Asian financial crisis

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pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

He showed up in Hong Kong like a bomb-maker protesting the existence of conflict. The rewards of obedience Mahathir’s attacks on the multilateral institutions, and Malaysia’s belated, temporary reintroduction of capital controls in 1998, turned him into the ‘bad boy’ of the Asian financial crisis.68 The Thai government, by contrast, remained the star pupil of the IMF and World Bank. That Thailand has fallen farther than any other country in the region since the crisis is an unfortunate comment on this status. Thailand was also the country where the Asian financial crisis began. Uniquely among south-east Asian states, Thailand was never colonised. None the less, the country has a long history of accepting bad advice. From the time of the Bowring Treaty with Britain in 1855 until 1926, Thailand was persuaded by British negotiators to run the lowest import tariff in Asia – just 3 per cent.

It turned out that too much of Brazil’s earlier growth had been generated by debt that did not translate into a more genuinely productive and competitive economy. Beginning in 1997, with seven economies that have expanded at least 7 per cent a year for a quarter century – Japan, Korea, Taiwan, China, Malaysia, Indonesia and Thailand – east Asia entered a period of reckoning of its own, as the Asian financial crisis took hold. By this point Japan had long since become a mature economy that faced a new set of post-developmental structural problems, ones it showed much less capacity to address than the original challenge of becoming rich. Korea, Taiwan and China, however, were still in the developmental catch-up phase. These states were either unaffected by the Asian crisis or recovered quickly from it, and returned to brisk growth and technological progress.

It was a story of banks being captured by narrow, private sector interests whose aims were almost completely unaligned with those of national economic development. The process was one which has also been observed in Latin America and, more recently, in Russia. The detail of how financial liberalisation went wrong in south-east Asia is explored on a journey to Indonesia’s capital Jakarta, where a new financial district grew like a mushroom in the run-up to the Asian financial crisis. The countries covered I have made a number of simplifications in this book so as not to dilute its central messages and to enable its story to be told (endnotes excepted) in just over 200 pages. One of these involved choosing which east Asian countries to leave out of the narrative. Since the book is about developmental strategies that have achieved a modicum of success, the region’s failed states do not appear.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

The optimism of the preceding boom inspired many Thais to begin borrowing heavily to buy real estate, creating a bubble that when pricked helped trigger the Asian financial crisis of 1997–98. The same story unfolded in Malaysia, where at the peak of its boom in 1995, investment reached 43 percent of GDP, the second-highest level ever recorded in a large economy, behind only China today. Guided by the authoritarian and increasingly megalomaniacal hand of its then prime minister, Mahathir Mohamad, some of the investment proved useful in the end. The vast new international airport that Malaysia opened at the height of the Asian Financial Crisis in 1998, which was criticized as another example of vainglorious overspending, is no longer too big for current demand. But much of the investment unleashed by Mahathir went into grand visions—including a new tech city called Cyberjaya, and a new government administrative district called Putrajaya—that were in the end just unnecessary real estate projects.

A decade later I came to wish that I had internalized this message, as private debt grew rapidly in the United States and Europe in the run-up to the global financial crisis—a disaster that would make the Asian financial crisis look small by comparison. I didn’t listen to the chorus whispering, “Kiss of debt, kiss of debt . . .” Over the last three decades, the world has been subjected to increasingly frequent financial crises, each one setting off a hunt for the clearest warning sign of when the financial mine is about to blow again. Every new crisis seemed to produce a new explanation for crises in general. The postmortems after Mexico’s “tequila crisis” of the mid-1990s focused on the dangers of short-term debt, because short-term bonds had started the meltdown that time. After the Asian financial crisis of 1997–98, it was all about the danger of borrowing heavily from foreigners, because foreigners had suddenly cut off lending to Thailand and Malaysia when their problems became clear.

The global expansion that began in 2009 is on track to be the weakest in post–World War II history. In 2007, just before the financial crisis hit, the pace of growth was slowing in only one emerging economy out of every twenty. By 2013, that ratio was four out of five, and this “synchronized slowdown” was in its third year, the longest in recent memory. It had carried on longer than the synchronized slowdowns that hit the emerging world after Mexico’s peso crisis in 1994, or the Asian financial crisis in 1998, or the dot-com bust in 2001 or even the crisis of 2008.4 As the sluggishness spread, the old hunt for the next emerging-world stars gave way to a realization: Economic growth is not a God-given right. Major regions of the world, including the Byzantine Empire and Europe before the Industrial Revolution, have gone through phases stretching hundreds of years with virtually no growth.


pages: 356 words: 103,944

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

Once again, I had missed the bigger event unfolding just beyond the horizon. I was hardly alone, of course. With very few exceptions economists were busy singing the praises of financial innovation instead of emphasizing the hazards created by the growth in what came to be known as the “shadow banking system,” a hub of unregulated finance. Just as in the Asian financial crisis, they had overlooked the danger signs and ignored the risks. Neither of the crises should have come as a total surprise. The Asian financial crisis was followed by reams of analysis which in the end all boiled down to this: it is dangerous for a government to try to hold on to the value of its currency when financial capital is free to move in and out of a country. You could not have been an economist in good standing and not have known this, well before the Thai baht took its plunge in August 1997.

Quoted in Jonathan Kirshner, “Keynes, Capital Mobility and the Crisis of Embedded Liberalism,” Review of International Political Economy, vol. 6, no. 3 (Autumn 1999), pp. 313–37. 9 Dani Rodrik, “Governing the World Economy: Does One Architectural Style Fit All?” in Susan Collins and Robert Lawrence, eds., Brookings Trade Forum: 1999 (Washington, DC: Brookings Institution, 2000). 10 For an elaboration of the Sachs argument, see Steven Radelet and Jeffrey Sachs, “The Onset of the East Asian Financial Crisis.” in Paul Krugman, ed., Currency Crises, (Chicago: University of Chicago Press for the NBER, 2000). The story of the Asian financial crisis and the debates around it is well told in Paul Blustein, The Chastening: Inside the Crisis That Rocked the Global System and Humbled the IMF (New York: Public Affairs, 2001). 11 Arthur I. Bloomfield, “Postwar Control of International Capital Movements,” American Economic Review, vol. 36, no. 2, Papers and Proceedings of the Fifty-eighth Annual Meeting of the American Economic Association (May 1946), p. 687. 12 John Maynard Keynes, “Activities 1941–1946: Shaping the Post-war World, Bretton Woods and Reparations,” in D.

These countries had been growing rapidly for decades and had become the darlings of the international financial community and development experts. But all of a sudden international banks and investors decided they were no longer safe places to leave their money in. A precipitous withdrawal of funds ensued, currencies took a nose-dive, corporations and banks found themselves bankrupt, and the economies of the region collapsed. Thus was born the Asian financial crisis, which spread first to Russia, then to Brazil, and eventually to Argentina, bringing down with it Long-Term Capital Management (LTCM), the formidable and much-admired hedge fund, along the way. I might have congratulated myself for my prescience and timing. My book eventually became a top seller for its publisher, the Washington-based Institute for International Economics (IIE), in part, I suppose, because of the IIE’s reputation as a staunch advocate for globalization.


pages: 339 words: 95,270

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, money market fund, mortgage debt, New Urbanism, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

This is what the United States did for much of the nineteenth century, when it imported mainly British capital to boost domestic investment to levels much higher than it could have otherwise achieved without squeezing American workers. More recently, except for a brief period in the late 1980s, South Korea consistently imported more than it exported in the decades from independence in 1948 until the Asian Financial Crisis in 1997. Korea is also one of the few countries to transition successfully from poor to rich. Norway, which was once one of the poorest countries in Western Europe, imported massive amounts of foreign savings in the form of large current account deficits in the 1970s to pay for the development of its offshore oil and natural gas fields. Once those fields began producing, Norwegians were able to repay their obligations and eventually amass a large stock of foreign assets purchased from their hydrocarbon profits.

With the notable exception of Taiwan, which bought $70 billion in foreign exchange reserves in the 1980s—equivalent to a year’s worth of economic output—most countries outside Latin America did not think that they had much to learn from the experience. Taiwan, of course, was unusual in that the government knew that it could never access emergency loans from the IMF if it ever ran into trouble.23 The Asian Financial Crisis of 1997–98 changed everything. For years, Indonesia, South Korea, Malaysia, the Philippines, and Thailand had attracted substantial financial inflows from savers in North America, Europe, and Japan. All were growing rapidly—Korea’s living standards had already converged to those in New Zealand and Spain, while Malaysia was at Central European levels of development—and all had maintained stable exchange rates against the U.S. dollar in the 1990s.

Sources: Federal Reserve Board; Matthew Klein’s calculations The problem was the rest of the world’s voracious demand for dollar-denominated assets. In addition to inflating the mortgage debt bubble, overabundant foreign financing also savaged America’s terms of trade as trillions of dollars of uneconomic asset purchases distorted the U.S. exchange rate. Between the start of 1997—the eve of the Asian Financial Crisis—and the beginning of 2002, the dollar appreciated by more than 20 percent against the currencies of its trading partners. While the dollar declined from then until 2008, it consistently remained far above its 1988–96 average. To the misfortune of American workers, the overvaluation of the dollar meant that American consumers would prefer to buy goods made abroad at the expense of domestic manufacturing.39 The rest of the world’s unwillingness to spend—which in turn was attributable to the class wars in the major surplus economies and the desire for self-insurance after the Asian crisis—was the underlying cause of both America’s debt bubble and America’s deindustrialization.


pages: 859 words: 204,092

When China Rules the World: The End of the Western World and the Rise of the Middle Kingdom by Martin Jacques

Admiral Zheng, Asian financial crisis, Berlin Wall, Bob Geldof, Bretton Woods, BRICs, British Empire, credit crunch, Dava Sobel, deindustrialization, Deng Xiaoping, deskilling, discovery of the americas, Doha Development Round, energy security, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, illegal immigration, income per capita, invention of gunpowder, James Watt: steam engine, joint-stock company, Kenneth Rogoff, land reform, land tenure, lateral thinking, Malacca Straits, Martin Wolf, Naomi Klein, Nelson Mandela, new economy, New Urbanism, one-China policy, open economy, Pearl River Delta, pension reform, price stability, purchasing power parity, reserve currency, rising living standards, Ronald Reagan, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, spinning jenny, Spread Networks laid a new fibre optics cable between New York and Chicago, the scientific method, Thomas L Friedman, trade liberalization, urban planning, Washington Consensus, Westphalian system, Xiaogang Anhui farmers, zero-sum game

The main downside with such a strategy is that the savings which have underpinned China’s huge level of investment might be undermined as savers go abroad in search of rates of return far in excess of the paltry levels they can find at home, thereby denying the country the funds for investment that it has hitherto enjoyed, with the inevitable consequence that the growth rate would decline. In addition, a floating renminbi would be vulnerable to the kind of speculative attack suffered by the Korean won, Thai baht and Indonesian rupiah in the Asian financial crisis.43 Although Zhu Rongji, the then Chinese premier, intended to begin the liberalization of the capital account in 2000, the Asian financial crisis persuaded him that such a change would be imprudent. The present global financial turmoil only goes to confirm the wisdom of the Chinese leadership in continuing to regulate the capital account, despite persistent calls from the West to deregulate. In due course, a gradual liberalization could well be initiated, indeed there are already clear signs of this, but the Chinese government is aware that the existing system provides the economy with a crucial firewall, especially given its open character and consequent exposure to external events.44 Whatever the consequences of the global recession, there are powerful reasons for believing that the present growth model is unsustainable in the long run, and probably even in the medium term.

The marginalization of the US is also manifest in the Chiang Mai Initiative, first agreed in 2000 on the proposal of the Chinese,37 which involves bilateral currency swap arrangements between the ASEAN countries, China, Japan and South Korea, thereby enabling East Asian countries to support a regional currency that finds itself under attack. The agreement was a direct product of the Japanese proposal for an Asian Monetary Fund during the Asian financial crisis,38 which was strongly opposed at the time by both the United States (on the grounds that it would undermine the IMF) and China (because it came from Japan). China has since swallowed its opposition - no doubt in large part due to the strengthening position of the renminbi - while the United States, weakened by the IMF debacle in the Asian financial crisis, has not resisted.39 If ASEAN has provided the canvas, it is the diplomatic involvement and initiative of China that has actually redrawn the East Asian landscape. In effect, China has been searching out ways in which it might emerge as the regional leader.40 Underpinning its growing influence has been the transformation in its economic power.

With China’s growing economic power, the greatest single threat to the United States’ global economic pre-eminence, apart from its own decline, lies in China’s attitude towards the international system.174 Since Deng Xiaoping decided that the country’s interests would be best served by seeking admission to it, China has become an integral part of the international system, but China’s attitude towards it will not necessarily always remain unambiguously supportive.175 Take the IMF, for example, of which China is a member. During the Asian financial crisis, Malaysia and Japan proposed that there should be an Asian Monetary Fund, such was the level of dissatisfaction within the region about the role of the IMF. This was strongly opposed by both the US and the IMF, which correctly saw the proposal as a threat to the IMF’s position, and also by China, which was concerned that it had emanated from Japan. China has since abandoned its opposition and is now exploring with others in the region the possibility of creating such a fund. Any such body would undoubtedly have the effect of seriously weakening the role of the IMF. In the event of another Asian financial crisis, it is likely that a regional financial solution would play a much bigger role than was the case before.


Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Black Swan, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, joint-stock company, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

Schaaffhausen Bank, Cologne 162–4, 218 ABN-AMBRO 120–1 accommodation (finance) bills 52, 62, 72, 73, 226 Wisselruiti 62, 66, 159 accountancy firms (CPAs) 120, 149–50 adaptive expectations theory 39 Adelphia Communications 20, 119, 134–5, 144 adjustable-rate mortgages (ARMs) 259 AIG 24, 87, 121, 185 Åkerman, Johan 158, 161, 162, 164–5 Albania 52, 109, 264, 268–9 Aldrich Commission, 1910 (US) 219 Alliance Capital 137 Allied Irish Bank 124 Alsace, 1827–28 crisis 161, 204 American Civil War, 1861–65 124, 164 see also United States American Express 144 Ames, Oakes 139 Amsterdam 152, 159–60, 163, 224 1772 crisis 159–60 1799 crisis 210–11 see also Bank of Amsterdam; Holland Arthur Andersen 22–3, 120, 131, 139 André, Alfred 165 Andréadès, A. 50, 226, 306n44 Angelis, Tino De 122 arbitrage/arbitrageurs 21, 31, 155 Argentina 21, 24, 278 1980s crisis 98–9, 234 2001 crisis 156, 233 Baring crisis, 1890 and 100, 166, 207 art, as an investment 12, 20 Arthur Andersen 22, 23, 120, 131–2 Ashton, T.S. 58, 72, 214 Asian Financial Crisis, 1997 1, 3, 4, 8, 27–8, 85, 170, 184, 186, 223, 233, 278 IMF and 104, 234 asset-backed securities (ABS) 74, 149 asset price bubbles 2, 56, 108, 170–1, 173, 177, 178, 183, 187–8, 229, 285 1985–89 (Japan) see Japan 1985–89 (Nordic countries) 1, 5, 27, 157 1990s (United States) see United States 1997 Asian Financial Crisis see Asian Financial Crisis international contagion of 154ff in NASDAQ stocks see United States, 1990s asset price bubble see also bubbles asset prices 2, 13, 14, 15, 25, 30, 88, 109, 112, 115 economic activity and 107–8 monetary policy and 115–16 see also real estate prices Australia 37, 124, 164, 168, 307n54 gold discoveries 60, 164 Austria (Austria-Hungary) 21, 63 1869 crisis 165 1873 crisis (krach) 82, 151, 165–6 1931 crisis 168, 252, 253 Baubanken 63 Austrian National Bank 82 Ayr Bank 58, 81, 96, 142 Babson, Roger 90 Bagehot, Walter 41, 67, 84, 214, 216, 239–40, 263, 304–5n22, 327n41 on lenders of last resort 223, 224, 225, 226, 227, 228, 235, 243, 253 on Malthus 51 Baker, James 256 Ball, Sir John 73 Balzac, Honoré de 55, 141, 144 Banca d’Italia 167 Bank Act 1844 (England and Wales) 81, 82, 91, 102, 206 Bank Act 1845 (Scotland) 81 Bank of America 4, 86, 132, 195, 262–3 Bank of Amsterdam 66 Bank of Credit and Commerce International (BCCI) 124–5 Bank of England 16, 66, 72, 77, 83, 142, 211 1763 crisis 235 1772 crisis 96, 224, 226, 235 1836–39 crisis 82, 236 1890 Baring crisis and 100–1, 166, 206–7, 208, 238 1995 Baring crisis and 16, 123–4 and Northern Rock 86 discount rates 82, 102, 103, 196, 216, 225, 226, 234 East India Company and 159 as lender of last resort 214, 217, 235 South Sea Bubble and 104, 200–1 ‘W banks’ and 103, 226 bank failures 3, 4, 168–9, 232, 278 Bank of France 51, 89, 91, 92, 93, 204, 217, 218, 225, 235–6, 241, 245, 246, 249 Bank of England, loans to 105, 162, 236, 237, 238–9 bank holidays 23, 191–3, 201, 202 Bank for International Settlements (BIS) 242, 243, 244, 249–50, 251, 252, 254 Bank of Japan 22, 36, 102, 113, 114, 115, 173, 176, 188, 284, 285, 289 Bank of Lending, Amsterdam 66 Bank of Mexico 5, 6, 179, 253, 285–6 Bank of New York 82, 150 Bank of Thailand 6, 180, 286 Bank of the United States 44, 219, 224 Bankers Trust Co. 150 Banking School, on money supply 65ff, 92, 102, 215–16 banking system 78, 80, 198 central banks 15, 19, 44, 64, 77–8, 81–2, 83, 90, 115, 178, 191 clearing-houses 63, 203–4 investment banks 4, 9, 23, 56, 71, 74, 86, 119, 130, 149–51, 182, 183, 194, 257ff, 300–1 swindles/fraud and 117ff see also individual banks bankruptcies 15, 16, 59, 85–6, 105, 133, 148, 151, 157, 162, 164, 180 Banque Adam, Paris 168 Banque de Crédit Maritime, Trieste 76 Banque Générale (Banque Royale) 62 Banque du Havre 217 Banque de Lyon et de la Loire 75, 76, 146, 311n38 Banque Oustric, Paris 168 Banque de Paris et des Pays Bas (Paribas) 77 Banque de Savoie 218 Baring Brothers 236 Baring crisis, 1890 21, 100, 166, 200 Baring crisis, 1995 16, 123–4 Baring loan, 1819 55 Baruch, Bernard 100 Basel Agreement, 1961 249 Baubanken (Austria) 63 Bear Stearns 25, 85ff, 121, 192, 222, 262, 263, 267, 297 Belmont, Auguste 235 Benedict, Ruth 59 Bernanke, Ben 222, 223 Bernard, Samuel 159 Beyen, J.W. 53 Biddle, Nicholas 162 bills of exchange 19, 62, 63, 64, 66, 71ff, 78, 202, 224, 235, 310n21 bimetallism 19, 54 Black Friday, 1745 201 Black Friday, 1866 165 Black Friday, 1869 41 Black Monday 1987 202, 227 Black Thursday, 1929 see Great Depression Blanqué, Pascal 81 Bleichröder, Gerson von 144 Blodgett, Henry 22, 119, 137–8, 151 Blunt, Charles 151 Blunt, John 142, 143, 144 Boesky, Ivan 152 Böhme, Helmut 237 bonds 1, 5, 20, 45, 50, 57, 89, 95, 98, 100, 130 Brady 177, 178, 189, 285 junk 20, 45, 70–1, 128, 129 Panama Canal 219 Bonelli, Franco 167, 222, 240 Bontoux, Eugène 74–5, 76, 100 Bouchard, Charles 151 Boutwell, George S. 219 Bouvier, Jean 75 Brady Bonds 177, 178, 189, 285 Braine, G.T. 226 Braudel, Fernand 41 Brazil 45, 48, 96, 156, 160, 253 1982 crisis 94, 157 1998 depreciation 98 Brennan, Robert B. 47, 138 Bretton Woods system 171, 187, 246ff, 250, 256, 283 brewery companies 49 Brunswick Bank 55 Bubble Act 1720 (GB) 53, 57, 88 bubbles 59, 74, 84ff, 96, 102, 108, 111, 113, 121, 126, 142–8, 170ff, 185ff asset price see asset price bubbles Mississippi Bubble, 1720 57, 158ff South Sea see South Sea Bubble, 1720 see also crises; manias bucket/boiler shops 46–7, 144 Buenos Aires Drainage and Waterworks Company 100 Burj Dubai 107 Caldwell, Rogers 44 call money 63, 69, 74–5, 80 canals 11, 28, 55, 58, 62 Canary Capital 137 capital flows 31, 162, 247–8 cross-border 2, 157, 170, 186, 187, 190, 230, 231, 248, 276, 277, 279, 280, 281, 282, 290 venture capital 12, 56, 181, 182, 183 see also money movements Carswell, John 47 Cassenscheine (Austria) 63 central banks 19, 21, 64, 77–8, 81–2, 83, 90, 115, 191, 224, 226 cooperation between 193, 243 and the ‘Bagehot doctrine’ 263 and Basel Agreement 249 and the ‘lender of last resort’ 213ff, 276 and international money flows 249, 250 see also individual banks certificates of deposit (CDs) 63, 65, 138 Chalmers, George 159 Chicago 46 real estate booms 111–12 Chicago Mercantile Exchange 77 Chicago School see monetarists China 62–3, 85, 229, 285 Citibank/Citicorp/Citigroup 43, 138, 151, 193 City of Glasgow Bank 155 Clapham, Sir John 41, 48, 142, 164, 211, 225, 226, 227, 235, 236, 238 Clark, Edward 197 clearing-house certificates 203ff Clifford & Co. 58 cobweb model 48 Cole, Arthur H. 320n21 collateralized mortgage obligations (CMOs) 258–9 commodity prices copper 43, 51 increases in 3, 8, 21, 31, 50 oil 3, 4, 13, 125, 251 stability of 98–9 volatility in 1, 3, 50, 51 Compagnie des Indes 158 Compagnie d’Occident 142 Comptoir d’Escompte (France) 51, 166, 218 conditionality 252 condominiums, investment in 12, 45 consumption theory 49 contagion domestic 20 international 1, 20–1, 154ff; of asset price bubbles 170ff transmission mechanisms 156ff Continental Illinois Bank 16, 94, 103, 210 Cooke, Jay 21, 44, 50, 165–6 copper prices 43, 51 Corn Laws (GB) 100, 164 corn prices 100 corruption see swindles/fraud corso forzoso (Italy) 165 cotton 155–6 CPAs (certified public accountants) 149–50 crashes see crises Crédit Agricole (France) 164 Credit Anstalt, Vienna 55, 142, 168, 243 credit-default swaps (CDSs) 121, 264 credit expansion 62ff, 69 destabilization and 82–3, 84–5 Great Depression and 78–80 impact of 290–4 manias and 12, 13, 14, 28, 33–5, 46 new bases for 62ff swindles/fraud and 117–53 Crédit Foncier (France) 164 Credit Foncier and Mobilier (GB) 97 Crédit Lyonnais 3, 218 Crédit Mobilier (France) 164 credit-rating agencies 149–50, 260 Credit Suisse First Boston 152 Crimean War, 1854–56 50–1, 164 crises 1–8 1763 54, 58, 62, 66, 73, 96, 152, 159–60, 196 1772 58, 96, 142, 160, 224 1808–9 48, 101 1816 160–1 1825 16, 58, 83, 88, 92, 102, 105, 161, 196, 199–200, 217 1836–39 102, 103, 155, 161–2, 206, 226 1847 58–9, 91, 92, 96–7, 100, 161, 162, 195, 196–7, 215, 225 1857 51, 73, 82, 89, 92, 101, 105–6, 142, 145, 147–8, 164, 197, 203, 205–6, 219, 226, 227–8, 239 1864–66 82, 97, 164 1873 21, 52, 82, 89, 97, 101, 112, 139, 144, 165–6, 197–8, 202, 220, 228, 238 1884 198 1907 21, 63, 82–3, 97, 167, 202 1929 see Great Depression 1980s 1, 3, 4, 7, 34, 98 1987 (Black Monday) 202, 227 1990s/2000 1–3, 4, 5–6, 7, 24, 85, 170–1 2006–2009 1, 7–8, 9, 10, 85, 86, 108, 116, 120, 170, 191, 200, 210, 222, 257–72, 286–8, 297–8, 299, 301 causes of 21, 27, 32–3, 53, 99–104, 154–6, 157–8 currency crises 4, 11, 231; see also individual countries as cyclical 26 development of 84 financial distress and 84–5, 90–4 historical survey 234–9 international contagion of 1, 21, 154–6 Minsky model of 18–19, 26–36 modern prevalence of 233–4, 273ff policy implications 15–18 warnings of 84–6 see also bubbles; manias; panics crisis management 15–18, 191–212 by central banks 191, 235–9 domestic 23–4, 213ff interventionist 199–212 by lender of last resort 198–9 domestic 213ff international 229ff monetarist view on 19, 199–200 non-interference 191–3 crony capitalism 126, 253 Countrywide Financial 4, 86, 262–3, 270 currency board arrangements 98 currency crises 4, 11, 231 see also individual countries Currency School on money supply 19, 65ff Currie & Co. 207 Darmstäder und Nationalbank (Danatbank) 142, 168, 244 Davillier, J.

The counterpart of this change in the Mexican trade balance was that there was a money flow to the United States (a modest preview of the events that would occur in 1997 following the Asian Financial Crisis and the massive turnaround in the trade balances of the Asian countries). In effect the flow of money from Mexico to the United States led to an increase in the prices of US securities. The second aspect was that the Federal Reserve eased its monetary policy and reversed its tightening policy of 1994. An alternative starting date for the onset of the bubble is the summer of 1998, following the Asian Financial Crisis, the financial debacle in Moscow and the collapse of Long-Term Capital Management. The sharp depreciation of the Asian currencies led to an increase in the US trade deficit of more than $150 billion.

Each wave was followed by a recession, and the economic slowdown that began in 2008 was the most severe and the most global since the Great Depression of the 1930s. The first crisis wave was in the early 1980s when Mexico, Brazil, Argentina, and ten other developing countries defaulted on their $800 billion of US dollar-denominated loans. The second wave occurred in the early 1990s and engulfed Japan and three of the Nordic countries – Finland, Norway, and Sweden. The Asian Financial Crisis that began in mid-1997 was the third wave; Thailand, Malaysia, and Indonesia were involved initially and subsequently South Korea, Russia, Brazil, and Argentina tumbled. In retrospect the financial crisis that impacted Mexico during its presidential transition at the end of 1994 was the forerunner for the crisis in Southeast Asia thirty months later. The fourth wave began in 2007 and was triggered by declines in the prices of real estate in the United States, Britain, Spain, Ireland, and Iceland – and then by declines in the prices of the bonds of the Greek, Portuguese, and Spanish governments.


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Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma

3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, business climate, business cycle, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, corporate governance, creative destruction, crony capitalism, deindustrialization, demographic dividend, Deng Xiaoping, eurozone crisis, Gini coefficient, global supply chain, housing crisis, income inequality, indoor plumbing, inflation targeting, informal economy, Kenneth Rogoff, knowledge economy, labor-force participation, land reform, M-Pesa, Mahatma Gandhi, Marc Andreessen, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, Nelson Mandela, new economy, oil shale / tar sands, oil shock, open economy, Peter Thiel, planetary scale, quantitative easing, reserve currency, Robert Gordon, Shenzhen was a fishing village, Silicon Valley, software is eating the world, sovereign wealth fund, The Great Moderation, Thomas L Friedman, trade liberalization, Watson beat the top human players on Jeopardy!, working-age population, zero-sum game

The China scholar Yukon Huang argues that spatial balance “was an obsession of planners in the former Soviet Union” and a prime objective of leaders in Egypt, Brazil, India, Indonesia, Mexico, Nigeria, South Africa, and other developing nations. Huang says Deng was virtually alone in his understanding that rising regional inequality was a necessary political risk, at least in the short term. He also clearly knew that the boom in these coastal zones would serve as a magnet to rural migrants. The congress in 1997 coincided with the onset of the Asian financial crisis and the collapse of currencies across the region. As falling global demand idled plants around the country, Beijing began to downsize bloated state factories, laying off tens of millions, and sold many small state firms to private owners. It also privatized the real estate sector, allowing individual property ownership for the first time. The sight of the Communist Party slashing state jobs and bankrolling the rise of a home-owning bourgeoisie showed that communism as Mao knew it was truly finished.

That’s a big reason why the value of Brazil’s stock market rose 300 percent in dollar terms from 2000 to 2010, more than triple the rise in China’s market, despite Brazil’s slower economic growth. In this respect at least, Brazil represents a positive turn in emerging markets. Stock markets should rise in value when the economy is growing, but in recent decades in the emerging world, they often have not. A case in point was South Korea, where the benchmark KOSPI index peaked in 1989, while the economy continued to grow at a 6 percent pace until the outbreak of the Asian financial crisis in 1997. Companies saw the stock market as a place to raise quick money, not as a basic measure of the company’s long-term value. Emerging-market companies focused on getting big—more employees, more sales, more market share—and didn’t pay much attention to whether all that revenue was generating bottom-line profit, the metric stock market investors care about most. In recent years with a few glaring exceptions, such as China, that has begun to change: as companies from Brazil to South Korea have started to refocus on profit, stock markets have started to rise (and fall) with emerging economies.

South Korea, with a GDP of $1.1 trillion and a population of forty-eight million, is twice the size of Taiwan ($505 billion and twenty-three million) and is pulling away as a competitive force: in 2006 the total value of the South Korean stock market surpassed Taiwan’s for the first time, and it is now considerably larger, at $1 trillion versus $700 billion. Intriguingly, the family dynasties that still dominate the top-thirty Korean companies, and that were widely seen as the heart of a severe “crony capitalism” problem at the depths of the Asian financial crisis in 1998, have reformed so dramatically that they are now a core strength for the local economy. Hyundai, spoofed a decade ago for its authoritarian management style, impenetrable bookkeeping, and laughably bad cars, is now a world-beater. Taiwan, meanwhile, sticks to the narrow niche of banging out goods sold under the “made in” label of other countries. And while both gold medalists are the richer halves of divided nations, Taiwan has little to gain from the distant prospect of reunification with the much-larger Chinese mainland, while South Korea is already preparing to adopt the well-disciplined workforce of North Korea, which could fail at any moment.


Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics by Francis Fukuyama

Asian financial crisis, banking crisis, Berlin Wall, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, cognitive bias, cuban missile crisis, energy security, flex fuel, global pandemic, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John von Neumann, mass immigration, Menlo Park, Mikhail Gorbachev, moral hazard, Norbert Wiener, oil rush, oil shale / tar sands, oil shock, packet switching, RAND corporation, Ray Kurzweil, reserve currency, Ronald Reagan, The Wisdom of Crowds, trade route, Vannevar Bush, Vernor Vinge, Yom Kippur War

Hurricane Katrina, for example, was one of the most fully predictable and scenario-tested natural disasters in American history, but that fact still did not lead to appropriate preparatory actions or adequate crisis responses on the part of responsible officials at the local, state, or federal levels. The following section, “Cases: Looking Back,” looks more closely at some historical examples of surprise—upside as well as downside—and asks why the social and economic impacts of emergent technologies and events like the collapse of the former Soviet Union and the 1997–98 Asian financial crisis were not anticipated. David Landes, Bruce Berkowitz, and David Hale draw on their knowledge of history and policy to pinpoint those institutional, and not just personal, failures that prevented policymakers and others from properly anticipating major events of the time. 2990-7 ch01 fukuyama 4 8/8/07 2:12 PM Page 4 francis fukuyama The third section discusses potential future cases of surprise.

But acknowledging when intelligence is successful is equally important. So too is appreciating the differences between an intelligence failure and policy frailties whose sources lie elsewhere. Without an understanding that such things can happen, we are certain to be blindsided in the future. 2990-7 ch05 hale 7/23/07 5 12:09 PM Page 42 Econoshocks: The East Asian Crisis Case David Hale T he East Asian financial crisis of 1997–98 was one of the most dramatic economic events of the twentieth century. A region that had enjoyed several years of robust economic growth was suddenly plunged into a financial crisis that produced widespread bankruptcies and sharply higher unemployment. The crisis brought down one of Asia’s oldest dictators, Indonesia’s Suharto, and helped to topple a democratically elected government in Thailand.

The bank problems would constrain the ability of central banks to tighten monetary policy and thus set the stage for currency depreciation. They found that such crises tended to be more severe in developing countries than in industrial ones. One of the best examples of such a crisis was Chile in 1983, but they found similar examples in Argentina (1981), Brazil (1987), Colombia (1983), Finland (1983), Mexico (1994), Peru (1985), and Turkey (1984). Despite this evidence, on the eve of the East Asian financial crisis few believed that the region was vulnerable to major financial shocks. East Asian countries, after all, had but modest budget deficits and generally low infla- 2990-7 ch05 hale 46 7/23/07 12:09 PM Page 46 david hale tion. The Reinhart-Kaminsky paper therefore did not produce much discussion in East Asia because most of the crises they reviewed had been in Latin America, and East Asia was free of Latin America’s problems with large fiscal deficits.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

The consistent bias of national protectionism in all its guises was the subordination of finance to industry, the proclamation of the importance of production. Since the 1970s, the re-emergence of financial crises has been accompanied by a revival in national protectionism, but in a much weaker form than in the 1930s. 74 Andrew Gamble In general, the territorial conception of world order has been less influential than in some earlier periods (Gamble and Payne 1996). It retains considerable power, however, as shown in the Asian financial crisis, when several states responded to the serious situation facing them by reasserting their national sovereignty. Malaysia, in particular, sought to insulate its economy from external pressures, resorting to exchange controls amongst other measures. But despite the extreme nature of the financial crisis which engulfed many economies in East Asia, as well as subsequently in Latin America, there was no general retreat to protectionism and the crisis measures proved temporary; states have sought to negotiate their way back into the global economy.

Many have constantly predicted the eruption of a major financial crisis which will finally destroy the political basis for the continuance of the post-1945 liberal economic order in the same way that the 1929–31 crisis finally destroyed the nineteenth-century liberal economic order. But it has not so far happened and the liberal economic order has even survived its greatest test so far, the Asian financial crisis. Territorial order, however, remains an indispensable characteristic of the contemporary world order, because of the continuing importance and relevance of national jurisdictions within it. In moments of extreme crisis in the system, the possibility of a resort to national jurisdictions and national sovereignty remains a possibility. That it has not so far happened is testament to the material, institutional and ideological strength of two other conceptions of world order.

The debate reached its peak in the 1980s when the contrast was between the market led Anglo-American model and the state-led or trust-based models of Germany and Japan. For a time decline fever which had long afflicted Britain gripped the United States and the superiority of the German and particularly the Japanese models of capitalism were much trumpeted. But the roles were reversed in the 1990s and the century ended with the Anglo-American model apparently back on top. The Asian financial crisis was one of the most significant events in promoting this reversal. It raised the question of whether the different models that flourished in the decades since 1945 were the product of the era of national protectionism and US hegemony in the global economy and has gradually been undermined as the logic of the global capitalist economy has reasserted itself. In this view, a particular phase of capitalist development has ended and the space for certain models of capitalism has disappeared with it.


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The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

But it is impossible to look back at the developments of the past three decades without concluding that, notwithstanding the failures and disappointments, the general direction has been towards more accountable governments, more market-oriented economies, and so towards more cooperative and positive-sum relations among states.11 The creation of the World Trade Organization in 1996 is just one, albeit particularly important, sign of these fundamentally hopeful developments. Yet much has also gone wrong. During the 1990s, and particularly during the Asian financial crisis of 1997–98, I became concerned that the liberalization of the 1980s and 1990s had brought forth a monster: a financial sector able to devour economies from within. I expressed those concerns in columns for the Financial Times written in response. This suspicion has hardened into something close to a certainty since 2007. Connected to this is concern about the implications of ever-rising levels of debt, particularly in the private sector, and, beyond that, what is beginning to look like chronically weak demand, at the global level.

If the financial and monetary authorities managed to sustain the pegged exchange rate, despite the depression, adjustment would then occur via falling nominal wages and prices (what the Eurozone calls ‘internal devaluation’), emigration and a write-down of the bad debt of insolvent banks, non-financial companies, households and possibly even the government. In time, with competitiveness restored and debt restructured, the economy would recover. This used to happen in the nineteenth century. It has happened, more recently, in small open economies, such as Hong Kong after the Asian financial crisis and the Baltic states after the crises that began in in 2007. This is, in effect, the old gold-standard mechanism. If, however, the authorities let the peg go, the adjustment would be accompanied by a depreciation of the nominal exchange rate. That would obviate debt deflation and the need to cut nominal wages and prices. It is likely, though not certain, that the result would be a swifter and less painful adjustment, without a tidal wave of defaults.

The latter have suffered huge financial crises, big recessions, and correspondingly large rises in fiscal deficits and debt. This is the sort of picture we used to see in emerging and developing countries: one crisis came on the heels of another, notably the Latin American debt crisis of the 1980s, the ‘Tequila crisis’ in Mexico and then other Latin American countries in the mid-1990s, the Asian financial crisis of 1997–98, and the crises in Russia (1998), Brazil (1998–99) and Argentina (2000–01). But emerging countries suffered far fewer banking crises in the 2000s than in the 1980s and 1990s, largely because few had experienced big credit booms in the earlier 2000s. That left them in a good position to expand domestic credit in response to the crises of 2008 and 2009. Thereupon, after the immediate collapse in external demand was over, they mostly tightened credit again.


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13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak

American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bernie Madoff, Bonfire of the Vanities, bonus culture, break the buck, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Gordon Gekko, greed is good, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, sovereign wealth fund, The Myth of the Rational Market, too big to fail, transaction costs, value at risk, yield curve

See Stephan Haggard, The Political Economy of the Asian Financial Crisis (Washington: Peterson Institute for International Economics, 2000), 56–57. 12. Sung Wook Joh, “Korean Corporate Governance and Firm Performance” (working paper, 12th NBER seminar on East Asian Economics, 2001). 13. Joh, “Corporate Governance and Firm Profitability,” supra note 4. See also Jae-Seung Baek, Jun-Koo Kang, and Kyung Suh Park, “Corporate Governance and Firm Value: Evidence from the Korean Financial Crisis,” Journal of Financial Economics 71 (2004): 265–313. 14. Details of Korea’s economic performance immediately prior to the crisis are in “Korea Letter of Intent to the IMF,” supra note 1. 15. For a timeline of events, see Congressional Research Service Report for Congress, The 1997–98 Asian Financial Crisis, February 6, 1998, available at http://www.fas.org/man/crs/crs-asia2.htm.

In this situation, borrowing in U.S. dollars only increased the vulnerability—fears that a country is in trouble can become self-fulfilling as foreign bankers and bondholders scramble to pull their money out first, triggering the defaults that they were afraid of. For the first nine months of 1997, the Korean economy grew at an impressive rate of around 6 percent.14 In July, however, the “Asian financial crisis” broke out in Thailand as a crisis of confidence caused a collapse in the local currency, the baht. Overleveraged companies saw their debts double practically overnight (because their debts were in foreign currencies, the amount they owed doubled when the value of the Thai baht fell by half) and were forced to default, causing mass bankruptcies and layoffs. One month later, the crisis spread to Indonesia, where the currency collapsed and domestic companies failed.

Peter Orszag, Clinton economic adviser and director of Rubin’s Hamilton Project, became head of the Office of Management and Budget; Gary Gensler, treasury undersecretary for domestic finance under Summers (and former Goldman partner), became head of the CFTC; Mary Schapiro, first head of the CFTC under Clinton and later head of the Financial Industry Regulatory Authority, the financial industry’s chief self-regulatory body, became head of the SEC; Neal Wolin, treasury deputy counsel and general counsel under Rubin and Summers, became deputy treasury secretary; Michael Barr, special assistant and deputy assistant secretary in the Rubin Treasury, became assistant secretary for financial institutions; Jason Furman, director of the Hamilton Project after Orszag, became deputy director of the NEC; and David Lipton, treasury undersecretary for international affairs during the Asian financial crisis and later Citigroup executive, also became one of Summers’s deputies at the NEC. Even President Obama’s chief of staff, Rahm Emanuel, had a similar background, having worked both as a Clinton adviser and as an investment banker at Wasserstein Perella. Geithner’s counselors as treasury secretary included Lee Sachs from the Clinton Treasury (and most recently a New York hedge fund) and Gene Sperling, Rubin’s successor as director of the NEC (and most recently a highly paid adviser to a Goldman Sachs philanthropic project).


Super Continent: The Logic of Eurasian Integration by Kent E. Calder

3D printing, air freight, Asian financial crisis, Berlin Wall, blockchain, Bretton Woods, business intelligence, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, colonial rule, Credit Default Swap, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, disruptive innovation, Doha Development Round, Donald Trump, energy transition, European colonialism, failed state, Fall of the Berlin Wall, Gini coefficient, housing crisis, income inequality, industrial cluster, industrial robot, interest rate swap, intermodal, Internet of things, invention of movable type, inventory management, John Markoff, liberal world order, Malacca Straits, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, new economy, oil shale / tar sands, oil shock, purchasing power parity, quantitative easing, reserve currency, Ronald Reagan, seigniorage, smart cities, smart grid, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, supply-chain management, Thomas L Friedman, trade liberalization, trade route, transcontinental railway, UNCLOS, UNCLOS, union organizing, Washington Consensus, working-age population, zero-sum game

China, which emerged only minimally affected by the Asian financial crisis of the 1990s due to its extensive capital controls, continued to rise gradually in economic terms following the crisis, powered by heavy and rising exports to the United States. The pace of China’s ascent, however, was slower than during the 1980s and early 1990s. Meanwhile, the US and Europe also grew steadily, powered first by the dot-com boom of the late 1990s, and later by the steady housing construction of the early 2000s, as well as the expansion of government spending entailed by the Afghanistan and Iraq conflicts. Chinese growth was much more dependent on the US market than it had been before the early 1990s, although declining slowly from its Asian financial crisis peak. Quietly, however, the seeds of major change in the economic trajectories of the United States and China, major protagonists of the Crossover Points, were being laid.

