Contact: Bill Caldwell, Office of Public Information, Pace University, 212-346-1597, wcaldwell@pace.edu

Deliberately-planned debt defaults

PACE U. RESEARCHERS DEVELOP NEW MODELS TO PREDICT DEBT DEFAULT IN INTERNATIONAL FINANCE

New study shows debt defaults are “planned and recurrent, and those who plan defaults try to maximize the benefits to themselves”

Assisting the global financial community to “develop strategies to forestall and/or soften the impacts associated with financial catastrophes” and helping investors to partially avoid losses associated with defaults

New York, NY – July 16, 2009 - Pace University professors Robert G. Vambery and James W. Gabberty have developed new graphical models to demonstrate the predictability of debt defaults and to help in the detection of their timing and magnitudes.

“This new study shows that debt defaults are planned and recurrent, and those who plan defaults try to maximize the benefits to themselves,” said Vambery, a professor of international business at Pace and co-author of the paper.

“In the previous three decades some of the economically larger Latin American countries became associated with major debt defaults that were politely labeled as debt rescheduling. The world now faces the bigger question: Are the US and other G8 countries candidates for debt rescheduling and defaults or some other forms of modifications of outstanding and rising debt?

"The current default situation is massive, about as big as the most pessimistic assessments. The problem is probably the biggest in the United States and growing, and it is also taking place in most other financially important countries.

“The Argentine debt crisis scenarios of this decade are representative of a climate of financial irresponsibility that does not show signs of waning and sadly has become an all too- permanent feature of the international finance landscape.

‘Supranational financial organizations such as the International Monetary Fund (IMF) and the European Central Bank (ECB) recently had to come to the temporary rescue of smaller country economies such as for Iceland and Hungary. The massive interventions by G-7 Central Banks and Treasuries have been widely publicized. Though there is partial consensus that some forms of large scale interventions were necessary, the interventions are also likely to become sources of future financial and economic dislocations, burdens and losses.”

“Iron Triumvirate of Debt Default”. According to the researchers, in nearly all cases, debt crises have emerged from the activities as well as the in-activities of the three major participants in large-scale international borrowing and lending: the borrowers, the lenders, and the regulators who oversee financial transactions at the national and global levels. The researchers say debt crises arise because these three players who together make up an “iron triumvirate” exhibit behavior which qualify them for the monikers – ‘unworthy borrowers’, ‘irresponsible lenders’, and ‘incapable regulators’. The simultaneous interaction of all three forces results in the near collapse of the financial stability of the borrowing institution or country.

The paper is available at www.pace.edu/lubin/rvambery

Professor Vambery is available to comment. Phone: 212-618-6572; email: rvambery@pace.edu

About the co-authors: Robert G. Vambery is a professor of international business at Pace’s Lubin School of Business with extensive international experience including academic work assignments to five continents and visits to over fifty countries and territories. He served as Managing Editor and Editor at Large of the Journal of International Business Studies, the refereed journal of the Academy of International Business, and is a cofounder of the journal Maritime Policy and Management. He is coeditor and coauthor of the book “International Business Knowledge: Managing International Functions in the 1990s” and co-authored a two volume monograph for the U.S. Department of Commerce entitled “Industrial Policy for the Maritime Industry.” He was educated at Columbia University and received his PhD and M.Phil degrees from its Graduate School of Business and Graduate Faculties, and MS and BS degrees from its School of Engineering and Applied Sciences.

James W. Gabberty is a professor of information systems at Pace’s Seidenberg School of Computer Science and Information Systems with more than twenty years experience as an ITC consultant to Wall Street. He has witnessed first-hand the dramatic impact that technological change has caused for the financial services industry. He is the author of numerous articles ranging from the impact of e-commerce, modeling debt defaults by nations, competitive advantage of nations, and innovative uses of information and communication technology. He teaches information systems to part-time MBA and MS students working for various small, medium, and Fortune 100 firms in Manhattan. He holds degrees from Pace University (DPS), Polytechnic University of New York (MS), New York Institute of Technology (MBA), and State University of New York at Stony Brook (BS).

For 103 years Pace University has produced thinking professionals by providing high quality education for the professions on a firm base of liberal learning amid the advantages of the New York metropolitan area. A private university, Pace has campuses in New York City and Westchester County, New York, enrolling nearly 13,000 students in bachelor’s, master’s, and doctoral programs in its Lubin School of Business, Dyson College of Arts and Sciences, Lienhard School of Nursing, School of Education, School of Law, and Seidenberg School of Computer Science and Information Systems. www.pace.edu

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