.Research limitations/implicationsThe survey was conducted only among large construction companies; as such, the results obtained cannot be used to represent the entire industry. However, focusing on the larger companies is strategically correct for a start, because BCM‐related initiatives, if any, tend to be undertaken by the larger companies, as they have the necessary resources, such as manpower and finance, to do so.Practical implicationsTo be successful in promoting BCM in the building industry, the relevant authorities in Singapore, such as the Building and Construction Authority, should demonstrate to construction companies how beneficial BCM is for the company's operations, so that they can be better equipped to meet future challenges more confidently.Originality/valueAs with all other businesses, an effective business continuity plan is critical to companies in the construction industry. Being in an industry that is constantly subjected to internal and external pressure, construction companies are likely to incur costly errors if they are caught unprepared when a crisis strikes. This is the first ever study of BCM in the construction industry.