Japan, however, faces rising long-term competition for Gulf supplies, not only from China, but also from Korea and the Association of Southeast Asian Nations (ASEAN). Those three actors take most of the flow eastward from the Gulf that does not go to Japan. Asia’s overall share of Persian Gulf exports, which is close to twice what any other region of the world procures, has risen considerably since the Asian financial crisis of 1997–1998 —from 50 percent in the depths of the crisis to over 70 percent two decades later.19 Asia’s share of Gulf energy exports fell, to be sure, during the crisis itself, dipping slightly from 56 percent of regional exports in 1996 to less than 52 percent by 1998 –1999. Yet Asia’s share rebounded thereafter, as local economies began to recover, exceeding 60 percent of the Persian Gulf ’s total exports by 2003.

These investment vehicles include the China-Central and Eastern Europe Investment Fund (November 2013), cosponsored by the ­Export-Import Bank of China and the Hungarian Export-Import Bank, as well as the Russia-China RMB Cooperation Fund ( July 2017), jointly funded by the China Development Bank and the Russian Direct Investment Fund.19 The two conspicuous risks that the Chinese state-dominated financial system presents to global finance are the converse of its strengths. The system is, precisely because it is a creature of the Chinese state, vulnerable to moral hazard. Japan saw the consequences of such a system in the late 1990s, amid the Asian financial crisis, after its administered credit system was opened to the world. For related structural reasons, the contemporary Chinese financial system is not good at credit assessment—a problem sometimes compounded by political pressures for problematic lending, both within China and in host nations. Such pressures have led to a rash of credit scandals, sometimes involving favoritism to host governments to undertake economically dubious projects, as recently revealed in Malaysia, Sri Lanka, Pakistan, and elsewhere.


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The New Ruthless Economy: Work & Power in the Digital Age by Simon Head

Asian financial crisis, business cycle, business process, call centre, conceptual framework, deskilling, Erik Brynjolfsson, Ford paid five dollars a day, Frederick Winslow Taylor, informal economy, information retrieval, medical malpractice, new economy, Panopticon Jeremy Bentham, shareholder value, Shoshana Zuboff, Silicon Valley, single-payer health, supply-chain management, telemarketer, Thomas Davenport, Toyota Production System, union organizing

But it has been globalization defined as a sharpening of international competition that is most often seen as a threat to U.S. jobs and wages, and so as a leading cause of inequality in the United States. In the mid-1990s the Asian tiger economies such as South Korea and Indonesia displaced Germany and Japan as the United States' global nemesis, threatening U.S. jobs and incomes. But then the Asian financial crisis of 1998-1999 exposed major flaws in the Asian tiger economies, and these economies also faded as agents of competitive globalization.8 However, even before the Asian financial crisis cut the ground from under competitive globalization, many economists had 3 4 THE NEW RUTHLESS ECONOMY concluded that this variant of globalization could not account for the stagnation of U.S. wages and the growth of inequality in the United States.9 Competitive globalization is overwhelmingly a phenomenon of manufacturing, with U.S. workers supposedly losing jobs and earnings to makers of cheap imports in the developing world, or to multinational corporations relocating their plants overseas.

With the coming retirement and aging of the baby boom generation certain to strain existing programs such as Social Security and Medicare, the use of the tax system to support the working middle class is likely to run up against the fiscal buffers sooner rather than later—and particularly if the slowdown of 2001-02 portends a period of slower growth for the U.S. economy, with lower tax revenues. Another drawback of failing to identify and remedy the causes of inequality is that the opportunity to do so is left open to those advocating policies that are damaging and ill conceived. Before the Asian financial crisis put paid to it in the fall of 1998, there was, for example, a theory of "globalization" that looked beyond the American shores for the causes of inequality within the United States. With the improbable duo of Pat Buchanan and Lester Thurow as its leading protagonists, this version of globalization had the American middle class diminished by the emergence of new industrial economies in the Third World.23 Because this theory had the potential to feed protectionist sentiment in Congress and among the voting public, the then-MIT economist Paul Krugman wrote a series of furious polemical essays, published in 1997 under the tide "Pop Internationalism," exposing the muddled economics of the new globalism.24 Krugman 183 184 THE NEW RUTHLESS ECONOMY won the technical argument, but it was the Asian financial crisis that really showed Buchanan and Thurow's Third World economies to have feet of clay.

With the improbable duo of Pat Buchanan and Lester Thurow as its leading protagonists, this version of globalization had the American middle class diminished by the emergence of new industrial economies in the Third World.23 Because this theory had the potential to feed protectionist sentiment in Congress and among the voting public, the then-MIT economist Paul Krugman wrote a series of furious polemical essays, published in 1997 under the tide "Pop Internationalism," exposing the muddled economics of the new globalism.24 Krugman 183 184 THE NEW RUTHLESS ECONOMY won the technical argument, but it was the Asian financial crisis that really showed Buchanan and Thurow's Third World economies to have feet of clay. The protectionist virus has inhabited the American polity since its birth, always available to a public suffering through hard times. But public opinion is the indispensable catalyst of beneficial change, as the politics of health care demonstrate. The health care battle has been fought on technical issues such as the right to external review, but it has been the public's refusal to accept the industrialization of health care— the intrusion of mass production and scientific management into the hospital ward and the doctor's office—that has framed the conflict and forced the managed care industry to give ground.


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Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, Live Aid, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, Nelson Mandela, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, plutocrats, Plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game

When the United States and Europe were hit by their own financial crises in 2008, it was well noted in Asia that the policies pursued seemed to be the exact opposite of those urged on Asia a decade earlier—interest rates were slashed, banks were bailed out, governments indulged in massive deficit spending. A second major consequence of the Asian financial crisis was that it encouraged countries in the region to build up huge foreign reserves to give themselves defenses against future waves of speculation. By 2008, when the global financial crisis hit, China’s reserves alone were almost $2 trillion. Cash piles of that sort gave Asian policy makers a huge boost in confidence when dealing with their Western counterparts. Finally, the Asian financial crisis hastened a transfer of power within the Asian continent itself. The countries that were affected worst were Thailand, Indonesia, and South Korea, and the fallout extended to other Southeast Asian tigers such as Singapore and Malaysia.

And yet, for all that, Japan was still a nation comfortable with the prevailing international system. The years of rapid growth had gone, but Japan remained a wealthy and orderly country, the second-largest economy in the world throughout the period, a title only ceded to China in 2010. As America’s closest Asian ally, Japan was comfortable with the “unipolar moment.” And, as a major exporting power, Japan had little reason to question the merits of globalization. The Asian financial crisis of 1997–98 gave some of Japan’s neighbors much more reason to ask fundamental questions about how the international capitalist system was working. In a sequence of frightening events that prefigured the global financial crisis of 2008, a series of Asian economies were hit by capital flight, collapsing currencies, defaulting loans, folding businesses, and, finally, catastrophic-sounding collapses in economic output.

Their economies slowed but they did not tip into recession. The first part of the Asian story had been about the rise of Japan in the postwar era. Then came the first Asian tigers—South Korea, Taiwan, and Singapore. By the time I moved to Bangkok in 1992, the action had shifted to Southeast Asia. Thailand for a time was the fastest growing economy in the world. Growth did return to Thailand and Southeast Asia, after the Asian financial crisis, but the world’s attention had moved on. By 1999, it was clear that the really world-shaking developments were taking place in China and India. As the citizen of a Southeast Asian nation, Kishore Mahbubani could have regarded this as a worrying development. Instead he chose to rejoice in the rise of Asia as a continent. For Mahbubani, the biggest worries concerned the West. Would the United States have the wisdom to welcome China’s “peaceful rise”?


pages: 128 words: 35,958

Getting Back to Full Employment: A Better Bargain for Working People by Dean Baker, Jared Bernstein

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, business cycle, collective bargaining, declining real wages, full employment, George Akerlof, income inequality, inflation targeting, mass immigration, minimum wage unemployment, new economy, price stability, publication bias, quantitative easing, Report Card for America’s Infrastructure, rising living standards, selection bias, War on Poverty

The developing world uses capital from rich countries to sustain the consumption of its population while it builds up its capital stock. The world economy has never fit this textbook story very well, but there were periods, such as the early and mid-1990s, when capital flowed from rich countries to developing countries. The United States in these years ran a trade deficit, but a relatively modest one. This situation changed with the onset of the East Asian financial crisis of 1997, when investors pulled money not only out of East Asia but from the developing world as a whole. The dollar soared in value against the currencies of the countries in the region, partly because the countries needed to export more to repay money borrowed to get through the crisis, but partly because they wanted to accumulate massive amounts of foreign exchange to protect themselves against future crises.

A drop in the dollar by 10 percent against other currencies is equivalent to a 10 percent increase in the productivity of the U.S. economy, assuming no offsetting increase in wages. This swamps any plausible increase in productivity even with a very effective program of improved education and infrastructure. The drop in the dollar from its peak in the last decade has brought the non-oil trade deficit almost down to where it was before the run-up in the dollar in the late 1990s.[40] In 1996, before the East Asian financial crisis sent the dollar soaring, the non-oil deficit was less than 0.3 percent of GDP. It peaked at 3.7 percent of GDP in 2004, three years after the peak of the dollar, and had fallen back to 0.8 percent of GDP in 2012, following the dollar back to its former level. But counting oil, for which the United States paid far more in 2012 than it did in 1997, the trade deficit is still large. In textbook economics the higher price of oil imports should lead to a further decline in the value of the dollar, as increased exports and reduced imports of non-oil products offset the impact of higher oil prices.

Instead, we should have a policy focused on getting the trade deficit closer to balance. While there are many policies, such as improving education and infrastructure, that will increase the economy’s productivity, even in a best-case scenario these strategies can have only a marginal impact on the trade balance in the near term. The trade deficit was relatively modest until the late 1990s, when the East Asian financial crisis led to a run-up in the value of the dollar. While the dollar has since reversed much of this gain, it needs to fall still further. Lowering the value of the dollar is not a difficult task economically; the problem is political. Powerful domestic interest groups benefit from an overvalued dollar, and getting it down to a level consistent with more balanced trade will mean overcoming the opposition of these special interests


pages: 278 words: 82,069

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

Asian financial crisis, banking crisis, Bretton Woods, business cycle, buy and hold, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, John Meriwether, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, money market fund, mortgage debt, Naomi Klein, new economy, offshore financial centre, payday loans, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, sovereign wealth fund, structural adjustment programs, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

I want to talk about two recent crises that have something to teach us. One of them is the Asian financial crisis in 1997–98, and the other is the Argentina economic meltdown in December 2001. In The Shock Doctrine, I have a chapter about the Asian financial crisis. It’s called “Let it Burn,” and the reason why it’s called that is because the very same banks that have been so anxious to get bailouts from U.S. taxpayers at the time were saying that what Asia needed—this is a quote—“what Asia needs is more pain.” Because, of course, Citibank, Goldman, Morgan Stanley, went into Asia after the crisis reached bottom and bought up the crown jewels of the Asian tiger economies. What I want to read you from the book is something Alan Greenspan said at the time. He said that what he thought was being witnessed with the Asian financial crisis was “a very dramatic event towards a consensus of the type of market system which we have in this country,” this country being America.

It would be better if we got it right the first time, but that is expecting too much of this president and his administration. View from Asia WA L D E N B E L L O September 24, 2008 Manila Many Asians absorb what is happening in Wall Street with a combination of déjà vu, skepticism and “I-told-you-so.” For many, the Wall Street crisis is a replay, though on a much larger scale, of the 1997 Asian financial crisis, which brought down the red-hot “tiger economies” of the East. The shocking absence of Wall Street regulation brings back awful memories of the elimination of capital controls by East Asian governments, which were under pressure from the International Monetary Fund and the U.S. Treasury Department. That move triggered a tsunami of speculative capital onto Asian markets that sharply receded after sky-high land and stock prices came tumbling down.

The markets would do the job instead—and if other governments did not like the new risks, tough. For a long time, it looked as though private markets could step into the breach—recycling first petrodollars in the 1970s and then Asian dollars back into the global system. Floating exchange rates were volatile, but instruments like markets in future exchange rates emerged to manage new risks. There might be serious ruptures, like the 1980s Latin American debt crisis or the 1990s Asian financial crisis when private markets took fright, but basically governments could step away from global economic management. The U.S. could have guns, butter and allow its great multinationals and banks to expand abroad willy-nilly—and the markets would manage the implications spontaneously, finding the capital the U.S. needed with no constraint on either its government or financial system. Now we know they cannot.


pages: 247 words: 68,918

The End of the Free Market: Who Wins the War Between States and Corporations? by Ian Bremmer

affirmative action, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, centre right, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, cuban missile crisis, Deng Xiaoping, diversified portfolio, Doha Development Round, Exxon Valdez, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, invisible hand, joint-stock company, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, low skilled workers, mass immigration, means of production, megacity, Mikhail Gorbachev, mutually assured destruction, Naomi Klein, Nelson Mandela, new economy, offshore financial centre, open economy, race to the bottom, reserve currency, risk tolerance, shareholder value, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, trade route, tulip mania, uranium enrichment, Washington Consensus, Yom Kippur War, zero-sum game

Suharto supported the creation of state-owned banking, power, utility, and telecommunications companies and a complex network of politically connected private companies in timber, oil, gas, mining, textiles, cigarettes, and agriculture. Even today, many of the country’s best-connected businessmen use close personal ties with powerful political officials to block the market reforms that would burden them with genuine competition. In addition, the 1997 Asian financial crisis forced even greater state intervention after the government had to bail out most of the country’s largest banks. A decade later, the state still owns majority or large minority shares in many of them. Current President Susilo Bambang Yudhoyono has worked to ensure that his economic team includes committed free-market-minded professionals, and he has risked public anger by reducing government subsidies for fuel and sugar.

Yet forty years later, the UMNO-led government still wins votes by pandering to the ethnic majority with promises to use state power to send a guaranteed share of the country’s wealth their way. The national oil and gas company Petronas owns all of Malaysia’s natural hydrocarbon resources and manages them through production-sharing contracts with foreign investors. Petronas has investments in more than thirty countries, from Argentina to Algeria to Mozambique to Uzbekistan to Australia. During the Asian financial crisis, Petronas acted on government instructions to bail out several state-owned or state-linked companies, one of which reportedly belonged to former Prime Minister Mahathir Mohammad’s son Mirzan Mahathir. Khazanah Nasional, Malaysia’s sovereign wealth fund, owns a substantial stake in the CIMB (Commercial International Merchant Bankers) Group of banks and other large companies. CIMB Group is headed by Nazir Razak, brother of Malaysian Prime Minister Najib Razak.

No, because governments use the tools provided by state capitalism to accomplish political goals, not to serve the public welfare. This system allows them to minimize the political risks they face by maximizing their control over activities that generate substantial amounts of wealth. That’s not a formula for producing more efficient or more equitable economic performance. China emerged strong from the Asian financial crisis of the late 1990s at least in part because its leadership supplemented stimulus spending with measures designed to further liberalize the Chinese economy—especially by privatizing urban housing ownership, turning a government benefit into a market commodity. The result was increased corporate investment and a spike in consumer spending. To respond to the larger market meltdown in 2008, the Chinese government announced a $586 billion stimulus package to be invested largely in infrastructure and affordable housing.


pages: 1,066 words: 273,703

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, break the buck, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, paradox of thrift, Peter Thiel, Ponzi scheme, predatory finance, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, structural adjustment programs, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

See International Monetary Fund (IMF) India, 477, 483 Indonesia, 477, 483 Asian financial crisis and, 7, 32, 255–56, 261 capital controls adopted by, 475 financial crisis of 2008 and, 258–59 stimulus program, 258–59 Industrial and Commercial Bank of China, 249 inequality, 455–63 inflation, 11, 44–45 ING, 124 interest rates ECB rate increase 2011, 378–79 Fed’s rate hikes, 2015–2018, 590 Greenspan cuts, after dot-com bust and 9/11, 37–38, 55–56, 69–70 inverted yield curve, 2006, 70 taper tantrum of 2013, 472–82 Volcker’s raising of, 43–44 intergovernmentalism, 113, 114–15 International Monetary Fund (IMF), 17–18, 89, 127 acceptance of exchange controls, 475 Asian financial crisis, 261 banking crisis, 206, 401-2 Eastern European crisis, 127, 230–32, 235, 237, 491–93 eurozone crisis, 2010–12, Greece and, 323, 325, 332–34, 336, 340, 343, 344–45, 357, 377, 382–85, 388–89, 405, 413, 422, 424 eurozone crisis, 2015, Greece and 516–517, 520, 523, 527, 528–30 eurozone crisis Ireland and, 360, 364–65, 368, 398 eurozone crisis Italy and, 410–11 fiscal multiplier underestimated by, 423, 429–30 global imbalances, 40, 370 G20 agreement for expanded funding of, 270, 272 quota reallocation, 270, 272, 469, 479, 488 Ukraine and 2013–15, 493–94, 495–98, 500–1, 507–8 warns against Brexit, 550 investment banks, 51–54 Brexit and, 550–51 compensation at, 65 crises faced by, in 1990s and early 2000s, 53–54 funding of, 52–53 growth from 1970s, 51–53 products engineered by, 52 profits made by, 64–65 See also specific investment banks Iraq War, 3, 28, 115–16 Ireland, 83–84, 167, 337, 338 bank bailouts in, 185–86, 193 debt crisis in, 322, 323, 359–66 ECB forces austerity plan on, 362–65 household wealth lost in, 156 IMF and, 360, 364–65, 368, 398 real estate boom in, 105, 106, 107, 109 Irish Times, 363 Irwin, Neil, 215–17, 350 Italy, 322, 385 austerity program adopted in, 387 Cannes G20 and, 410–12 debt of, 386–87, 389 ECB’s bond buying program, 2011, 398–99 euro entry of, 94 eurozone crisis resolution, 2012 and, 431–37 Japan, 30, 158–59 Jay Z, 40 Johnson, Boris, 548, 552 J.P.

In the words of George Soros, Russia was “a centrally planned economy with the centre knocked out.”2 In the so-called transitional recession, inflation soared and Russia’s real GDP fell by 40 percent between 1989 and 1995. On “Black Tuesday,” October 11, 1994, in one single session of frantic currency trading, the ruble lost more than a quarter of its value against the dollar. It was not until 1995 that Russia’s economy stabilized. A modest revival fueled by large imports of foreign capital enabled Russia to catch its breath, only to be thrown off balance yet again by the Asian financial crisis of 1997.3 Struggling to hold the exchange rate, the Russian central bank introduced exchange controls and begged an emergency IMF loan.4 But in August 1998 Yeltsin’s government lost its grip. On August 17 Moscow devalued and declared a ninety-day moratorium on the payment of foreign debts owed by Russian banks. The ruble went into free fall, plunging from 7 to the dollar to 21. The cost of imports surged.

The swap lines helped to reassure markets. But they also threw a shadow of doubt over those central banks that had not been so favored. The shutdown in the money market was affecting the entire financial system. Where were major emerging market central banks to get their dollars from? For a nation like South Korea to have approached the IMF was out of the question given live memories of the Asian financial crisis of 1997–1998.25 So on October 29 the Fed’s favor was extended to four key emerging market central banks: Brazil, Korea, Mexico and Singapore.26 All told, fourteen central banks would be included in the program.27 The total amount outstanding on the network of dollar swap lines reached its peak in December 2008 at $580 billion. Briefly, the swaps touched 35 percent of the Fed’s balance sheet.


pages: 350 words: 109,220

In FED We Trust: Ben Bernanke's War on the Great Panic by David Wessel

Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, Black Swan, break the buck, business cycle, central bank independence, credit crunch, Credit Default Swap, crony capitalism, debt deflation, Fall of the Berlin Wall, financial innovation, financial intermediation, fixed income, full employment, George Akerlof, housing crisis, inflation targeting, information asymmetry, London Interbank Offered Rate, Long Term Capital Management, market bubble, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, price stability, quantitative easing, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, savings glut, Socratic dialogue, too big to fail

But his words were so emphatic that listeners later were stunned by his subsequent actions. As Lehman’s problems deepened, the Treasury secretary’s style occasionally brought him into conflict with Geithner, his partner in managing the crisis. Geithner’s approach — at least when he was at the New York Fed — was more disciplined, calmer, and politically savvy. A veteran of the U.S. Treasury’s management of the Asian financial crisis of the 1990s, Geithner had learned at the side of Clinton’s agile Treasury secretary, Bob Rubin. Rubin placed a high premium on what his then-deputy Lawrence Summers called “preserving optionality” — deferring final decisions until they had to be made and avoiding any public statement that could limit his political wiggle room. Rubin prized flexibility, and so did Geithner. That made sense in an ever-changing panic, but this approach risked turning crisis management into a series of ad hoc decisions that left everyone from traders in the markets to politicians in Congress guessing at the rules of the game.

The result was lower unemployment without higher inflation — and a technology stock market bubble for which Greenspan got substantial blame. But even after that bubble burst, and a recession ensued, the Greenspan Fed managed to get the economy going again by aggressively cutting interest rates — and the United States avoided the misery that followed the bursting of a real estate and stock market bubble in Japan. Bush was right. Greenspan was a rock star — at least at that moment. He had steered the U.S. economy around the Asian financial crisis in 1998, two wars with Iraq, and the September 11 attacks. To economists, bond traders, and businessmen, he was a hero. “No one has yet credited Alan Greenspan with the fall of the Soviet Union or the rise of the Boston Red Sox, although both may come in time as the legend grows,” Princeton’s Alan Blinder, a former Fed vice chairman, and Ricardo Reis wrote in a 2005 evaluation of Greenspan that pronounced him “amazingly successful.”

Translation: Lenders were more willing to lend because they share with the investors the risk that borrowers wouldn’t repay. Derivatives allowed investors to hedge their bets, making them comfortable with positions they might once have shunned. Hedge funds and other huge pools of capital reduced volatility by pouncing when markets push an asset price even slightly out of line. That was all to the good, but recalling the 1987 stock market crash and the 1998 Asian financial crisis, Summers observed presciently: “Some of the same innovations that contribute to risk spreading in normal times can become sources of instability following shocks to the system as large-scale liquidations take place.” (Translation: Everyone was counting on always being able to quickly sell any newfangled financial instrument.) Normally, that made sense. But if something bad happened, and everyone tried to sell at once — look out!


pages: 290 words: 84,375

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle by Dinny McMahon

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, American Society of Civil Engineers: Report Card, Andrei Shleifer, Asian financial crisis, bank run, business cycle, California gold rush, capital controls, crony capitalism, dark matter, Deng Xiaoping, Donald Trump, Edward Glaeser, eurozone crisis, financial innovation, fixed income, Gini coefficient, if you build it, they will come, income inequality, industrial robot, invisible hand, megacity, money market fund, mortgage debt, new economy, peer-to-peer lending, Ponzi scheme, Ronald Reagan, short selling, Silicon Valley, too big to fail, trickle-down economics, urban planning, working-age population, zero-sum game

However, the history of economic booms is that those moments generally come too late. During most booms, people are not only blind to the risks but they devise explanations for why risks don’t even exist. People assumed the subprime mortgage crisis couldn’t happen, because the United States had never experienced a nationwide decline in housing prices. During the dot-com boom, the delusion was that the new economy had done away with the business cycle. Before the Asian financial crisis, it was assumed that Asian values had created a new, more sustainable type of economic growth. In China, people’s faith in the security of their investments isn’t based on some pseudoscientific theory that somehow things are different this time; their confidence is rooted in the knowledge that someone will bail them out should the need arise. That deep-rooted sense of entitlement is most viscerally on display when bailouts fail to materialize.

Throughout history, construction of the tallest skyscraper in the world has been synonymous with the imminent onset of economic crises, an association that goes back to an 1873 financial crisis, when the completion of the 142-foot-tall Equitable Life Building in New York—the tallest building of its day—coincided with the five-year Long Depression, best recalled for wiping out dozens of U.S. railway companies. Since then, every major crisis has had its monument: New York’s Empire State and Chrysler Buildings were well under way when the Great Depression hit, in 1929. The Petronas Towers in Kuala Lumpur were finished in 1997, just as the Asian financial crisis ravaged East Asia. And the Burj Khalifa—which currently stands as the world’s tallest building—was a work in progress when, in 2009, Dubai’s government was forced to turn to a neighboring emirate for a bailout. China isn’t building the world’s tallest building. That honor goes to Saudi Arabia. But, according to the American bank analyst who discovered the correlation between the building of tall buildings and economic troubles, the construction of the world’s single tallest building is not the sole indicator of hard times ahead.

Traditionally the world’s tallest buildings have been found in business centers like New York, Chicago, Hong Kong, and Dubai, but today they’re going up in the capitals of some of China’s poorest provinces, like Hefei (which is building the world’s nineteenth-tallest building) and Nanning (which is building the sixteenth-tallest). Even Shenyang, which has neither the financial sector nor the white-shoe law firms that usually flock to prestige office buildings, isn’t the sort of city that typically builds supertall skyscrapers. It’s difficult to say with great certainty why skyscraper construction works so well as an early-warning system for economic crises. The Long Depression, Great Depression, Asian financial crisis, and Dubai’s debt crisis have very little in common, except that they all followed long booms. Like the proverbial canary in the coal mine, skyscrapers seem to signal the presence of two potentially toxic elements in the economic ecosystem that, at the tail end of a boom, are typically in ample supply, namely, hubris and an excess of money. Money, because skyscrapers are incredibly expensive to build; and hubris, because the decision to massively increase a city’s supply of top-grade office space—the type that only the most successful investment banks and hedge funds and law firms can afford to rent—a few years into the future is a very large bet that the good times will only keep getting better.


pages: 437 words: 115,594

The Great Surge: The Ascent of the Developing World by Steven Radelet

"Robert Solow", Admiral Zheng, agricultural Revolution, Asian financial crisis, bank run, Berlin Wall, Branko Milanovic, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, clean water, colonial rule, creative destruction, demographic dividend, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, Erik Brynjolfsson, European colonialism, F. W. de Klerk, failed state, Francis Fukuyama: the end of history, Gini coefficient, global pandemic, global supply chain, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, land reform, low skilled workers, M-Pesa, megacity, Mikhail Gorbachev, Nelson Mandela, off grid, oil shock, out of africa, purchasing power parity, race to the bottom, randomized controlled trial, Robert Gordon, Second Machine Age, secular stagnation, Simon Kuznets, South China Sea, special economic zone, standardized shipping container, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, women in the workforce, working poor

Researchers at the World Bank estimate that upward of 150 million people have been lifted above the extreme poverty line because of social protection and safety net programs.9 Indonesia provides a good example of these forces. Today it is the world’s fourth most populous country, with 250 million people. Poverty began to fall in the 1970s, and continued to do so through the mid-1990s until the Asian financial crisis erupted in 1997. At that point, the number of extreme poor rose for about three years, but it has been falling ever since. Like so many other countries, Indonesia’s poverty reduction was ignited in the rural areas. The government introduced deliberate strategies to support agriculture, including distributing new varieties of seeds and fertilizers as part of the Green Revolution, ensuring favorable prices for small rice farmers, and building an extensive network of rural roads to connect markets.

During the Great Depression, critics in the United States on both the left and right assailed the economic meltdown as a consequence of failed democracy, and pointed to Italy and the Soviet Union as examples of the superiority of illiberal systems. In the 1950s and 1960s, the Soviet Union was seen as an economic juggernaut that was sure to outperform the West, just as China is seen today. During my years in Indonesia, I regularly heard the story that people wanted development, and they didn’t care much about democracy. But when the Asian financial crisis erupted in 1997, citizens seized the opportunity to rise up, at great personal risk, and throw out Suharto. It turned out, contrary to the old argument, that Indonesians cared a lot about personal freedoms and holding their leaders accountable. They had just been afraid to say so. They didn’t see a trade-off: they wanted both democracy and development. Today that’s what they’re getting, as they are well into more than a decade of vibrant (imperfect) democracy alongside rapid (imperfect) development.

The government, and a few select cronies, maintained strict control over oil, gas, gold, tin, timber, and other mineral resources, but it created more extensive opportunities in agriculture and manufacturing. Suharto’s government followed the lead of South Korea, Taiwan, Thailand, and Singapore by stimulating economic growth while imposing firm political control. It was only in the late 1990s, with the threat of Communism (and unquestioned US support) waning and the Asian financial crisis exploding, that Suharto fell and Indonesian democracy took root. Indonesia is just one example. The details of the story lines differ across other developing countries, but the themes are similar. Most of today’s developing countries were under some kind of colonial rule until a few decades ago, and had been for a century or more. Those not under colonial controls were under local rule that often was similarly brutal, with a small ruling group extracting resources from the broader population, such as in imperial China.


Firefighting by Ben S. Bernanke, Timothy F. Geithner, Henry M. Paulson, Jr.

Asian financial crisis, asset-backed security, bank run, Basel III, break the buck, Build a better mousetrap, business cycle, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Doomsday Book, financial deregulation, financial innovation, housing crisis, Hyman Minsky, income inequality, invisible hand, Kenneth Rogoff, labor-force participation, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, pets.com, price stability, quantitative easing, regulatory arbitrage, Robert Shiller, Robert Shiller, savings glut, short selling, sovereign wealth fund, special drawing rights, The Great Moderation, too big to fail

STRATEGY The Federal Reserve and the world’s major central banks orchestrated a coordinated interest rate cut. Central bank target interest rates for each country (month-end) Source: Bloomberg Finance L.P. U.S. STRATEGY The IMF provided substantial aid to countries affected by the crisis, outpacing its response to the Asian financial crisis in 1997. Increase in IMF lending commitments from start of Asian and global financial crises Sources: International Monetary Fund; authors’ calculations based on Lowery et al. (forthcoming) Note: Start date for new IMF lending for the Asian financial crisis (AFC) is July 1997 and for the global financial crisis (GFC) is Sept. 2008. SDR data were converted to U.S. dollars at $1.355820 per SDR (the rate on July 31, 1997) for the AFC and $1.557220 per SDR (the rate on Sept. 30, 2008) for the GFC. Outcomes OUTCOMES The severity of the stress of the 2008 financial crisis was, in some respects, worse than in the Great Depression.

adjustable-rate mortgages, 17 AIG and acceleration of crisis, 22 and arsenal for dealing with future crises, 119 and expansion of crisis, 75, 157 and instability of financial system, 84 and Lehman failure, 61–62, 64, 66, 71 management firings, 73 and onset of financial crisis, 33 and policy responses to crisis, 97, 163, 179 and politics of crisis management, 9 and post-crisis reforms, 115, 116 rescue of, 71–75 and TARP, 86, 92–95, 101 and taxpayer profit from rescue, 208 Ally Bank, 102 Alt-A mortgages, 37 American Economic Review, 18 American Recovery and Reinvestment Act, 104, 105, 124, 163, 186 Archstone-Smith, 40 Asian financial crisis, 198 Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), 77, 163, 168, 208, 217n asset-backed securities, 21, 150, 168, 169 Asset Guarantee Program (AGP), 178, 217n asset purchases, 87. See also Troubled Assets Relief Program (TARP) auto industry, 92, 95, 97, 103, 105, 107–8 backstops and arsenal for dealing with future crises, 120–21 and Bear Stearns rescue, 50 and causes of financial crisis, 4–5 and Fannie Mae/Freddie Mac conservatorship, 57 and Lehman failure, 67 and onset of financial crisis, 2 and policy responses to crisis, 170–73 and TARP, 88 Bagehot, Walter, 34, 36, 39, 48–49, 119 Bair, Sheila, 81, 88, 90–91 Baldwin, James, 7 bank holding companies, 78, 88, 157, 173, 209 Bank of America and causes of financial crisis, 4 and Countrywide sale, 40 and expansion of crisis, 157 and federal asset guarantees, 178 government investment in, 176, 177 and Lehman failure, 66–67 and onset of financial crisis, 155 and policy responses to crisis, 97 and post-crisis reforms, 115 private capital raised during crisis, 175, 181 and stress tests, 180 and TARP, 95, 96 and taxpayer profit from rescue, 208 Bank of England, 35, 89, 155, 196, 197 Bank of Japan, 196 Bank of New York Mellon (BoNY), 39–40, 175, 176, 181 bankruptcies, 69, 73, 74, 95.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, declining real wages, European colonialism, fiat currency, financial innovation, German hyperinflation, housing crisis, implied volatility, intangible asset, Kickstarter, large denomination, manufacturing employment, margin call, market bubble, market fundamentalism, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, short selling, sovereign wealth fund, too big to fail, transaction costs, universal basic income, value at risk, yield curve

Taken together, these bubble pressures and Indonesia’s dependence on foreign financing, combined with the weakened conditions of related countries, created an unsustainable situation. The Depression Phase Eventually the dynamic turned, producing a self-reinforcing bust and a balance of payments/currency crisis, which ran from 1997 to 1998. High debt levels left Indonesia vulnerable to a shock—which came in the form of the 1997 Asian financial crisis. Indonesia suffered a fall in foreign funding (with capital inflows falling by 13% of GDP), leading to a tightening (policy makers hiked short rates by 43%) and a meaningful decline in the currency (real FX fell by 110%)—which coincided with self-reinforcing declines in GDP (falling by 14%), and in stock prices (falling by 89%). In addition, currency weakness contributed to high and rising inflation, peaking at 59% during the depression phase, which is normal compared to other similar cases.

Taken together, these bubble pressures and Korea’s dependence on foreign financing, combined with the weakened conditions of related countries, created an unsustainable situation. The Depression Phase Eventually the dynamic turned, producing a self-reinforcing bust and a balance of payments/currency crisis, which ran from 1997 to 1998. At its pre-crisis peak, debt service reached 42% of GDP, making Korea vulnerable to a shock—which came in the form of the 1997 Asian financial crisis. Korea suffered a fall in foreign funding (with capital inflows falling by 9% of GDP), leading to a tightening (policy makers hiked short rates by 14%) and a meaningful decline in the currency (real FX fell to -50%)—which coincided with self-reinforcing declines in GDP (falling by 8%), in stock prices (falling by 75%) and in home prices (falling by 13%). Unemployment rates increased by 6%, while currency weakness contributed to moderate inflation, peaking at 7% during the depression phase, which is low compared to other similar cases.

Taken together, these bubble pressures and Malaysia’s dependence on foreign financing, combined with the weakened condi- tions of related countries, created an unsustainable situation. The Depression Phase Eventually the dynamic turned, producing a self-reinforcing bust and a balance of payments/currency crisis, which ran from 1997 to 1998. At its pre-crisis peak, debt service reached 45% of GDP, making Malaysia vulnerable to a shock—which came in the form of the 1997 Asian financial crisis. Malaysia suffered a fall in foreign funding (with capital inflows falling by 5% of GDP), leading to a tightening (policy makers hiked short rates by 4%) and a meaningful decline in the currency (real FX fell by 24%)—which coincided with self-reinforcing declines in GDP (falling by 9%), and in stock prices (falling by 83%). In addition, currency weakness contributed to rising inflation, peaking at 5% during the depression phase, which is low compared to other similar cases.


pages: 309 words: 95,495

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe by Greg Ip

Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Asian financial crisis, asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

I was also skeptical about the wisdom of protecting investors from such turmoil. I asked a Fed governor that fall: should the Fed repeatedly intervene when the market was in trouble? Well, I remember her answering, it’s a central bank’s duty to act when the financial system is threatened. In the following decades, I saw a fiscal crisis convulse interest rates and the dollar in my native Canada, an exchange rate crisis erupt in Europe in 1992, the Asian financial crisis, the near failure of Long-Term Capital Management in 1998, and then the rise and fall of the technology bubble. By 2007, I was looking for the next crisis everywhere: in home prices, leveraged buyouts, the trade deficit. I was not, however, looking for catastrophe. I had by now developed a deep respect for the authorities’ ability to counteract mayhem; I assumed that the economy, though it might get bumped around a bit, would come out okay.

As the coming chapters will show, the most important factor was the sense of safety that resulted from years of successfully fighting crisis and recession. The twenty-five years before the global financial crisis were unusually peaceful for the economy; recessions were rare and mild, inflation was low and stable, and periodic financial crises, whether the stock market crash of 1987 or the Asian financial crisis of 1997, were contained by the global fire brigades—the Fed, the Treasury, and the International Monetary Fund. Economists called this era the “Great Moderation,” and credited it to changes in how businesses operated—using fewer inventories, for example—and a more disciplined, more nimble Federal Reserve, able to snuff out both inflation and recession. The global economy in 2008 was like a forest that hadn’t burned in decades; it was choking with the fuel of leverage, risk, and complacency.

Brady hatched a plan that would let them convert their loans to bonds, and then sell them to investors. The Brady bond program was a crucial step back toward health for America’s big banks. It also gave birth to the emerging market bond industry. As a result, emerging economies would henceforth borrow not from banks, with the attendant risks to banks’ solvency, but from the capital markets. This didn’t eliminate sovereign debt crises such as the Asian financial crisis, but it made them less likely to be a threat to America’s financial system; American banks’ exposure to Mexico in 1994, and East Asia in 1997, was far smaller than in 1982. A similar feat was accomplished with securitization. Banks had always been able to sell individual loans, usually to other banks. But starting in the 1970s Lewis Ranieri of Salomon Brothers hit upon the idea of packaging many mortgages, and later credit card receivables or auto loans, together into a single “mortgage-backed security” (MBS) or “asset-backed security” (ABS) and selling it to investors just like a corporate bond.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, business cycle, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Meriwether, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, MITM: man-in-the-middle, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

A large body of American opinion supported this development, and was mostly uncriticized by mainstream economists and the media. The acquiescence to ideology occurred even when markets lurched from financial crisis to crisis under Greenspan’s tenure—a stock market crash in 1987, a thrifts crisis in 1989, the collapse of junk bonds by 1990, a derivatives crisis in 1994, the Mexican peso collapse of 1994, the Asian financial crisis of 1997, the failure of Long-Term Capital Management and the Russian default on debt in 1998, and the severe stock market crash of 2000. Speculative binges enabled by both stimulative monetary policy and regulatory neglect preceded all these collapses. Levels of speculation rose to ever more dangerous heights each time. In the 1980s, the takeover movement built on soaring levels of debt, much of it ultimately bad, rose to unmanageable levels.

When Russia, its citizens increasingly refusing to pay taxes, defaulted in 1998, Soros’s funds (by then he had opened more funds) lost up to $2 billion in direct Russian investments and another $2 billion on the Russian ruble. The Russian investment was driven more by Soros’s political views than by his financial acumen. The year before, however, Soros made hundreds of millions of dollars in the Asian financial crisis by selling Asian currencies in much the same way he sold the British pound. The Asian currencies had pegged their levels to the U.S. dollar, and held the peg far too long. The nations attracted an enormous amount of capital because they paid high interest rates, but ultimately the lid would burst, Soros felt. In one day, for example, the Thai baht fell 16 percent. The Malaysian ringgit also fell rapidly.

There was too much money chasing the same investments. Secrecy was at the core of Meriwether’s strategies; the price advantages were small, and if competitors knew them, the advantages disappeared quickly. Many were trying to find out what LTCM was doing and copying it outright, exactly as some hedge fund managers and others on Wall Street tried to emulate Soros and Paul Tudor Jones. In 1997, the financial devastation created by the Asian financial crisis also took its toll and LTCM made only 17 percent on its capital that year, its historical relationships no longer holding. In 1997, by contrast, the S&P 500 was up 31 percent as high-technology stocks were taking off. In early 1998, LTCM decided to give a large portion of its capital back to its original investors because profitable opportunities were so hard to find. At the end of 1997, LTCM had nearly $7.5 billion under management, compared to $1 billion when it started, and it now returned $2.7 billion of that to investors.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

But both the grand principles and the local clientelism and patronage were totally embedded in local notables and balances of power.”83 This was the “crony capitalism” that the IMF would demand be extirpated in exchange for its emergency loan packages after the Asian financial crisis erupted in 1997. And when the contagion from that crisis spread to Russia the following year, it was the IMF’s very public despair at not being able to do anything about this “crony capitalism” in the Russian case that led it to pull back from its emergency lending, sparking the Russian government’s default in August 1998 on its foreign debt (which at $61 billion represented 17 percent of Russian GDP). Yet until then the pretence had been maintained. In August 1997, just as the Asian financial crisis reared its head and exactly a year before the Russian default, the IMF executive board proudly affirmed that its staff had “assisted its member countries in creating systems that limit the scope . . . for undesirable preferential treatment of individuals and organizations.”84 However hard this was to credit, what was true was that, in terms of the making of global capitalism—the main objective that structural adjustment was actually designed to foster—there had been real success.

Instead, this global financial volatility left the developing countries of Asia, Africa, and Latin America increasingly dependent on the crisis-management role of the US empire, as Chapter 10 shows. In the 1990s, at the same time as the US was called upon to act as the global policeman against human rights violations by “rogue states,”48 so was it also expected to put out financial conflagrations around the world. In the wake of the 1997–98 Asian financial crisis, with the US Treasury now explicitly defining its role in terms of “failure containment” rather than “failure prevention,” the cover of Time pictured Alan Greenspan of the Federal Reserve and Robert Rubin and Lawrence Summers of the US Treasury beneath the banner “THE COMMITTEE TO SAVE THE WORLD.”49 Conjured up here was an image of the American state as a global “executive committee of the bourgeoisie” (as Marx famously called the capitalist state).

