Daniel McKeever

Assistant Professor at the School of Management at Binghamton University, State University of New York
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Daniel McKeever is an assistant professor at the School of Management at Binghamton University, State University of New York. His research interests include:

- Empirical corporate finance
- Behavioral corporate finance
- Board networks
- Corporate governance
- Executive decision-making

Recent Quotes
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  • Student debt cancellation is a win-win

    President Biden's plan to forgive between $10,000 and $20,000 of student loan debt for borrowers making less than $125,000 a year is actually a win-win scenario, according to Daniel McKeever, assistant professor in the School of Management at Binghamton University, State University of New York.
    "Many people don't realize that the federal government actually owns (not just guarantees) almost all student loan debt as a result of a provision in the Affordable Care Act of 2010. On paper, these loans are currently worth about $1.5 trillion dollars. Joe Biden just forgave loan balances totalling about $330 billion. So did American taxpayers just fork over $330 billion in new spending? And will we get clobbered with a new round of inflation as a result?

    "Not at all. While the federal government's student loan portfolio might be worth a lot on paper, these loans are basically junk bonds, with default rates around 25% and no collateral to recover. The government's loan portfolio is a loser: it actually costs the government more to service these loans (especially among the worst-performing loans to borrowers who will simply never be able to repay them) than the government will ever collect in interest. Writing off the worst of these loans actually improves the federal government's fiscal outlook and saves taxpayers money. This isn't $330 billion in new spending, it's a small spending cut.

    "Biden's cancellation program zeroed the loan balances for about half of the 45 million Americans with federal student loan debt by eliminating up to $10,000 for all borrowers below a modest income threshold, and up to $20,000 for Pell Grant recipients. This amounts to a highly-targeted form of economic stimulus for lower- and middle-income households: wealthy people generally don't take out student loans, and borrowers with extremely large loan balances are usually employed in correspondingly lucrative fields, like medicine or law. The Department of Education estimates that 90% of the borrowers who will receive full or partial cancellation of their student loan balances are earning less than $75,000 per year. This debt forgiveness program provides serious relief to the balance sheets of low- and middle-income households. In the longer term, it also frees those borrowers up to improve their credit score and pursue other forms of credit (mortgages, auto loans, and so on). Right now, interest rates are high enough that expanded access to credit is unlikely to create significant inflation.

    "The student loans that this program eliminates were a lose-lose: the government slowly bled money on bad loans, and the borrowers were saddled with debt that most of them could never hope to repay. There was no reason to keep them on either party's books, and so wiping them off is a win-win."

    25 August 2022
  • Financial expert offer insight on Gamestop short squeeze

    There are a few trends at work with the Reddit/Gamestop short squeeze, according to Daniel McKeever, assistant professor in the School of Management at Binghamton University, State University of New York.

    The first is the gamification of trading on app-based platforms for small retail investors. As is the case in any industry, technological advancement often outpaces the widespread understanding of the ramifications of using that technology. Regulation is also usually reactive, rather than proactive, when it comes to dealing with technological advancements in the financial industry. (Think of HFT and the "flash crash" of May 2010.) Strange new things will always happen in markets as long as this is the case.

    The second is the collective anger and frustration of many of the retail investors who participated in the short squeeze on GME. These are people who have largely been stuck inside their houses for the last year, often cut off from friends and family, and have found an outlet in trading online. They've witnessed a year in which inequality in the US has widened dramatically. The stock market is up almost 20%, while half the country is in serious financial distress, and they've largely been left out of the spoils. The stock market is badly overpriced at a P/E ratio of 35 (highest it's been since before the dot com bubble burst; before that, the highest it's been was 1929), so there are no bargains to be had by putting your money into traditional stock portfolios. They see Wall Street winning again while they're stuck in neutral or sliding backwards, and they're furious. Don't take my word for it -- go read the posts on Reddit "WallStreetBets". There is a serious level of vitriol here towards hedge funds, Wall Street in general, and economic elites. Whether or not bidding a failing company that should be worth $20 a share to $400 a share is going to resolve that furor is irrelevant -- it feels good to them to even the score for once. The Reddit crowd has some significant demographic and ideological overlap with Trump 2020 voters, and I don't think it's a coincidence that one week after Biden was inaugurated (and none of the various QAnon type theories about Trump hanging on to power came to pass), these guys got together and found an outlet for their disillusionment.

    The third point is that we always need to be willing to revise our understanding of market economics. We like to assume that markets are mostly rational and risk is mostly measurable. This week showed that those assumptions can fail. The massive short position that a few hedge funds had on GSE was, on paper, a very smart bet -- this was (and still is) a company with bad prospects whose stock will probably be worth zero in the relatively near future. The plan had a fatal flaw in it, though, much like Darth Vader's Death Star had one tiny hole in the armor that turned out to be a major strategic vulnerability. It was uniquely susceptible to a coordinated mob of capital from nihilistic investors that were motivated by a desire for revenge/shock/making a splash on the news, rather than a cold-blooded analysis of GameStop's future cash flows.

    1 February 2021
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