As a follow-up to his book “Extreme Productivity,” Professor Bob Pozen reveals his secrets to workplace productivity and high performance in this video excerpt published by HBS. The antidote to boring meetings and email backlogs, these excerpts demonstrate how busy professionals can achieve their goals by making a critical shift in mindset: from hours worked to results produced.
Government policies to promote home ownership should aim to decrease mortgage defaults, not increase them. They can do so by requiring the lender to bear some of the risk of loss, by requiring the borrower to make a substantial down payment, or both. Yet late last month federal regulators proposed rules that would gut both requirements.
Before the financial crisis, banks or brokers would often originate home mortgages and immediately sell them to a large financial institution, which would package them as mortgage-backed securities for investors. With “no skin in the game,” the originators had little incentive to determine whether the borrower was likely to default.
In response, the Dodd-Frank Act, passed in 2010, generally requires mortgage originators to retain 5% of the risk of loss on the mortgages they sell. However, exemptions built into the law—as interpreted by rules proposed on Aug. 28—would eliminate this requirement for most home mortgages. The proposed rules would also allow low down payments, although they are the best predictors of mortgage defaults.
Regulators around the world have been focusing on how financial companies deliver advice to their clients. The standards that apply to that advice – especially how it is paid for – have been the subject of recent regulatory initiatives in Australia, the US and Europe.
The official goals of these initiatives are to eliminate conflicts of interest that might harm investors, and to help them cope with the increasing complexity of financial markets. Less officially, these initiatives aim to push investors into lower-cost funds – something that fee disclosure at a product level has failed to do sufficiently, at least in regulators’ eyes.
While the scope of the initiatives varies, all incorporate at least one of the following elements: a ban on inducements, and higher standards for advisers.
Virtually all of the proposals call for such a ban – whether it is called a retrocession, rebate, sales load or commission. Whatever the name, they all involve payments from the sponsor of an investment product to the financial adviser who recommends it. Bans are already in place for at least some products in Australia, the Netherlands and the UK.
Have you heard of the two terms “risk retention” and “qualified residential mortgages”? Federal regulators are reportedly close to adopting rules defining these two terms, which will largely determine the future shape of the home mortgage market.
Here is the background. The Dodd-Frank Act tried to stop mortgage lenders from issuing mortgages and then immediately selling them to a large financial institution. That institution would put together a pool of home mortgages and sell securities based on the cash flows from the pool. Before the Dodd-Frank Act, because the issuers of many home mortgages immediately sold them, the issuers had little incentive to do a good job of checking carefully whether the borrowers would be able to pay off these mortgages. In other words, these issuers had “no skin in the game.”
In response, the Dodd-Frank Act generally required mortgage lenders to retain some risk in the mortgages they sold. In specific, these lenders were required to retain 5% of the economic risk if they sold mortgages that later defaulted. At the same time, Congress was concerned that such a requirement would lower the volume of new home mortgages. So, Dodd-Frank established several broad exemptions to the risk retention requirement for mortgages that Congress believed were relatively safe.
In the future, the home mortgage market will be dominated by mortgages covered by these exemptions. Almost every firm will prefer to originate and sell these exempt mortgages, rather than retain some of the risk that non-exempt mortgages will later default.
In a rare burst of bipartisanship, the House of Representatives last month voted 321 to 62 to stop a government board from forcing public companies to change auditors every six or seven years. This requirement was floated by the Public Company Accounting Oversight Board, which suggested that term limits would bolster the independence of auditors.
An overwhelming number of congressmen rejected this requirement as too costly, and they passed an amendment to the 2002 Sarbanes-Oxley corporate-accounting law that would prohibit the board from adopting such mandatory rotation.
One of the most notorious facets of Chinese life may be about to change: it has been reported that Beijing is considering much broader exemptions from the “one-child” policy, which limits most urban families to one child. This change cannot come soon enough: the country is heading into severe demographic problems.
The share of the population that is of working age (19 to 59 years old) relative to the country’s total population peaked three years ago, and is declining rapidly. Under current conditions, the proportion of the population that is aged 65 or older is projected to double by the early 2030s. By 2050, without significant reforms, there will be fewer than 1.6 workers for every retired person in China.
“He’s one of my best employees. He always puts in ten-hour days, sometimes much more.”
Is this how you judge your employees? Probably yes, according to a 2010 study published in Human Relations. In the study, a group of researchers led by business professor Kimberly Elsbach conducted extensive interviews of 39 corporate managers. They found that these managers generally considered their employees who spent more time in the office to be more dedicated, more hardworking, and more responsible.
Co-authored with Theresa Hamacher.
While the International Accounting Standards Board sets the rules for public companies in most countries, the Financial Accounting Standards Board sets the rules for public companies in the US. Yet, despite their efforts to co-ordinate, the IASB and FASB have proposed different rules for an important subject – how banks should decide when to expand their reserves against loan losses.