The US Treasury now insisted, as a centerpiece of the IMF agreement, that the ceilings on foreign investment be lifted from 26 to 50 percent.49 Notably, the negotiations took place right in the midst of the country’s presidential election campaign—and all the candidates were required to assent to the conditions before the IMF would declare the rescue package was in place. Its success in this respect led the US economist Rudi Dornbusch to quip on a subsequent American television panel that “the positive side” of the Asian financial crisis was that South Korea “was now owned and operated by our Treasury.”50 The knowing chuckle he elicited from the other pundits may have had less to do with what this said about the extent of imperial power at the end of century than with what it implied about the shifting hierarchy of state apparatuses within Washington itself: after all, it used to be the State Department or Pentagon, rather than the Treasury, that could lay claim to the South Korean franchise.


pages: 229 words: 64,697

The Barefoot Investor: The Only Money Guide You'll Ever Need by Scott Pape

Albert Einstein, Asian financial crisis, diversified portfolio, Donald Trump, estate planning, financial independence, index fund, Jeff Bezos, Mark Zuckerberg, McMansion, Own Your Own Home, Robert Shiller, Robert Shiller, Snapchat

On the other hand, if you'd diligently read the Wall Street Journal each morning — hired a financial advisor to pick the latest hot share funds; spent your nights stressing about the 1987 crash, the Asian Financial Crisis and the Global Financial Crisis; and basically behaved like everyone else — 30 years later you'd have … $297 415. That's a difference of $2 054 501. Bucket-boy won by doing absolutely nothing. He read the gossip pages rather than the business pages. Even better, he can now retire and earn $100 000 a year — every year — from his shares, and he'll never run out of money. Remember, I'm not plucking these figures out of the air. The Dalbar study is one of the longest running and most respected research pieces in the finance world. The study found that there were four years when investors really screwed things up: 1987 (the stock market crash) 1997 (the Asian financial crisis) 2000 (the Tech Wreck) 2008 (the Global Financial Crisis).

You (theatrically counting with your hands, while you wobble your head from side to side): You want hell? I'll give you hell. Over the past 128 years we've had: the First World War the Great Depression a global flu pandemic that infected 500 million people and killed 100 million people the Second World War multiple recessions … (You draw breath, and change hands .) the Korean War the Vietnam War the Gulf Wars the 1987 stock market crash the Asian financial crisis … (You change hands again .) the Tech Wreck the 9/11 terrorist attacks the Asian tsunami, which killed 230 000 people the Global Financial Crisis (GFC) Brexit and, of course, Trumpit. Sounds like a terrible time to invest, right? Well, it wasn't. Over that time, if you'd invested a single dollar — $1 — in the Aussie sharemarket, it would be worth a staggering $194 439 today.


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

3D printing, air freight, airline deregulation, airport security, Akira Okazaki, Asian financial crisis, back-to-the-land, barriers to entry, Berlin Wall, big-box store, blood diamonds, borderless world, Boris Johnson, British Empire, business cycle, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, Charles Lindbergh, Clayton Christensen, cleantech, cognitive dissonance, commoditize, conceptual framework, credit crunch, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, deskilling, digital map, disruptive innovation, edge city, Edward Glaeser, failed state, food miles, Ford paid five dollars a day, Frank Gehry, fudge factor, full employment, future of work, Geoffrey West, Santa Fe Institute, George Gilder, global supply chain, global village, gravity well, Haber-Bosch Process, Hernando de Soto, hive mind, if you build it, they will come, illegal immigration, inflight wifi, intangible asset, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of the telephone, inventory management, invisible hand, Jane Jacobs, Jeff Bezos, Joan Didion, Kangaroo Route, Kickstarter, knowledge worker, kremlinology, low cost airline, Marchetti’s constant, Marshall McLuhan, Masdar, mass immigration, McMansion, megacity, Menlo Park, microcredit, Network effects, New Economic Geography, new economy, New Urbanism, oil shale / tar sands, oil shock, peak oil, Pearl River Delta, Peter Calthorpe, Peter Thiel, pets.com, pink-collar, pre–internet, RFID, Richard Florida, Ronald Coase, Ronald Reagan, Rubik’s Cube, savings glut, Seaside, Florida, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart cities, smart grid, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, spinning jenny, starchitect, stem cell, Steve Jobs, supply-chain management, sustainable-tourism, telepresence, the built environment, The Chicago School, The Death and Life of Great American Cities, The Nature of the Firm, thinkpad, Thomas L Friedman, Thomas Malthus, Tony Hsieh, trade route, transcontinental railway, transit-oriented development, traveling salesman, trickle-down economics, upwardly mobile, urban planning, urban renewal, urban sprawl, walkable city, white flight, white picket fence, Yogi Berra, zero-sum game

His ideas really worked, building a billion-dollar economy out of nothing. He tried to replicate its success in Thailand, at a former U.S. Air Force base named U-Tapao, and in China, near the border with Macau. Back in the United States, he was involved with airports in the Inland Empire of California, and in Fort Worth, advising H. Ross Perot, Jr. (the son of the presidential candidate). The pair abroad were never built, scuttled by the Asian financial crisis and the whims of party chairmen. The ones closer to home had better luck, sprouting new appendages from their surrounding cities and nudging Kasarda toward the aerotropolis. Back in Kinston, signs of trouble had begun to surface. In 1998, FedEx announced it would add a hub somewhere in the state. The Global TransPark’s boosters believed they were in line to get it. They were wrong. The TransPark lost to Greensboro’s airport, snug in the center of the Triad, and the competition wasn’t close.

He leveraged his new connections to take a second crack at building the Global TransPark—the next node in what he imagined would be a worldwide web of just-in-time airstrips. The Thais already had a plan on the shelf for converting a Vietnam-era American bomber base to civilian use. Given the chance to get it right this time, Kasarda spent the next six years drafting blueprints and wooing Thailand’s prime minister at the time, until the whole thing was scuttled in the chaos of the Asian financial crisis. From 1985 until 1996, Thailand’s really was the fastest-growing economy in the world, surging 9 percent annually—faster even than China or India today. Reforms had slashed tariffs and opened the door to foreign investors like Toyota, which moved there for cheap labor, followed by the Big Three. They touched off an industrial boom during which real per capita income doubled, spawning joint ventures and an entrepreneurial class tapping overseas loans.

But a team of American architects, developers, technologists, and engineers are convinced they’ve cracked the code, creating a template for cities that are green, humane, dense, smart, and able to be cloned. Their prototype is Stan Gale’s $35 billion aerotropolis rising from the Yellow Sea: New Songdo City. Instant Cities New Songdo didn’t set out to be green. Its original purpose was one John Kasarda would have applauded: a weapon for fighting trade wars. In the aftermath of the Asian financial crisis, the International Monetary Fund handed South Korea a $58 billion bailout, with conditions. One was a command to seek foreign investment. By then, however, its manufacturing base was decamping to China—70 percent of its factories left over the next decade. Trade between the two countries didn’t exist in 1980, but twenty-five years later China would be its largest trading partner. Eager to follow the flying geese once more as its factories vanished into China, Korean leaders resolved to make Seoul the financial and creative hub of northeast Asia—a title for which there was no end of contenders.


pages: 1,373 words: 300,577

The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin

"Robert Solow", addicted to oil, Albert Einstein, Asian financial crisis, Ayatollah Khomeini, banking crisis, Berlin Wall, bioinformatics, borderless world, BRICs, business climate, carbon footprint, Carmen Reinhart, cleantech, Climategate, Climatic Research Unit, colonial rule, Colonization of Mars, corporate governance, cuban missile crisis, data acquisition, decarbonisation, Deng Xiaoping, Dissolution of the Soviet Union, diversification, diversified portfolio, Elon Musk, energy security, energy transition, Exxon Valdez, facts on the ground, Fall of the Berlin Wall, fear of failure, financial innovation, flex fuel, global supply chain, global village, high net worth, hydraulic fracturing, income inequality, index fund, informal economy, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), James Watt: steam engine, John von Neumann, Kenneth Rogoff, life extension, Long Term Capital Management, Malacca Straits, market design, means of production, megacity, Menlo Park, Mikhail Gorbachev, Mohammed Bouazizi, mutually assured destruction, new economy, Norman Macrae, North Sea oil, nuclear winter, off grid, oil rush, oil shale / tar sands, oil shock, Paul Samuelson, peak oil, Piper Alpha, price mechanism, purchasing power parity, rent-seeking, rising living standards, Robert Metcalfe, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, smart grid, smart meter, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, technology bubble, the built environment, The Nature of the Firm, the new new thing, trade route, transaction costs, unemployed young men, University of East Anglia, uranium enrichment, William Langewiesche, Yom Kippur War

World consumption had risen more than two million barrels per day between 1996 and 1997, and the International Energy Agency was predicting that the world’s consumption would rise by another two million barrels per day in 1998. “Price will hold up,” the oil minister from Kuwait said confidently after the decision was announced. “The rise is a very reasonable one.” That judgment was widely shared. An observer described market conditions as nothing less than “the alignment of OPEC’s economic stars.” But, in the heavens above, the stars were silently moving.2 “ESSENTIALLY ALL GONE”: THE ASIAN FINANCIAL CRISIS During the course of the Jakarta conference, two of the delegates to the meeting were taken to dinner by the head of the local International Monetary Fund office. He told them in no uncertain terms that the currency crisis that had begun a few months earlier was only the beginning of a far more devastating crisis—and that the Asian economic miracle was about to crash on the rocks. The two delegates were shaken by what they heard.

In early 1999 the contagion seemed about to sweep over Brazil, threatening what U.S. Treasury Secretary Robert Rubin called an “engulfing world crisis.” An immense rescue effort, mobilizing very large financial resources, was mounted to prevent Brazil from going down. It worked. Brazil was spared. By the spring of 1999, the panic and contagion were over.3 THE JAKARTA SYNDROME The Asian financial crisis had generated enormous economic ruin. As a result, the assumptions at the end of 1997, embodied in the Jakarta agreement, were all wrong. By implementing the Jakarta agreement, OPEC had been increasing its output—just as demand was falling. Now there was way too much oil in the world. When there was no more room in storage tanks, seagoing tankers that normally transported oil were turned instead into floating storage.

Observers began to write about an “oil war” for market share between the two countries that had taken the lead in founding OPEC—Venezuela, now ignoring quotas; and Saudi Arabia, insisting that they be observed. That was the battle that culminated in the November 1997 Jakarta meeting and was resolved with the agreement that all exporters could produce flat out, which by now they were all more or less already doing. 12 But by then the Asian financial crisis had already begun to trigger an oil price collapse, ravaging the budgets of the oil-exporting countries. At this point, Venezuela recognized that it could no longer afford its market share strategy. In March 1998 Venezuela, Saudi Arabia, and non-OPEC Mexico met in Riyadh and worked out a set of production cutbacks for exporters, OPEC and non-OPEC alike. Most of the other exporters went along, out of self-interest and sheer panic.


pages: 269 words: 77,876

Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit From Global Chaos by Sarah Lacy

Asian financial crisis, barriers to entry, BRICs, clean water, cleantech, cloud computing, Deng Xiaoping, Donald Trump, Elon Musk, fear of failure, Firefox, income per capita, intangible asset, Jeff Bezos, knowledge economy, knowledge worker, M-Pesa, Mahatma Gandhi, Marc Andreessen, Mark Zuckerberg, McMansion, megacity, Network effects, paypal mafia, QWERTY keyboard, risk tolerance, Skype, social web, Steve Jobs, Tony Hsieh, urban planning, web application, women in the workforce, working-age population, zero-sum game

Every Chinese official to visit Shi insisted he go bigger, until Li declared he should build it 72 floors, have it be the tal est building in China, and he should cal it The Giant Tower. Li Peng wrote it in cal igraphy on a sheet of paper, sliding it to Shi with al the gravitas of a Chinese Premier. Who was Shi to say no? Like China back in the mid-1990s, he had ambitions of grandeur that weren’t quite backed up yet. Just as Shi’s business was at its broadest and most overleveraged, the late-1990s Asian financial crisis hit. Goodbye, 72-floor Giant Tower. Goodbye Giant, in fact. Shi liquidated everything he owned and drove his Mercedes—his last asset—from Shenzhen to Shanghai, sel ing it for as much cash as he could get when he arrived. It was just as wel , because he was out of gas anyway and couldn’t afford more. Shi owed 250 mil ion RMB and refused to default on the debt as a matter of pride. The company was gone, but he vowed to personal y repay every penny.

After independence, Indonesia fel into the trend of dictators, first Sukarno, who flirted with communism, and then Suharto, who had been Sukarno’s number two but seized power in a turbulent coup, blaming it on Indonesia’s communist party and causing a violent backlash throughout the country. Suharto talked a good game to the West by vehemently opposing communism during the Cold War, and the United States gave him a lot of aid and diplomatic support in return. Under Suharto, Indonesia posted three decades of strong economic growth, but unfortunately al of that was undone in the disastrous late 1990s Asian financial crisis. Every company and crony under Suharto was al owed to operate a bank, leading to an orgy of interlending that made the financial crash especial y hard on Indonesia.1 “Not only did regular godfathers have banks, Suharto’s children had banks, Suharto’s bribe-gathering foundations owned banks and different factions of the military had banks,” according to Joe Studwel ’s book Asian Godfathers.2 Things got worse as the banks began to col apse, and the Indonesian government lent bil ions to tycoons who moved most of that money to Singapore, leaving the government with a hodgepodge of assets worth nothing close to their paper value.3 Time Asia estimated the Suhartos’ family fortune to be $15 bil ion, and he was accused of misappropriation of funds, but he never stood trial because of his declining health.

INDEX A/B testing, defined Accel Partners Acher, Eric Ackerman, Bob Advanced Research Projects Agency. See ARPA Africa, chal enges of. See also Rwanda Agassi, Shai Airtel Alex. Brown investments Alibaba Group Almeida, Alberto Amazon.com: Jeff Bezos Kindle powerhouse Zappos purchase AmDocs Animation Lab AOL Apple: as competitor as innovator as technology icon vis-à-vis Tencent ARPA Asian financial crisis Asian Godfathers (Studwel ) Assis, Rogerio Assis, Zica Atlantic Monthly, The AT&T Baidu Bakshi, Naren Bakuramutsa, Nkubito Manzi Barnes & Noble, in China BBC Beleza Natural Bel Labs Benchmark Capital Better Place Bezos, Jeff Blonde 2.0 Boo-box Borgos dos Santos, Eliane Borgos dos Santos, Sidnei Brain Platinum Brazil: business opportunities crime and safety issues culture and economics entrepreneurship in exemplars of innovation Marco Gomes story Breslin, Abigail BRIC countries Brin, Sergey BS Construtora Buffett, Warren Bug Bureau of Labor Statistics BuscaPe Bush, George W.


The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Asian financial crisis, asset-backed security, backtesting, bank run, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, debt deflation, distributed ledger, diversification, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, labor-force participation, Long Term Capital Management, Lyft, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk/return, sharing economy, short selling, sovereign wealth fund, Uber and Lyft, uber lyft, yield curve

Whatever it is that eventually arises from the ashes of the present monetary system, we have to hope it will be more effective in restraining the rise of carry. Index Page numbers followed by f indicate figures; t indicate tables. anti-carry crashes, 170 anti-carry regimes, 165, 171–172, 210, 212 carry regime similarities to, 173–175 monetary perspective on, 168–170 signs of end of, 215 AQR Capital, 79 arbitrage, covered interest parity principle and, 21 Asian financial crisis, 23–25 global financial crisis compared with, 30 asset prices business cycle and, 126 carry regime and, 204 distortion of, 7 inflation of, 113–114 options and, 147 recessions and declines in, 6 assets under management (AUM), 74 by sovereign wealth funds, 75 Australia capital inflows, 40, 40f, 42 credit and net claims, 40, 40f credit growth, 40f, 41 interest rate spreads and, 41–42, 60–61 Australian dollar, 30 capital flows into, 62 returns on, 97, 97f bailouts, 197–199, 203 Bain and Company, 80 balance of payments, Turkey, 45 Bank for International Settlements (BIS), 15, 17, 22 carry portfolio position comparison with, 63, 63t on corporate use of carry strategies, 80 currency liquidity data, 62 net claims data, 41 Bank of Japan (BOJ), 26, 216 quantitative easing policies by, 31 Bank of Korea, 197 bank runs, 218 banking system, money creation by, 109 bank-run dynamics, 65 Bhattacharya, Utpal, 142 bid-ask spread, 158–159, 167 big breaks, 184 BIS.

See Bank of Japan Brazil, 19, 39, 55n6, 65–66 current account, 31 Brazilian real, 11, 30, 66 Bretton Woods system, 218 Brownian noise, 97, 97f Bruno, Valentina, 80–81 bubble-boom economies, carry bubble conditions and, 39 business cycle carry and global, 2 carry bubbles and, 127–134 carry crashes and, 127–134 carry influence on, 57, 69 carry regime and, 125–127 money supply and, 125–126 Caballero, Ricardo, 59 call options, 146–147 Cambridge Associates, 79 capital asset pricing model, 99 Capital in the Twenty-First Century (Piketty), 219 221 222 capital inflows, Australia, 40, 40f, 42 capitalism, 195, 219, 220 carry central banks’ role in, 5–8 compensation incentives for, 70–72 corporate use of, 80–83 as cumulative advantage, 181–184 defining, 2 as flow from weak to strong, 179–181 global business cycle and, 2 hedge funds as agents of, 72–73 insidious structural aspects of, 200–205 leverage importance to, 70–72 lost opportunity to lean against, 220 as luck compounded, 184–186 monetary policy and, 3 as naturally occurring phenomenon, 88 necessary amounts of, 174 omnipresence of, 190–191 as power, 191–192 as rent-seeking, 175–177 rise of, 1 volatility, 86 carry bubbles, 6, 7 business cycle and, 127–134 credit bubbles and, 37–38, 41 credit demand and, 114 disguised, 134–140 economic indicators distorted by, 44–45 economic problems obscured by, 44 inflation and, 39 monetary conditions and, 39 nonmonetary assets and, 169 Ponzi schemes and, 140–143 as risk mispricing, 142 Turkey, 42–46 carry crashes, 6 Asian financial crisis and, 23–25 bailouts limiting losses from, 203 business cycle and, 127–134 carry trade returns and, 36 deflation and, 7, 170 deflation shock and, 121–124 in emerging economies, 201 incentive changes and, 84 inevitability of, 34–35, 108 leverage and, 96–98 liquidity and, 128 money supply and, 122–123 INDEX of 1998, 25–26 Turkey, 42–46 Turkish lira, of 2018, 45 of 2008, 30, 31 Volmageddon, 98, 161 yen melt-up and, 23–24 carry portfolios backtesting, 65–67 BIS data comparison with, 63, 63t constructing, 49–50 lessons from historical study of, 64–65 losses in, 51–56, 54f carry regime, 2 anti-carry regime similarity to, 173–175 asset prices and, 204 business cycle and, 125–127 central bank policies and, 86–89, 107, 208, 210 central bank power and, 123 central banks and collapses of, 215–216 central banks weakened by, 7 debt levels and, 168 defining, 107–108 deflation and, 113–121, 203, 210, 213 development of, 127, 134 economic growth and, 209 economic imbalances from, 201 financial market structure and, 7 fragility of, 201 monetary equilibrium and, 169 monetary growth and, 169 monetary perspective on, 168–170 money in, 108–113 nonmonetary assets and, 112, 114, 122 resource allocation and, 114–115 risk mispricing and, 134–140 S&P 500 importance to, 86–87, 87f theoretical alternative to, 166–168 vanishing point and, 116, 195, 209–210 volatility signs of ending, 214–218 carry trade.

See European Union euro area crisis, 113 euro-funded carry trade, 31 European Central Bank, 31, 104, 113, 136, 198, 216 European Union (EU), 198 evolution, cumulative advantage and, 188–190 exchange rate risk, 12–13 of dollar carry trade, 17 exchange rates carry strategy returns and stability of, 52 currency carry trades and, 9, 10 INDEX exchange-traded funds (ETFs), 111–112 exchange-traded notes (ETNs), 90, 92 Facebook, 185 financial assets loss of moneyness of, 215 US household holdings of, 118, 118f financial crises, volatility spikes in, 52 financial institutions, carry growth and growth of, 69 financial markets, 1 carry and structures of, 7 carry as cumulative advantage mechanism in, 183 central bank stabilization of, 5–6 desires of, 193–195 increasing complexity of, 57 financial volatility, suppression of, 1 Ford, Harrison, 184 foreign exchange markets carry trades on, 2 central banks and, 11, 13, 20 forward exchange rates, interest rates and, 10 funding currencies, 10 melt-up in, 23–24 volatility in, 215 futures VIX, 90–92 volatility bets with, 89 gamma, 149–150 selling, 152–153 for S&P 500, 154, 154f gates, 72 GDP carry regime and, 115–116 growth in, 56 profits as share of, 139 US personal net worth in relation to, 137, 138f global business cycle, carry and, 2 global capitalism, 195 global economy, carry dominance of, 69 global financial crisis of 2007–2009, 1 Asian financial crisis compared with, 30 carry bubble after, 136 credit bubbles and, 36 currency and equity carry trade correlations and, 59 225 dollar carry trade collapse during, 17 experimental monetary policies during and after, 113 government guarantees for funds during, 113 as last chance to lean against carry, 220 short-term interest rate collapse after, 62 yen currency carry trade and, 28, 29 global financial markets carry dominance of, 69 complexity of, 127 transformation of, 83–84 global monetary policy, carry effects on, 3 global volatility, 99, 101 globalization, of moral hazard, 195–200 gold bugs, 113–114 gold prices, 113 government policies, carry trade returns and, 48 Greenspan, Alan, 26 hard money, 113 Heathcote, Gilbert, 179 Hedge Fund Research (HFR), 73 hedge funds as agents of carry, 72–73 carry trading by, 73–75 compensation structure, 73 employee compensation and, 73 growth of industry, 73–74, 83, 194 leverage usage by, 73, 74 liability categories for, 72 HFR (Hedge Fund Research), 73 high-frequency trading firms (HFTs), 84 Hungarian forint, 34 IMF (International Monetary Fund), 14, 16, 198 implied volatility, 57, 90, 164, 167–168 anti-carry regime and, 171–172 realized volatility relationship to, 158 income streams, from carry trades, 2 India, 19 industrial production growth, 56 inflation alternative monies and, 211 anti-carry crashes and, 170 anti-carry regimes and, 211, 212 asset price, 113–114 226 inflation (continued) carry bubbles and, 39 interest rates and, 110–111 information ratio (IR), 49 institutional liabilities, 69–70 insurance, 34–36 interest rates Australia and spreads of, 41–42, 60–61 bailouts and, 198–199 covered interest parity principle and, 21 credit demand and, 110 currency carry returns and differentials in, 60–62 currency carry trades and, 9, 10 forward exchange rates and, 10 global financial crisis of 2007–2009 and, 62 inflation and, 110–111 in Japan, 23 profit share and, 139 spreads in, 60–62, 60f, 81 Turkey, 12–13 UIP and, 47, 48 US Federal Reserve and, 14, 137, 208 International Monetary Fund (IMF), 14, 16, 198 investment banks, proprietary trading by, 77 IR (information ratio), 49 Italian lira, 60 Japan currency carry trades and, 17–18, 27 current account surplus, 27 foreign reserves holdings, 26 interest rates, 23 net short-term foreign assets of banks in, 28–29, 28f Lehman Brothers, 104, 140, 197 collapse of, 29 leverage, 3 carry and importance of, 70–72 carry crashes and, 96–98 carry growth and, 7 in carry trades, 33–35 constant, 93 in currency carry trades, 11 equity and, 93–94 hedge fund usage of, 73, 74 INDEX risk controls and, 65 trade dynamics and, 65 leveraged buyouts, as carry trades, 78–80 liquidity, 3–4 carry crashes and, 128 carry existence and, 190 carry trades providing, 35–36 central banks and, 110–111 currency carry trade and provision of, 88 of emerging currencies, 62 negative pricing of, 166–168 short squeezes on, 165 S&P 500 premiums for providing, 161 volatility curves expressing price of, 164 liquidity backstop, 86 liquidity provision trades, 84 return-to-risk ratio of, 165 liquidity swaps, 104–105, 196–198 lock-ins, 185 Long-Term Capital Management (LTCM), 23, 25, 27, 74 Lucas, George, 184 Madoff, Bernard, “Bernie,” 140–141 market corrections, 79 market discipline, 199, 200 market making, 84, 158–159 market risk, 99 mean reversion, 152, 154f, 155, 164 Microsoft Office, 185 Ministry of Finance of Japan (MOF), 26 mispricing of risk, 21, 35–37, 132, 134–140, 142 MOF (Ministry of Finance of Japan), 26 momentum, selling optionality and, 153 monetary conditions anti-carry regime and, 174 carry bubbles and, 39 monetary equilibrium, carry regime and, 169 monetary growth, carry regime and, 169 monetary policy carry effects on, 3 moral hazard and, 208 money.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, business cycle, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

This prompted a period of rapid and in many cases injudicious growth in lending, which ultimately led to the collapse of a number of “second-tier” financial institutions (including several banks owned by Australian state governments) and “near-death” experiences for two of the four major banks in the early 1990s. These experiences, together with some subsequent smaller ones (including those arising from the Asian financial crisis later in the decade), imparted a greater degree of caution on the part of Australian bank managers than turned out to be the case in the United States or Britain. Australian banks were also arguably under less pressure than their peers in other countries to adopt lower credit standards in pursuit of higher shareholder returns. Nor was there as much pressure to add riskier but higher-yielding assets to their securities portfolios, because they were achieving improvements in profitability from the consumer and funds management sides of their businesses.

Australia’s relatively mild experience with the downturn in international trade was also aided by a decline of more than 25 percent in the trade-weighted value of the Australian dollar between mid-2008 and the first few months of 2009, although this decline has since been more than entirely reversed. This echoed the role that large swings in the value of the Australian dollar had in cushioning the impact of the Asian financial crisis on Australia’s trade in the 1990s. There is little doubt that if China’s response to the downturn in its economy had been less effective, Australia’s experience with the financial crisis would have been less benign. It also follows that if China were to experience a more sustained downturn at some point in the future, the impact on Australia may be greater than that of the North Atlantic financial crisis turned out to be.

If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive.”1 Since the idea required a drastic change in global tax regimes and went against the idea of free markets, particularly the drive toward frictionless financial markets, the proposed tax was never adopted or considered seriously in official circles. Most economists, international banks, and governments do not like the idea of the Tobin tax proposal because they feel that it would be difficult to implement and may even add instability to foreign exchange markets. The Recent Financial Crises Have Renewed Interest in the Tax When currency speculation became controversial again during the 1997–1999 Asian financial crisis, the idea of a Tobin tax was revived as part of the antiglobalization movement. Again, the idea was deemed by the official Group of Eight (G-8) circles as not worth considering. The idea went against the grain of the free market ideology, which advocates liberalizing financial markets and encourages the free flow of capital. After all, booming financial markets in the early 2000s seemed to confirm that the ideology worked well in creating limitless prosperity.


pages: 436 words: 114,278

Crude Volatility: The History and the Future of Boom-Bust Oil Prices by Robert McNally

American energy revolution, Asian financial crisis, banking crisis, barriers to entry, Bretton Woods, collective bargaining, credit crunch, energy security, energy transition, housing crisis, hydraulic fracturing, index fund, Induced demand, interchangeable parts, invisible hand, joint-stock company, market clearing, market fundamentalism, moral hazard, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, price discrimination, price stability, sovereign wealth fund, transfer pricing

Anticipating lower prices, those refiners ran down inventories ahead of a cold winter. Other factors included simmering tensions in Iraq and a potential shortage of heating oil in the United States. THE GHOST OF JAKARTA The unexpected price increase in 1996 and 1997 averted a full clash between Venezuela and other OPEC members.9 But later in 1997 the Asian financial crisis hit, abruptly hurting oil demand, and threw OPEC and other oil producers back into crisis mode. The Asian financial crisis had its origins in the aforementioned strong growth, which had attracted massive capital inflow that was channeled into a real estate bubble. In July 1997 the Thai currency (baht) collapsed, triggering other Asian currency and banking collapses that mushroomed by year-end into widespread economic downturn and bankruptcies.10 But as OPEC prepared to meet in Jakarta in November 1997, producers’ minds were less focused on the gathering Asian crisis than on the oil price spike that had preceded it.

Achnacarry Agreement, 86–88, 90, 94, 101 Adelman, Morris, 110, 111, 151, 264n69 administered price system, 121, 136–41, 146–47, 155 Ahn, Daniel, 238 airlines, 188, 191–92 Alaska, 125 Allegheny River, 12–14 American Petroleum Institute, 55 Anglo-American Petroleum Agreement, 94 Anglo-Persian Oil Company. See British Petroleum anticompetitive practices, 54 antitrust legislation, 36, 92 Arabian Light: as marker crude, 137; OPEC price increase of, 130–31; prices compared to U.S., 131 Arab Oil embargo of 1973, 112, 130–37, 139, 140 Aramco. See Saudi Aramco Asian financial crisis, 162–63 Asian “Tigers,” 161–62 As-Is Agreement, 87–88, 90, 94, 101 Athens, 180–81 automobiles, 176; post-World War II increase in, 106; U.S. early manufacturing of, 42–43 Badri, Abdalla Salem el-, 209–10, 211 Bahrain, 88, 257n89 Bakken region, 203, 217, 232, 275n41, 280n29 Barnett shale, 202 barrels, 245n20 Black Giant field, 75, 85, 201; martial law in Texas after, 74, 74; oil industry impact of, 72–74, 76, 107 Bodman, Samuel, 189 boom-bust cycles, 2, 6, 212; future responses to, 240; history of, 3, 17–18; nature of, 223, 223–24; oil prices during U.S., 4, 38, 54, 168; origin of, 16; overview of, 226; swing producer and, 228; Texas Era management and, 107, 108–9; in 2008, 190–92; U.S. economy impacted by oil’s, 152–53; after World War I, 50–56.

See production Oklahoma: conservation statutes in, 46–47; gushers in, 67; “hot” oil production in, 76; martial law in 1930s, 69–70, 70; oil boom beginnings in, 33; production in 1927, 67–68; quota law leadership of, 82 Oklahoma Corporation Commission (OCC), 46–47, 68–70, 254n9 OPEC. See Organization of the Petroleum Exporting Countries Oregon, 51–52 Organisation for Economic Co-operation and Development (OECD), 145–46, 146, 209, 266n3 Organization of the Petroleum Exporting Countries (OPEC), 1, 18, 84, 273n66, 276n51; in 1970s, 3; in 1990s, 160–61; administered price system by, 121, 136–41, 146–47, 155; Arabian Light price increase and, 130–31; Asian financial crisis reaction from, 162–63; basket price, 165–66, 173, 173, 269n37; cheating within, 150; conflict within, 121, 122, 149; demise of, 8; domination of, from 1970–1980, 122, 123–44; evolution of, in 1980s, 159; formation of, 103, 120; global spare capacity of, in 2003, 172; “Goldilocks” period for, 168–69; industry share of, 120, 147, 169; Iranian revolution and, 140–41; Jakarta debacle of 1997 and, 162–63, 172; market control in future for, 228–29; market upheaval in 1980s and, 145–47; nationalization response from, 137, 264n57; oil price control of, 2, 129, 174–75; oil prices during, era, 4; price war of 2014, 209–11; production cuts assumptions for, 206–7; production cuts for shale competition by, 208; production cuts in 2008 and 2009, 194; production cut strategy and, 121–22; production shares of, 120, 147, 167, 169, 208, 208–9; quota cooperation in 1960s of, 122; quotas in 2011, 198; quota system in 1980s, 148–49; quota system return in 2009, 193–94; Saudi Arabia in, after Gulf War, 159; Saudi Arabia power within, 197–98, 278n103; Saudi Aramco negotiations with, 129; Seven Sisters bargaining with, 127; Seven Sisters struggle with, 120; on shale production, 204–5; spare capacity of, in 2003, 172; supply and demand strategy of, 149; as swing producer, 229; TRC and Seven Sisters compared with, 155–56; U.S. relationship with, 125, 129–30, 154–55; Venezuela conflict with, 161 Pan-American, 86 Pan-Arabism, 117 Parra, Francisco, 89, 103, 122, 125, 156, 169, 269n37 “peak oil”: early fears of, 46; foreign oil supply and fears of, 84; predictions of, 178–80, 271n34; theories of, 177–78 Pennsylvania, 13–15, 44 Pennsylvania drillers, 25–26, 31, 44, 102, 181–82, 194 Pennsylvania Railroad, 23, 24, 246n59 Pennsylvania Rock Oil Company, 12 Pérez Alfonzo, Juan Pablo: Middle Eastern producers courted by, 118–19; as OPEC founder, 120; production cuts strategy of, 121–22; as quota system proponent, 1, 117–18; resignation of, 122 Persian Gulf, 95–96, 102–3, 106, 144, 159, 165, 258n111 petroleum.


State-Building: Governance and World Order in the 21st Century by Francis Fukuyama

Asian financial crisis, Berlin Wall, Bretton Woods, centre right, corporate governance, demand response, Doha Development Round, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, George Akerlof, Hernando de Soto, information asymmetry, liberal world order, Live Aid, Nick Leeson, Pareto efficiency, Potemkin village, price stability, principal–agent problem, rent-seeking, road to serfdom, Ronald Coase, structural adjustment programs, technology bubble, The Market for Lemons, The Nature of the Firm, transaction costs, Washington Consensus, Westphalian system

Challenging the State: Crisis and Innovation in Latin America and Africa (New York: Cambridge University Press). ——. 1997. Getting Good Government: Capacity Building in the Public Sector of Developing Countries (Cambridge, MA: Harvard Institute For International Development). Gwartney, James, and Lawson, Robert et al. 2002. Economic Freedom of the World; 2002 Annual Report (Washington, DC: Cato Institute). Haggard, Stephan. 2000. The Political Economy of the Asian Financial Crisis (Washington, DC: Institute for International Economics). Haggard, Stephan, and Kaufman, Robert R. 1995. The Political Economy of Democratic Transitions (Princeton University Press). Haggard, Stephan, and McCubbins, Mathew D. 2001. Presidents, Parliaments, and Policy (Cambridge, England: Cambridge University Press). Harriss, John, and Hunter, Janet, et al. 1995. The New Institutional Economics and Third World Development (London: Routledge).

Political Economy of Policy Reform in Developing Countries (Cambridge, MA: MIT Press). ——. 1974. “The Political Economy of the Rent-Seeking Society,” The American Economic Review 64(3): 291–303. 128 bibliography Kupchan, Charles A. 2002. The End of the American Era: U.S. Foreign Policy and the Geopolitics of the Twenty-first Century (New York: Knopf). Lanyi, Anthony, and Lee, Young. 1999. Governance Aspects of the East Asian Financial Crisis (College Park, MD: IRIS Working Paper 226). Levitt, Barbara, and March, James G. “Chester I. Barnard and the Intelligence of Learning,” in Oliver Williamson, ed. 1990. Organization Theory from Chester Barnard to the Present (New York: Oxford University Press). Levy, Brian. 2002. Patterns of Governance in Africa (Washington, DC: World Bank). Lijphart, Arend 1996. “Constitutional Choices for New Democracies,” in Marc Plattner and Larry Diamond, eds., The Global Resurgence of Democracy (Baltimore: Johns Hopkins University Press).


World Cities and Nation States by Greg Clark, Tim Moonen

active transport: walking or cycling, Asian financial crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, business climate, cleantech, congestion charging, corporate governance, deindustrialization, Deng Xiaoping, financial independence, financial intermediation, Francis Fukuyama: the end of history, full employment, global supply chain, global value chain, high net worth, housing crisis, immigration reform, income inequality, informal economy, Kickstarter, knowledge economy, low skilled workers, megacity, new economy, New Urbanism, Norman Mailer, open economy, Pearl River Delta, rent control, Richard Florida, Silicon Valley, smart cities, sovereign wealth fund, special economic zone, stem cell, supply-chain management, The Wealth of Nations by Adam Smith, trade route, transaction costs, transit-oriented development, upwardly mobile, urban planning, urban renewal, urban sprawl, War on Poverty, zero-sum game

Momentum for substantive fiscal devolution Seoul operates within a system of highly centralised revenue collection, although it does have special fiscal rights. Property taxes are the main source of income for local authorities – including Seoul. Although national tax guidelines are relatively flexible for Seoul, which has more room for manoeuvre than other Korean cities, its autonomy only applies to a narrow range of taxes, and has been declining since the Asian financial crisis. As a result, Seoul’s 2016 city budget of 24 trillion Won ($19 billion), although rising steadily over the previous four years, is still less than half of Tokyo’s on a per capita basis – see Table 5.2 (Seoul Metropolitan Authority, 2016b). Seoul is more than 80% budget independent, but national tax revenue outweighs local tax by a factor of 4 to 1 and the central government indicates how most money should be spent.

Its manufacturing and import/export firms began to employ tens of millions of workers on the Chinese mainland (mainly Guangdong), and became responsible for intermediating the lion’s share of China’s external trade and foreign direct investment by 2000. As China’s budget and expenditure have grown, Hong Kong has been a key source of international capital, and its financial know-how has helped China to manage its financial resources and risks more prudently. Changes in the relationship since the 1997 handover The difficult years after the 1997–8 Asian Financial Crisis posed a big challenge for the Chinese central government to prove the success of the ‘one country, two systems’ model. For the most part, it has kept its promise to uphold the mandate and treat Hong Kong as a separate country from an immigration and currency standpoint, with more liberal media laws in keeping with its commercial and banking status. Beijing’s interpretation of electoral provisions in the Basic Law, and later its commitment to universal suffrage by 2017, provided a degree of certainty about the process of constitutional reform in a way which did not hinder flows of foreign investment into Hong Kong, given the city’s democratic advantages (China Daily, 2004).

Beijing’s interpretation of electoral provisions in the Basic Law, and later its commitment to universal suffrage by 2017, provided a degree of certainty about the process of constitutional reform in a way which did not hinder flows of foreign investment into Hong Kong, given the city’s democratic advantages (China Daily, 2004). Many commentators wrongly predicted a decline in Hong Kong’s international hub status, due to political uncertainty and the Asian financial crisis. But the city’s post‐1997 status as a globalised gateway to mainland China has actually fostered an expansion of international influence and urban investment. The city responded by proactively sponsoring a new cycle of redevelopment to strengthen and diversify its services offering. As a result of the 2003 Closer Economic Partnership Arrangement (CEPA), Hong Kong goods and services were able to access mainland markets, boosting patterns of integration.


pages: 159 words: 45,073

GDP: A Brief but Affectionate History by Diane Coyle

"Robert Solow", Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, BRICs, business cycle, clean water, computer age, conceptual framework, crowdsourcing, Diane Coyle, double entry bookkeeping, en.wikipedia.org, endogenous growth, Erik Brynjolfsson, Fall of the Berlin Wall, falling living standards, financial intermediation, global supply chain, happiness index / gross national happiness, hedonic treadmill, income inequality, income per capita, informal economy, Johannes Kepler, John von Neumann, Kevin Kelly, Long Term Capital Management, mutually assured destruction, Nathan Meyer Rothschild: antibiotics, new economy, Occupy movement, purchasing power parity, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thorstein Veblen, University of East Anglia, working-age population

On one side of the Atlantic, there was a good deal of agonizing among economic policymakers: computers were available for any business in any country to use, so why did the productivity benefits of the computer revolution appear to be confined to the United States? On the American side of the Atlantic, there was a sense of triumphalism about the superiority of the U.S. economy and its “New Paradigm,” with its Silicon Valley heroes and soaring stock market. Shocks like the 1995 Mexican near-default, the 1997–1998 Asian financial crisis and the collapse of Long Term Capital Management, and even the technology stock crash of 2001 and the horrors of 9/11 that year, were shrugged off after brief periods of crisis management. The economy appeared to be strong enough to weather anything, and GDP continued to expand for years to come, after a mild and brief downturn in 2001. The questions about GDP raised by the New Economy episode still stand.

Above all, the loss of perspective about the purpose of business, which is not at all the maximization of short-term profit or even shareholder value, but rather delivering goods and services to customers (in ways they might not even know they want), in a mutually beneficial transaction. Profit and share price increases are a side effect, not a goal.3 Finally, the tragic downfall, the nemesis. By the mid-2000s, despite the turmoil of the earlier Asian financial crisis and dot-com bust (in 2001), so-called Anglo-Saxon capitalism appeared triumphant. Its dominance was trumpeted by popular authors such as Thomas Friedman in his books The Lexus and the Olive Tree and The World Is Flat. The message was: this is an uncomfortable ride but deal with it because global capitalism is sweeping the whole world before it. Yet some doubts started to emerge even before the onset of the financial crisis in late 2007.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

Other examples of unrestricted warfare include cyberattacks that can ground aviation, open floodgates, cause blackouts, and shut down the Internet. Recently, financial attacks have been added to the list of asymmetric threats first articulated by Wang and others. Unrestricted Warfare spells this out in a chapter called “The War God’s Face Has Become Indistinct.” It was written not long after the 1997 Asian financial crisis, which cascaded into the global financial panic of 1998. Much of the distress in Asia was caused by Western bankers suddenly pulling hot money out of banks in emerging Asian markets; the distress was compounded by bad economic advice from the Western-dominated IMF. From an Asian perspective, the entire debacle looked like a Western plot to destabilize their economies. The instability was real enough, with riots and bloodshed from Indonesia to South Korea.

The fact that these policies favored free-market capitalism and promoted the expansion of U.S. banks and corporations in global markets did not go unnoticed. By the early 2000s, the Washington Consensus was in tatters due to the rise of emerging market economies that viewed dollar hegemony as favoring the United States at their expense. This view was highlighted by the IMF response to the Asian financial crisis of 1997–98, in which IMF austerity plans resulted in riots and bloodshed in the cities of Jakarta and Seoul. Washington’s failure over time to adhere to its own fiscal prescriptions, combined with the acceleration of Asian economic growth after 1999, gave rise to the Beijing Consensus as a policy alternative to the Washington Consensus. The Beijing Consensus comes in conflicting versions and lacks the intellectual consistency that Williamson gave to the Washington Consensus.

Abe, Shinzo, 160–61, 260–61 Abenomics, 261, 264, 297 Abraham, 217 Adenauer, Konrad, 116 Afghanistan, 55 Aid, Matthew, 53 AIG, 77 Air-Sea Battle, 44, 63 Akerlof, George, 83, 84, 87 Albania, 136 Aldrich, Nelson, 199 allocated gold transactions, 275 Alpert, Dan, 245 Al Qaeda, 19, 27 alternative funds, 299–300 Ambinder, Marc, 63 American Airlines, 18, 20, 21, 24, 25, 26, 27–28, 35, 36 Ames, Paul, 143 ANZ Bank, 227 Arab Spring, 3 Argentina, 261, 290 ARPANET, 174 Articles of Agreement, IMF, 199, 212–14, 235 Asian financial crisis, 45, 120 Åslund, Anders, 142 asset swaps, 80–81 Associated Press, 59 asymmetric markets, 83–88 Atta, Mohamed, 24–25 Australia, 281 autonomous agents, 266 Azerbaijan, 233 Aziz, Shaukat, 31 Backus, David K., 74 backwardation, of gold futures contracts, 285 Bahrain, 58, 152 Baker, James, 177 Balko, Radley, 294 bank deposit risk, 218–19 bank failure risk, 218 Bank for International Settlements (BIS), 213, 276–78 banking risk, 11–12 Bank of England (BOE), 159–60, 161–62, 223, 230 Bank of Japan (BOJ), 160, 161–62 Bank of the United States, 199 barter, 254–55 Bear Stearns, 77, 103 Beijing Consensus, 118, 120–21 BELLs (Bulgaria, Estonia, Latvia, Lithuania), 140–146 economic responses to 2008–9 crisis and subsequent recovery in, 142–46 euro peg/conversion in, 141, 144–45 Berlin Consensus, 121–27 cooperative labor-management relations pillar of, 123–24 efficient labor pillar of, 124–25 innovation and technology pillar of, 122 low-corporate-tax-rates pillar of, 122 low-inflation pillar of, 122–23 positive business climate pillar of, 125–26 Bernanke, Ben, 262 cheap-dollar policy of, 129, 157–59 deflation and, 76, 77 information’s role in efficient markets, analysis of, 84, 85–86, 87 London speech of, 158–59 Tokyo speech of, 129, 157–58 bin Laden, Osama, 19–20, 37 bitcoin, 254 Black Death, 115 Black Monday, 270 Blackstone Group, 51–52 Bloomberg, Michael, 294–95 Bloomberg News, 101, 145 Boeing Corporation, 58–59 Boesky, Ivan, 18 bond markets, 180 Bosnia, 136 Brazil, 139.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Such a high level of saving was exacerbated by the policy from 1980 of limiting most families to one child, making it difficult for parents to rely on their children to provide for them in retirement.19 Asian economies in general also saved more in order to accumulate large holdings of dollars as insurance in case their banking system ran short of foreign currency, as happened to Korea and other countries in the Asian financial crisis of the 1990s. In most of the advanced economies of the West, it was the desire to spend that gained the upper hand, as reflected in falling saving rates. Napoleon may (or may not) have described England as a nation of shopkeepers, but it would be more accurate to say that it is a nation that keeps on shopping. Keen though western consumers were on spending, their appetite was not strong enough to offset the even greater wish of emerging economies to save.

Even if the former could be imposed by the central authorities on countries in the euro area – and there are few signs that this would be a popular development – to extend the same degree of integration to countries outside the euro area would surely shatter the wider union. For the foreseeable future, the European Union will comprise two categories of member: those in and those not in the euro area. Arrangements for the evolution of the European Union need to reflect that fact. Such issues are a microcosm of broader challenges to the global order. The Asian financial crisis of the 1990s, when Thailand, South Korea and Indonesia borrowed tens of billions of dollars from western countries through the IMF to support their banks and currencies, showed how difficult it is to cope with sudden capital reversals resulting from a change in sentiment about the degree of currency or maturity mismatch in a nation’s balance sheet, and especially in that of its banking system.

Abe, Shinzo, 363 ABN Amro, 118 Acheson, Dean, 368 Ahmed, Liaquat, The Lords of Finance, 158 AIG, 142, 162 alchemy, financial, 5, 8, 10, 40, 50, 91, 191–2, 257, 261, 263–5, 367, 369; illusion of liquidity, 149–55, 253–5; maturity and risk transformation, 104–15, 117–19, 250–1, 254–5; pawnbroker for all seasons (PFAS) approach, 270–81, 288, 368 Ardant, Henri, 219 Arrow, Kenneth, 79–80, 295 Asian financial crisis (1990s), 28, 349, 350 Asian Infrastructure Investment Bank, 349–50 Australia, 74, 259, 275, 348 Austria, 340, 341 Austro-Hungarian Empire, 216 Bagehot, Walter, 212, 218, 335; Lombard Street (1873), 94–5, 114–15, 188, 189, 190, 191–2, 202, 208, 251, 269 Bank for International Settlements, 31, 255, 276, 324 Bank of America, 103–4, 257 Bank of England, 169, 217, 275, 280, 320–1; Bank Charter Act (1844), 160, 198; during crisis, 36, 37–8, 64, 65, 76, 118, 181–3, 184, 205, 206; Financial Policy Committee, 173; garden at, 73–4; gold reserves, 74, 75, 77, 198; governors of, 6, 12–13, 52–3, 175–6, 178; granting of independence to (1997), 7, 166, 186; history of, 92, 94, 156–7, 159, 160, 180–1, 186, 188–201, 206, 335; inflation targeting policy, 7, 167, 170, 322; Monetary Policy Committee (MPC), 173, 329–31; as Old Lady of Threadneedle Street, 75; weather vane on roof, 181 bank runs, 37–8, 93, 105–8, 187–92, 253–4, 262 Bankia (Spanish bank), 257–8 banking sector: balance sheets, 31, 103–4; capital requirements, 137–9, 255–6, 258, 280; commercial and investment separation, 23, 98, 256, 257; creation of money by, 8, 59–63, 86–7, 91, 161, 253, 263; as dangerous and fragile, 8, 23, 33, 34, 36–7, 91–2, 105, 111, 119, 323–4; deposit insurance, 62, 107–8, 137, 254–5, 328; European universal banks, 23–4; and ‘good collateral’, 188, 190, 202–3, 207, 269; history of, 4–5, 18–19, 59–60, 94–5, 187–202, 206–7; implicit taxpayer subsidy for, 96–7, 107, 116–17, 191–2, 207, 254–5, 263–4, 265–6, 267–8, 269–71, 277; interconnected functions of, 95–6, 111–12, 114–15; levels of equity finance, 103, 105, 109, 112, 137–9, 173, 202, 254–9, 263, 268, 280, 368 see also leverage ratios (total assets to equity capital); liquidity support stigma, 205–7; misconduct scandals, 91, 100, 118, 151, 256; narrow and wide banks, 263–5, 266–7, 279; political influence of, 3, 6, 288–9; recapitalisation of (October 2008), 37–8, 201; taxpayer bailouts during crisis, 4, 38, 41, 43, 93, 94, 106, 118, 162, 243, 247, 261, 267–8; ‘too important to fail’ (TITF), 96–7, 99, 116–17, 118, 254–5, 263–4, 279–80; vast expansion of, 23–4, 31–3, 92–4, 95, 96–9, 115–18; visibility of, 92–3, 94; see also alchemy, financial; central banks; liquidity; regulation Banque de France, 159 Barclays, 95 Barings Bank, 137, 193 ‘behavioural economics’, 132–4, 308, 310 Belgium, 201, 216, 340 Benes, Jaromir, 262 Bergsten, Fred, 234 Berlusconi, Silvio, 225 Bernanke, Ben, 28, 44, 91, 158, 175–6, 183, 188, 287 bills of exchange, 197–8, 199 bitcoins, 282–3 Black, Joseph, 56 Blackett, Basil, 195–6 Blair, Tony, 186 Blakey, Robert, The Political Pilgrim’s Progress (1839), 251–3 Blinder, Alan, 164 BNP Paribas, 35 Brazil, 38 Brecht, Bertolt, The Threepenny Opera (1928), 88, 93 Bremer, Paul, 241 Bretton Woods system, 20–1, 350, 352 British Empire, 216, 217 Bryan, William Jennings, 76, 86–7 Buffett, Warren, 102, 143 building societies, 98 Bunyan, John, Pilgrim’s Progress (1678), 251 Cabaret (film, 1972), 52, 83 Cambodia, 246 Cambridge University, 12, 83, 292–3, 302 Campbell, Mrs Patrick, 220 Campbell-Geddes, Sir Eric, 346 Canada, 116, 167, 170 capitalism, 2, 5, 8, 16–21, 42, 155, 366; as best way to create wealth, 17, 365–6, 369; and end of Cold War, 26–7, 365; money and banking as Achilles heel, 5, 16–17, 23–6, 32–9, 40–1, 50, 369–70; Schumpeter’s ‘creative destruction’, 152; see also market economy Carlyle, Thomas, 16 Carney, Mark, 176 Caruana, Jaime, 324 central banks, 156–9; accountability and transparency, 158, 168, 169–70, 175–6, 178–80, 186, 208; and ‘constrained discretion’, 169–70, 186; creation of ‘emergency money’, 48, 65–6, 71, 86, 172, 182–3, 189, 196–7, 201–7, 247, 275; during crisis, 36–9, 64, 65, 76, 113, 118, 158, 159, 162, 181–4, 205, 206, 335; and disequilibrium, 46–7, 171–2, 175, 208, 329–32; exclusive right to issue paper money, 160, 165, 283; and expectations, 28, 176–8, 304; forecasting by, 179–80, 304–5; future of, 207–10; gold reserves, 74–5, 77, 198; history of, 159–60, 161–2, 180–1; independence of, 5–6, 7, 22, 71, 165–7, 169–70, 185–6, 209–10, 357; industry of private sector watchers, 178; integrated policy framework, 187, 208–9, 288; as ‘lenders of last resort’ (LOLR), 94–5, 109–10, 163, 187–97, 202–7, 208, 259, 268, 269–70, 274–5, 288; and ‘macro-prudential policies’, 173–5, 187; monetary policy rules, 168–9; and money supply, 63, 65–6, 76, 86–7, 162, 163, 180–4, 192, 196–201; pawnbroker for all seasons (PFAS) approach, 270–81, 288, 368; in post-crisis period, 43–4, 63, 76, 162–3, 168–9, 173, 175, 179–80, 183–6; printing of electronic money by, 43, 52, 359; proper role of, 163, 172, 174–5, 287; and swap agreements, 353; see also Bank of England; European Central Bank (ECB); Federal Reserve central planning, 20, 27, 141 Chiang Mai Initiative, 349 ‘Chicago Plan’ (1933), 261–4, 268, 273, 274, 277–8 China, 2–3, 22, 34, 77, 306, 322, 338, 357, 362–3, 364; banking sector, 92, 93; export-led growth strategy, 27–8, 319, 321, 323–4, 356; falling growth rates, 43–4, 324, 363; medieval, 57, 68, 74; one child policy in, 28; problems in financial system, 43–4, 337, 362–3; savings levels in, 27–8, 29, 34; trade surpluses in, 27–8, 46, 49, 319, 321, 329, 364 Chou Enlai, 2 Churchill, Winston, 211, 366 Citigroup, 90, 99, 257 Clark, Kenneth, 193 Clinton, President Bill, 157 Cobbett, William, 71–2 Cochrane, John, 262 Coinage Act, US (1792), 215 Cold War, 26–7, 68, 81–2, 350, 365 Colley, Linda, 213–14 communism, 19, 20, 27 Confucius, 10 Cunliffe, Lord, 178, 193 currencies: break-up of sterling area, 216; dollarisation, 70, 246, 287; ‘fiat’, 57, 283; during government crises, 68–9; monetary unions, 212–18, 238–49 see also European Monetary Union (EMU, euro area); optimal currency areas, 212–13, 215, 217, 248; ‘sterlingisation’ and Scotland, 244–7, 248; US dollar-gold link abandoned (1971), 73; virtual/digital, 282–3; see also exchange rates cybercrime, 282 Cyprus, 363–4 Czech Republic, 216 Debreu, Gerard, 79–80, 295 debt, 140; bailouts as not only response, 343–4; as consequence not cause of crisis, 324–5; forgiveness, 339–40, 346–7; haircut on pledged collateral, 203, 204, 266, 269, 271–2, 275, 277–8, 280; household, 23, 31, 33–4, 35; importance of for real economy, 265–6; as likely trigger for future crisis, 337–8; and low interest rates, 337; quantitative controls on credit, 173, 174–5; rise in external imbalances, 22–3, 24–5, 27–31, 33–4, 45–7, 48–9, 236, 306–7, 319–24, 329–30, 338, 364; and rising asset prices, 23, 24, 31–2; role of collateral, 266–7, 269–81; see also sovereign debt decolonisation process, 215 deflation, 66, 76, 159, 164, 165 demand, aggregate: ‘asymmetric shocks’ to, 213; disequilibrium, 45–9, 316, 319–24, 325–7, 329–32, 335, 358–9; in EMU, 221, 222–3, 229, 230, 236; during Great Stability, 319–24; and Keynesianism, 5, 20, 41, 293, 294–302, 315–16, 325–6, 327, 356; and monetary policy, 30, 41–9, 167, 184–5, 212–13, 221, 229–31, 291–2, 294–302, 319–24, 329–32, 335, 358; nature of, 45, 325; pessimism over future levels, 356, 357–60; price and wage rigidities, 167; and radical uncertainty, 316; rebalancing of, 357, 362–3, 364; saving as source of future demand, 11, 46, 84–5, 185, 325–6, 356; as weak post-crisis, 38–9, 41–2, 44–5, 184–5, 291–2, 337, 350, 356–60 democracy, 26–7, 168, 174, 210, 222, 318, 348, 351; and euro area crisis, 224–5, 231, 234–5, 237–8, 344; and paper money, 68, 77; rise of non-mainstream parties in Europe, 234–5, 238, 344, 352 demographic factors, 354, 355, 362 Denmark, 216–17, 335 derivative instruments, 32–3, 35–6, 90, 93–4, 97–8, 100, 101, 117, 141–5; desert island parable, 145–8 Dickens, Charles, 1, 13–14, 233 disequilibrium: and aggregate demand, 45–9, 316, 319–24, 325–7, 329–32, 335, 358–9; alternative strategies for pre-crisis period, 328–33; and central banks, 11–12, 46–7, 171–2, 175, 208, 329–32; continuing, 42, 45–8, 49, 171–2, 291, 334–5, 347, 353, 356–70; coordinated move to new equilibrium, 347, 357, 359–65; definition of, 8–9; euro area at heart of, 248, 337; and exchange rates, 319, 322–3, 329, 331, 364; high- and low-saving countries (external imbalances), 22–3, 24–5, 27–31, 33–4, 45–7, 48–9, 236, 307, 319–24, 329–30, 338, 364; in internal saving and spending, 45–8, 49, 313–16, 319–21, 324, 325–6, 329–30, 356; and ‘New Keynesian’ models, 306; the next crisis, 334–5, 336–8, 353, 370; and paradox of policy, 48, 326, 328, 333, 357, 358; and stability heuristic, 312–14, 319–21, 323, 331, 332; suggested reform programme, 359–65 division of labour (specialisation), 18, 54–5 Doha Round, 361 Domesday Book, 54, 85 dotcom crash, 35 ‘double coincidence of wants’, 55, 80, 82 Douglas, Paul, 262 Draghi, Mario, 225, 227, 228 Dyson, Ben, 262 econometric modelling, 90, 125, 305–6 economic growth: conventional analysis, 44–5, 47; as low since crisis, 11, 43–4, 290–2, 293, 324, 348, 353–7; origins of, 17–21; pessimism over future levels, 353–7; in pre-crisis period, 329, 330–1, 351–2; slowing of in China, 43–4, 324, 362; stability in post-war period, 317–18 economic history, 4–5, 15–21, 54–62, 67–77, 107–9, 158–62, 180–1, 206–7, 215–17, 317–18; 1797 crisis in UK, 75; 1907 crisis in US, 159, 161, 196, 197, 198, 201; 1914 crisis, 192–201, 206, 307, 368; 1920-1 depression, 326–7; 1931 crisis, 41; ‘Black Monday’ (19 October 1987), 149; Finnish and Swedish crises (early 1990s), 279; German hyperinflation (early 1920s), 52, 68, 69, 86, 158–9, 190; Latin American debt crisis (1980s), 339; London banking crises (1825-66), 92, 188–90, 191–2, 198, 201; panic of 1792 in US, 188; see also Great Depression (early 1930s) The Economist magazine, 108–9 economists, 78–80, 128–31, 132–4, 212, 311; 1960s evolution of macroeconomics, 12, 16; forecasting models, 3–4, 7, 122–3, 179–80, 208, 305–6; Keynes on, 158, 289; see also Keynesian economics; neoclassical economics Ecuador, 246, 287 Egypt, ancient, 56, 72 Eliot, T.S., Four Quartets, 120, 290 emerging economies, 39, 43, 337, 338, 361; export-led growth strategy, 27–8, 30, 34, 319, 321, 324, 349, 356; new institutions in Asia, 349–50; savings levels in, 22–3, 27–8, 29, 30; ‘uphill’ flows of capital from, 30–1, 40, 319; US dollar reserves, 28, 34, 349 ‘emotional finance’ theory, 133–4 Engels, Friedrich, 19 Enron, 117 equity finance, 36, 102, 103, 140, 141, 143, 266, 280; and ‘bail-inable’ bonds, 112; in banking sector, 103, 105, 109, 112, 137–9, 173, 202, 254–9, 263, 268, 280, 368 see also leverage ratios (total assets to equity capital); and limited liability, 107, 108, 109 European Central Bank (ECB), 137, 162, 166, 232, 339; and euro area crisis, 203–4, 218, 224–5, 227–8, 229, 231, 322; and political decisions, 218, 224–5, 227–8, 231–2, 235, 344; sovereign debt purchases, 162, 190, 227–8, 231 European Monetary Union (EMU, euro area), 62, 217–38, 337–40, 342–9, 363–4; creditor and debtor split, 49, 222–3, 230–1, 232–7, 338, 339–40, 342–4, 363–4; crisis in (from 2009), 138, 203–4, 218, 223–31, 237–8, 276, 338, 339–40, 3512, 368; disillusionment with, 234–5, 236, 238, 3444; divergences in competitiveness, 221–3, 228, 231, 232–3, 234; fiscal union proposals (2015), 344; at heart of world disequilibrium, 248, 337; inflation, 70, 221–2, 232, 237; interest rate, 221–2, 232, 237, 335; launch of (1999), 22, 24–5, 218, 221, 306; main lessons from, 237; and political union issues, 218, 220, 235, 237–8, 248–9, 344, 348–9; ‘progress through crisis’ doctrine, 234; prospects for, 232–3, 345–6; sovereign debt in, 162, 190, 224, 226–8, 229–31, 258, 338, 339–40, 342–4; transfer union proposal, 224, 230, 231, 233, 234, 235, 237, 344; unemployment in, 45, 226, 228, 229–30, 232, 234, 345; value of euro, 43, 228–9, 231, 232, 322 European Stability Mechanism (ESM), 228 European Union, 40, 235–6, 237–8, 247, 248–9, 348–9; no-bailout clause in Treaty (Article 125), 228, 235–6; Stability and Growth Pact (SGP), 235, 236 Exchange Rate Mechanism (ERM), 219, 220 exchange rates: and disequilibrium, 319, 322–3, 329, 331, 364; and EMU, 222, 228–9, 338–9, 363–4; exchange controls, 21, 339; fixed, 20–1, 22–3, 24–5, 72–3, 75–6, 339, 352, 353, 361; floating, 21, 338, 353, 361–2; and ‘gold standard’, 72–3, 75–6; risk of ‘currency wars’, 348; and wage/price changes, 213 Federal Deposit Insurance Corporation (FDIC), 62, 137, 328 Federal Open Market Committee, 179 Federal Reserve, 45, 65, 74, 137, 157–8, 162, 168–70, 175, 178–9, 320; in 1920s/30s, 192, 326–7, 328, 349; during crisis, 39, 76, 107, 113, 183, 184; discount window, 206; dual mandate of, 167–8; opening of (1914), 60, 62, 159–60, 194–5, 196, 197 Ferrer, Gaspar, 193 Field, Alexander, 355 Financial Conduct Authority, UK, 260 financial crises, 11–12, 34; and demand for liquidity, 65–6, 76–7, 86, 106, 110, 119, 148, 182, 187–92, 194, 201–7, 253–4, 367; differing causes of, 307, 316–17, 327–8; frequency of, 2, 4, 20, 92, 111, 316–17; and ‘gold standard’, 75, 165, 195; and Minsky’s theory, 307–8, 323; narrative revision downturns, 328, 332–3, 356, 357, 58–9, 364; the next crisis, 334–5, 336–8, 353, 370; as test beds for new ideas, 49–50; see also economic history financial crisis (from 2007): articles and books, 1–2, 6; central banks during, 36–9, 64, 65, 76, 113, 118, 158, 159, 162, 181–4, 205, 206, 335; desire to blame individuals, 3, 89–90; effects on ordinary citizens, 6, 13, 41; the Great Panic, 37–8; interest rates during, 150–1, 181, 335; LIBOR during, 150–1; liquidity crisis (2007-8), 35–8, 64–5, 76, 110; money supply during, 181–3; parallels with earlier events, 90–2, 193; post-crisis output gap, 42, 291, 337; short-term Keynesian response, 39, 41, 48, 118–19, 326, 328, 356; ‘small’ event precipitating, 34–5, 323; unanswered questions, 39–43; underlying causes, 16–17, 24–5, 26–39, 40, 307, 319–26, 328; weak recovery from, 43–4, 48, 291–2, 293, 324, 337, 355, 364, 366 financial markets, 64–5, 113, 117–18, 141–5, 149, 184, 199–200, 314–15; basic financial contracts, 140–1; desert island parable, 145–8; and radical uncertainty, 140, 143, 144–5, 149–55; ‘real-time’ trading, 153–4, 284; see also derivative instruments; financial products and instruments; trading, financial financial products and instruments, 24, 35–6, 64, 99–100, 114, 117, 136–7, 258, 278, 288; see also derivative instruments Finland, 159, 279 First World War, 88–9, 153, 164, 178, 200–2, 307; financial crisis on outbreak of, 192–201; reparations after, 340–2, 343, 345–6 fiscal policy, 45, 184, 347–8, 352, 358; and Keynesianism, 78, 181, 292, 300, 356; in monetary unions, 222–3, 235; short-term stimulus during crisis, 39, 118–19, 356 Fisher, Irving, 163, 261 fractional reserve banking, 261 France, 93, 201, 216, 219, 221, 236, 248, 348, 364; and euro area crisis, 228–9, 231, 236, 322; occupation of Ruhr (1923), 340; overseas territories during WW2, 242; revolutionary period, 68, 75, 159 Franklin, Benjamin, 58, 127 Friedman, Milton, 78, 130, 163, 182, 192, 262, 328 Fuld, Dick, 89 futures contracts, 142, 240–1, 295–6 G20 group, 39, 255, 256, 351 G7 group, 37–8, 351 Garrett, Scott, 168–9 Geithner, Timothy, 267 George, Eddie, 176, 330 Germany, 93, 161, 162, 184, 219, 322, 341, 357; Bundesbank, 166, 219, 228, 232; and EMU, 219–22, 224, 227, 228, 230, 231–2, 234–6, 248, 338, 340, 342–3, 345; export-led growth strategy, 222, 319, 363–4; hyperinflation (early 1920s), 52, 68, 69, 86, 158–9, 190; Notgeld in, 201–2, 287; reunification, 219, 342; trade surpluses in, 46, 49, 222, 236, 319, 321, 356, 363–4; WW1 reparations, 340–2, 343, 346 Gibbon, Edward, 63, 164 Gigerenzer, Professor Gerd, 123, 135 Gillray, James, 75 global economy, 349–54, 361; capital flows, 20–1, 22, 28, 29, 30–1, 40, 319, 323; rise in external imbalances, 22–3, 24–5, 27–31, 33–4, 45–7, 48–9, 236, 307, 319–24, 329–30, 338, 364; see also currencies; exchange rates; trade surpluses and deficits Goethe, Johann Wolfgang von, Faust, 85–6 ‘gold standard’, 72–3, 75–6, 86, 165, 195, 200–1, 216–17, 348, 352 Goldman Sachs, 98, 109, 123, 257 Goodwin, Fred, 37, 89 Grant, James, 327 Great Depression (early 1930s), 5, 16, 20, 158, 160, 226, 348, 355; dramatic effect on politics and economics, 41; Friedman and Schwartz on, 78, 192, 328; and ‘gold standard’, 73, 76; US banking crisis during, 90–1, 108, 116, 201 Great Recession (from 2008), 6, 38–9, 163, 290–2, 326 Great Stability (or Great Moderation), 6, 22, 45–7, 71, 162, 208, 305, 313–14, 318–24, 325–6; alternative strategies for pre-crisis period, 328–33; monetary policies during, 22, 25, 46–7, 315 Greece, 216, 221, 222, 225–31, 338–40, 364; agreement with creditors (13 July 2015), 230–1, 346; crisis in euro area, 223–4, 225–7, 229, 230–1, 236, 258, 338–40; debt restructured (2012), 226–7, 229, 236, 339, 343–4, 346; national referendum (July 2015), 230; sovereign debt, 224, 226–7, 339–40, 342–4, 346–7; Syriza led government, 229, 235 Greenspan, Alan, 157–8, 164, 175, 317 Gulf War, First (1991), 238 Hahn, Frank, 79 Halifax Bank of Scotland (HBoS), 37, 118, 206, 243 Halley, Edmund, 122 Hamilton, Alexander, 188, 202, 215 Hankey, Thomas, 191–2 Hansen, Alvin, Full Recovery or Stagnation?


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Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Black-Scholes formula, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, financial innovation, financial intermediation, fixed income, full employment, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, large denomination, locking in a profit, London Interbank Offered Rate, margin call, market bubble, market clearing, market fundamentalism, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Ponzi scheme, price mechanism, price stability, profit motive, Real Time Gross Settlement, reserve currency, risk tolerance, risk/return, seigniorage, shareholder value, short selling, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

In that case, the hedger has residual spread risk: during the time of her hedge, the spread between the yields on the items she’s long and short might move against her. On a well-constructed hedge, residual spread risk is far less than the market risk inherent in the position hedged. Thus, whenever hedging does not eliminate position risk, it at least substantially reduces it. Still, there have been occasions where the residual risk has resulted in substantial losses. One of these was during the Asian financial crisis in 1998, particularly after Russia defaulted on its debts. Some dealers had “hedged” their holdings in corporate bonds by shorting Treasuries, but they incurred steep losses when panicky investors sold corporates and bought Treasuries, causing credit spreads to widen substantially (Figure 10.2). FIGURE 10.2 Yield spread between A-rated industrials and 10-year T-notes (in percentage points) DEALER FINANCING AND CARRY The typical dealer is running a highly leveraged operation in which securities held in position may, depending on whether she’s a bank or a non-bank dealer and on the types of securities she trades, total 40, 50, or 100 times capital.

The technical condition of the market has been excellent with little supply on the Street [in dealers’ hands]. So the 6-month bill should have done better, but it didn’t. The reason is that we’ve got a pure dealer market. The retail buyer, who is scared and going short, is simply not there.” An environment such as this prevailed in late 2005 and early 2006 when investors were unsure about when the Fed might end its interest rate hikes. Other examples include the Asian financial crisis in 1998 when yield spreads fluctuated wildly between Treasuries and other segments of the bond market, as well as between Treasuries of varying degrees of liquidity, despite their equal credit quality. Finally, to determine where relative value lies among different maturity sectors of the market, the portfolio manager must explicitly predict interest rates and the slope of the yield curve over at least the time span of his planning horizon.

A fair, if oversimplified, way to describe how shops used to trade coupons would be to say that they bought notes when they were bullish, shorted them when they were bearish, and had a specialist arbitrageur who sought at all times to profit from rate anomalies. Today, note traders must weigh variables that literally stretch across the globe. Luckily for traders of U.S. notes, most of what moves the Treasury note market emanates from the United States, although this does not mean that simply following the U.S. picture will suffice. The large amount of volatility seen during the Asian financial crisis of 1997–1998 and the Russian default of 1998 is clear evidence of the very large impact that events abroad can have on the U.S. Treasury market. Still, the influence doesn’t cut both ways as much as some think. Goldberg and Leonard showed this in a study that analyzed the effects of economic news on U.S. and German yields during the period January 3, 2000, to June 2, 2002.10 The study found that U.S. economic data had a greater effect on German 2- and 10-year yields than many German releases did and that German and euro-area economic announcements were far less influential on yields in the U.S.


pages: 237 words: 50,758

Obliquity: Why Our Goals Are Best Achieved Indirectly by John Kay

Andrew Wiles, Asian financial crisis, Berlin Wall, bonus culture, British Empire, business process, Cass Sunstein, computer age, corporate raider, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, discovery of penicillin, diversification, Donald Trump, Fall of the Berlin Wall, financial innovation, Gordon Gekko, greed is good, invention of the telephone, invisible hand, Jane Jacobs, lateral thinking, Long Term Capital Management, Louis Pasteur, market fundamentalism, Myron Scholes, Nash equilibrium, pattern recognition, Paul Samuelson, purchasing power parity, RAND corporation, regulatory arbitrage, shareholder value, Simon Singh, Steve Jobs, Thales of Miletus, The Death and Life of Great American Cities, The Predators' Ball, The Wealth of Nations by Adam Smith, ultimatum game, urban planning, value at risk

The reputation of financial economics has never recovered from the blow of the virtual collapse of Long-Term Capital Management, a sophisticated practitioner of the risk models outlined in chapter twelve, and the involvement of two Nobel Prize winners, Robert C. Merton and Myron Scholes. The fund built huge positions on the basis of estimated mispricings, relying on its models to control its exposures. When the Asian financial crisis blew up in 1997, the fund managers extended their positions. They believed their own models. Their failure was a precursor of the much larger failures that would follow a decade or so later. At the banks a decade later, as in Iraq, evidence and models were used to confirm what was already asserted to be true rather than to challenge the validity of prior assumptions. And in both cases a superficial appearance of considered rationality concealed the crude directness of what was really being done.

Abacha, Sani ABB accounting acquisitions and mergers adaptation aggregates agriculture Airbus Airbus 380 Allen, Bill ambulance response times analgesics anesthetics Ansoff, H. Igor anthologies, literary anthropomorphization anti-inflammatory drugs Apple Apprentice, The arbitrage Archimedes architecture Aristotle Arrow, Kenneth art Art of the Deal, The (Trump) art experts artificial intelligence Asian financial crisis (1997) aspirin assets authority Autobiography (Mill) aviation industry Balboa, Vasco de Bankers Trust banking industry Barnevik, Percy Basel agreements (1987) basic goals Bear Stearns Beckham, David Bell, Alexander Graham bell curve Bengal Bentonville, Ark. Berlin, Isaiah Berlin Wall beta-blockers Black, James “blind watchmaker” Boeing Boeing 737 airliner Boeing 747 airliner Boeing 777 airliner Boesky, Ivan bonuses Borges, Jorge Luis Borodino, Battle of Boston Consulting Group brain damage brain teasers Brando, Marlon Brasília Brave New World (Huxley) Brin, Sergey British empire brokerage firms Bruck, Connie Brunelleschi, Filippo Buffett, Warren Built to Last (Collins and Porras) Burke, Edmund Burns, Robert Bush, George W.


pages: 234 words: 53,078

The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer by Dean Baker

accounting loophole / creative accounting, affirmative action, Asian financial crisis, Bretton Woods, business cycle, corporate governance, declining real wages, full employment, index fund, Jeff Bezos, medical malpractice, medical residency, money market fund, offshore financial centre, price discrimination, risk tolerance, spread of share-ownership

The market response should have been that the banks that judged risk poorly take a financial hit, and the particular individuals who exercised bad judgment on loans should perhaps lose their jobs. In a free market, there is no place for a supranational institutional like the IMF to rewrite the rules to ensure that creditors are protected. The IMF provided the same sort of service in the East Asian financial crisis in the fall of 1997. In that situation, the IMF forced governments in the region to assume the responsibility to repay loans that banks made to private companies. The problem facing the foreign banks was that these countries had no well-developed bankruptcy laws, so there was no mechanism through which foreign banks could collect on loans made to companies that were essentially bankrupt at the time.

., J. Gruber, and P. Orszag. 2006. “Improving Opportunities and Incentives for Saving by Middle- and Low-Income Households,” Washington, DC: Brookings Institution. [http://www.brookings.edu/views/papers/200604hamilton_2.htm] Gill, I, T. Packard, and J. Yermo. 2005. Keeping the Promise of Social Security in Latin America, Stanford, CA: Stanford University Press. Goldstein, M. 1998. The Asian Financial Crisis: Causes, Cures, and Systematic Implications. Washington, DC: Institute for International Economics: 26-44. Hacker, J. 2002. The Divided Welfare State: The Battle Over Public and Private Social Benefits in the United States. New York: Cambridge University Press. Himmelstein, D., E. Warren, D. Thorne, and S. Woolhandler. 2005. “Illness and Injury as Contributors to Bankruptcy,” Health Affairs.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, plutocrats, Plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

The Chinese government had not developed a comprehensive system of public welfare provision, although it was often suggested that many of the most inefficient state companies, by supplying jobs and salaries to workers, offered a crude form of welfare provision. As a final tribute to the success of his programme of public spending, Zhu declared that he was ‘very proud’ of his adoption of an ‘expansionary fiscal policy’. This policy, in his opinion, had ensured that China ‘not only overcame the impact of the Asian financial crisis, but was able to use the opportunity to achieve unprecedented economic growth’.37 In a sense, the Chinese had acted more consistently with Keynesian principles than many other governments would in later crises. Keynes had been brought up in the late Victorian era. His basic assumption had been that governments would try to balance their budgets. He advocated the financing of public spending through borrowing only in exceptional circumstances, as a way of stimulating the economy whenever a downturn occurred.

Prescott, The 1990s in Japan: A Lost Decade, Working Papers 607, Federal Reserve Bank of Minneapolis, Minneapolis, MN, 2000, p. 1. 22Krugman, Depression Economics, pp. 94–6. 23Ibid., pp. 94–5. 24Matthew Bishop, Economics: An A–Z Guide, London, 2009, p. 67. 25Philip Coggan, Paper Promises: Money, Debt and the New World Order, London, 2011, p. 125. 26Krugman, Depression Economics, pp. 144, 141. 27Xiao-Ming Li, ‘China’s Macroeconomic Stabilization Policies Following the Asian Financial Crisis: Success or Failure?’, Asian Survey, vol. 40, no. 6 (November–December 2000), pp. 938–57, at p. 938. 28Economist, ‘East Asia’s Whirlwind Hits the Middle Kingdom’, 14 February 1998. 29Economist, ‘China’s Currency’, 12 August 1999. 30Business China, ‘Devaluing the renminbi’, 2 February 1998. 31New York Times, ‘China Won’t Reduce Value of Currency, Official Says’,1 December 1997. 32James Kynge, China Shakes the World: The Rise of a Hungry Nation, London, 2006, pp. 27–8. 33Economist, ‘China Pedals Harder’, 11 June 1998. 34Zhu Rongji, Zhu Rongji Meets the Press, Hong Kong, 2011, p. 172. 35Ibid., p. 241. 36Ibid., p. 259. 37Ibid., p. 262. 38New York Times, ‘U.S.

., ‘Chinese Foreign Trade’, China Quarterly, no. 131 (September 1992), pp. 691–720. Layton, W. T., ‘British Opinion on the Gold Standard’, Quarterly Journal for Economics, vol. 39, no. 2 (February 1925), pp. 184–95. Le Monde, ‘Réunion des ministres des finances à la Haye: Les Douze ont progressé vers l’union monétaire’, 1 December 1991. Li, Xiao-Ming, ‘China’s Macroeconomic Stabilization Policies Following the Asian Financial Crisis: Success or Failure?’, Asian Survey, vol. 40, no. 6 (November–December 2000), pp. 938–57. Los Angeles Times, ‘Fears of Dot-Com Crash, Version 2.0’, 16 July 2006. Martin Jr, William McChesney, ‘Toward a World Central Bank?’, Basle, Switzerland, Per Jacobsson Foundation Lecture, given 14 September 1970. Meadville Tribune, ‘Averting the Real Fiscal Cliff’, 31 January 2013 (article written by Glenn Thompson, Republican US Representative for Pennsylvania’s 5th District).


pages: 354 words: 110,570

Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World by Tom Wright, Bradley Hope

Asian financial crisis, Bernie Madoff, collapse of Lehman Brothers, colonial rule, corporate social responsibility, Credit Default Swap, Donald Trump, failed state, family office, forensic accounting, Frank Gehry, high net worth, Nick Leeson, offshore financial centre, Ponzi scheme, Right to Buy, risk tolerance, Snapchat, South China Sea, sovereign wealth fund

Asian economies like Thailand and South Korea had been through a decade of heady growth, and bankers worked long hours, partied in the bars and fleshpots of Wanchai, the city’s entertainment district, and took jaunts to Hong Kong’s outer islands in private yachts on the weekends. By 1997, however, the party atmosphere was souring. After 156 years of colonial rule, Britain was handing Hong Kong back to China. The Asian financial crisis was in full swing, the result of years of reckless borrowing to finance investments in property and other risky sectors. It was a typical financial bubble, and when speculators like George Soros attacked the region’s overvalued currencies, angering Malaysia’s then prime minister, Mahathir Mohamad, foreign banks were forced to book losses on loans that went bad. For a financier like Leissner, there was an upside to all that volatility.

Najib and Rosmah felt like Low could work magic, organizing state visits to the Middle East and, now, attracting the glamor of Hollywood. Low, however, had an even bigger target, confiding in Ambassador Otaiba that he hoped to deepen Najib’s relationship with President Obama. For years, ties between Malaysia and the United States had been lukewarm at best. Former Prime Minister Mahathir Mohamad was confrontational toward the United States, bashing “Western imperialism” and blaming “Jewish” financiers for the Asian financial crisis in the late 1990s. Western governments decried the jailing of Anwar Ibrahim for sodomy as a political vendetta. On an official visit to Kuala Lumpur, Vice President Al Gore urged the “brave people of Malaysia” to push for democracy, infuriating Mahathir. By the time Najib came to power, no sitting U.S. president had visited Malaysia since Lyndon B. Johnson in the 1960s, when the United States was entrenched in the Vietnam War.

By the 1990s, private banks were looking to expand in Asia, an area of fast economic growth, and Brunner moved to head Coutts’s business in Singapore. The Southeast Asian city-state of five million people, located on a tropical island near the equator, was positioning itself as the “Switzerland of the East,” complete with banking secrecy laws modeled on Switzerland’s. For a while, business flourished as Asia’s economies powered ahead, generating scores of new millionaires. After the Asian financial crisis took hold in the late 1990s, slashing the stock holdings of rich Asians, Brunner was recalled to Switzerland to head the bank’s international business. But he had developed a taste for the lifestyle in Asia, with its servants and drivers, and he was back in Singapore by 2006, residing in a modern apartment with a pool and outdoor whirlpool bath within walking distance of the city’s botanical gardens.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

Book titles like The Borderless World, The World Is Flat and One World, Ready or Not summed up the essence of this new discourse. The beginning of the end: the Asian financial crisis The euphoria of the late 1980s and the early 1990s didn’t last. The first sign that not everything was fine with the ‘brave new world’ came with the financial crisis in Mexico in 1995. Too many people had invested in Mexican financial assets with the unrealistic expectation that, having fully embraced free-market policies and having signed the NAFTA, the country was going to be the next miracle economy. Mexico was bailed out by the US and the Canadian governments (who didn’t want a collapse in their new free-trade partner) as well as by the IMF. In 1997, a bigger shock came about with the Asian financial crisis. A number of hitherto successful Asian economies – the so-called ‘MIT economies’ (Malaysia, Indonesia and Thailand) and South Korea – got into financial troubles.

Allowing workers to bargain as a group, rather than as individuals who may compete against each other, trade unions help workers extract higher wages and better working conditions from their employers.3 In some countries, trade unions are considered counter- productive, blocking the necessary changes in technologies and work organization. In others, they are seen as natural partners in any business. When Volvo, the Swedish vehicle manufacturer, bought the heavy construction equipment arm of Samsung in the aftermath of the 1997 Asian financial crisis, it is said to have asked the workers to set up a trade union (Samsung had – and still has – an infamous ‘no-union’ policy). The Swedish managers didn’t know how to manage a company without a trade union to talk to! Like cooperatives, trade unions are membership organizations, in which decisions are made according to the one-member-one-vote rule. These decisions by enterprise-level unions are usually aggregated by national-level unions, such as South Africa’s COSATU (Congress of South African Trade Unions) and the UK’s TUC (Trades Union Congress).


pages: 240 words: 60,660

Models. Behaving. Badly.: Why Confusing Illusion With Reality Can Lead to Disaster, on Wall Street and in Life by Emanuel Derman

Albert Einstein, Asian financial crisis, Augustin-Louis Cauchy, Black-Scholes formula, British Empire, Brownian motion, capital asset pricing model, Cepheid variable, creative destruction, crony capitalism, diversified portfolio, Douglas Hofstadter, Emanuel Derman, Eugene Fama: efficient market hypothesis, fixed income, Henri Poincaré, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, Isaac Newton, Johannes Kepler, law of one price, Mikhail Gorbachev, Myron Scholes, quantitative trading / quantitative finance, random walk, Richard Feynman, riskless arbitrage, savings glut, Schrödinger's Cat, Sharpe ratio, stochastic volatility, the scientific method, washing machines reduced drudgery, yield curve

Solid-to-vapor is an apt summary of the evanescence of value, financial and ethical, that has taken place throughout the great and ongoing financial crisis that commenced in 2007. The United States, the global evangelist for the benefits of creative destruction, has favored its own church. When governments of emerging markets complained that foreign investors were fearfully yanking capital from their markets during the Asian financial crisis of 1997, liberal democrats in the West told them that this was the way free markets worked. Now we prop up our own markets because it suits us to do so. The great financial crisis has been marked by the failure of models both qualitative and quantitative. During the past two decades the United States has suffered the decline of manufacturing; the ballooning of the financial sector; that sector’s capture of the regulatory system; ceaseless stimulus whenever the economy has wavered; taxpayer-funded bailouts of large capitalist corporations; crony capitalism; private profits and public losses; the redemption of the rich and powerful by the poor and weak; companies that shorted stock for a living being legally protected from the shorting of their own stock; compromised yet unpunished ratings agencies; government policies that tried to cure insolvency by branding it as illiquidity; and, on the quantitative side, the widespread use of obviously poor quantitative security valuation models for the purpose of marketing.

Index absence as presence absolutes: and Derman’s four questions fiat money example and irreducible nonmetaphor and love and desperation and nature of theories and passions and perfection and and Spinoza’s answers to Derman’s questions Spinoza’s emotions theory and Tetragrammaton and abstractions accuracy: of economic/financial models of theories action: at a distance freedom of understanding and adequate causes Adonai, African Resistance Movement airplane models Akiva, Rabbi algebra: fundamental theorem of aliyah, aliyah register alpha: CAPM and Amichai, Yehuda Ampère, André-Marie analogies analytic continuation Anderson, Carl antiparticles apartheid apartments: valuing of Apple stock arithmetic: fundamental theorem of artists’ models Asian financial crisis assumptions: in financial models Modelers’ Hippocratic Oath and rules for using models and types of models and unconscious Atlas Shrugged (Rand) atomic physics axioms/axiomatization bad. See evil bailouts bare electrons Barfield, Owen Bedazzled (film) Begin, Menachem behavior, human: adequate knowledge and EMM as assumption about explanations for and humans as responsible for their actions and idolatry of models Law of One Price and laws of pragmamorphism and Ben-Gurion, David Bernoulli, Daniel Bernstein, Jeremy beta: CAPM and Betar (Brit Yosef Trumpeldor) binocular diplopia birds Black, Fischer Black-Scholes Model Merton and Blake, William Bnei Akiva (Sons of Akiva) Bnei Zion (Sons of Zion) body-mind relationship Bohr, Aage Bohr, Niels bonds: financial models and See also type of bond Boyle’s Law Brahe, Tycho brain Brave New World (Huxley) Brownian motion bundling of complex products cage: moth in perfect calibration Cape Flats Development Association (South Africa) Capital Asset Pricing Model (CAPM) capitalism caricatures: models as cash.


pages: 604 words: 161,455

The Moral Animal: Evolutionary Psychology and Everyday Life by Robert Wright

"Robert Solow", agricultural Revolution, Andrei Shleifer, Asian financial crisis, British Empire, centre right, cognitive dissonance, double entry bookkeeping, double helix, fault tolerance, Francis Fukuyama: the end of history, George Gilder, global village, invention of gunpowder, invention of movable type, invention of the telegraph, invention of writing, invisible hand, John Nash: game theory, John von Neumann, Marshall McLuhan, Norbert Wiener, planetary scale, pre–internet, profit motive, Ralph Waldo Emerson, random walk, Richard Thaler, rising living standards, Silicon Valley, social intelligence, social web, Steven Pinker, talking drums, the medium is the message, The Wealth of Nations by Adam Smith, trade route, your tax dollars at work, zero-sum game

Even if the eastern and western downturns of the 1300s weren’t related, the eastern and western downturns during the great twentieth-century depression were. This is one irony of globalization. The impetus behind it is strong largely because individual states see that their long-term interest lies in plugging into the system. But when the system hits a downturn, they would be better off if somehow they could magically become less plugged in—temporarily, at least. Modern China survived the early ravages of the 1997 Asian financial crisis in good shape partly because its currency was not easily converted into other currencies. Even so, China stuck to its plans for convertibility, because in the long run you’re better off plugged in. China, of all nations, should know. Its epic mistake—the mistake that got it labeled an underachiever—was unplugging from the system beginning in the late fourteenth century. The consequences of this, a single political decision, have ever since been taken as final proof of some deep anti-modern streak in the Asian character.

Meanwhile, elsewhere in Europe, it was kings who smoothed the path for commerce, quelling trouble, harmonizing law, creating the nation-state. At work here was a general principle: as commerce expands, enmeshing more and more people, it gives them a shared interest in protecting it from friction and disruption. Today, as commerce swamps the borders of nation-states, there are many sources of potential friction and disruption. One is trade disputes, which carry the threat of trade wars. Another, put on display during the Asian financial crisis of the late 1990s, is lack of “transparency,” of good financial data about ostensibly healthy nations—a shortcoming that can lead finally to a panicked and ruinous exit of foreign investment. Both of these problems raise the “trust” barrier to non-zero-sum gain. And trust barrier generally get breached by governance in one sense or another. Among the emerging institutions of world governance that address these particular trust problems are the World Trade Organization and the International Monetary Fund.

Chances are, after all, that your home has never been searched by an officer wearing a badge that says “IMF” or “WTO.” Still, if what authority these bodies do have exists in response to increasingly non-zero-sum relations among nations, and if technology is very likely to sustain this trend, then it doesn’t take a wild-eyed visionary to imagine more and more authority migrating to the global level. Indeed, the Asian financial crisis, by reminding the world of its interdependence, brought calls for stronger international authority from such non-wild-eyed people as the chairman of the U.S. Federal Reserve Board. As the New York Times summarized the post-Asia conventional wisdom, “only the most dogmatic free market ideologues think the increasingly integrated global economy can get by without a super-national organization to serve as financial watchdog, scold, mediator and lender of last resort.”


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

One difference between Latin America and Europe is that the latter had more stable institutions such as well-regarded central banks, which emerged from the debacle with their reputations more or less intact, whereas in Latin America the crisis led to a loss of confidence in their economic systems and investors pulled out for the long term. This is in line with North’s theory that good institutions persist and breed prosperity even through crises. The third-generation financial and currency crisis took place in Asia in 1997–98. What distinguishes the Asian financial crisis from the first two is that it was a financial crisis that led to a currency crisis. When foreign investors suddenly pulled their money from Thailand after years of capital inflows into the country, it led the Thai baht to collapse. There was a ‘sudden stop’ of cash inflows that had been lent to Thai businesses. The crisis spread to Malaysia, Indonesia, Hong Kong and South Korea. To try to retain the foreign money to which their businesses had grown accustomed, these economies had to raise interest rates, which hurt growth.

What was surprising about the third-generation crisis was that it affected Asian economies, which, unlike Latin America in the early 1980s, were viewed as growing well and did not have huge trade or fiscal deficits. Yet the five economies initially involved were mired in crises that hurt their growth for years. The other worrying trait of the third-generation crisis was contagion, the impact of the Asian financial crisis also being felt in emerging economies around the world. It affected Russia in 1998, Turkey in 1999 and Brazil and Argentina by the early 2000s. This was not because these economies traded much with or invested a great deal in the affected Asian nations, but probably because investors became indiscriminately wary of all developing markets, plunging those economies into crisis too. Argentina, on the other side of the world from where the crisis began, ended up with the largest sovereign default in modern times until Greece took that title a decade later.

Ricardian equivalence David Ricardo’s theory that rational people know that the government debt will have to be repaid at some point in the form of higher taxes so they save in anticipation and do not increase current consumption that boosts growth. second-generation currency crisis The collapse of the European exchange rate mechanism (ERM) in 1992. STEM Science, technology, engineering and mathematics. third-generation financial and currency crisis The Asian financial crisis of 1997–98. Wall Street Crash See Great Crash. World Bank A Bretton Woods institution focused on alleviating poverty. WTO (World Trade Organization) An intergovernmental organization formed in 1995 that regulates international trade, which was preceded by the General Agreement on Tariffs and Trade (GATT), in force since 1947. Bibliography Please note that some of the links referenced throughout this work may no longer be active.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

One difference between Latin America and Europe is that the latter had more stable institutions such as well-regarded central banks, which emerged from the debacle with their reputations more or less intact, whereas in Latin America the crisis led to a loss of confidence in their economic systems and investors pulled out for the long term. This is in line with North’s theory that good institutions persist and breed prosperity even through crises. The third-generation financial and currency crisis took place in Asia in 1997–98. What distinguishes the Asian financial crisis from the first two is that it was a financial crisis that led to a currency crisis. When foreign investors suddenly pulled their money from Thailand after years of capital inflows into the country, it led the Thai baht to collapse. There was a ‘sudden stop’ of cash inflows that had been lent to Thai businesses. The crisis spread to Malaysia, Indonesia, Hong Kong and South Korea. To try to retain the foreign money to which their businesses had grown accustomed, these economies had to raise interest rates, which hurt growth.

What was surprising about the third-generation crisis was that it affected Asian economies, which, unlike Latin America in the early 1980s, were viewed as growing well and did not have huge trade or fiscal deficits. Yet the five economies initially involved were mired in crises that hurt their growth for years. The other worrying trait of the third-generation crisis was contagion, the impact of the Asian financial crisis also being felt in emerging economies around the world. It affected Russia in 1998, Turkey in 1999 and Brazil and Argentina by the early 2000s. This was not because these economies traded much with or invested a great deal in the affected Asian nations, but probably because investors became indiscriminately wary of all developing markets, plunging those economies into crisis too. Argentina, on the other side of the world from where the crisis began, ended up with the largest sovereign default in modern times until Greece took that title a decade later.

Ricardian equivalence David Ricardo’s theory that rational people know that the government debt will have to be repaid at some point in the form of higher taxes so they save in anticipation and do not increase current consumption that boosts growth. second-generation currency crisis The collapse of the European exchange rate mechanism (ERM) in 1992. STEM Science, technology, engineering and mathematics. third-generation financial and currency crisis The Asian financial crisis of 1997–98. Wall Street Crash See Great Crash. World Bank A Bretton Woods institution focused on alleviating poverty. WTO (World Trade Organization) An intergovernmental organization formed in 1995 that regulates international trade, which was preceded by the General Agreement on Tariffs and Trade (GATT), in force since 1947. Acknowledgements I am hugely indebted to Graeme Chamberlin for his steadfast support of this project.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades. —Robert Lucas, presidential address to the American Economic Association, 2003 GIVEN WHAT WE know now, Robert Lucas’s confident assertion that depressions were a thing of the past sounds very much like famous last words. Actually, to some of us they sounded like famous last words even at the time: the Asian financial crisis of 1997–98 and the persistent troubles of Japan bore a clear resemblance to what happened in the 1930s, raising real questions about whether things were anywhere near being under control. I wrote a book about those doubts, The Return of Depression Economics, originally published in 1999; I released a revised edition in 2008, when all of my nightmares came true. Yet Lucas, a Nobel laureate who was a towering, almost dominant figure in macroeconomics for much of the 1970s and 1980s, wasn’t wrong to say that economists had learned a lot since the 1930s.

academic sociology, 92, 96, 103 AIG, 55 airlines, deregulation of, 61 Alesina, Alberto, 196–99 American Airlines, 127 American Recovery and Reinvestment Act (ARRA): cost of, 121 inadequacy of, 108, 109–10, 116–19, 122–26, 130–31, 212, 213 Angle, Sharron, 6 anti-Keynesians, 26, 93–96, 102–3, 106–8, 110–11, 192 Ardagna, Silvia, 197–99 Argentina, 171 Arizona, housing bubble in, 111 Asian financial crisis of 1997–98, 91 asset-backed securities, 54, 55 auction rate securities, 63 Austerians, 188–207 creditors’ interests favored by, 206–7 supposed empirical evidence of, 196–99 austerity programs: alarmists and, 191–95, 224 arguments for, 191–99 economic contraction and, 237–38 in European debt crisis, 46, 144, 185, 186, 188 as ineffective in depressions, xi, 213 state and local governments and, 213–14, 220 unemployment and, xi, 189, 203–4, 207, 237–38 Austrian economics, 150 automobile sales, 47 babysitting co-op, 26–28, 29–30, 32–33, 34 Bakija, Jon, 78 balance of trade, 28 Ball, Laurence, 218 Bank for International Settlements (BIS), 190, 191 Bank of England, 59 Bank of Japan, 216, 218 bankruptcies, personal, 84 bankruptcy, 126–27 Chapter 11, 127 banks, banking industry: capital ratios in, 58–59 complacency in, 55 definition of, 62 deregulation of, see deregulation, financial European, bailouts of, 176 government debt and, 45 “haircuts” in, 114–15 incomes in, 79–80 lending by, 30 money supply and, 32 moral hazard in, 60, 68 1930s failures in, 56 origins of, 56–57 panics in, 4, 59 political influence of, 63 receivership in, 116 regulation of, 55–56, 59–60, 100 repo in, 62 reserves in, 151, 155, 156 revolving door in, 86, 87–88 risk taking in, see risk taking runs on, 57–58, 59, 60, 114–15, 155 separation of commercial and investment banks in, 60, 62, 63 shadow, 63, 111, 114–15 unregulated innovations in, 54–55, 62–63, 83 Barro, Robert, 106–7 Bebchuck, Lucian, 81 Being There (film), 3 Bernanke, Ben, 5, 10–11, 32, 76, 104, 106, 151, 157, 159–60, 210 recovery and, 216–19 on 2008–09 crisis, 3–4 “Bernanke Must End Era of Ultra-low Rates” (Rajan), 203–4 Black, Duncan, 190 Blanchard, Olivier, 161–63 Bloomberg, Michael, 64 BNP Paribas, 113 Boehner, John, 28 bond markets: interest rates in, 132–41, 133 investor confidence and, 132, 213 bonds, high-yield (junk bonds), 115, 115 bond vigilantes, 125, 132–34, 138, 139, 140 Bowles, Erskine, 192–93 Brazil, 171 breach of trust, 80 Bretton Woods, N.H., 41 Broder, David, 201 Brüning, Heinrich, 19 Buckley, William F., 93 Bureau of Labor Statistics, U.S.


pages: 233 words: 64,702

China's Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business by Edward Tse

3D printing, Airbnb, Airbus A320, Asian financial crisis, barriers to entry, bilateral investment treaty, business process, capital controls, commoditize, conceptual framework, corporate governance, creative destruction, crowdsourcing, currency manipulation / currency intervention, David Graeber, Deng Xiaoping, disruptive innovation, experimental economics, global supply chain, global value chain, high net worth, industrial robot, Joseph Schumpeter, Lyft, money market fund, offshore financial centre, Pearl River Delta, reshoring, rising living standards, risk tolerance, Silicon Valley, Skype, Snapchat, sovereign wealth fund, special economic zone, speech recognition, Steve Jobs, thinkpad, trade route, wealth creators, working-age population

Profits jumped even more over the same period, up nearly seven times for state-owned companies, but up nearly 23-fold for non-state ones. The Chinese entrepreneurs have thrived, in part, because they created companies able to change as China changed. Many of them first set up businesses when the economy was still dominated by the state, which set most prices and appointed most company leaders. They survived the Asian financial crisis of the late 1990s. They fought off competition from the flood of foreign companies that arrived after China entered the World Trade Organization in the 2000s. And they rode out the worldwide downturn that followed the global financial crisis during the late 2000s and early 2010s. Throughout all of this, China’s entrepreneurs created an economy largely outside the direct control of the government.

., 93–94 Adidas, 195 Africa, rise of Chinese business in, 137 agriculture, 43, 109 Airbnb, 129 Airbus, 73, 110, 213 air-conditioning business, 12–13 Alcatel, 84, 102 Alibaba.com, 34, 39, 57 Alibaba Group, 10, 11, 33–40, 41, 49, 52, 53, 60, 62, 72, 80, 83–85, 87, 99, 100, 101, 136, 139, 148, 151, 153, 162, 184, 185, 191, 194, 197, 201, 215, 222, 225 innovation by, 94 interest in American companies, 135 IPO of, 33, 85, 90 lending transformed by, 39, 149–50 overseas listing of, 85, 89 sales by, 33–34 share listing of, 61 Sina Weibo purchased by, 87–88 start of, 37 water quality mapped by, 170 Alipay, 35–36, 39, 78, 88, 99, 192 Alta Devices, 123 Aluminum Corporation of China, 119 Amazon, 57, 68, 69, 95 Amazon.cn, 57 AMC Entertainment, 120 Amelio, William, 126, 127 Andersen Consulting, 95 Angola, 137 Apple, 67, 68, 69, 89, 112, 128 Asian financial crisis of 1990s, 16 B2B business, 36, 38, 39, 184 BAIC, 133 Baidu, 11, 39, 52, 81, 82, 83–84, 87, 88, 139, 158, 161, 191, 225 copyright violations by, 114 founding of, 49 innovation by, 94 IPO of, 50 overseas listing of, 89 Bain & Co., 151, 159 Barra, Hugo, 197 Beijing Zhongkuan, 45 Biden, Joe, 93 Bill and Melinda Gates Foundation, 109 BlackBerry, 136 Blackstone Group Asia, 224 BMW, 180 Boeing, 73, 110, 213 Booz & Company, 25, 178 Bosch Siemens, 196 Boston Consulting Group, 20, 25 brand development, 122 brand loyalty, 19–20 Brazil, 68, 139 Broad Group, 20, 54, 63, 148, 216–18, 221, 225 Broad Sustainable Building, 217 Broad Town, 216 Brown, Shona L., 182–83, 185–86, 187 BYD, 20, 76, 134 C2C market, 34–35, 184 C919, 110–11 Caixa Seguros, 123 cars, 12, 20, 44, 74, 76, 123, 130–34 Chang, Gordon, 9 Chang’an, 133 Changhong, 76 Chen, Steve, 112 Chen Dongsheng, 45, 54, 55, 148, 168–69 Chengdu, 24 Chen Haibin, 12, 155–56 Chery, 134, 138 China, People’s Republic of: agricultural output in, 43, 109 authoritarian rule in, 22–23 billionaires in, 8, 10, 45, 48 buying-power in, 19 consuming classes, 72–77, 74, 151 critics of, 8–9 debt in, 78, 80, 167 Deng’s reforms in, 17, 27, 28, 42–43, 47, 132, 140, 148, 166, 167, 176 earthquake in, 217 economic growth in, 8, 25, 70–71, 77–79, 97, 154, 165, 209–10 exports of, 9, 44, 48, 79, 104, 109, 133, 134–36, 140, 152, 188, 214 foreign currency reserves of, 22 founding of, 3 high-net-worth individuals in, 150, 151 housing privatized in, 48–49 hybrid government of, 71, 167, 210, 212, 213–16 innovation in, 93–116 institutional development in, 166, 195, 221 logistics costs in, 78 monthly wages in, 98 multinationals invited into, 46–51, 70, 71, 72–77, 188–90, 192, 195, 197–201, 222–23 number of companies by ownership in, 15 opportunities in, 41, 49–50, 115–16, 140–41, 180–81, 203–30 outbound investment from, 28, 120–24, 121, 138–39, 140 per capita GDP of, 113 per capita income in, 229 pioneers of 1980s in, 46 R&D spending in, 106–7, 107, 121, 122, 192, 193 revenues by company type in, 15 rising urban class in, 96 scale of, 71–72, 83, 85, 180–81 traded goods of, 109 trends shaped by, 18–19 U.S. and European investment in, 181, 223 as world’s biggest manufacturer, 19 China Auto Rental, 194–95 China Banking Regulatory Commission, 149 China Development Bank, 138 China Entrepreneurs Forum (CEF), 145, 169, 171, 223 China Food and Drug Administration, 155 China Guardian Auction Company, 45 China Investment Corporation, 149 China Merchants Bank, 205 China Mobile, 102, 212 China National Offshore Oil Corporation, 120 China Pages, 37 China Post, 100 China Resources Enterprise, 180 China Smart Device Innovation Fund, 113 China Telecom, 102 China Unicom, 102 China UnionPay, 36, 78 Chinese Academy of Sciences, 44 Chinese Academy of Sciences Computer Technology Research Institute New Technology Development Company, 54 Chinese People’s Political Consultative Conference, 81 Chongqing, 193, 224 Chu, Gary, 196 Cisco, 105 Citic Pacific, 123 climate change, 25, 29, 227, 229 clothes, 9 Club Med, 194 Cold War, 23 Coming Collapse of China, The (Chang), 9 Commercial Aircraft Corporation of China (COMAC), 110–11, 213 Communist Party, China, 22, 42, 44, 55, 77, 211, 218, 220, 226 purge of, 4 “competing on the edge,” 181–86, 188 computers, 9, 11, 125–28, 178 Congo, 137 Consumption Promotion Month, 73 copyright, 114 corporate flexibility, 190, 191–92 costs, controlling of, 97 counterfeiting, 75 creative destruction, 163 Ctrip, 113 Cultural Revolution, 4, 42, 43, 54, 207 Daimler, 180 Dalian Wanda, 48, 88, 120, 172 Datascope Corporation, 123 decision-making, 23, 58, 190–91, 211 Decorvet, Roland, 196 Dell, 95, 96, 126, 128 Deng Xiaoping: reforms of, 17, 27, 28, 42–43, 47, 132, 140, 148, 166, 167, 176 southern tour of, 44 Detroit Electric, 133 Development Research Center, of the State Council, 45 DHgate.com, 12, 57 Dian Diagnostics, 155–57 Diaoyu, 181 Digital China, 148 Ding Xuedong, 149 D’Long, 13 Dongfeng, 133 dotcom bubble, 37 Drivetrain Systems International, 133 eBay, 34, 40 e-commerce, 10, 11, 20, 38, 39, 78, 81–84, 88–89, 96–97, 99, 225 Economist Intelligence Unit, 140 education, 27 rising standards of, 98 Eisenhardt, Kathleen M., 182–83, 185–86, 187 Emerald Automotive, 133 energy, 9, 19, 25, 29, 42, 115, 119, 137, 186, 216–17 energy-efficient buildings, 216 engineering, 27 entrepreneurs, 56, 199–201, 226–28, 229–30 ambition of, 55, 57–61 boundaries pushed by, 26–27 everyday life changed by, 164–65 Gang of ’92, 45–46, 54 innovation by, 93–116 international talent of, 196–97 1980s generation of, 51–53 origins of, 42–46 overseas, 139 pride of, 55, 57 reforms sought by, 145–49 shared heritage of, 55, 61–64 strengths of, 24–26 see also specific entrepreneurs environment, 60, 168, 169–70 Epic Games, 135 Ericsson, 101, 102, 105 European Union, R&D spending in, 107 EV71 virus, 109 Evergrande Real Estate, 48 Export-Import Bank of China, 138 Facebook, 83, 87, 94, 222 Fanfou.com, 53 Feng Lun, 45–46, 148 finance, 149–53, 157, 162, 163, 186, 192–93 deregulation of, 164, 212–13, 229 1st Dibs, 135 Fisher & Paykal, 7 Fisker Automotive, 130 Food and Drug Administration, U.S., 123 Forbes, 10 Ford Motor Company, 123, 131, 133 Forever 21, 195 Fosun, 123, 138, 148, 155, 156, 194 Foursquare, 129 Foxconn, 112 Gang of ’92, 45–46, 54, 148, 168–69 Gao Feng Advisory Company, 25 Gavekal Dragonomics, 73 Geely Auto, 12, 44, 76, 123, 131–34, 138, 175, 185, 212 General Mills, 196 General Motors, 133, 137, 179 Gerke, Roland, 196 Germany, 121, 216 doctorates in, 108 global financial crisis, 73, 78 Global Solar Energy, 123 Golden Monkey, 194 Goldman Sachs, 37, 136 Gome Electrical Appliances, 13 Google, 83, 87, 112, 127, 128, 197 Great Firewall of China, 82 Great Leap Forward, 3–4 Great Wall Technology, 76, 126 Guo Guangchang, 148 Guo Wei, 148 Haier, 3, 5–8, 10, 47, 49, 58–60, 76, 84, 94, 98, 100, 101, 175, 185, 187, 200, 208, 224 Hainan, 46 Hangzhou Wahaha Group, 52, 76 Harvard Business Review, 93–94 health-care system, 12, 153–57, 162, 163, 212 Hengan International, 12, 53, 175–78, 199, 200 Hershey, 194 Hertz Global Rental, 194–95 Hewlett-Packard, 125, 128 Hoffman-La Roche, 155 Home Depot, 180 Honda, 133 Honeywell, 190, 192, 196 Hong Kong, 68, 214, 223–24 Hong Kong Stock Exchange, 68, 86, 177 hospitals, 154–56, 212 Household Responsibility System, 43 Huang Guangyu, 13 Huang Nubo, 45, 63, 168 Huawei Technologies, 11, 20, 43–44, 47, 54, 60, 67, 75, 84, 89, 122, 128, 136, 138, 139, 140, 175, 200, 222 innovation by, 94, 101–5 Hui Ka Yan, 48 Hu Jintao, 147 Hutchison Telecom, 103 Hyundai, 133 IBM, 125, 127–28, 129, 178 ICBC, 149 ICQ, 85 IDG, 85–86 India, 68 infrastructure, 71, 78, 79, 82, 83, 85, 99, 105, 111, 114, 137–38, 153, 163, 164, 166, 188, 191, 192, 210, 223, 224 Innovation Works, 111–12 Intel Capital, 113 interest-rate liberalization, 40, 152–53 Internet, 27, 81–90, 82, 135–36, 161, 186, 197, 209–10, 218–19, 221–22 iPhone, 68, 69, 94 iQiyi.com, 162 Japan, 94, 121, 141, 216 R&D spending in, 107 JD.com, 84, 87 revenue of, 89 Jialing, 76 Jiang Jianqing, 149 Johnson & Johnson, 175 Joyo.com, 12, 57, 68 Jumei.com, 206 “just-in-time” production system, 94 Kan, Michael, 69 Kandi Technologies Group, 133 Kao, 175 KFC, 180 Kimberly-Clark, 12, 175 Kingsoft, 68 Kirby, William C., 93–94 Konka, 76 Koo, Victor, 158–59, 160, 218 Krugman, Paul, 9 Kutcher, Ashton, 129 Lardy, Nicholas, 17 Lau, Martin, 136 Lau, Ricky, 225 Lee, Hudson, 196 Lee, Kai-fu, 111–12 legal infrastructure, 114 Legend, 44 Legend Holdings, 112, 126 Lei Jun, 11, 12, 57, 67, 81, 112, 162, 197, 226 Lenovo, 11, 20, 44, 54, 67, 75, 89, 112, 139, 140, 148, 171 expansion by, 124–29, 130 revenue of, 125–26, 127, 128 Leung, Antony, 224 Levi’s, 195 Li, Richard, 85–86 Li, Robin, 11, 49, 50, 64, 81, 88, 139 liberalization, 44, 55, 71, 72, 75, 78–79, 152, 154, 166–67, 178, 181, 210, 211, 223 of interest rates, 40, 152–53 Li Dongsheng, 148 Liebherr, 5–6 Lifan, 76 Li Ka-shing, 85 Li Keqiang, 210, 215 Lin Bin, 68 Li Shufu, 12, 44, 47, 131–34, 138, 175, 185 Little Emperors, 51–53 Liu Chuanzhi, 54, 171 Liu Junling, 96 Liu Mingkang, 149 Loncin, 76 L’Oréal, 205 Lu Guanqiu, 130 Lyft, 135 Ma, Jack, 10, 33–40, 41, 47, 50, 54–55, 60–61, 62–63, 64, 86, 136, 148, 197, 201, 221 background of, 36–37 environmental work of, 60, 168, 169–70 and U.S.


Economic Gangsters: Corruption, Violence, and the Poverty of Nations by Raymond Fisman, Edward Miguel

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, barriers to entry, blood diamonds, clean water, colonial rule, congestion charging, crossover SUV, Donald Davies, European colonialism, failed state, feminist movement, George Akerlof, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, mass immigration, megacity, oil rush, prediction markets, random walk, Scramble for Africa, selection bias, Silicon Valley, South China Sea, unemployed young men

The market has told us that Indonesia’s connected business elite were making fistfuls of cash under Suharto’s system of political patronage. Those who were best positioned to change a corrupt system liked it fine just the way it was. Given the system’s benefits to Indonesia’s insiders, it should come as no surprise that political and economic reform had stalled and that serious reform attempts materialized only at 39 CH A PTER TW O the end of Suharto’s rule. As the Asian financial crisis erupted in late 1997 and Suharto still clung to power, the IMF tried to impose some discipline on Suharto’s cronies. As a condition of the IMF relief package, state-sanctioned monopolies were supposed to be dismantled and government-owned banks were to stop funneling money into well-connected businesses. But Suharto effectively killed these attempts at reform. Nor could the Indonesian people appeal to the democratic process.

As the new owner, he soon took an active role in planning and operations. Perhaps not impressed by his automotive and management expertise, a number of top executives soon quit, leaving a manage- 40 SU H A RTO , I N C. ment vacuum at the company. Nonetheless, the Wall Street Journal reported in 1998 that Tommy’s stake in Lamborghini was sold at a significant profit, even under the distressed circumstance facing Tommy after the Asian financial crisis. So, was the Lamborghini purchase a frivolous investment financed by Daddy’s money? Or a calculated purchase by a savvy investor with expertise in fast cars? Based on our findings, it appears that Indonesian investors thought much of Tommy's value came more from connections rather than business smarts. Is All Corruption Created Equal? The story of Suharto’s rule in Indonesia also raises the uneasy question of whether outsiders should do anything about corruption at all.


pages: 236 words: 67,953

Brave New World of Work by Ulrich Beck

affirmative action, anti-globalists, Asian financial crisis, basic income, Berlin Wall, collective bargaining, conceptual framework, Fall of the Berlin Wall, feminist movement, full employment, future of work, Gunnar Myrdal, hiring and firing, illegal immigration, income inequality, informal economy, job automation, knowledge worker, labour market flexibility, labour mobility, low skilled workers, McJob, means of production, mini-job, post-work, postnationalism / post nation state, profit maximization, purchasing power parity, rising living standards, Silicon Valley, working poor, working-age population, zero-sum game

The dynamic of the knowledge society favours the concentration and globalization of capital, precisely because the decentralizing power of networks is brought into play, while ‘there is at the same time differentiation of work, segmentation of workers, and disaggregation of labour on a global scale … Labour loses its collective identity, becomes increasingly individualized in its capacities, in its working conditions, and in its interests and projects.’24 The fixed location of labour means that working people are losers in the struggle to distribute the global risks of globalization. The Asian financial crisis and its consequences shed a bright light upon the previously darkened side of the economic world risk society. Not only do they provide a most striking example of organized irresponsibility; they have also made it clear that whole countries and groups of countries can become victims of global ‘casino capitalism’. The Asian middle classes have been cut to the quick and are threatened in the very basis of their existence.

The neoliberal paradigm of politics may be said to involve an immanent contradiction: the power of the state and its institutions is supposed to be meticulously captured and applied to the breaking of that power. This is in a world where the collapse of national institutions in the 1990s has led to truly devastating human tragedies and civil wars in Somalia, East Africa, Yugoslavia, Albania and parts of the former Soviet Union, and now to the threat of turmoil resulting from the South-East Asian financial crisis. Even if the weakening of central state power cannot be solely or primarily attributed to the new influence of global markets, it nevertheless appears that under their pressure a hidden vacuum of state power and legitimacy may suddenly and brutally become apparent. At a more detailed level too, one can study how the neoliberal revolution undermines its own foundations. Wherever it has been ‘successful’ – in the United States and the United Kingdom, for example – its effects have caused the political coalitions at its head to break apart and to hand over power to the opposition.92 Evidently the neoliberals have not yet realized that the world has become democratic, and that electorates are not prepared to vote in politicians who have inscribed social decline or decomposition on their party banners.


pages: 497 words: 123,718

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins

addicted to oil, airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bob Geldof, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, Doha Development Round, energy security, European colonialism, financial deregulation, financial independence, full employment, global village, high net worth, land reform, large denomination, liberal capitalism, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, statistical model, structural adjustment programs, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War

Cheap imported tires came in because of trade liberalization. We lost market share, and we couldn’t raise our prices as much as we should have. Even without the imports, the market was already very competitive here. There were many tire retreading companies—a few big ones, and many small ones. Especially after we joined the WTO in 1995–96, the industry started to have real problems. “Then with the Asian financial crisis of 1997, there was devaluation, and the price of imported goods went up. At first we thought that devaluation would help us, that imported tires would become expensive, but that never happened. The prices of imported tires remained low—and our costs went up! We got caught in operating losses that accumulated over the years, and the business failed. In fact, the whole industry failed—many retreading companies closed shop.

As activists increasingly combined their efforts across nations to shine light on the negotiating process, elected officials felt the pressure and were ultimately convinced to reject the MAI at the OECD conference in 1998. Its defeat marked one of the first and most important successful global movements of people and governments against an international trade or investment agreement. At the same time, the devastating reality of these investment rules was on full display as the East Asian financial crisis took hold and began to spread. From 1998 to 1999, nations that had once been characterized as the “East Asian tigers” because of their thriving economies suddenly crashed when the IMF restricted the ability of their governments to regulate which sectors of their economies received foreign investments and how long and in what quantities the investments had to stay. When foreign investors started playing with these nations’ currencies as if they were in a global casino, the governments were powerless to act.

One reason for its demise is the increasing number of developing countries whose leaders are now opposed to corporate globalization. Electoral Victories Across the globe, peoples’ movements for global justice have swept in elected officials representing their views. These officials have then brought resistance into the institutions of corporate globalization. Walden Bello of Thailand’s Focus on the Global South describes how, in the midst of the East Asian financial crisis, public pressure led Prime Minister Mohamad Mahathir of Malaysia to break with the IMF and impose capital controls, saving the country from the worst effects of the crisis. According to Bello, Mahathir’s defiance of the IMF was not lost on Thaksin Shinawatra, who ran for prime minister of Thailand on an anti-IMF platform and won. He went on to push for large government expenditures, which stimulated the consumer demand that brought Thailand out of recession.


pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

"Robert Solow", accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, corporate governance, corporate raider, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, intangible asset, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, post-work, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, zero-sum game

On the left, dependency theory gave this position some ideological cover, and today's debates are often filled with similar sentiments. Among NGOs and intellectuals working on development issues, there is talk of apartheid South Africa and Smith s Rhodesia as models of a possible autarkic dehnking from the world economy, and admiration for Mahathir's capital controls in Malaysia during the 1997-98 Asian financial crisis. It's often overlooked that Mahathir is a repressive bigot, and that the Southern African examples were part of strategies to sustain horrible societies. Any "progressive" alliance with national capitalism in the name of resistance to international capitaHsm can get very smelly. In the U.S., the Citizens Trade Campaign has taken support from the troglodytic textile tycoon Roger MiUiken.^ That's bad enough, but Na-derite trade rhetoric about how the World Trade Organization threatens U.S. sovereignty is pretty bad too; the world has sufiered from too much U.S. sovereignty and could do with a Uttle less.

Zuckerman, Gregory (2000). "Debtor Nation: Borrowing Levels Reach a Record, Sparking Debate," Wall Street Journal, ]u1y 5, p. CI. Aaron, David, 160 accounting. New Era, 17—22 Allen, Woody, 75 Aim, Richard, 114 Amazon.com, 30—31 Americanization of global finance, 217-225 Americans with Disabilities Act, 101 analysts, stock, 194-200 anriglobalization movement, 160,178,180, 229 AOL Time Warner, 229 Asian financial crisis (1997), 222, 225 Atwater, Wilbur, 107 AT Kearney, 153 Avalon, Frankie, 198 Badgett,M.V. Lee, 100 Balboa, Rocky, 198 Balibar, Etienne, 172-173, 239 bankruptcy, not in economists' models, 193 Barlow, Maude, 162 Bartiromo, Maria, 189-190 Baudrillard,Jean, 26 Becker, Gary, 94, 97 BeUo,Walden, 185 benefits, targeting of, 141-142 Berle,Adolph,212,213 bibhometrics "globahzarion," 145—146 "New Economy," 4 biotechnology, pubUc subsidy, 6 Biotic Baking Brigade, 239 birth weight, 81 Blodget, Henry, 195 Boesky, Ivan, 214 Bono, 177 book value, 232 border cultures, 172 Brady bonds, 221 brands, 17,18-19 Brand DNA, 18 Bretton Woods, 219 brokers productivity of, 64-66 salaries, 202 Brown & Co., 187 Buchanan, Pat, 151,173, 239 Burbach, Roger, 175 business, trust in, 32 Business Week cheerleading 1960s, 7-8 1990s, 32 New Economy poll, 31—32 California electricity crisis, 34,200 Silicon Valley income distribution, 105 Index California Public Employees Retirement System, 214 capital, measuring, 57 capitalism collective (Berle),213 as international, 167 periodizing, 175-176 capital account liberalization, 218 capital flight, 220 capital gains, 89,203 Cappelli, Peter, 76 caring professions, discrimination and, 96 Carrying Capacity Network, 162 Casarini, Luca, 160 Casey Bill, 232 Castells, Manuel, 26,147 Catholic social teaching, 140 Cavanagh,John, 162 cellular phone industry, 198 Center on Budget and Policy Priorities, 89-90 central banks.


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10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less by Garett Jones

"Robert Solow", Andrei Shleifer, Asian financial crisis, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, financial independence, game design, German hyperinflation, hive mind, invisible hand, Jean Tirole, Kenneth Rogoff, Mark Zuckerberg, mass incarceration, minimum wage unemployment, Mohammed Bouazizi, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, The Wealth of Nations by Adam Smith, trade liberalization

A Brief History of Sovereign Default Europeans saw the political power of bondholders in recent years in Greece, where in the aftermath of the European debt crisis, individual investors, banks, and international lending agencies placed strong pressure on the Greek government to curb spending, increase taxes, and sell off government assets in order to create enough free cash flow to start repaying the Greek government’s massive debts. Lenders became reformers. Sovereign bondholders similarly became de facto reformers during the 1997 Asian financial crisis and even earlier in the 1980s during the Latin American debt crisis. The pattern is now almost routine: a financial crisis hits, the economy weakens, and governments instantly lose tax revenue because people cut back on spending (fewer sales taxes) and people get laid off (fewer income taxes). At the same time, citizens have greater demands for extra spending through welfare programs, unemployment insurance, and job creation programs.

Index Acemoglu, Daron: “Democracy Does Cause Growth”, 13 Akkerman, Mark, 168 Alemán, Eduardo: on elections years in Argentina, 36 Alesina, Alberto: on control of central banks, 42–43; on economic independence of central banks, 45–46; on income growth and central bank independence, 48, 49; on inflation and central bank independence, 45–47, 58–59; influence of, 49–50, 58; on political independence of central banks, 45–46, 47; on unemployment and central bank independence, 48 Almond, Gabriel: on education, 109 altruism, 28, 139 American Convention on Human Rights (1969): Article 23 of, 95–96 American Medical Association: on physicians treating themselves or immediate families, 115 Argentina: election years in, 36; term length of politicians in, 37–38 Aristotle: on democracy, 181, 183; on the mean, 182; on middle class and political power, 182, 183; on mixed form of government, 181; on oligarchy, 183; on polity, 183 Arkansas: redrawn legislative districts in, 38–39 Ash, Elliott: on opinions of appointed judges, 69, 72–73; on opinions of elected judges, 72–73 Asian Development Bank, 133 Asian financial crisis of 1997, 133 Athenian democracy, 13, 39, 181 austerity policies, 132, 141 Austro-Hungarian Empire: sovereign debt of, 125 autocracy vs. democracy, 18–19, 25–26, 145 Bade, Michael: on central bank independence (CBI), 44–45 Bank of England, 41, 71 Bank of Japan, 41 Barro, Robert: on economic growth and democracy, 21–23, 193n18; on economic growth and inflation, 23, 24 Bastiat, Frédéric: on bad vs. good economists, 29 Baumgartner, Frank, 37 Becker, Gary, 60 Beckman, Ludvig, 97 before-and-after comparisons, 12, 15, 22, 78–79 Bell, Mark: on peace and democracy, 15–16 Bentham, Jeremy: on rights, 103 Besley, Tim: on elected regulators and prices, 87; on elected vs. appointed electricity regulators, 83–84 Blackstone’s Commentaries on the Laws of England, 75 Blinder, Alan: Advice and Dissent, 92, 100; on central bank independence, 59–60, 61, 92; Central Banking in Theory and Practice, 59–60; on diminution of democracy, 92–94; on Federal Reserve, 63–64, 92, 94; “Is Government Too Political?”


pages: 76 words: 20,238

The Great Stagnation by Tyler Cowen

Asian financial crisis, Bernie Madoff, en.wikipedia.org, endogenous growth, financial innovation, Flynn Effect, income inequality, indoor plumbing, life extension, liquidity trap, Long Term Capital Management, Mark Zuckerberg, meta analysis, meta-analysis, Peter Thiel, RAND corporation, school choice, Tyler Cowen: Great Stagnation, urban renewal

In the early 1980s, we had a lot of apparently bad events that actually didn’t work out so tragically, at least not for most Americans. Let me list a few:• The savings and loan crisis of the early 1980s • The failure of Continental Illinois (then a major U.S. bank) in 1984 • The stock market crash of 1987—Black Monday, a 22.5 percent drop in one day • The bursting of the real estate bubble in the late 1980s • The Mexican financial crisis of 1994 • The Asian financial crisis of 1997-1998 • The Long-Term Capital Management (a hedge fund) crisis of 1998 • The bursting of the dot.com bubble in 2001 In each case, it seemed initially that something really terrible was happening to the economy. When all was said and done, however, these events ended up looking like smaller problems. In most of these cases, we did patchwork rather than addressing the dilemmas of overleverage and excess risk at a more fundamental level.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

Bradsher, ‘Chinese Builders Buy Abroad’, New York Times, 2 Dec. 2003, W1 and W7; T. Fishman, ‘The Chinese Century’, New York Times Magazine, 4 July 2004, 24–51. 18. H. French, ‘New Boomtowns Change Path of China’s Growth’, New York Times, 28 July 2004, A1 and A8. 19. K. Bradsher, ‘Big China Trade Brings Port War’, International Herald Tribune, 27 Jan. 2003, 12. 20. S. Sharma, ‘Stability Amidst Turmoil: China and the Asian Financial Crisis’, Asia Quarterly (Winter 2000), www.fas.harvard.edu/~asiactr/haq/2000001/0001a006.htm. 21. Hale and Hale, ‘China Takes Off’, 40. 22. H. Liu, ‘China: Banking on Bank Reform’, Asia Times Online, atimes. com, 1 June 2002. 23. K. Bradsher, ‘A Heated Chinese Economy Piles up Debt’, New York Times, 4 Sept. 2003, A1 and C4; K. Bradsher, ‘China Announces New Bailout of Big Banks’, New York Times, 7 Jan. 2004, C1. 24.

., ‘Workers Plight Brings New Militancy in China’, New York Times, 10 Mar. 2003, A8. Salerno, J., ‘Confiscatory Deflation: The Case of Argentina’, Ludwig von Mise Institute, http://www.mises.org? fullstory.aspx? control=890. Sharapura, S., ‘What Happened in Argentina?’, Chicago Business Online, 28 May 2002, http://www.chibus.com/news/2002/05/28/Worldview. Sharma, S., ‘Stability Amidst Turmoil: China and the Asian Financial Crisis, Asia Quarterly (Winter 2000), www.fas.harvard.edu/~asiactr/haq/2000001/0001a006.htm. Shi, L., ‘Current Conditions of China’s Working Class’, China Study Group, 3 Nov. 2003, http://www.chinastudygroup.org/index.php? action=article& type. Sommer, J., ‘A Dragon Let Loose on the Land: And Shanghai is at the Epicenter of China’s Economic Boom’, Japan Times, 26 Oct. 1994, 3. Stevenson, C., Reforming State-Owned Enterprises: Past Lessons for Current Problems (Washington, DC: George Washington University), http:www.gwu.edu/~ylowrey/stevensonc.httml.


pages: 537 words: 158,544

Second World: Empires and Influence in the New Global Order by Parag Khanna

"Robert Solow", Admiral Zheng, affirmative action, anti-communist, Asian financial crisis, Bartolomé de las Casas, Branko Milanovic, British Empire, call centre, capital controls, central bank independence, cognitive dissonance, colonial rule, complexity theory, continuation of politics by other means, crony capitalism, Deng Xiaoping, different worldview, Dissolution of the Soviet Union, Donald Trump, Edward Glaeser, energy security, European colonialism, facts on the ground, failed state, flex fuel, Francis Fukuyama: the end of history, friendly fire, Gini coefficient, global reserve currency, global supply chain, haute couture, Hernando de Soto, illegal immigration, income inequality, informal economy, invisible hand, Islamic Golden Age, Khyber Pass, Kickstarter, knowledge economy, land reform, low cost airline, low skilled workers, mass immigration, means of production, megacity, Monroe Doctrine, Nelson Mandela, oil shale / tar sands, oil shock, open borders, open economy, Parag Khanna, Pax Mongolica, Pearl River Delta, pirate software, Plutonomy: Buying Luxury, Explaining Global Imbalances, Potemkin village, price stability, race to the bottom, RAND corporation, reserve currency, rising living standards, Ronald Reagan, Silicon Valley, Skype, South China Sea, special economic zone, stem cell, Stephen Hawking, Thomas L Friedman, trade route, trickle-down economics, uranium enrichment, urban renewal, Washington Consensus, women in the workforce

Because defiant militaries carried national legitimacy, ASEAN’s inauspicious beginnings saw it grappling with Sukarno’s aggressive Indonesian “Konfrontasi” policy toward Malaysia, followed by conflicts in Vietnam and Cambodia.1 For decades, it remained an anticolonial bloc in which the United States boosted military rule to counter agrarian Marxism (tripling the size of the Thai military, for example). Like the EU, ASEAN experienced its Bosnia-like moments after the Cold War: the Asian financial crisis, Indonesian forest-fire haze, the East Timor intervention, and the SARS outbreak. Each tested the coherence and utilty of ASEAN, and spurred the rapid development of collective mechanisms for trade integration and combating terrorism, environmental decay, transnational crime, and disease. Mutual interference has become as much the norm as visa-free travel among its five hundred million citizens.2 Some ASEAN countries still have defense agreements with the United States, which now hopes to shape the multilateral bloc into an anti-China hedge.3 But the ASEAN club lies in China’s backyard.

To break free of America’s strategic encirclement, China is picking off ASEAN members one by one and pulling them into its neotribute system such that the individual ties each enjoys with China are now more powerful than the ties among themselves. “ASEAN countries kowtow to China not only to avoid being on China’s bad side,” a Thai diplomat and former ASEAN official explained, “but on the promise that China will not abandon them in times of need, as the U.S. did during the Asian financial crisis.” ASEAN is now synonymous with China’s multitiered periphery: Singapore, Malaysia, and Brunei as the wealthiest partners; Thailand, Indonesia, and Vietnam as economic and strategic assets; and Burma, Cambodia, Laos, and the Philippines as third-world clients. With all of them, China is granting greater market access and sustaining trade deficits (which have brought record profits to ASEAN businesses) in exchange for raw materials, defense agreements, and diplomatic pledges to lean its way.4 Like Europeans in the Maghreb, Chinese baby-boomers are buying retirement properties from Penang to Bali, enlarging a greater Chinese co-prosperity sphere for the twenty-first century.

The former spice route sultanate of Malacca now blends Portuguese colonial architecture with computer assembly plants, while Kuala Lumpur residents can purchase gourmet foods at Carrefour, the paragon brand of first-world grocery shopping. Leadership can make much of the difference anywhere in the world, and while Venezuelans are stuck with Hugo Chávez, Malaysians had Mahathir bin Mohamad. Mahathir and his advisers were convinced that globalization was dangerous unless it was steered. During the Asian financial crisis, they bucked the international strictures that ravaged the Thai and Indonesian economies, instead imposing capital controls to keep the Malay ringgit afloat. As second-world leaders increasingly realize that globalization requires strong management to avoid uncontrollably exacerbating existing disparities, they are more likely to emulate Malaysia than Argentina. “Dr. M,” as Mahathir’s supporters call him, is a Muslim Lee Kuan Yew, second only to Lee as a defender of Asian values, who argues that there are common virtues between Islam and Confucianism, such as reciprocity and loyalty.


The New Map: Energy, Climate, and the Clash of Nations by Daniel Yergin

3D printing, 9 dash line, activist fund / activist shareholder / activist investor, addicted to oil, Admiral Zheng, Albert Einstein, American energy revolution, Asian financial crisis, autonomous vehicles, Ayatollah Khomeini, Bakken shale, Bernie Sanders, BRICs, British Empire, coronavirus, COVID-19, Covid-19, decarbonisation, Deng Xiaoping, disruptive innovation, distributed generation, Donald Trump, Edward Snowden, Elon Musk, energy security, energy transition, failed state, gig economy, global pandemic, global supply chain, hydraulic fracturing, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), inventory management, James Watt: steam engine, Kickstarter, LNG terminal, Lyft, Malacca Straits, Malcom McLean invented shipping containers, Masdar, mass incarceration, megacity, Mikhail Gorbachev, mutually assured destruction, new economy, off grid, oil rush, oil shale / tar sands, oil shock, open economy, paypal mafia, peak oil, pension reform, price mechanism, purchasing power parity, RAND corporation, rent-seeking, ride hailing / ride sharing, Ronald Reagan, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, supply-chain management, trade route, Travis Kalanick, Uber and Lyft, uber lyft, ubercab, UNCLOS, UNCLOS, uranium enrichment, women in the workforce

Pass the feed store, the white water tower, the sign for the Cowboy Church, and the donut store that’s closed down. Another four miles and you’re in Dish, Texas, population about 400. You end up at a wire mesh fence around a small tangle of pipes with a built-in stepladder. You’re there—the SH Griffin #4 natural gas well. The sign on the fence tells the date—DRILLED IN 1998. That was not exactly a great time to be drilling a well. Oil and gas prices had cratered with the Asian financial crisis and the ensuing global economic panic. But SH Griffin #4 would change things more than anyone could have imagined at the time. The well was drilled mainly with standard technology, but also with experimentation and ingenuity, despite considerable skepticism. The small band of believers working on the well were convinced that somehow you could extract natural gas from dense shale rock in a way that was commercially viable—something that the petroleum engineering textbooks said was impossible.

During the “spontaneous privatization” of the 1990s, a decade that became known as the “wild ’90s,” the oil industry in Russia itself was up for grabs. New oil companies began to emerge, gathering up assets. As the decade proceeded, the economy rebounded, the foundations of a market economy were taking shape, and optimism came with it. There was talk of a chudo—a Russian economic miracle—invoking the “economic miracles” in Western Europe and Japan after World War II.8 But then in August 1998, the Asian financial crisis engulfed Russia. The ruble collapsed, as did oil prices, drying up government revenues. The new economy stopped working and people weren’t paid. The credibility of the Yeltsin presidency was shattered. Yeltsin himself was a spent force. * * * — In 1976, the Leningrad Evening News reported that a previously unknown local “judoist” had won a judo competition and had “for the first time joined the ranks of champions.”

See also carbon emissions; greenhouse gas emissions (GHG) Aizenberg, Eitan, 256 Akerson, Daniel, 333 Alaska, 20, 33, 69 Alawites, 207, 242, 245 Alberta, Canada, 46–47, 48, 60 Alekperov, Vagit, 76 Al-Falih, Khalid, 279 Algeria, 87 Algiers Accord, 280 Alibaba, 362 Aliyev, Ilham, 121 Al Jazeera, 306 al-Jihad, 263, 264 Allison, Graham, 131 Al Qaeda, 216, 249, 264–66 and the Gulf War, 237 Amerada, 18 American Journal of Public Health, 417 Annam kingdom, 137 Ansar Allah, 249–50 Aphrodite field, 256 Apple, 358, 368 Arab-Israeli War (1967), 204–5 Arab League, 239 Arab nationalism, xvii, 199–200, 203–5, 215 Arab oil embargo (1973), 53, 59 Arab Spring, 22, 91, 236–43, 248–52, 254, 429–30 Arak nuclear reactor, 226 Aramco. See Saudi Aramco Arctic petroleum reserves, 111–14 artificial intelligence (AI), 174, 349, 354, 357, 364, 369, 424, 429 Arya, Atul, 412 Asia, 38, 163, 398, 402, 412, 416. See also specific countries such as China Asia International Infrastructure Bank (AIIB), 182 Asian financial crisis of 1998, 75 Asquith, Herbert, 196 Assad, Bashar al-, 241–42, 243–45, 269 Assad, Hafez al-, 242 Association of Southeast Asian Nations (ASEAN), 148–50, 168–69, 169n Astana International Financial Center, 177 Ataturk, Mustafa Kemal, 201–2 Australia, 38, 114, 167, 169, 189, 281 Austria, 30 Austro-Hungarian Empire, 196, 200 automobile industry automobile manufacturing, 42, 132 and autonomous vehicles, 347–57, 368–69, 373 Auto-Tech advances, xviii, 366–73, 415, 427 Chinese market for U.S. cars, 171 See also electric vehicles Azerbaijan, 71, 74, 109, 120–23, 207, 281 Ba’athists, 207, 211–13, 216–17, 242, 268 Bab al-Mandeb, 251 Badri, Ibrahim Awad al-, 268 Baghdadi, Abu Bakr al-, 268–9, 271 Bahrain, 240–41, 306 Bai Meichu, 139–41, 150 Baker, James, 215 Bakken shale, 19–20, 21–22, 49 Balfour Declaration, 199 ballistic missiles, 226–27 Bank of England, 384 Banna, Hasan al-, 259–60 Barkindo, Mohammad Sanusi, 280–81, 319 Barnett Shale, 5–7, 14, 19, 23, 24 Barra, Mary, 333–34, 370 Bashneft, 76 battery technology, 327–34, 341, 344–46, 403, 429 Bazhenov formation, 98 Beckman, Robert, 145, 146 “Beijing consensus,” 116 Belarus, 74 Belt and Road Initiative (China), xvi, 134, 177–90, 185 Ben Ali, Zine el Abidine, 236 Benghazi, Libya, 239 Bernanke, Ben, 26 Bhatt, Alia, 342 Biden, Hunter, 110 Biden, Joe, 110, 237, 392 Bin Laden, Osama, 263–64, 265 biomass and biofuels, 394, 408, 410 BlackRock, 385 Black Sea, 122 Blue Stream pipeline, 85 Boko Haram, 270 Bolshevik Revolution, 69, 72, 79 Bolsonaro, Jair, 44–45 Bosporus strait, 122 Boston, Massachusetts, 112–13 BP, 15, 76, 386 Brazil, 38, 44–45, 56–57, 320 Breakthrough Energy Coalition, 403 BRIC era, 56–57, 76–77, 273 Britain and the United Kingdom and Brexit, 343 and carbon emission reduction, 388 and Central Asian economic ties, 177 and First Sino-Japanese War, 154 and Iranian Revolution, 207 and Iraqi oil infrastructure, 232 and Middle East colonialism, 194–200, 197 and Nasser’s Arab nationalism, 203–4 and Syrian civil war, 247 and the Thucydides Trap, 131, 154 and Ukrainian independence, 80 as “workshop of the world,” xvi, 132 Brookings Institution, 59 Brouillette, Dan, 320 Brunei, 33, 143, 169n Budapest Memorandum, 95 Burgan oil field, 24 Burisma, 110 Burkan missiles, 251–52 Burns, Larry, 351–52, 368 Burns, William, 225, 238 Bush, George H.


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The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait, Adrian Wooldridge

Admiral Zheng, affirmative action, Affordable Care Act / Obamacare, Asian financial crisis, assortative mating, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bernie Madoff, Boris Johnson, Bretton Woods, British Empire, cashless society, central bank independence, Chelsea Manning, circulation of elites, Clayton Christensen, Corn Laws, corporate governance, credit crunch, crony capitalism, Deng Xiaoping, Detroit bankruptcy, disintermediation, Edward Snowden, Etonian, failed state, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, income inequality, Khan Academy, Kickstarter, knowledge economy, Kodak vs Instagram, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, Martin Wolf, means of production, minimum wage unemployment, mittelstand, mobile money, Mont Pelerin Society, Nelson Mandela, night-watchman state, Norman Macrae, obamacare, oil shale / tar sands, old age dependency ratio, open economy, Parag Khanna, Peace of Westphalia, pension reform, pensions crisis, personalized medicine, Peter Thiel, plutocrats, Plutocrats, popular capitalism, profit maximization, rent control, rent-seeking, ride hailing / ride sharing, road to serfdom, Ronald Coase, Ronald Reagan, school choice, school vouchers, Silicon Valley, Skype, special economic zone, too big to fail, total factor productivity, War on Poverty, Washington Consensus, Winter of Discontent, working-age population, zero-sum game

., 97, 127 Howard, Philip, 118, 132, 195 Hu Jintao, 2 Huldai, Ron, 216 Hume, David, 43 Hungary, 254 Huntington, Samuel, 41–42 Hurun Report, 161 Iceland, 261 India, 8, 35, 36 China contrasted with, 146, 153 democracy in, 136, 146 economic stagnation in, 147 education in, 147 health care in, 17, 18, 200–206 infant mortality rate in, 201 lack of public confidence in, 13 local government in, 217–18 nepotism in, 162–63 Thatcherite reform in, 96 as weak state, 37 Indonesia, 142–43 health insurance in, 141 industry, landed aristocracy as opponent of, 48 Industry and Trade (Marshall), 233 information, access to, 210–11, 214 information revolution, 245, 246–47 information technology (IT), 18, 19–20 infrastructure: Fourth Revolution and, 232 spending on, 122, 232 innovation, 219–20 in business sector, 194 government bias against, 194–95, 212, 219 nation-state and, 37, 39 Institute for Energy Research, 236 Institute of Economic Affairs, 82, 92 Institute of Medicine, 204 Institute of Racial Biology, 78 interest groups, 16–17, 90, 111–15 Interior Department, U.S., 236 International Monetary Fund (IMF), 15, 76, 90 Asian financial crisis and, 142–43 Internet, 191, 260 health care and, 208–9 self-help and, 209 Iran, China and, 152 Iraq, 253 Iraq War, 143, 253 Ireland, 38 public spending in, 99–100 Isabella I, Queen of Castile, 37 Islamic world: antiscientific attitudes in, 41 in sixteenth and seventeenth centuries, 35 Istanbul, 35 Italy, 196, 259 pension reform in, 130 politicians’ pay and benefits in, 115 public spending in, 99–100 voter apathy in, 12 It’s Even Worse Than It Looks (Mann and Ornstein), 125–26, 227 Jackson, Andrew, 55 Jacques, Martin, 163 Jagger, Mick, 90 James I, King of England, 31 James II, King of England, 43 Japan, 15, 17, 36 Jarvis, Howard, 91 Jay, Douglas, 77 Jiang Jiemin, 154 Jiang Zemin, 142 Johnson, Boris, 216–17 Johnson, Lyndon, 77, 80, 87 Joseph, Keith, 92, 93 Juncker, Jean-Claude, 128 Kamarck, Elaine, 131–32 Kangxi, Emperor of China, 40 Kansas, 130 Kant, Immanuel, 224 Kaplan, Robert, 144 Kapoor, Anish, 34 Kennedy, Joseph, 73 Kentucky Fried Chicken, 185 Kerry, John, 96 Keynes, John Maynard, 22, 69–70, 76, 97 pragmatism of, 70–71 Keynesianism, 71, 77, 83, 95 counterrevolution against, 82–84 Khan, Salman, 180 Khan Academy, 180 King, Martin Luther, Jr., 79 Kingsley, Charles, 58 Kirk, Russell, 85 Kissinger, Henry, 133, 136 Kleiner, Morris, 118 Knight, Frank, 84 Knowledge Is Power Program (KIPP), 215 Kocher, Robert, 200 Kotlikoff, Laurence J., 120 Kristol, Irving, 87 Kroc, Ray, 185 Labour Party, British, 68, 69, 70, 77, 93, 94–95, 114 laissez-faire economics, 56, 57, 61, 65–66, 70, 71 Laski, Harold, 68, 134 Latin America: economies of, 8 entitlement reform in, 17, 206, 244 Lazzarini, Sergio, 153 Lee Hsien Loong, 135, 138 Lee Kuan Yew, 4, 17, 53, 133–34, 137, 139–41, 143, 144, 145, 147, 156, 170, 183, 244 authoritarianism of, 137, 138 small-government ideology of, 140, 165 Left, 62, 73, 88, 183 government bloat and, 10–11, 98 government efficiency and, 20, 187, 213 and growth of big government, 10, 98, 131, 175, 185, 228, 230, 231 subsidy-cutting and, 234, 237–38 Lehman Brothers, 14 Lenovo, 150 Le Pen, Marine, 259 Le Roy, Louis, 276 Leviathan, 10 Leviathan (Hobbes), 29, 32, 33, 34, 42 Leviathan, Monumenta 2011 (Kapoor), 34 Liberal Party, British, 68, 70 liberals, liberalism: and debate over size of government, 48, 49, 232 freedom as core tenet of, 69, 223–26, 232 right to happiness as tenet of, 48, 49 role of state as seen by, 21–22, 222–23, 226, 232 see also Left; liberal state liberal state, 6–7, 8, 220, 221 capitalism and, 50–54 competition and, 247 education in, 7, 48, 58–59 equality and, 69 expanded role of government in, 56–62 Founding Fathers and, 44–45, 222 freedom as ideological basis of, 69, 223–26, 232, 268 industrial revolution and, 246–47 meritocracy as principle of, 50, 52–53 protection of rights as primary role of, 45 rights of citizens expanded by, 7, 9, 48, 49, 51 rise of, 27–28, 269 small government as principle of, 48, 49, 51–52, 61, 232 libertarian Right, 82 liberty, see freedom Libya, 253 LifeSpring Hospitals, 202–3 Lincoln, Abraham, 62, 92 Lindahl, Mikael, 176 Lindgren, Astrid, 170 Lisbon, Treaty of (2007), 258 Little Dorrit (Dickens), 50 Liu Xiaobo, 166 Livingston, Ken, 217 Lloyd George, David, 62 lobbies, Congress and, 238–40, 257 Locke, John, 42, 43, 45 social contract and, 42, 222 Logic of Collective Action, The (Olson), 111 London School of Economics, 67, 74 Louis XIV, King of France, 38 Lowe, Robert, 58–59 L.

., 66 Wen Jiabao, 162 Westminster model, 54 When China Rules the World (Jacques), 163 Whitaker, Jeremiah, 34 “Why I Am Not a Conservative” (Hayek), 85 Wilders, Geert, 259 Will, George, 30 Willetts, David, 124 William III, King of England, 43 Williamson, John, 8, 163–64 Wilson, James Q., 198 Wolfson Institute of Preventive Medicine, 209 Woolf, Virginia, 28–29 World Bank, 76 Asian financial crisis and, 143 World Economic Forum, 146, 148 World Forum on Democracy, 252 World Health Organization, 201 World on Fire (Chua), 143 World Trade Organization, 260 World War II, 73–74, 232 Wukan, China, 160 Xi Jinping, 133, 145, 148, 161, 164, 165 Xilai, Bo, 154, 162 Xinmin Weekly, 162 Yang Jianchang, 159–61 Yeltsin, Boris, 253 Ye Lucheng, 151 Yes, Minister (TV show), 194 Yongle, Emperor of China, 36 youth, public spending as biased against, 124 Zakaria, Fareed, 143 Zhang Weiwei, 164 Zheng He, 36 Zingales, Luigi, 128, 239 Zuma, Jacob, 254


pages: 312 words: 93,836

Barometer of Fear: An Insider's Account of Rogue Trading and the Greatest Banking Scandal in History by Alexis Stenfors

Asian financial crisis, asset-backed security, bank run, banking crisis, Big bang: deregulation of the City of London, bonus culture, capital controls, collapse of Lehman Brothers, credit crunch, Credit Default Swap, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, fixed income, game design, Gordon Gekko, inflation targeting, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, loss aversion, mental accounting, millennium bug, Nick Leeson, Northern Rock, oil shock, price stability, profit maximization, regulatory arbitrage, reserve currency, Rubik’s Cube, Snapchat, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Y2K

There are a number of people, both within and outside sports, who enjoy – or even love – taking risks. Sociologists sometimes mention professions such as undercover police officers, but also traders. Banks are in the business of taking risk in order to make money. However, not all bankers like taking risk. Banks, therefore, need to hire professionals who are willing to actively take risk. These people are called traders. Around the time of the 1997 Asian financial crisis, there was one chaotic Friday I will never forget. People were panicking and as a result were trading frenetically. As soon as I had traded with someone, or someone had traded with me, the Reuters Dealing screen and the switchboard lit up like a Christmas tree with incoming calls from banks, brokers and sales people requesting, even demanding, prices. The pace was relentless, and I did not have time to book one trade before the next one was done.

INDEX ABN Amro Bank, 59 Accenture, ‘rogue trading’ definition, 249 Accept, Breaker album, 110–11 ACI (Association Cambiste Internationale/Forex), 174, 181; ‘Dealing Certificates’, 216; Model Code, 227 actual funding rates, public knowledge, 97 Adoboli, Kweku, 250 Agius, Marcus, 77, 284 Almunia, Joaquín, 221 American Psycho, 239–40, 250 Aragon, 25 arbitarge, 31; opportunities, 27 Aros, 25 Asian financial crisis 1997, 260 ATM queues, image of, 109 average opinions, expectation of, 102 Bäckström, Urban, 117 Bailey, Andrew, 280 ‘banging the close’, 209 Bank of America, 2, 11, 153, 164, 188, 191, 223; Merrill Lynch rescue/takeover, 49, 67, 161–3, 193; rescue of, 10 Bank of England, 38, 55, 222; Exchange Joint Standing Committee, 179; inflation target, 39 Bank of Japan, 33, 81, 175–6 Bank of Tokyo-Mitsubishi, 153, 223 banking, competitive deregulation, 114; incentive structures literature, 252; post 2008 reforms, 254; risk taking essence, 281; staff ‘cost centres’, 95; see also, central banks; financial markets; money markets banks: access to money indicators, 96; cash hoarding, 45; change attempts post-scandals, 283; credit departments, 253; derivatives main users, 121; Eurodollar market made, 117, 125; fines, 236; LIBOR hiding, 105; LIBOR perceptions, 79; LIBOR quotes, 99; markets abuse, 14; profit maximizing, 80; public trust need, 284; reputational damage, 168; ‘special’ sector, 173; risk management systems, 46 Banque pour l’Europe du Nord, 113 Barclays Bank, 59, 98, 105, 153, 192–3, 210, 220, 223; Capital securities unit, 98; interest rate derivatives traders, 77; 2012 fines, 76; US dollar LIBOR trial, 139 Basel Accord 1988, 137; perverse effect, 138 BBA, banking lobby, 180, 183; BBAIRS creation, 118; big banks dominated, 107; -LIBOR trademark, 181 Bear Stearns, 49, 105, 272 ‘beating the market’, 267 Becker, Gary, 254 behavioural finance, study of, 196, 200–1, 255; ‘disruption effect’ concept, 258 benchmarks: financial instruments, 122; manipulation of, 14; manipulation criminalised, 282 Berlin Radio Show, 111 bid-offer spreads, 42–3, 62, 112, 132, 139, 146, 219, 223, 228–9; collusive practices, 223; FX market, 192; prices tight, 201; round figures, 218; secretly agreed, 220 BIS (Bank for International Settlements), 130 blame, individualised, 236; shifting, 68 Bloomberg, 50, 86, 88, 98, 151, 195, 283; indicative prices, 62 BNP Paribas, 193, 223; investment funds freeze redemptions, 50 Böll, Heinrich, 235 bonds selling, 21; trading desks, 215 bonuses, 164, 273; curbing partial solution, 280; stricter rules on, 280 ‘book’, traders, 26 Borough Market, London, 7, 101, 245 borrowing rates, low-balling, 99 bribes, forms of, 91 brokers, 143; best guess, 88; false information transmission, 89; role of, 141; traders pressure on, 90; -traders relation, 86–7, 89; use of, 132 Buffett, Warren, 15, 251 bulls/bears, early experiences formed, 31 Bush, George W., 45 buy and sell orders, 208 ‘call-outs’, 24; symptom assessing, 25 ‘Can do More’, 144 Canada: dollar, 33; Foreign Exchange Committee, 179 Canary Wharf, London, 6 Cantor Fitzgerald, London office, 264 capital controls, abolishment, 133 Carr Futures, World Trade Centre office, 264 cash markets, importance loss, 139 cash squeezes, year-end, 44 cash-settled derivatives; benchmark need, 122–3; made market, 133 cassettes, history of, 110–11 CDOs (collateralised debt obligations), 11 central bank, 151; -banks unique relationship, 173; foreign exchange interventions, 233; inflation rate target, 70; LIBOR key variable, 53, 151; LIBOR use, 152; money pumping, 50; power, 174; power overestimated, 49, 54; price stability goal, 51; repos, 175; tips, 176; transparency, 40, 166–7; unexpected interest rate moves, 41; weakening of, 114 Channel 4 News, 11 Chase Manhattan, 131 Chemical Bank (JPMorgan Chase), 30 CIBOR (Copenhagen Interbank Offered Rate), 28, 78–9 Citibank, 29, 30, 58, 101, 153, 155, 182, 188, 193, 220, 223; benchmark manipulation fine, 160; ‘Scandi’ desk, 33; Tokyo dealing room, 196 CME (Chicago Mercantile Exchange), 123, 1288; Eurodollar futures, 126 collateral types, central banks lowering, 50 competition law, UK and EU, 222 complex structured products, valuation inability, 50 compliance departments banks, 253; post-scandals increase, 283 Cooke, Mr Justice, 282 copycat behaviour, market making, 202–3 Cosmopolis, 250 counterparties, confirmations, 18 Countrywide, 49 CPI, Inflation index, 149 credit: default swap market, 99; officers, 95; rating agencies, 96; risk, 137; risk measure for, 55 Crédit Agricole Indosuez, 37, 44, 58–9, 134, 155 Crédit Suisse, 153, 193, 221, 223; First Boston, 127 creditworthiness: ‘image problem’, 51; judgments on, 225; signals, 98, 99 cross-currency basis swap, LIBOR-indexed, 62 CRSs, 129 Darin, Roger, 115 dealing relationships, informal reciprocal, 227 dealing rooms, internal monitoring increase, 283 deceptive behaviour, LIBOR banks, 105; quotes post-crisis pressure, 106 Del Missier, Jerry, 77 Den Danske bank, 178 derivatives, ‘abstract’, 123–4; benchmark use, 150; borrowing and lending idea, 138; concrete type, 121; growing market, 79; interest rates, 30; LIBOR-indexed, 28, 71, 80, 104, 129; new instruments, 18; textbook explanation, 119–20; trade tickets, 141’usefulness’ of, 131 derivatives market: benchmark need, 119; LIBOR importance, 37; Scandanavia, 27 Deutsche Bank, 153, 193, 223; LIBOR controls deceptions, 183; LIBOR fine, 83 Diamond, Bob, 77 Dillon Read, 49 ‘discount windows’ lowering, 50 ‘dishonesty’, 249 Donohue, Craig, 128 dot-com bubble, 104 downgrades, credit rating agencies, 96 Dresdner Bank, 17, 155, 197 Duffy, Terry, 128 Easton Ellis, Bret, American Psycho, 236 economic data releases, examples of, 38 efficient market hypothesis, 195, 200–1; unrealistic assumption, 196 ‘emerging markets’, trading desks, 37 ERM (European Exchange Rate Mechanism) crisis, 31–2 Ermotti, Sergio, 213 EURIBOR (Euro Interbank Offered Rate), 14, 76–8, 126, 130; derivatives, 145; new unpredictability, 62; pre-Euro, 148 euro, the: Eurozone crisis, 109; launch of, 36 eurocurrency market, 113; central bank weakening, 111; deregulated, 114; Eurodollars, see below; fast growth of, 112; LIBOR derivatives replaced, 134 Eurodollar market, 113, 133, 152; advantages, 112; banks made, 117, 125; contracts standard maturity dates, 126; financial deregulation prompt, 116; futures, see below; gradual reduction of, 136; history of, 111; LIBOR rate making, 117, 129; rapid growth of, 115 Eurodollar futures, 125, 128, 265; bets on, 146; rationale for, 129; success of, 127 Euromoney, 135 European Banking Federation, 180 European Central Bank (ECB), 50, 109, 145 European Commission, 221 Euroyen LIBOR futures contract, 127 ‘Events’ central bank meetings, 40 excessive lending, inflationary fears, 114 exclusivity, self-perception, 269 expectations, games of, 103; overpriced stock, 104 ‘expert judgments’, banks LIBOR quotes, 278 Fama, Eugene, 195 ‘fat fingers’ errors, 253 FBI, USA, 192–3 FCA (Financial Conduct Authority), 183–4, 188, 219, 282; Fair and Effective Markets Review, 222; prohibited individuals list, 285 fear, rumours of, 266 Federal Reserve, see USA FIBOR (Frankfurt Interbank Offered Rate), 19, 127 financial crisis, Asia 1997, 36 financial crisis 2007–8; decent culture erosion explanation, 279; familiar analysis of, 114; financial market illuminating, 275; -LIBOR implications, 52, 111; money markets freeze, 109 financial markets: cartels, 222; deregulation 115–16; instruments liquidity, 43; misconceptions, 236; self-regulated, 113, 171; see also, money markets Finers Stephens Innocent, 3 Finland: USSR collapse impact, 20; USSR Winter War, 65 ‘firm policy’, interbank spread choosing, 229 fixed exchange rates, sustainability, 32 flat switch, 92–5 flow traders, 143 Forex, 1995 exam, 223; reciprocity endorsed, 227 FRAs (forward rate agreements), 28, 75, 91, 129–30; growth of, 148 Friday dress policy, 135 FSA (Financial Services Authority), UK, 1–2, 67, 77, 98, 105, 124, 163, 180, 243; prohibition orders, 4; suspension, 5 ‘Full Amount’ call, weakness indicator, 143 funding costs:, averages, 104; LIBOR signalling, 97; -market liquidity relation, 44 futures contracts: agricultural, 120; cash-settled, 125; transparent exchanges, 63 FX (foreign exchange) market, 172, 196, 245; bank price influence, 212; big banks domination/market concentration, 193, 195, 210, 212, 223, 234; ‘clear the decks’, 210; ‘community’, 190; ethical problem, 213; global banks 2014 fines, 188; interbank spread survey, 228; interest rate markets joining, 31; Japanese banks borrowing, 33; London ‘banging the close’; 209; non-public information grey zone, 224; order books, 7; reciprocity, 224; scale of significance, 126, 192, 232; spot market desk, 214, 217; standardised norms, 194; swap market, see below; ‘The Cartel’, 220; traders, see below; turnover scale, 212 FX swap market, 134, 137, 145, 146; interest rate speculation, 133; Japanese traders, 34; lower credit risk, 137, 144; 9/11 trading, 265; spot-prices, 31, 227 FX traders, 191; club mentality, 269; desks, 30; respect among, 269; secret code us, 219; ‘techniques’, 204; varied backgrounds, 216 Gelboim, Ellen, 153 gentlemen’s agreements, 141 ‘getting married to your position’, trading attitude, 257–8 global merchandise exports, growth, 112 Goldman Sachs, 49, 140, 193, 223, 272 Goodhart, Charles, 173 Greece, 2015 ATM queues, 109 Greenspan, Alan, 15, 51, 173–4 Greenwald, Bruce, 225 guilt, feelings of, 78, 169, 243, 259 Häyhä, Simo (‘White Death’), 65 ‘Hambros’, 194 Harley, Dean, 231 Hayes, Tom, 8, 13, 72, 92–3, 115, 238; prison sentence, 12 HBOS, 183 headhunters, 160 HELIBOR (Helsinki Interbank Offered Rate), 28 Hester, Stephen, 284 Hintz, Brad, 10 HSBC, bank, 27, 153, 155, 188, 193, 208, 213, 223; FCA fine, 219; FX trading, 116, 187; Group Management Training College, 187; Stockholm, 31 Hull, John, 150 Hunger Games series, 255 Hyogo Bank default, 33 ICAP, 86, 101, 175; LIBOR fine, 85 ICMA (International Capital Market Association), 174 IKB bank, 50; rollover problems, 49 illiquidity, temporary, 43 Indonesia, financial crisis, 36 Industrial Bank of Japan, 34 ‘industry’, financial, 154–5 information: LIBOR delays problem, 49, 54; big banks superior, 210 instincts, 226 interbank money market, 38; central bank influence, 39; efficiency estimate change, 109; lending fall, 111; LIBOR, see below interest rate(s): benchmarks, 14; central banks forecasts, 166; changes impact of, 38; derivatives, 17, 174; hedging, 128; movement, 42; short-term, 28, 133; swaps sizes, 142 International Code of Conduct and Practice for the, 216 International Monetary Market (IMM), 72; contracts conventions, 126; LIBOR fixings, 73–4 investment banks, risk takers, 272 Ireland, Financial Regulator, 4, 168, 281 IRS, interest rate swap, 129–30; short-term, 140 ISDA (International Swaps and Derivatives Association), 174; fix, 14 Japan: bank sector/system: crisis, 47, 81; dollars difficulty period, 34; fear premium, 36; Financial Services Agency, 101; FX market concentration, 193; FX ‘premium’, 35–6; safe perception change, 33; unique derivatives market, 36; yen market, 8, 45 JP Morgan/JP Morgan Chase, 92, 105, 153, 178, 188, 192–3, 220–3 Kahneman, Daniel, 255 Kerviel, Jérôme, 250 Keynes, J.M., General Theory of Employment, 102 Kipling, Rudyard, 127 KLIBOR (Kuala Lumpur), 37 Knight, Angela, 107 Lapavitsas, Costas, 6–7 layering, 204 Leeson, Nick, 250 ‘legacy issues’, 236 Lehman Brothers, 2, 10, 48–9, 59, 105, 162, 272; bankruptcy filing, 160; collapse of aftermath, 96 Lewis, Ken, 164 LIBOR, 19, 28, 76–7, 104, 127, 130, 147, 209, 234, 265; anti-competitive process, 186; banking lobby regulated, 180–1; ‘barometer of fear’, 96; benchmark significance, 192, 225; central banks perfection assumption, 49; controls deception, 184; crisis-induced ‘stickiness’, 106; crucial price, 13; daily individual quotes, 97; derivatives, see below; ‘Eurodollar futures’ origin, 126; FCA regulated, 282; ‘fear’ index, 15; fixing panels, see below; future direction of, 38; inaccuracy possibilities, 74; interbank money market gauge, 39; jurisdiction issue, 115; manipulation, 7, 12, 14, 78; manipulation impossibility assumption, 81; market-determined perception, 88, 149; mechanism, 104; minute change importance, 73; new unpredictability, 62; 1980s invention, 111; objective process ‘evidence’, 148; perception of, 119; players as referees, 80; post 2007 interest, 53; pre-2013 unregulated, 118; predicting difficulty, 70; regulatory oversight lack, 179; retail credit impact, 277; sanctioned secrecy, 181–2; savings and borrowings dominance, 107; scandal breaking, 81; state measure use, 151; three-months, 71; ‘too big to fail’, 279; use of limited post-scandal, 278 LIBOR derivatives market, 8, 45, 137–8, 232; autonomous development of, 111; banks made, 125; ‘community’, 190; -FX connected, 189; imaginary money market, 148; increased abstraction of, 144–6 LIBOR panel banks, 74–5, 79, 98, 118, 172, 282; -LIBOR implications, 52 big banks dominated, 173, 179–80; fixing process, 75; membership criteria, 184–5; punishment idea, 108; post-scandal membership, 186 LIBOR scandal, 77, 152, 167, 245; correctness attempts, 277; post- definition unchanged, 278; breaking of, 81; Wall Street Journal on, 238 LIBOR-OIS spread(s), 51, 54–5, 99, 151 LIFFE, 126–7 liquidity: and credit crunch 2008, 2; credit issues, 45; informal norms need, 284; provision ‘duty’ 229; risk, 42–3, 55, 70 Lloyds Bank, 153, 183; LIBOR fine, 83 long/short positions, 26 Lukes, Steven, 186 makers, price, 24 Malaysia, financial crisis, 36 Mankell, Henning, 235 ‘marked to market’ trading books, 62 market, the financial: ‘colour’ 202; ‘conventions’, 228–33; ‘courtroom’, 171; interbank spread choosing ‘image’, 229; liquidity risk, 42–3; making, see below; perfections of, 15; relationships dependent, 225–6; risks limits management failure, 281 market makers/making, 24, 72, 117, 201, 206, 217, 226–7, 257; ‘ability’, 185; cash-settled derivatives, 133; failure to manage, 281; NIBOR IRS, 132; profession of, 200; two-way price quoting, 228; visibility of, 202 Martin Brokers, 85 Mathew, Jonathan, 139 McAdams, Richard, 231 McDermott, Tracey, 282 Meitan Tradition, 100, 175 Merita Bank, 56 Merrill Lynch, 2–3, 8–9, 12, 46, 49, 59–60, 62, 64, 69, 92–3, 96, 140, 153, 155, 160–1, 164, 188, 272, 285; Bank of America takeover, 67; bonuses, 10, 162–3; financial centre, 48; International Bank Limited Dublin, 4; mismarking, 68; risk taking encouraged, 281; silence rule, 242 Midland Montagu (Midland Bank Stockholm Branch), 20, 22–3, 27, 29; Stockholm, 22, 29 ‘Millenium bug’ fears, LIBOR impact, 44 mismarking, 9 mistakes, fear of, 26 Mollenkamp, Carrick, 98 ‘monetary transmission mechanism’, 39 money market(s): decentralised, 224; freeze, 110; international basis, 112; ‘risk premium’, 42; stable illusion-making, 106; -state link, 224 Moody’s, 96 morals, 66; morality, 69 Morgan Stanley, 49, 193, 223, 272 mortgage bonds, 21 NASDAQ stock exchange, transparency, 220 New York 2001 attacks, 263 New York Times, 4, 9, 11, 163, 241, 243 NIBOR (Norwegian Interbank Offered Rate), 28, 72, 130–1; fixing dates, 76; inaccurate fixing, 74; IRS market, 132; new unpredictability, 62; one month IRS market, 136 nicknames, use of, 25–6 Nordbanken, nationalised, 27 Nordic bank branches, 30 Norges Bank, NIBOR use, 152 Norinchukin Bank, 153 Northern Rock, Newcastle queues, 109 Norway, banking system, 131 ‘objective’ fact, LIBOR, 149 ‘off-balance-sheet’, trading, 137–8 official interest rate, predicting, 38 OIS (overnight index swap), 51; see also LIBOR-OIS one month IRS market, 136 OPEC (Organization of the Petroleum Exporting Countries), US dollar surpluses, 113 options desk, FX, 214 ‘over-the-counter’ trades, 63 derivatives, 129, 134; interest rate options, 130; markets, 227 Philippines, financial crisis, 37 Philips, cassette launch, 111 PIBOR (Paris Interbank Offered Rate), 19, 127 post scandals, reforms, 282 price(s), as interactions, 200; brokers indications role, 87; ‘resolution hypothesis’, 218 primary dealers, 175, 178 privacy, individual rights to, 167 Rabobank, LIBOR fine, 83, 153, 282 RBC, bank, 223 RBS, bank, 92, 153, 185, 188, 192, 220–1, 223, 284; LIBOR scandal fine, 83 reciprocity: -and trust, 226, 284; informal agreements, 228 regret, fear of, 258 regulatory arbitrage: Eurodollar market prompting, 118; platform for, 114 ‘reputation’, 185 respect, among traders, 267 Reuters, 19, 79, 151; Dealing, 41, 195, 260; Dealing 2000–2, 29, 34, 194; indicative prices, 62; screen price, 53 risk, 135; buzz of, 261–2; limits breaking, 274; ‘loss aversion’, 255; managers, 253; organizational limits, 250; pressures for, 63 risk taking: addictive, 262; enjoyment of, 260; fear control, 263; increase, 73; individualistic, 262; reward anticipation, 254; reward interpretation, 259; supervision need, 253 risk takers, 270; respect among, 268–9 Robert, Alain, 260 ‘rogue traders’, 1, 237; ‘bad apples’ narrative, 237, 240, 246, 279; fame, 252; fascination with, 246; losses, 259; ranking list, 250; risk list, 251; scandals, 258; stigma, 247 rogue trading, 274; definitions, 249; labelling, 248; risk link, 250 Royal Bank of Canada, 153 RP Martins, 153 rules of the game, loyalty to, 25 ‘run-throughs’, 87–9, 226–7 Russia, financial crisis, 36 Ryan, Ian, 3, 9, 68 Sanford C.


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The Relentless Revolution: A History of Capitalism by Joyce Appleby

1919 Motor Transport Corps convoy, agricultural Revolution, anti-communist, Asian financial crisis, asset-backed security, Bartolomé de las Casas, Bernie Madoff, Bretton Woods, BRICs, British Empire, call centre, Charles Lindbergh, collateralized debt obligation, collective bargaining, Columbian Exchange, commoditize, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, Doha Development Round, double entry bookkeeping, epigenetics, equal pay for equal work, European colonialism, facts on the ground, failed state, Firefox, fixed income, Ford paid five dollars a day, Francisco Pizarro, Frederick Winslow Taylor, full employment, Gordon Gekko, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, hiring and firing, illegal immigration, informal economy, interchangeable parts, interest rate swap, invention of movable type, invention of the printing press, invention of the steam engine, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeff Bezos, joint-stock company, Joseph Schumpeter, knowledge economy, land reform, Livingstone, I presume, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, moral hazard, Parag Khanna, Ponzi scheme, profit maximization, profit motive, race to the bottom, Ralph Nader, refrigerator car, Ronald Reagan, Scramble for Africa, Silicon Valley, Silicon Valley startup, South China Sea, South Sea Bubble, special economic zone, spice trade, spinning jenny, strikebreaker, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thorstein Veblen, total factor productivity, trade route, transatlantic slave trade, transcontinental railway, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration, Yogi Berra, Yom Kippur War

China’s Mixture of Investment Capital China’s banking system is a mixture of four giant state-owned banks, derivative of the socialist economy; joint-stock commercial banks founded for development purposes in 1994; and city banks. The government owns a majority interest in almost all state banks. Direct foreign investment is large and comprised mainly of long-term commitments. Termed “patient capital,” these commitments allowed China to survive the Asian financial crisis of 1997–1998 much better than most countries in the region. The Chinese are great savers, so interest rates have continued to be low. Private and public savings in China have formed America’s great piggy bank in its twenty-first century spending spree. Corporations in China still have far to go in creating sound organizations. State banks are plagued with insider favoritism. The security of Chinese investments is going to depend upon putting in place financial accountability, better laws, and transparency.

Amelia Gentleman, “Sex Selection by Abortion Is Denounced in New Delhi,” New York Times, April 29, 2008. 46. Choe Sang-Hun, “South Korea, Where Boys Were Kings, Revalues Its Girls,” New York Times, October 23, 2007. 47. Robert W. Crandall and Kenneth Flamm, “Overview,” in Crandall and Flamm, eds., Changing the Rules, 114–29; Tony A. Freyer, Antitrust and Global Capitalism (New York, 2006), 6–7. 48. Dick K. Nanto, “The 1997–98 Asian Financial Crisis,” CRS Report for Congress, February 6, 1998 (www.fas.org/man/crs/crs-asia2), 5. 49. “The Time 100,” New York (2000). 50. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-first Century (New York, 2005), 128–39; Nelson Lichtenstein, “Why Working at Wal-Mart Is Different,” Connecticut Law Review, 39 (2007): 1649–84; “How Wal-Mart Fights Unions,” Minnesota Law Review, 92 (2008): 1462–1501. 51.

Friedman, The World Is Flat: A Brief History of the Twenty-first Century (New York, 2005); Jeffrey A. Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (New York, 2006 [paperback ed., 2007]), 293ff; Robert W. Crandall and Kenneth Ramm, eds., Changing the Rules: Technological Change, International Competition, and Regulation in Communications (Washington, 1989), 10. 17. New York Times, November 17, 2008. 18. Dick K. Nanto, “The 1997–98 Asian Financial Crisis,” CRS Report for Congress, February 6, 1998 (www.fas.org/man/crs/crs-asia2): 5. 19. Claire Berlinski, “What the Free Market Needs,” Los Angeles Times, October 21, 2008. 20. “Modern Market Thought Has Devalued a Deadly Sin,” New York Times, September 27, 2008; Steven Greenhouse and David Leonhardt, “Real Wages Fail to Match a Rise in Productivity,” New York Times, August 28, 2006. 21.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

Geithner’s notion of convening power states that, in a crisis, an ad hoc assembly of the right players could come together on short notice to address the problem. They set an agenda, assign tasks, utilize staff and reassemble after a suitable interval, which could be a day or month, depending on the urgency of the situation. Progress is reported and new goals are set, all without the normal accoutrements of established bureaucracies or rigid governance. This process was something Geithner learned in the depths of the Asian financial crisis in 1997. He saw it again when it was deployed successfully in the bailout of Long-Term Capital Management in 1998. In that crisis, the heads of the “fourteen families,” the major banks at the time, came together with no template, except possibly the Panic of 1907, and in seventy-two hours put together a $3.6 billion all-cash bailout to save capital markets from collapse. In 2008, Geithner, then president of the New York Fed, revived the use of convening power as the U.S. government employed ad hoc remedies to resolve the failures of Bear Stearns, Fannie Mae and Freddie Mac from March to July of that year.

The Commanding Heights: The Battle between Government and the Marketplace That Is Remaking the Modern World. New York: Simon and Schuster, 1998. INDEX adaptation, complex systems AIG Aldrich, Nelson W. Anatomy of an International Monetary Regime, The (Gallarotti) anchoring currency in economics Andrew, Abram Piatt Applied Physics Laboratory (APL), Washington, D.C., area, and financial war game Argentina Asian financial crisis, 1997 Atlantic theater, euro-dollar relationship Austria autonomous agents, in complex systems Bagehot, Walter bailouts, U.S., of 2008 Baker, James A. bancors bank bailouts, 2008 Bank for International Settlements bank holidays bank lending Bank of England Bank of the United States Banque de France Barro, Robert base money Bear Stearns beggar-thy-neighbor competitive devaluations behavioral economics Belgium Bernanke, Ben on gold and the Great Depression money policies of speech of 2002 Bernstein, Jared bilateral trade relations Black, Fischer black markets black swans (catastrophic events) Blair, Dennis C.


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The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

Alvin Roth, Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, longitudinal study, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Monkeys Reject Unequal Pay, new economy, New Urbanism, peer-to-peer, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game

These sorts of mutual assistance agreements are typical in many religions, including Christianity, Hinduism, Buddhism, and Islam. Gallup polls in 145 countries have found that people who attend religious services donate more to charity and perform more voluntary service than those who do not. When crises drive people into the arms of God, they embrace Him for the insurance as well as the spiritual solace. When the Asian financial crisis struck Indonesia in 1997, the rupiah lost 85 percent of its value, the price of food nearly tripled, real wages plummeted by almost half, and the study of the Koran soared. Indonesian Muslims study the Koran in communal events called “Pengajian,” in which a teacher lectures and leads the recitation of the religious text. At these gatherings substantial social pressure is brought upon believers to make charitable contributions for the needy.

Drunk on information technology’s promise, people poured retirement savings into companies like Pets.com, which achieved fame, though never profit, on the strength of a cute ad with a sock puppet. In 2000, AOL could use its pricey stock to take over media goliath Time Warner, which had more than five times its revenue. By October of 2002 the NASDAQ was back where it had been in 1996. In 2010, Time Warner quietly spun off AOL for a tiny fraction of its price a decade before. The dot-com crash was preceded by the Asian financial crisis, with subsidiary bubblettes from Russia to Brazil, when a surge of money into promising “emerging markets” abruptly went into reverse. Similar dynamics caused investors to pummel the Mexican peso during the tequila crisis a few years before. Japan’s Nikkei 225 stock index tripled in real terms between January 1985 and December 1989, only to fall 60 percent over the next two and a half years.


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Earth Wars: The Battle for Global Resources by Geoff Hiscock

Admiral Zheng, Asian financial crisis, Bakken shale, Bernie Madoff, BRICs, butterfly effect, clean water, cleantech, corporate governance, demographic dividend, Deng Xiaoping, Edward Lorenz: Chaos theory, energy security, energy transition, eurozone crisis, Exxon Valdez, flex fuel, global rebalancing, global supply chain, hydraulic fracturing, Long Term Capital Management, Malacca Straits, Masdar, mass immigration, megacity, Menlo Park, Mohammed Bouazizi, new economy, oil shale / tar sands, oil shock, Panamax, Pearl River Delta, purchasing power parity, Ralph Waldo Emerson, RAND corporation, Shenzhen was a fishing village, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, spice trade, trade route, uranium enrichment, urban decay, WikiLeaks, working-age population, Yom Kippur War

Traders are not generally known for their generosity over a deal, but ITOCHU, for example, says it very much values the spirit of sampo yoshi, which it translates as “good for the seller, good for the buyer, and good for society.” Exhibit 3.2 Japanese general trading companies (sōgō shōsha) (turnover in FY ended March 2011) Source: Company reports. Exchange rate: US$ @ 80¥ The trading arms of the big South Korean family-run business groups (known as chaebol) sought to emulate the Japanese, but they, too, were forced to trim their sails after the Asian financial crisis of 1997–1998 and the chaebol restructuring that followed. Of those that remain, SK Networks is the biggest with turnover of $22 billion, followed by Samsung C&T, LG International, Hyundai Corp., and Hanwha Corp. Like the Japanese trading houses, they invest in overseas resources projects. SK Networks, for example, paid $700 million in 2010 for a 14 percent stake in MMX, a Brazilian iron ore miner set up by billionaire Eike Batista’s EBX Group.

Aburizal Bakrie stepped down as group chairman in 2004, but retains influence as head of the family. His younger brothers Indra and Nirwan have taken larger roles in recent years. Aburizal, now chairman of the Golkar political party, has seen his family’s business come close to ruin on more than one occasion over the last 20 years, most recently in 2008 after the global financial crisis, and in 1997–1998 when the Asian financial crisis rocked Indonesia’s currency and brought down the Suharto regime. Bakrie continues to carry a heavy long-term debt load, with China Investment Corp. among its creditors. Aburizal Bakrie was an unsuccessful contender to be Golkar’s candidate for the presidency in 2004, and may seek to run again in 2014. In 2010, UK financier Nathaniel Rothschild joined forces with the Bakrie family and Indonesian private equity investor Rosan Roeslani to form London-listed Bumi Plc as a vehicle to hold stakes in Bumi Resources and Roeslani’s own big thermal coal producer in Kalimantan, Berau Coal Energy.


The Despot's Accomplice: How the West Is Aiding and Abetting the Decline of Democracy by Brian Klaas

Asian financial crisis, Ayatollah Khomeini, Berlin Wall, Boris Johnson, citizen journalism, clean water, crowdsourcing, cuban missile crisis, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, eurozone crisis, failed state, financial independence, Francis Fukuyama: the end of history, friendly fire, global pandemic, moral hazard, Ronald Reagan, selection bias, Skype, Steve Jobs, trade route, Transnistria, unemployed young men, Washington Consensus, zero-sum game

Most recently, China has given Thailand political cover against Western pressure, particularly in the context of the May 2014 coup d’état that installed a military regime at the helm in Bangkok. Since 1932, Thailand has “democratized” with a “one slow step forward, two quick steps back” approach. The backward pace has recently accelerated, thanks to the rising influence of Beijing in Bangkok. â•… Understanding China’s anti-democratic influence in Thailand requires some longer-term context. In the wake of the Asian financial crisis of the late 1990s, a new political star emerged in the “Land of Smiles”: Thaksin Shinawatra, a police officer turned media mogul who would eventually rise to become the juggernaut in Thai politics. Since the late 1990s, Thailand has been roughly divided into two major political camps known by colorful monikers: the Red Shirts and the Yellow Shirts. While both sides have support from competing elite networks, Thaksin’s Red Shirts have secured their electoral support primarily from Thailand’s rural north.

€ € € 256 INDEX Air Force One, 58 Ajax, 22, 38, 230 Alert, Nunavut, 231 Alfonso IX, King of Léon, 30–1 Algeria, 155 Aliyev, Ilham, 82–5 Allende, Salvador, 45–7 amplification effect, 57 Anaconda Copper, 48 Anglo-Iranian Oil Company, 38 Angola, 112–13 Antananarivo, Madagascar, 7, 85, 86 Apple, 20, 83, 135–6, 145, 151 Arab Spring (2011), 2, 10, 12–16, 18, 65, 94, 124–6, 130, 132–3, 163, 168, 218 Argentina, 34–5, 149, 156 Aristide, Jean-Bertrand, 114–15, 117 Aristogeiton, 28 Aristophanes, 29 Aristotle, 29 Armenia, 59–60, 209 Armitage, Richard, 53 Asghabat, Turkmenistan, 25 Ashkelon, Israel, 102 Asian financial crisis (1997), 196 Abbas, Mahmoud, 100 Abbottabad, Pakistan, 53 Abdullah bin Abdulaziz, King of Saudi Arabia, 172 Abdullah II, King of Jordan, 18, 214 Abidjan, Côte d’Ivoire, 19, 105, 106–7 Abraham, 124 Achilles, 22, 230 Afghanistan, 2, 5, 20, 49, 54, 67, 69, 70, 78, 98, 136–8, 213 1982 arrival of Bin Laden, 78 2001 US-led invasion, 70, 71, 84, 98 2009 presidential election, 70–1 2014 presidential election, 71; power-sharing agreement, 75–6; USAID announces women’s empowerment project, 136–8, 145 Afifi, Omar, 163–4, 247 African-Americans, 176, 207, 250 Ahmadinejad, Mahmoud, 168 Ahmed, Mohammed, 123–4, 126, 130, 224 AIDS (acquired immune deficiency syndrome), 116, 207 257 INDEX al-Assad, Bashar, 120 AT&T, 135 Athena, 22 Athens, 20, 27–30, 31, 156 Australia, 29–30, 112, 153, 156 Azerbaijan, 20, 82–5, 90, 209, 211, 238 Ba’ath party, 63, 72, 77, 124, 128 Badawi, Raif, 16 Baghdad, Iraq, 72 Bahrain, 59, 155, 209, 225 Bangkok, Thailand, 198, 200, 202, 203, 223 Bangladesh, 106 Bardo Museum attack (2015), 131 Barraket Essahel affair (1991), 123, 126, 224 Basra, Iraq, 72, 73 beheadings, 11, 12, 16, 19 Beijing Consensus, 206–7 Belarus, 3, 19, 60–7, 154, 192–5, 205–6, 212, 218, 222 1991 dissolution of Soviet Union; independence, 192–3 1994 presidential election; Lukashenko comes to power, 193–4 1996 Commonwealth with Russia established, 194 2002 proposal for re-integration with Russia, 194 2004 US passes Belarus Democracy Act, 63, 194; referendum on Lukashenko’s third term; Western sanctions, 63 2006 presidential election, 61; EU asset ban on Lukashenko, 63 2010 presidential election, 61–2, 65; Statkevich impris- 258 oned for organizing protest, 61–2, 222 2015 economic crisis, 64; release of political prisoners, 65, 222; presidential election, 64–5; pressured by Russia to host military base, 65, 195 2016 EU suspends sanctions, 65, 67, 195 Belarus Democracy Act (2004), 63, 194 Belgian Congo (1908–60), 42 Belgium, 43–4, 90, 220 Ben Ali, Zine El Abidine, 13, 123–33, 155 benign dictatorship, 215, 220 Benin, 23, 27, 156 Berlin Wall, 35, 201 Bermudo II “the Gouty”, King of Léon, 30, 231 Bever, James, 101 Bhumibol Adulyadej, King of Thailand, 165 Biamby, Philippe, 117 Bible, 179 Big Brother, 180 Bin Laden, Osama, 18, 50, 52–3, 78 Binti Salan Mustapa, Sumiati, 12 Biya, Paul, 121 Black Hawk Down incident (1993), 116 Black Sea Economic Cooperation (BSEC), 211 blackballing, 29 Blagoy, Ivan, 208 Blair, Anthony “Tony”, 6, 92 Blueberry Hill (Fats Domino), 207 Boehner, John, 181 Bohemian Rhapsody (Queen), 121 Boko Haram, 177 Bolivia, 143, 154 INDEX Bolšteins, Ludvigs, 147 Bono (Paul Hewson), 92 Boston University, 111 Botswana, 149 Bourguiba, Habib, 126 BP (British Petroleum), 38 Bradley effect, 176, 250 Brazil, 56, 149, 152, 156 Bremer, Lewis Paul, 72 Brexit, 1 bribery, 170–1 British Broadcasting Corporation (BBC), 94 Brunei, 155, 229 bubonic plague, 6 BudgIT, 171 Buenos Aires, Argentina, 34 Bulgaria, 149 Burkina Faso, 177–8 Burundi, 95 Bush, George Herbert Walker, 115, 121, 190 Bush, George Walker, 54–7, 63, 69, 99, 100, 101, 190, 194, 201 Bush, Sarah, 59 Cairo, Egypt, 9–10, 13, 163–4, 218 California, United States, 26, 188, 209 Cambodia, 59 Cameroon, 121 Canada, 94, 112, 143, 153, 155, 156, 230–1 Caravana de la Muerte, 47 Carnegie Endowment for International Peace, 52, 73 Carothers, Thomas, 52, 73, 141, 144, 189 Carter Center, 89, 238 Carter, James Earl “Jimmy”, 116, 120, 238 Caspian Sea, 84 Castro, Fidel, 49 Castro, Raul, 49 caudillos, 33 Cédras, Raoul, 115–20 censorship, 161–3, 165 Central Intelligence Agency (CIA), 20, 39–49, 59, 98, 201, 207, 208 Chan-ocha, Prayuth, 164, 203 Charles I, King of England, Scotland and Ireland, 31 Chemonics, 58, 138 Chicago, Illinois, 182 Chile, 27, 36, 38, 45–8, 153, 220, 225 Chiluba, Frederick, 190 China, 4, 23–7, 105–6, 109, 168– 70, 176, 190, 191–2, 196–212, 215–16, 218, 221, 223, 229 1958 launch of Great Leap Forward, 24 1990 Deng Xiaoping’s “24-Character Strategy”, 206 1992 propaganda-industry tax introduced, 209 2003 SARS outbreak, 25–6 2013 endorsement of Azerbaijani election, 211; monitoring of Malagasy election, 211 2014 Umbrella Movement protests in Hong Kong, 168–9, 176, 221; rail deal with Thailand, 203 2016 Lunar New Year celebrations, 208; Mong Kok riots, 169 China Central Television (CCTV), 207–9 Chow, Holden, 169 Christianity, 105, 179 Churchill, Winston, 22, 190, 215 259 INDEX Ciftci, Bilgin, 20, 161–3, 165, 176 citizen journalism, 135 citizen participation, 27 Citizens United v.


pages: 414 words: 101,285

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

"Robert Solow", air freight, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bretton Woods, BRICs, business cycle, butterfly effect, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, failed state, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, global pandemic, global supply chain, global value chain, global village, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, Silicon Valley, six sigma, Stuxnet, supply-chain management, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, transaction costs, uranium enrichment

(New York and London, UK: Oxford University Press), 81–91. 33. Goldin, 2011, 24. 34. Peter Dattels and Laura Kodres, 2009, “Further Action Needed to Reinforce Signs of Market Recovery: IMF,” IMF Survey Magazine: IMF Research, 21 April, accessed 8 January 2013, http://www.imf.org/external/pubs/ft/survey/so/2009/RES042109C.htm. 35. See, for example, William C. Hunter, George G. Kaufman, and Thomas H. Krueger, eds., 1999, The Asian Financial Crisis: Origins, Implications, and Solutions (Norwell, MA: Kluwer Academic). 36. Ortwin Renn, 2008, Risk Governance: Coping with Uncertainty in a Complex World (London: Earthscan), vi. 37. Frank H. Knight, 1921, Risk, Uncertainty, and Profit (Boston: Hart, Schaffner, and Marx); and Larry G. Epstein and Tan Wang, 1994, “Intertemporal Asset Pricing under Knightian Uncertainty,” Econometrica 62 (3): 283–322, quote on 283. 38.

Hufnagel, Lars, Dirk Brockmann, and Theo Geisel. 2004. “Forecast and Control of Epidemics in a Globalized World.” Proceedings of the National Academy of Sciences (PNAS) 101 (42): 15124–15129. Hummels, David. 2007. “Transportation Costs and International Trade in the Second Era of Globalization.” Journal of Economic Perspectives 21 (3): 131–154. Hunter, William C., George G. Kaufman, and Thomas H. Krueger, eds. 1999. The Asian Financial Crisis: Origins, Implications, and Solutions. Norwell, MA: Kluwer Academic. IMF (International Monetary Fund) Staff. 2009. “Guidance to Assess the Systemic Importance of Financial Institutions, Markets, and Instruments.” Report to G20 Finance Ministers and Governors. International Monetary Fund, Bank for International Settlements, and Financial Stability Board, October. Accessed 1 February 2013. http://www.financialstabilityboard.org/publications/r_091107c.pdf. ———. 2010.


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The Theft of a Decade: How the Baby Boomers Stole the Millennials' Economic Future by Joseph C. Sternberg

Affordable Care Act / Obamacare, Airbnb, American Legislative Exchange Council, Asian financial crisis, banking crisis, Basel III, Bernie Sanders, blue-collar work, centre right, corporate raider, Detroit bankruptcy, Donald Trump, Edward Glaeser, employer provided health coverage, Erik Brynjolfsson, eurozone crisis, future of work, gig economy, Gordon Gekko, hiring and firing, Home mortgage interest deduction, housing crisis, job satisfaction, job-hopping, labor-force participation, low skilled workers, Lyft, Marc Andreessen, Mark Zuckerberg, minimum wage unemployment, mortgage debt, mortgage tax deduction, Nate Silver, new economy, obamacare, oil shock, payday loans, pension reform, quantitative easing, Richard Florida, Ronald Reagan, Saturday Night Live, Second Machine Age, sharing economy, Silicon Valley, sovereign wealth fund, TaskRabbit, total factor productivity, Tyler Cowen: Great Stagnation, uber lyft, unpaid internship, women in the workforce

A recurring debate in Japanese politics for decades now has concerned using a consumption tax—like a European value-added tax or the sales taxes American states levy—to help close the fiscal gap. The tax was first introduced in 1989 at the low introductory rate of 3 percent. But efforts to boost revenue from the tax always run into a small problem: increasing the consumption-tax rate in a weak economy is a great way to slow economic growth even further. In April 1997, the tax was increased to 5 percent, a move that was blamed, alongside the onset of the Asian Financial Crisis later that year, with tipping Japan into a recession. After he was elected in 2012, Prime Minister Shinzo Abe promised to double the consumption tax, to 10 percent, in two steps. But after the first of those increases, to 8 percent in 2014, Japan suffered yet another recession. The next stage of increase has been delayed, until October 2019 as of this writing. It’s hard to say whether it will ever happen, though—or whether it should.

Index Abe, Shinzo/“Abenomics,” 206–207 abortion views, 217n Affordable Care Act/Obamacare “Cadillac tax,” 167, 168 CLASS (Community Living Assistance and Support) program, 169 Congressional Budget Office on, 168 description/problems, 166–170, 186, 233 education loans and, 100 employers and, 66–69 labor costs and, 66–69 Medicaid and, 167 medical-device tax and, 167, 168 Millennial support, 218–219 overtime rule/effects, 68–69 subsidies and, 66, 67n, 167 African economies, 178–179 Alternative Minimum Tax provision and inflation, 169 American Legislative Exchange Council, 159 amortizing mortgage, 120, 120n Anderson, Kristen Soltis, 215 Andreessen, Marc, 41 Asian Financial Crisis, 206 Auerbach, Alan J., 171–172 Autor, David, 35–36 Average is Over (Cowen), 41–42 avocado/coffee controversy, 1–3 “avolatte,” 3 Bagehot, Walter, 130 bailouts with financial crisis, 59 “Basel” standards, 138n Bear Sterns, 11, 128, 129 Benson, Guy, 215 Bernanke, Ben financial crisis/aftermath and, 60, 64, 129, 130, 132, 133, 134 interest rate at/near zero and, 132, 133 Bertelsmann Foundation think tank, 199 birth cohort vs. generations, 7 BNP Paribas bank, 128, 180 Boomers childhood era, 46–47 definition/description, 6, 7, 8 government views, 221–222 near-lifetime employment and, 46–47 numbers, 8 politicians/policy and, 18, 19–21 retirement finances and, 80, 81 working/voting beginnings and, 51 See also specific activities; specific individuals Britain/Millennial housing disposable income and, 178, 188–189 “green belts,” 191 Help-to-Buy programs, 192–193 housing shortage reasons, 191–192 housing shortages, 187–192, 195 interest rates/Bank of England and, 192–193 living with parents, 188 locations/London and, 189n, 190, 195 middle class, 188 overview, 187–195 ownership encouragement/consequence, 192–194 ownership statistics, 190 problems summary, 194–195 rent costs and, 189n “shared ownership,” 192 subsidies/taxes and, 192, 193 zoning/process, 191–192 Britain/Millennials economic growth and, 189 unemployment and, 189 United Kingdom minimum wage and, 184 Brynjolfsson, Eric, 41 Buchanan, Pat, 217 Bunkeddeko, Adem, 219 Burns, Scott, 172 Bush, George W.


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

3D printing, 9 dash line, Admiral Zheng, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bretton Woods, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, Gini coefficient, global reserve currency, high net worth, hiring and firing, Hyman Minsky, income inequality, industrial robot, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, Washington Consensus, women in the workforce, working-age population, zero-sum game

Under his leadership, the 1980s brought significant reforms of agriculture, measures to help spur the growth in private firms, and the creation of special economic zones (SEZs) in rural backwaters, such as Shenzhen, designed to attract foreign investment and bolster private enterprise and financial liberalisation.3 Based on these experiences and on opening up to both the US and other countries for political and economic exchanges, China kicked on in the 1990s, now under the leadership of Deng’s successors, Party General Secretary and President Jiang Zemin and his able premier Zhu Rongji. Jiang and Zhu presided over an unprecedented and rapid rise in income per head – a compound rate of 9.4 per cent per year between 1993 and 2003 – a negotiated return of Hong Kong to the mainland, and a reboot of China’s relations with the US and other leading countries. They steered China successfully through the Asian financial crisis in 1997–98, albeit not without incident. Some territories adjoining Hong Kong, especially Guangdong, witnessed serious financial difficulties and obliged Beijing to send a fixer, Wang Qishan, to oversee bankruptcies and restructuring.4 Wang became a close associate of President Xi Jinping, ran his anti-corruption campaign, and became vice-president in 2018. Under Jiang, China joined the World Trade Organization (WTO) in 2001.

Xu Huang and Michael Harris Bond, Edward Elgar Publishing, 2012 Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State, MIT Press, 2008 INDEX Unattributed entries, for example geography, refer to the book’s metatopic, China. 1st Five-Year Plan (i) 1st Party Congress (Chinese Communist Party) (i) 5G networks (i) 9/11 (i) 11th Central Committee, third plenum (i) 11th Party Congress (i) 13th Five-Year Plan advanced information and digital systems (i) aims of (i) BRI incorporated into (i) manufacturing and technology (i) pension schemes (i) transport (i) 14th Party Congress (i) 15th Party Congress (i) 18th Party Congress (i), (ii) third plenum (i), (ii), (iii), (iv) 19th Party Congress ‘central contradiction’ restated (i) supply-side reforms (i) Xi addresses (i), (ii), (iii) 21st-Century Maritime Silk Road see Belt and Road Initiative 2000 Olympic Games (i) 2008 Olympic Games (i), (ii) Abe, Shinzō (i) Acemoglu, Daron (i) Action Plan (AI) (i) Addis Ababa (i), (ii) Africa Admiral Zheng (i) BRI concept and (i) Chinese interest in (i) colonialist criticism (i) Japan and (i) loans to (i) metal ore from (i) Silk Road (i) Sub-Saharan Africa (i) ageing trap (i) see also population statistics birth rate (i) consequences of ageing (i) demographic dividends (i), (ii) family structures (i) healthcare (i) ‘iron rice bowl’ (i) mortality rates (i) non-communicable disease (i) old-age dependency ratios (i), (ii), (iii) pensions (i) retirement age (i) Agricultural Bank of China (i) Agricultural Development Bank of China (i) agriculture (i), (ii), (iii) Agriculture and Rural Affairs, Ministry of (i) AI (i), (ii), (iii) AI Innovation and Development Megaproject (i) AI Potential Index (i) Air China (i) Airbus (i), (ii) Aixtron SE (i) Alibaba (i), (ii), (iii), (iv) Alphabet (i) AlphaGo (i), (ii) Alsace-Lorraine (i) Amoy (i) Anbang Insurance (i), (ii), (iii) Angola (i) Angus Maddison project (i) Ant Financial (i), (ii) anti-corruption campaigns 2014 (i) in financial sector (i) Ming dynasty (i) Xi launches (i), (ii), (iii) Apple (i), (ii), (iii) Arab Spring (i) Arabian Sea (i) Arctic (i) Argentina (i), (ii), (iii) Armenia (i) Article IV report (IMF) (i) see also IMF ASEAN (Association of South East Asian Nations) (i), (ii) Asia China the dominant power (i), (ii) Global Innovation Index (i) Obama tours (i) Paul Krugman’s book (i) ‘Pivot to Asia’ (i) state enterprises and intervention (i) Asia-Pacific Economic Cooperation (i) Asian Development Bank (i), (ii) Asian Financial Crisis (1997–98) (i), (ii), (iii), (iv) Asian Infrastructure Investment Bank (i), (ii), (iii), (iv) Asian Tiger economies (i), (ii), (iii), (iv) Atatürk, Mustafa Kemal (i) Australia Chinese investment in (i) Chinese seapower and (i) free trade agreement with (i) immigration rates and WAP (i) innovation statistics (i) pushing back against China (i), (ii) Renminbi reserves (i) Austria (i), (ii) Austria-Hungary (i) automobiles (i), (ii) Babylonia (i) bad debt see debt bad loans (i), (ii) Baidu (i), (ii) Balkans (i) Baltic (i) Baluchistan (i) Bandung (i), (ii) Bangladesh heavy involvement with (i) Indian sphere of influence (i) low value manufacturing moves to (i), (ii) Padma Bridge project (i) Bank of China (i), (ii) Bank for International Settlements (i) banks (i) see also debt and finance; WMPs (wealth management products) assets growth, effects of (i) bad loans problem (i) bank failures (i) central bank created (i) major banks see individual entries non-performing loans (i), (ii), (iii), (iv), (v), (vi) regulators step in (i) repo market (i), (ii) shadow banks (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) n18 smaller banks at risk (i) Baoneng Group (i) Baosteel (i) BBC (i) Bear Stearns (i) Beijing see also Peking 1993 (i) central and local government (i), (ii), (iii) Mao arrives (i) Olympics (i) pollution (i) price rises (i) US delegation (i) water supply (i) Beijing-Hangzhou Grand Canal (i) Belarus (i) Belgrade (i) Bell (i) Belt and Road Initiative (BRI) (i) debt problems in recipient nations (i) description, size and nature (i) economic drivers (i) financing and funding (i), (ii) first Forum (i) geopolitical drivers and disputes (i) Marshall Plan and (i), (ii) project investment (i), (ii) reordering of Indo-Pacific (i) Silk Road and (i), (ii), (iii) ways of looking at (i), (ii) benevolent dictators (i) Bering Strait (i) big data (i) birth rate (i) see also population statistics Bloomberg (i) Bo Xilai (i) Boeing (i), (ii) bond markets (i) Bosphorus Strait (i) Boxers (i), (ii) Brazil BRICS (i), (ii), (iii) middle income, example of (i), (ii), (iii) US steel imports (i) Bretton Woods (i) Brexit (i), (ii) BRICS (i) ‘Building Better Global BRICs’ (Goldman Sachs) (i) BRICS Bank (i), (ii) Britain (i) Boxer Rebellion (i) Brexit (i), (ii) Hong Kong (i) new claims (i) Renminbi reserves (i) Broadcom (i) Brunei Darussalam (i), (ii), (iii) Brzezinski, Zbigniew (i) Budapest (i) budget constraints (i), (ii) Bulgaria (i) Bund, the (Shanghai) (i) Bundesbank (i) bureaucracy (i), (ii), (iii), (iv) Bush, George W.


Saudi America: The Truth About Fracking and How It's Changing the World by Bethany McLean

addicted to oil, American energy revolution, Asian financial crisis, buy and hold, corporate governance, delayed gratification, Donald Trump, family office, hydraulic fracturing, Jeff Bezos, Mark Zuckerberg, Masdar, oil shale / tar sands, peak oil, Silicon Valley, sovereign wealth fund, Upton Sinclair, Yom Kippur War

Among other things, so-called “shorts” argued that while there might be sweet spots within the Chalk where a well would produce stupendous results, that didn’t mean the entire area, or even most of it, would produce the same results. The skeptics were right. In the spring of 1997, Chesapeake announced that much of the land it had acquired was not productive. The company took a $200 million charge against earnings, which essentially wiped out all the profit it had declared in the previous three years, and the stock plunged 25 percent. The loss coincided with the Asian financial crisis, which sent oil and natural gas prices plummeting. By 1998, Chesapeake was selling for seventy-five cents a share. McClendon and Ward tried to sell the company, but there were no takers. Later, McClendon told Oil & Gas Investor: “To look at the quote machine screen every day back then and think, ‘You’re not even worth one dollar’ was probably the worst period of our careers.” As he would do again and again, McClendon survived by borrowing yet more money to acquire more properties.


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, business cycle, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, diversification, Edward Glaeser, financial innovation, fixed income, floating exchange rates, full employment, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, longitudinal study, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, school vouchers, short selling, sovereign wealth fund, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

Rajan, “Banks, Short-Term Debt and Financial Crises: Theory, Policy Implications and Applications,” Carnegie-Rochester Conference Series on Public Policy 54, no. 1 (June 2001): 37–71. 7 Tarun Khanna and Krishna Palepu, “Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups,” Journal of Finance 55, no. 2 (April 2000): 867–91. 8 The description of Alphatec is drawn from Mark L. Clifford and Peter Engardio, Meltdown: Asia’s Boom, Bust and Beyond (Paramus, NJ: Prentice-Hall, 2000), 136–38. 9 See Shalendra D. Sharma, The Asian Financial Crisis: Crisis, Reform, and Recovery (Manchester, U.K.: Manchester University Press, 2003), 42. 10 The photograph is widely accessible, for example on the website of the International Political Economy Zone, ipezone.blogspot.com/2007/09/flashback-camdessus-suharto-pic.html, accessed March 10, 2010. Chapter Four. A Weak Safety Net 1 I have concealed real names here. 2 The ideas in this chapter evolved out of an initial office conversation with Martin Wolf of the Financial Times, to whom I owe thanks. 3 Stacey Schreft, Aarti Singh, and Ashley Hodgson, “Jobless Recoveries and the Wait-and-See Hypothesis,” Economic Review, Federal Reserve Bank of Kansas City (4th quarter, 2005): 81–99. 4 R.

See income inequality infant-industry protection inflation: in asset prices expectations of Federal Reserve policies and, relationship to unemployment in United States innovation See also technological change institutional economics insurance: bond earthquake livelihood mortgage,See also health insurance; unemployment benefits interest rates: on bank deposits in China consequences of low effects of expectations hypothesis and increases to fight inflation in Japan long-term low levels of on mortgages on savings short-term, spreads of Taylor rule and International Monetary Fund (IMF): Asian financial crisis and conditionality of loans influence of Mexican loans (1994) policy coordination role of reforms in staff of, warnings about trade imbalances Internet: communicating with public through distance education use in hiring investment: bond holders boom in in China in East Asia housing incomes from in managed capitalist systems in physical capital relationship to saving, See also foreign investment investment banks See also banks investment managers, See also hedge funds Jackson Hole Conferences Japan: central bank of competition in consumption in economic growth of education in elevator ladies in employment in energy consumption in exchange-rate policies of export-led growth strategy of exports of, financial bubble and crisis in health care costs in keiretsus in managed capitalism in jobless recoveries: political pressure for economic stimulus during in United States jobs.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, buy and hold, capital controls, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, currency peg, Doha Development Round, facts on the ground, Fall of the Berlin Wall, financial deregulation, floating exchange rates, full employment, hiring and firing, housing crisis, inflation targeting, Just-in-time delivery, Kenneth Rogoff, liberal capitalism, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, oil shale / tar sands, oil shock, price stability, prisoner's dilemma, profit maximization, quantitative easing, race to the bottom, random walk, reserve currency, Robert Shiller, Robert Shiller, Rubik’s Cube, savings glut, technology bubble, The Great Moderation, The Myth of the Rational Market, the payments system, The Wisdom of Crowds, too big to fail, trade liberalization, transaction costs, value at risk

Bayoumi and Eichengreen (1995): Tamim Bayoumi and Barry Eichengreen, “Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization”, International Monetary Fund Staff Papers, Vol. 42, No. 1 (March 1995), pp. 32–48. Bayoumi and Eichengreen (2017): Tamim Bayoumi and Barry Eichengreen, “Aftershocks of Monetary Unification: Hysteresis with a Financial Twist”, International Monetary Fund working paper WP 17/55 (March 2017). Bayoumi and Gagnon (2016): Tamim Bayoumi and Joseph E. Gagnon, “Unconventional Monetary Policy in the Asian Financial Crisis”, Pacific Economic Review, forthcoming. Bayoumi and Masson (1998): Tamim Bayoumi and Paul R. Masson, “Liability-creating Versus Non-liability-creating Fiscal Stabilisation Policies: Ricardian Equivalence, Fiscal Stabilisation, and EMU”, The Economic Journal, Vol. 108, Issue 449 (July 1998), pp. 1026–45. Beck, Hubrich, and Marcellino (2009): Guenter W. Beck, Kirstin Hubrich and Massimiliano Marcellino, “Regional Inflation Dynamics within and across Euro Area Countries and a Comparison with the United States”, Economic Policy, Vol. 24, Issue 57 (January 2009), pp. 141–84.

Geithner, Stress Test: Reflections on Financial Crisis, Crown Publishers, New York, 2014. Getter (2014): Darryl E. Getter, “U.S. Implementation of the Basel Capital Regulatory Framework”, Congressional Research Service, Washington DC, April 2014. Glick and Rose (2016): Reuven Glick and Andrew K. Rose, “Currency Unions and Trade: A Post-EMU Reassessment”, European Economic Review, Vol. 87, Issue C (2016), pp. 78–91. Goldstein (1998): Morris Goldstein, The Asian Financial Crisis: Causes, Cures, and Systemic Implications, Peterson Institute for International Economics, Washington DC, 1998. Goldstein (2017): Morris Goldstein, Banking’s Final Exam: Stress Testing and Bank-Capital Reform, Peterson Institute for International Economics, Washington DC. Goodhart (2011): Charles Goodhart, The Basel Committee on Banking Supervision: A History of the Early Years 1974–1997, Cambridge University Press, Cambridge, 2011.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

A remarkable thing happens to money when it passes through Mr. Soros; it emerges multiplied, but otherwise unchanged. With other inputs the results are more disappointing—to be blunt, more in line with biology. Mr. Soros gorged on chopped philosophy, mashed economics, and facts and figures swimming in grease. It was too much. Before he knew what was happening out rushed this book.26 During the Asian financial crisis of 1997/8, Mahathir Mohammed, prime minister of Malaysia, also a less benign view of Soros: “All these countries [in East Asia] have spent 40 years trying to build up their economies and a moron like Soros comes along with a lot of money to speculate and ruin things.”27 The Prime Minister made no mention of his own Pharaonic projects funded by borrowings from foreigners. Slovenian philosopher Slavoj Žižek captured the essence of Soros: “Half the day he engages in the most ruthless financial exploitations, ruining the lives of hundreds of thousands, even millions.

On their only day off, the women meet to picnic on pieces of cardboard, read books, and write letters to the families they left behind. Poorly paid, often abused, they work long hours to support extended families back in the Philippines. In the hustle and bustle of Hong Kong’s financial center, they are the only people who smile and laugh. Among them, there is a rare sense of community. Talking about the human effects of the crisis, a friend tells me a story about Indonesia during the Asian financial crisis more than a decade ago. Fluent in Bahasa Indonesia, he overheard a conversation one night outside the hotel where he was staying. A mother and her two daughters were discussing who would sell herself that night to feed the family. The crisis has led to cutbacks in the number of Filipino maids in Hong Kong. They face competition from women from mainland China. On the street, an older woman comforts her younger companion.

“The Turner Review: A regulatory response to the global banking crisis” (March 2009), Financial Services Authority: 49. 7. Alan Greenspan “Banking in the global marketplace” (18 November 1996), Speech to Federation of Bankers Association of Japan, Tokyo. 8. Greenspan, The Age of Turbulence: 360. 9. Alan Greenspan “Do efficient financial markets mitigate financial crises?” (19 October 1999), Financial Markets Conference of the Federal Reserve Bank of Atlanta. 10. Robert Wade “The Asian financial crisis and the global economy” (November 1998) (www.wright.edu); Peter Temple (2001) Hedge Funds: The Courtesans of Capitalism, John Wiley & Sons, Chichester: 141. 11. Yves Smith “Covert nationalization of the banking system” (3 August 2008) (www.nakedcapitalism.com). 12. Martin Wolf “Why banking is an accident waiting to happen” (27 November 2007) Financial Times. 13. Roger Lowenstein (2000) When Genius Failed: The Rise and Fall of Long Term Capital Management, Fourth Estate, London: 230. 14.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

Despite the flaws in Keynes’s own theory, and the even greater ones in those of Keynesian economists of the Samuelson generation, one cannot avoid the strong impression that the whole unravelling was driven by ideological hostility to government per se, which, as we have seen, has its roots in the original mindset of economics: a return to the roots after a long deviation. The period of the Great Moderation, which supposedly ran from the early 1990s, when the transition to the new regime was accomplished, to the onset of the crisis in 2008, was believed to vindicate the new system of macro-management. Disconfirming events like the East Asian financial crisis of 1997–8, and the collapse of the dotcom bubble in 2001, were regarded as ‘teething problems’, which would be overcome by a continually updated learning process, making financial markets ever more efficient. True, the average OECD rate of unemployment in the new ‘normal’ was more than double what it had been in the ‘old’ normal (7 per cent between 1992 and 2007, as opposed to 3 per cent between 1959 and 1975), but this was seen as a legacy of bad labour-market practices which would soon yield to further labour-market reforms.

China’s high savings ratio was structurally determined by the highly unequal distribution of income and absence of a social safety net. The poverty of domestic consumption led to a business model based on export-led growth through currency under-valuation. The purchase of US Treasury bonds was part of a deliberate policy of keeping the dollar over-valued in order to help Chinese exporters. (Alternatively, one might see China’s reserve accumulation as a form of precautionary saving following the East Asian financial crisis of 1997.) On this interpretation, it was the excess of Chinese saving over its domestic investment which caused the US deficit. It was the willingness of China to finance the US deficit for its own purposes which enabled the American consumer to go on a spending spree. The Chinese purchase of US government securities created the conditions for a credit expansion in America, with the People’s Bank of China acting as an additional source of reserves for the American banking system.

., 179 Erie Canal, 90 Eshag, Eprime, 71 European Central Bank, 139, 188, 198, 217, 242–3, 253, 254, 361 institutional constraints on, 50, 234, 242, 249, 274–5 misreading of Eurozone crisis, 275 quantitative easing (QE) by, 273–4 on ‘stress testing’, 364 taxing of ‘excess’ reserves, 266 use of LTROs, 257 European Commission, 139, 3612, 365 European Exchange Rate Mechanism, 188 European Investment Bank, 354 European Union (EU, formerly EEC), 153, 318, 379, 383 Financial Stability Board (FSB), 363 ‘Four Freedoms’, 375 lack of state, 376 Single Resolution Board, 365 Eurozone current account imbalances, 333, 334, 335, 336–7, 341–2 Juncker investment programme, 274 proposed European Monetary Fund, 376, 382 structural flaw in, 341, 375–7 two original sins of, 274, 376–5 Eurozone debt crisis (2010–12), 50, 223, 377, 382 and double-dip recession, 241, 242–3, 274 ECB’s misreading of, 275 and financial crowding-out theory, 234 and Greece, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 365 and ‘troika’, 32, 139, 243 469 i n de x exchange-rate policy, 127–8, 139 and Congdon’s ‘real balance effect’, 285 and domestic interest rates, 251 fixed rates under Bretton Woods, 16, 159, 161, 162, 168 floating rates from 1970s, 16–17, 184 and Friedman, 182 IMF ‘scarce currency’ clause, 380–81 Nixon’s dollar devaluation (1971), 153, 154, 165 and quantitative easing, 267, 267 sterling crisis (1951), 145 sterling devaluation (November 1967), 152 sterling-dollar peg (from 1949), 148, 150, 152 sterling/franc/deutschmark devaluations (1949), 152 ‘Triffin paradox’, 161, 165 ‘expansionary fiscal consolidation’, 192, 225, 231 Fabian socialism, 96 Fama, Eugene, 208, 311–12, 313 Fanny Mae, 217, 256, 309, 320 fascism, 13, 98, 131, 175 Federal Reserve, US and 2008 crash, 50, 217, 254, 256 AIG bail-out (2008), 325 Federal Open Market Committee (FOMC), 185–6 and Great Depression, 104–6 inflation targeting, 188 and monetarism, 185–6, 188 monetary policy in 1950s, 146 ‘Operation Twist’, 268 quantitative easing (QE) by, 256–7, 273–4 ‘Reserve Position Doctrine’ (1920s), 103–4 and under-consumption theory, 298 Ferguson, Niall, 73, 79, 80, 91 financial collapse (2007–8) acute phase, 218–20, 223 ‘Austrian’ explanation, 104, 303 banks as proximate cause, 343, 361, 365 Bear Stearns rescue, 217 British analogies with Greece, 235 British debate after, 225–8 causes of, 3–4, 343–4, 365, 366, 368 central bank responses, 3, 217, 219, 234–5, 253–4, 254, 256–8, 359 comparative recovery patterns, 241–4, 242, 273, 273–4 compared to 1929 crash, 218 Conservative narrative, 226–8, 229–31, 233, 234–5, 237–9 and crisis of conservative economics, 17 and embedded leverage, 318, 322, 325 five distinct stages of crisis, 216–19 ‘global imbalances’ explanation, 11, 331, 333, 336–43, 337 government responses, 3, 217–18, 219–20, 221–36, 237–47 Hayekian view of cause, 303 hysteresis after, 239–41, 240, 241, 370 inequality as deeper cause of, 299–306, 368 Lehman Brothers bankruptcy, 3, 50, 217, 365 leverage (debt to equity) ratios on eve of, 317–18 liquidity-solvency confusion, 317 outbreaks of populism following, 13, 371–3, 376, 383 post-crash deficit, 226–33, 229, 237–8 private debt as proximate cause, 3–4 470 i n de x stagnation of real earnings as deep cause, 4, 303, 367 standard account of origins of, 3–4 as test of two theories, 2–3, 76 theoretical and policy responses, 10, 129, 219–20, 223–36, 237–47 see also austerity policy and under-consumption theory, 303–6 US sub-prime mortgage market, 3, 216, 304–5, 309, 323, 328, 341 see also Great Recession (2008–9) Financial Services Authority, U K, 321–2, 330 financial system and causes of 2008 collapse, 3, 4–5, 253, 307–9, 361 and crisis of conservative economics, 17 deregulation, 307–9, 310–16, 318–22, 328, 332–3, 384 East Asian financial crisis (1997–8), 202, 339, 371, 382 ‘Efficient Market Hypothesis’ (EMH), 311–13, 321–2, 328, 388 ‘financialization’ of the economy, 5, 305, 307–9, 366–7 fraud and criminality, 3, 4, 5, 7, 328, 350, 365–6, 367 and free-market orthodoxy, 5, 308–16 loosening of moral restraints, 319 mark-to-market (M2M) framework, 314 offshore euro-dollar market, 308, 332 privatised gain and socialised loss, 319–20 released from national regulation (1980s/90s), 131, 318–22 structural power of finance, 6–7, 14, 309 systemic under-estimation of risk, 314–16, 316*, 320–22, 323, 329–30 Thatcher’s Big Bang (1980s), 319 tradable public debt instruments, 43, 80–81 Turner’s ‘financial intensity’ concept, 366 unrealism of assumptions, 310–16 value at risk (VaR) framework, 314–15, 315, 330 ‘Washington consensus’ deregulation, 198, 200 see also banks FinTech, 356 First World War, 86, 95, 106–7, 374, 375 ‘fiscal consolidation’, 10–11, 129, 225 Darling’s plan (2009), 225–6 ‘expansionary’, 192, 225, 231 and Osborne, 227–8, 229–30, 231, 233, 237–9, 243–4, 244, 245 fiscal policy and 2008 collapse, 10, 217–18, 219–20, 223–36, 265–6, 273–4, 286 ‘Barber boom’, 167, 168 during Blair-Brown years, 221–4, 223, 225–6, 227 British experience (1692–2012), 77 Congdon’s total rejection of, 280, 285–6 ‘crowding out’ argument, 83–4, 109–11, 226, 233–5 current and capital spending, 107–8, 114, 142, 155–6, 193, 221–3, 237–8, 355–7 directing flow of new spending, 286–7 fiscal multiplier, 110–11, 125–6, 133–6, 138, 230–31, 233, 235, 244–5 471 i n de x fiscal policy – (cont.) in inter-war Britain, 106–17 and Keynesian economics, 2–3, 109, 111, 114–17, 125–7, 129–31, 133–4, 137–8, 173, 278 Keynesian full employment phase (1945–60), 141–8 Krugman’s ‘confidence fairy’, 117 Lawson counterrevolution, 185, 192–3, 222, 358 legacy of monetarism, 190–93 May Committee (1931), 112 national income accounts, 138 New Classical view of, 200 in new macroeconomic constitution, 351–2, 355–7, 360–61 nineteenth-century theory of, 9, 29 post-Keynesian disablement of, 193, 221, 258, 304, 328 pre-crash orthodoxy, 221–2, 223–4, 230–31 Public Sector Borrowing Requirement (PSBR), 155–6 see also balanced budget theory; public investment; taxation Fisher, Irving, 9, 52, 61, 99, 280 ‘compensated dollar’ scheme, 66 equation of exchange, 62–4, 71–2, 258, 278–9, 283, 284, 287 QTM formulation, 62–7, 71–2 and quantitative easing, 258, 278–9 Santa Claus money, 62–4, 258, 278–9 Fitch (CR A), 329 France assignats in 1790s, 64–5 and gold standard, 50, 102, 104, 127 ‘indicative planning’ system, 150 ‘physiocrats’in, 81 protectionism in late nineteenthcentury, 59 state holding companies, 356 statism in, 140, 144 university campus revolts (1968), 164 Freddie Mac, 217, 256, 309, 320 free trade, xviii, 9, 58–9, 76, 79, 81–2 abandoned in Britain (1932), 113 general presumption in favour of, 377 and Hume’s ‘price-specie-flow’ mechanism, 37–8, 53, 54, 104, 332 and Irish potato famine, 15 List’s ‘infant industry’ argument, 88–9, 90, 378–7 and nationalist–globalist split, 371–3 and post-war liberalization, 16, 374 and presumption of peace, 379 repeal of Corn Laws (1846), 15, 85 Ricardo’s doctrine of comparative advantage, 88, 378, 379, 379 US conversion to (1940s), 90 Freiburg School, 140 Friedman, Milton adaptive expectations theory, 180–81, 183, 194, 206–11 and Cartesian distinction, 22 as Fisher’s heir, 278 The Great Contraction (with Schwartz; 1865), 105 idea of ‘helicopter money’, 63 and monetary base, 185, 280 and Mont Pelerin Society, 176–7 and ‘natural’ rate of unemployment, 163, 177, 181, 195, 206, 208 onslaught on Keynesianism, 170, 174, 177–83, 261 ‘permanent income hypothesis’ (1957), 178, 183 and Phillips Curve, 38, 180–81, 194, 206–8, 207 472 i n de x policy implications of work of, 182–3 political motives of, 177, 183–4 and quantity theory, 61, 70, 177–9, 182, 183, 194 ‘stable demand function for money’, 179 view of Great Depression, 104–6, 179, 183, 256, 276, 278 weaknesses in arguments of, 183 Frydman, Roman, 389 Fullarton, John, 49 Funding for Lending programme, 265–6 G20 Financial Stability Board, 363 summits (2009/10), 219–20, 223, 225 G7 finance ministers meeting (February 2010), 224–5 Galbraith, James, 303, 361 game theorists, 389 Gasperin, Simone, 357* Geddes, Sir Eric, 108 German Historical School, 88–9 Germany and 2008 crash, 217, 218, 243 current account surplus, 333, 334, 341, 342, 380, 381 employer–union bargains, 147, 167 and Eurozone crisis, 341, 365, 376, 377 and Great Depression, 97, 111, 129–30 growth Keynesianism (1960–70), 153–4 high growth rates in 1950/60s, 149, 156 Hitler’s reduction in unemployment, 111, 112, 129–30 hyperinflation of early 1920s, 275 as Keynesian in 1960s, 140 nineteenth-century expansion and unification, 89, 91 ‘ordo-liberalism’ in, 140 post-war modernization/catch-up, 156–7 protectionism in late nineteenthcentury, 59 return to gold standard (1924), 102 ‘Rhenish capitalism’ model, 154 Giffen, Robert, 51 Giles, Chris, 219, 302 Gini coefficient, 299, 300 Gladstone, William, 42–3, 86 Glass–Steagall Act (1933), 319, 361, 362 global imbalances basic theory of, 335–6 and capital account liberalization, 318–19 capital flight, 59, 334, 337, 341, 343 Eurozone see Eurozone: current account imbalances as explanation for 2007–8 crash, 11, 331, 333, 336–43, 337 and financial deregulation, 318–19, 332–3 and First World War, 95 increases in pre-crash years, 333, 333–4, 334, 335 problematic nature of, 333–4 reserve accumulation, 336, 337–41 ‘saving glut’ vs ‘money’ glut, 338–41, 342 structural causes still in place, 344 US dollar as main reserve currency, 338 global warming, 383 globalization, 17, 300, 334–5 absence of the state, 350, 373, 375–6 anti-globalist movements, 371–2, 373 first age of, 51, 55, 57, 59, 374, 375 473 i n de x globalization – (cont.) future of, 382–4 Geneva and Seattle protests (1998/99), 371 and inflation rate, 252–3 and lower wages in developed world, 252–3, 300, 379 nationalist-globalist split, 371–3 ‘neo-liberal’ agenda of IMF, 139, 181, 318–19 popular protest against, 351, 371–2 resurgence of after Cold War, 374 Rodrik’s ‘impossible trinity’, 375 gold, 23, 24, 25, 28, 35, 37 new gold production, 51, 52, 55, 62 gold standard, xviii, 1, 9, 27, 29, 338 and Britain, 9, 42, 43, 44, 45–50, 53, 57–9, 80, 101, 102, 113 collapse of US exchange standard (1971), 160, 165 commitment to convertibility, 55–6 and Cunliffe model, 54–5, 102 depressions in later nineteenthcentury, 51–2 dysfunctional after First World War, 95, 97 final suspension in Britain (1931), 113, 125 Fisher’s ‘compensated dollar’ scheme, 66 Hume’s ‘price-specie-flow’ mechanism, 37–8, 53, 54, 104, 285, 332 and international bond markets, 92 as international by 1880s, 50–52 Keynes on, 58, 101, 127 Kindleberger thesis, 58–9 move to ‘managed’ system, 71, 99–100 replaces silver standard (1690s), 42, 43 restored (1821), 48 return to in 1920s, 102, 104, 107 suspension during Napoleonic wars, 43, 45–7 suspension of convertibility (1919), 101–2 triumph of by mid-nineteenthcentury, 44, 50 working and design of, 52–9 as working in tandem with empire, 57, 58 Goldberg, Michael D., 389 Goldman Sachs, 315 Goodhart, Charles, 168, 187 Graeber, David, 28 Great Depression (1929–32), 9, 13, 96, 97–8, 110–13, 127 compared to 2008 crash, 218 Friedman-Schwartz view, 104–6, 179, 183, 256, 276, 278 impact on US policy-makers in 2008 period, 256, 275, 278 left-wing explanations of, 298 rise in inequality in lead-up to, 289 and second wave of collectivism, 15–16 Great Moderation (early 1990s–2007), 4, 53, 202, 278 economic problems during, 348 financial deregulation during, 318–22, 328 financial innovation during, 322–8 and independent central banks, 215 inflation during, 106, 215, 216, 252–3, 253, 348, 359, 360 international financial network, 309, 318–28 output growth during, 215, 253, 348 Great Recession (2008–9), xviii Congdon’s view of, 281–2, 287 co-ordinated global response, 219–20, 383 decline in productivity after, 305–6 474 i n de x initial signs of recovery (2009), 218–19, 225, 226 monetary interpretation of, 105, 106 ‘premature withdrawal’ of fiscal stimulus, 219–20, 223–36, 245, 352 reform agenda after, 361–8 rise in inequality in lead-up to, 289–90, 299–300 see also financial collapse (2007–8) Greece and Eurozone debt crisis, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 337, 341, 365 in gold standard era, 59 Greenspan, Alan, 188, 313 Hamilton, Alexander, 88, 90, 92 Hammond, Philip, 236, 352 Hannover Re scandal, 329 Harrison, George, 105 Harrod, Roy, 123 Harvey, John, 333, 387 Hawtrey, Ralph, 109–10, 280 Hayek, Friedrich, 33, 46, 177, 195, 350, 367 founds Mont Pelerin Society, 176 ‘over-consumption’ theory, 296 The Road to Serfdom (1944), 16, 175–6 on Wall Street Crash, 104 Heath, Edward, 167–8 Heckscher, Eli, 37 Help to Buy programme, 265, 266 Henderson, Hubert, 109 Henderson, W.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

See also specific topic constitutions and, 270–72 legal rules and, 252–53 supply-side economics, 33, 74–78, 395, 397 Economics of Our Patent System (Vaughan), 359 The Economist, 77, 203, 343, 355–56, 361, 366 Education entrepreneurs and, 309 income redistribution and, 193 as public good, 180–81 in US, 208 Efficient market hypothesis, 86–87 Einaudi, Luigi, 269, 342 Eisenhower, Dwight, 4, 40, 178 Elizabeth I (England), 215 Elmore, Bartow, 325 Employment entrepreneurs and, 309 quotas, 145–46 role of government, 189–90 stabilization policies and, 237 unemployment compensation, 237–38 “The End of Laissez Faire” (Keynes), 31–32 Energy industry, 17, 167, 283–84 Enron, 127–28, 172–73 Entertainment industry, 345, 348, 353 Entitlements, 50–51 The Entrepreneurial State (Mazzucato), 196 Entrepreneurs corporations and, 308 desires of, 308–9 education and, 309 employment and, 309 government, relationship with, 309–10 historical background, 306–7 income tax and, 308 infrastructure and, 309 laissez faire and, 307–8 obstacles to, 307–8 public resources and, 310 referee, government as, 310 Smith on, 307 taxation and, 309 in UK, 307 in US, 307 Environmental regulations, 147, 182, 183 Index Envy income inequality and, 319–21 poverty and, 216–18 Equitable growth, 310, 312 Esping-Anderson, Costa, 47 Ethical values of market, 398 European Central Bank, 244 European Commission, 113 European Monetary Union, 5, 69, 72, 260, 273 European Union Constitution (proposed), 271 “fake goods” in, 149 intellectual property in, 347 mislabeling of fish in, 149–50 occupational licensing in, 125–26 regulations in, 276 Exchanges, 91–94 asymmetry in, 94 complexity of, 92–94 contracts in, 92–94 Friedman on, 114–15 Hayek on, 93, 112–15 individuals, role of, 112–13 information in, 93, 112–13 Executive compensation in Australia, 364 in Austria, 364 bonuses, 82–83, 85–86 in Denmark, 364 directors, role of, 364–65 in financial institutions, 168–69 income inequality in, 82–83, 85–86, 105–6 increase in, 387, 398 intellectual property and, 348, 363–64 in Japan, 364 in Norway, 364 performance-based compensation, 363–64 in Sweden, 364 in UK, 364 in US, 169, 363, 364 Ex post income distribution, 118, 119 Expropriation, 136 Externalities balancing of, 164 Coase Theorem and, 183–85 correcting or reducing through regulations, 147, 281–82 cross-border externalities, 185–86 drones as, 165 environmental regulations and, 182, 183 federalism and, 183–84 global government and, 120–21 guns as, 165 income inequality and, 321 inter-institutional externalities, 290 431 legal rules and, 255 poverty and, 216–17 public goods and, 181–82 regulations and, 164 smoking as, 164 urbanization and, 91, 163–64 Facebook, 347 “Fake goods,” 149 Fascism, 23, 231, 266–67 Fashion industry, 345 Federalism in Australia, 284 in Brazil, 284 in Canada, 284 externalities and, 183–84 legal rules and, 260 regulations and, 125, 126, 173, 284–85 in US, 260, 284 The Federalist Papers (Madison), 249 Fees, 142 Financial crises complexity and, 156 government intervention and, 156 Great Depression, 22, 26, 31, 253 Great Recession, 76, 109, 318 moral hazard and, 156–57 Southeast Asian financial crisis (1997-1998), 109, 243–44 2007-2008 Financial Crisis. See 2007-2008 Financial Crisis Financial institutions executive compensation in, 168–69 financial penalties against, 158, 169–70 influence on governments, 113–14 regulations and, 126, 155, 157 rents and, 119 sanctions against, 157 “shadow banking,” 108, 119, 242, 329–30 “too big to fail” and, 84, 119, 168, 169 in UK, 157 in US, 126, 157 Financial instruments, complexity of, 106, 107, 108 Financial sector abuses in, 331 asymmetry in, 330–31 complexity of, 329–31 function of, 330 rents and, 330 securitization in, 330 “shadow financial sector,” 243 transaction activity in, 330 The Financial Times, 217, 352 Financial versus real investment, 106–7 432 Fine, Sidney, 18 Fines, 142 Finland Gini coefficient in, 317 marginal tax rates in, 376 Fiscal councils, 72–73, 272 Fiscal drag, 61 Fiscal policy, stabilization policies and, 237 Fiscal rules, 71–72, 272 Fiscal tools, 38 Fischer, Stanley, 113–14 Fisher, Irving, 46–47 Fishing industry, 149–50 Flat taxes, 381–82 Fogel, Robert William, 67–68 Food industry, 114–15, 167 Forbes, 38, 203, 342, 350 Forte, Francesco, 272 “Fracking,” 167, 283–84 France authorizations in, 137, 145 Cour des Comptes, 290 economic planning in, 27 ex post income distribution in, 118 “fake goods” in, 149 financial accountability in, 291 French Revolution, 89, 305 income inequality in, 306 marginal tax rates in, 376 occupational licensing in, 125–26 public spending in, 23–24, 53 regulations in, 279 wealth tax in, 342 welfare policies in, 43, 214 France, Anatole, 400 Francis (Pope), 28, 81 Frazer Institute, 60–61, 173 Free rider problem, 175–76 Free trade, 396–97 Friedman, Milton generally, 7–8, 60–61, 394 on basic minimum income, 212 on countercyclical policy, 61–62 on deficits, 72 on information in exchanges, 114–15 on irrationality, 141–42 on Keynes, 70 on limited role of government, 85, 313–14 on market, 34 on taxation, 367–68 Fundamental law of regulations, 278–79 Galbraith, John Kenneth, 3, 45–48 Gangs, 97–98 Gates, Bill, 196, 326, 356–57 Index Geithner, Tim, 113–14, 156 General Electric, 377 General Theory (Keynes), 46–47 Genetically modified food, 182–83 Germany authoritarian government in, 23 economic planning in, 27 “fake goods” in, 149 Gini coefficient in, 317 laissez faire in, 18 marginal tax rates in, 376 reforms in, 22 “revolving door policies” in, 335–36 unions in, 231 welfare policies in, 218, 219 welfare states in, 20 Gini, Corrado, 19 Gini coefficient.

., 119 Singapore public spending in, 121–22, 162 regulations in, 174 taxation in, 381 Sinn, Hans-Werner, 20, 108 Slavery, 249–50, 265–66 Smith, Adam generally, 7–9, 12, 189 on constitutions, 270 on dishonesty, 79 on entrepreneurs, 307 on government intervention, 226, 325 on income inequality, 305, 306, 320, 321 individualism and, 89 “invisible hand of market,” 66, 312–13 on limited role of government, 99 on mercantilism, 70, 123 on social consciousness, 312 on specialization, 91–92 Smoking as externality, 164 Social consciousness, growth and, 312 Social contract, 89–91 Social costs of income inequality, 206 Socialism government failures and, 73–74 public ownership and, 135 types of, 28 Socialization of loss, 83–84 Index Social programs. See Welfare policies Social regulations, 146 Social responsibilities of corporations, 398 “Soft budgets,” 71, 138 Solow, Robert, 3, 56 Sony, 347 Sorensen, Theodore, 2–3 Southeast Asian financial crisis (1997-1998), 109, 243–44 South Korea intellectual property in, 347 public spending in, 121–22, 162 Sovereign debt Buchanan on, 64 easy credit and, 106 in Greece, 241 growth in, 64 in Italy, 241 in Japan, 241 size of, 109 stabilization policies and, 241–42, 244–45 Soviet Union. See also Russia Constitution, 266 economic challenges from, 2–3 economic planning in, 26 Keynes on, 27–30, 78 Spain authoritarian government in, 23 bubbles in, 331 contingent liabilities in, 138 influence of conservatives in, 395 marginal tax rates in, 376 Specialization, 91–92 Spending.

., 26 Ten Commandments, 79, 328 “Termites of the market,” 119–20, 199 “Termites of the state,” 119–20, 198, 199, 232, 264, 314 Thatcher, Margaret, 33, 59, 64, 77, 87, 98, 180, 398 The Theory of Moral Sentiments (Smith), 312, 321 The Theory of Public Finance (Musgrave), 176–77, 187 Think tanks, 336–38, 394–95 “Third Way,” 395 Tinbergen, Jan, 82, 381 Tobin, James, 4, 56, 272 Tocqueville, Alexis de, 7–8, 89, 210, 400 “Too big to fail” financial institutions and, 84, 119, 168, 169 monopolies and, 79–80 moral hazard and, 138, 156–57 Trade, 34 Trade agreements, 354 Traditional justice, 100 Transaction activity in financial sector, 330 Transparency, public institutions and, 296–97 Transparency International, 120, 297 Truman, Harry, 43 Trump, Donald, 129, 150, 316–17, 335, 340, 345 Tullock, Gordon, 313–14 Tutorial role of government, 65, 141–42, 162, 189–90 2007–2008 Financial Crisis generally, 333 deregulation and, 109 easy credit and, 107–8 globalization and, 237 government intervention and, 156 Southeast Asian financial crisis (1997–1998) compared, 243–44 Ukraine, Gini coefficient in, 317 Unemployment compensation, 237–38 Unions decline in, 398 in Germany, 231 government control of, 23 Hayek on, 231 historical background, 19 importance of, 23 income inequality and decline in, 342 Index in Italy, 23, 231 Keynes on, 230–31 in US, 342 United Kingdom Beveridge Report, 41–43, 50 Brexit, 279 challenges to welfare policies in, 60, 61 economic planning in, 27 entrepreneurs in, 307 executive compensation in, 364 financial institutions in, 157 income inequality in, 315 infrastructure in, 316–17 intellectual property in, 357–58 laissez faire in, 31 limited role of government in, 98 marginal tax rates in, 376, 377 market fundamentalism in, 35–36 Poor Laws, 50 progressive taxes in, 53, 343–44 public goods in, 180 public ownership in, 135 regulations in, 279 “revolving door policies” in, 335–36 stabilization policies in, 59 supply-side economics in, 76–78, 395 taxation in, 53, 371 welfare policies in, 214, 219 welfare state in, 41–42 women’s suffrage in, 20 United States administrative capability of governments in, 67–68 Affordable Care Act, 208, 213, 274–75 Agriculture Department, 126, 127, 194–95 Aid to Dependent Children, 207 authorizations in, 145 balanced budget rules in, 73 bureaucracy in, 233 Census Bureau, 391–92 central bank in, 49, 188, 244 challenges to welfare policies in, 60, 61 Children’s Health Insurance Program, 213 Child Support Program, 213 Clean Air Act, 276 Clean Energy Act, 276 Clean Water Act, 276 Code of Federal Regulations, 126–27, 172, 277 Community Health Centers, 213 Congressional Budget Office, 72–73, 180–81, 380 Constitution generally, 99, 250, 270 amendment of, 250 Bill of Rights, 43–44 445 general principles, 268 intellectual property and, 176, 193, 362 slavery and, 249–50 workers’ rights and, 250 Consumer Financial Protection Bureau, 128 consumption in, 316 contingent liabilities in, 138, 140–41 corporate taxation in, 161 Council of Economic Advisors, 56 Credit Card Accountability Responsibility and Disclosure Act of 2009, 128 Declaration of Independence, 43–44, 99 Defense Advanced Research Project Agency (DARPA), 194–95 Defense Department, 334 defense spending in, 178 dependent workers in, 250 deregulation in, 82 Dodd-Frank Wall Street Reform and Consumer Protection Act, 109, 126, 128 Economic Opportunity Act of 1964, 213 Economic Report of the President (1962), 56, 71 education in, 208 entrepreneurs in, 307 Environmental Protection Agency, 183, 276, 277, 281 executive compensation in, 169, 363, 364 ex post income distribution in, 118 “fake goods” in, 149 Fannie Mae, 138, 140–41 federalism in, 260, 284 Federal Register, 126–27, 277 Federal Reserve Bank, 49, 244 Federal Reserve System, 19, 113, 334 fees and fines in, 142 financial institutions in, 126, 157 financial penalties in, 169–70 “fireside chat,” 43–45, 48, 50 Food and Drug Administration, 276 food stamps, 206, 213, 221 Freddie Mac, 138, 140–41 Full Employment Act of 1948, 49 Gini coefficient in, 317, 391–92 Government Accountability Office (GAO), 290 guns in, 165 Head Start, 213 Health and Human Services Department, 127, 213 health care in, 208, 222–23, 298 income inequality in, 161–62, 208–9, 221, 224, 227, 315–16, 389, 391–92 income redistribution in, 200 446 Index United States (cont.) income tax in, 19, 24–25, 208 infrastructure in, 234, 316–17 intellectual property in, 176, 193, 204, 347, 357–58, 362 Internal Revenue Service, 276, 372 Joint Economic Committee, 2 Justice Department, 126, 169–70 “Keynesian Revolution” in, 42, 56 laissez faire in, 17–19, 30, 31 Landis Report, 57–58 life expectancy in, 390–91 limited role of government in, 98 Low Income Home Energy Assistance Program, 213 marginal tax rates in, 375–77 market fundamentalism in, 35–36 Medicaid, 166, 180–81, 213, 221 Medicare, 166, 213 “military-industrial complex” in, 178 National Aeronautics and Space Administration (NASA), 179, 194–95 National Ambient Air Quality Standards (NAAQS), 277, 281 National Institutes of Health, 194–95 National Strategic Computing Initiative, 196–97 New Deal, 4, 22, 32, 67–68, 207 normative approach to role of government in, 110 occupational licensing in, 125–26 Outdoor Recreation Review Commission, 3 Patent and Trademark Office, 347 Pension Protection Act of 2006, 128 pensions in, 222–23 populism in, 74 Progressive Era, 18, 223 progressive taxes in, 52–53, 343–44 protection of property in, 202 public ownership in, 135, 136 public spending in, 23–24, 40–41, 77–78, 190 regulations in, 173, 276, 277, 279 research in, 194–97 “revolving door policies” in, 335–36 Safe Drinking Water Act, 276 “safety nets” in, 207–8 safety-related regulations in, 146–47 “Second Bill of Rights,” 43–45 Securities Act of 1933, 57 Securities and Exchange Commission, 84–85, 276 Securities Exchange Act of 1934, 57 Sixteenth Amendment, 24 slavery in, 249–50, 265–66 stabilization policies in, 55–59 statutes in, 274–75, 276 stimulus in, 239–40 Supplemental Nutrition Assistance Program, 126, 316 supply-side economics in, 76–78, 395 Supreme Court, 251, 253, 267–69 taxation in, 52–53, 190, 367, 368, 371, 380 tax expenditures in, 232–33, 380–81 tax reduction in, 77, 87 Treasury Department, 127, 334 unions in, 342 upward mobility in, 391 “War on Poverty,” 43, 48, 56, 58, 229, 388 welfare policies in, 43–45, 212–14 Women, Infants and Children (WIC), 213 Universal welfare programs, 214 Upward mobility, 391 Urban Institute, 368 Urbanization externalities and, 91, 163–64 income inequality and, 206 legal rules and, 254 limited role of government, effect on, 97 regulations, effect on, 130 U.S.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

But it can also result in domestic job losses that decimate whole communities – as experienced in America’s ‘rust belt’, the nation’s former industrial heartland. Likewise, financial inflows may boost an emerging economy’s fledgling stock market but when international finance exits even faster than it entered, it can induce a near collapse of the currency, as Thailand, Indonesia and South Korea discovered the hard way during the Asian financial crisis of the late 1990s. Cross-border flows are always double-edged and so need to be managed. Ricardo was right in thinking that very different nations may be able to trade to mutual gain, but comparative advantage is not only what you are blessed with: it is something you can build. As Ha-Joon Chang puts it, however, today’s high-income countries are ‘kicking away the ladder’ that they once climbed, recommending that low- and middle-income countries open their borders to follow a trade strategy that they strategically avoided themselves.

Page numbers in italics denote illustrations A Aalborg, Denmark, 290 Abbott, Anthony ‘Tony’, 31 ABCD group, 148 Abramovitz, Moses, 262 absolute decoupling, 260–61 Acemoglu, Daron, 86 advertising, 58, 106–7, 112, 281 Agbodjinou, Sénamé, 231 agriculture, 5, 46, 72–3, 148, 155, 178, 181, 183 Alaska, 9 Alaska Permanent Fund, 194 Alperovitz, Gar, 177 alternative enterprise designs, 190–91 altruism, 100, 104 Amazon, 192, 196, 276 Amazon rainforest, 105–6, 253 American Economic Association, 3 American Enterprise Institute, 67 American Tobacco Corporation, 107 Andes, 54 animal spirits, 110 Anthropocene epoch, 48, 253 anthropocentrism, 115 Apertuso, 230 Apple, 85, 192 Archer Daniels Midland (ADM), 148 Arendt, Hannah, 115–16 Argentina, 55, 274 Aristotle, 32, 272 Arrow, Kenneth, 134 Articles of Association and Memoranda, 233 Arusha, Tanzania, 202 Asia Wage Floor Alliance, 177 Asian financial crisis (1997), 90 Asknature.org, 232 Athens, 57 austerity, 163 Australia, 31, 103, 177, 180, 211, 224–6, 255, 260 Austria, 263, 274 availability bias, 112 AXIOM, 230 Axtell, Robert, 150 Ayres, Robert, 263 B B Corp, 241 Babylon, 13 Baker, Josephine, 157 balancing feedback loops, 138–41, 155, 271 Ballmer, Steve, 231 Bangla Pesa, 185–6, 293 Bangladesh, 10, 226 Bank for International Settlements, 256 Bank of America, 149 Bank of England, 145, 147, 256 banking, see under finance Barnes, Peter, 201 Barroso, José Manuel, 41 Bartlett, Albert Allen ‘Al’, 247 basic income, 177, 194, 199–201 basic personal values, 107–9 Basle, Switzerland, 80 Bauwens, Michel, 197 Beckerman, Wilfred, 258 Beckham, David, 171 Beech-Nut Packing Company, 107 behavioural economics, 11, 111–14 behavioural psychology, 103, 128 Beinhocker, Eric, 158 Belgium, 236, 252 Bentham, Jeremy, 98 Benyus, Janine, 116, 218, 223–4, 227, 232, 237, 241 Berger, John, 12, 281 Berlin Wall, 141 Bermuda, 277 Bernanke, Ben, 146 Bernays, Edward, 107, 112, 281–3 Bhopal gas disaster (1984), 9 Bible, 19, 114, 151 Big Bang (1986), 87 billionaires, 171, 200, 289 biodiversity, 10, 46, 48–9, 52, 85, 115, 155, 208, 210, 242, 299 as common pool resource, 201 and land conversion, 49 and inequality, 172 and reforesting, 50 biomass, 73, 118, 210, 212, 221 biomimicry, 116, 218, 227, 229 bioplastic, 224, 293 Birmingham, West Midlands, 10 Black, Fischer, 100–101 Blair, Anthony ‘Tony’, 171 Blockchain, 187, 192 blood donation, 104, 118 Body Shop, The, 232–4 Bogotá, Colombia, 119 Bolivia, 54 Boston, Massachusetts, 3 Bowen, Alex, 261 Bowles, Sam, 104 Box, George, 22 Boyce, James, 209 Brasselberg, Jacob, 187 Brazil, 124, 226, 281, 290 bread riots, 89 Brisbane, Australia, 31 Brown, Gordon, 146 Brynjolfsson, Erik, 193, 194, 258 Buddhism, 54 buen vivir, 54 Bullitt Center, Seattle, 217 Bunge, 148 Burkina Faso, 89 Burmark, Lynell, 13 business, 36, 43, 68, 88–9 automation, 191–5, 237, 258, 278 boom and bust, 246 and circular economy, 212, 215–19, 220, 224, 227–30, 232–4, 292 and complementary currencies, 184–5, 292 and core economy, 80 and creative destruction, 142 and feedback loops, 148 and finance, 183, 184 and green growth, 261, 265, 269 and households, 63, 68 living metrics, 241 and market, 68, 88 micro-businesses, 9 and neoliberalism, 67, 87 ownership, 190–91 and political funding, 91–2, 171–2 and taxation, 23, 276–7 workers’ rights, 88, 91, 269 butterfly economy, 220–42 C C–ROADS (Climate Rapid Overview and Decision Support), 153 C40 network, 280 calculating man, 98 California, United States, 213, 224, 293 Cambodia, 254 Cameron, David, 41 Canada, 196, 255, 260, 281, 282 cancer, 124, 159, 196 Capital Institute, 236 carbon emissions, 49–50, 59, 75 and decoupling, 260, 266 and forests, 50, 52 and inequality, 58 reduction of, 184, 201, 213, 216–18, 223–7, 239–41, 260, 266 stock–flow dynamics, 152–4 taxation, 201, 213 Cargill, 148 Carney, Mark, 256 Caterpillar, 228 Catholic Church, 15, 19 Cato Institute, 67 Celts, 54 central banks, 6, 87, 145, 146, 147, 183, 184, 256 Chang, Ha-Joon, 82, 86, 90 Chaplin, Charlie, 157 Chiapas, Mexico, 121–2 Chicago Board Options Exchange (CBOE), 100–101 Chicago School, 34, 99 Chile, 7, 42 China, 1, 7, 48, 154, 289–90 automation, 193 billionaires, 200, 289 greenhouse gas emissions, 153 inequality, 164 Lake Erhai doughnut analysis, 56 open-source design, 196 poverty reduction, 151, 198 renewable energy, 239 tiered pricing, 213 Chinese Development Bank, 239 chrematistics, 32, 273 Christianity, 15, 19, 114, 151 cigarettes, 107, 124 circular economy, 220–42, 257 Circular Flow diagram, 19–20, 28, 62–7, 64, 70, 78, 87, 91, 92, 93, 262 Citigroup, 149 Citizen Reaction Study, 102 civil rights movement, 77 Cleveland, Ohio, 190 climate change, 1, 3, 5, 29, 41, 45–53, 63, 74, 75–6, 91, 141, 144, 201 circular economy, 239, 241–2 dynamics of, 152–5 and G20, 31 and GDP growth, 255, 256, 260, 280 and heuristics, 114 and human rights, 10 and values, 126 climate positive cities, 239 closed systems, 74 coffee, 221 cognitive bias, 112–14 Colander, David, 137 Colombia, 119 common-pool resources, 82–3, 181, 201–2 commons, 69, 82–4, 287 collaborative, 78, 83, 191, 195, 196, 264, 292 cultural, 83 digital, 82, 83, 192, 197, 281 and distribution, 164, 180, 181–2, 205, 267 Embedded Economy, 71, 73, 77–8, 82–4, 85, 92 knowledge, 197, 201–2, 204, 229, 231, 292 commons and money creation, see complementary currencies natural, 82, 83, 180, 181–2, 201, 265 and regeneration, 229, 242, 267, 292 and state, 85, 93, 197, 237 and systems, 160 tragedy of, 28, 62, 69, 82, 181 triumph of, 83 and values, 106, 108 Commons Trusts, 201 complementary currencies, 158, 182–8, 236, 292 complex systems, 28, 129–62 complexity science, 136–7 Consumer Reaction Study, 102 consumerism, 58, 102, 121, 280–84 cooking, 45, 80, 186 Coote, Anna, 278 Copenhagen, Denmark, 124 Copernicus, Nicolaus, 14–15 copyright, 195, 197, 204 core economy, 79–80 Corporate To Do List, 215–19 Costa Rica, 172 Council of Economic Advisers, US, 6, 37 Cox, Jo, 117 cradle to cradle, 224 creative destruction, 142 Cree, 282 Crompton, Tom, 125–6 cross-border flows, 89–90 crowdsourcing, 204 cuckoos, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 currencies, 182–8, 236, 274, 292 D da Vinci, Leonardo, 13, 94–5 Dallas, Texas, 120 Daly, Herman, 74, 143, 271 Danish Nudging Network, 124 Darwin, Charles, 14 Debreu, Gerard, 134 debt, 37, 146–7, 172–3, 182–5, 247, 255, 269 decoupling, 193, 210, 258–62, 273 defeat device software, 216 deforestation, 49–50, 74, 208, 210 degenerative linear economy, 211–19, 222–3, 237 degrowth, 244 DeMartino, George, 161 democracy, 77, 171–2, 258 demurrage, 274 Denmark, 180, 275, 290 deregulation, 82, 87, 269 derivatives, 100–101, 149 Devas, Charles Stanton, 97 Dey, Suchitra, 178 Diamond, Jared, 154 diarrhoea, 5 differential calculus, 131, 132 digital revolution, 191–2, 264 diversify–select–amplify, 158 double spiral, 54 Doughnut model, 10–11, 11, 23–5, 44, 51 and aspiration, 58–9, 280–84 big picture, 28, 42, 61–93 distribution, 29, 52, 57, 58, 76, 93, 158, 163–205 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 goal, 25–8, 31–60 and governance, 57, 59 growth agnosticism, 29–30, 243–85 human nature, 28–9, 94–128 and population, 57–8 regeneration, 29, 158, 206–42 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 systems, 28, 129–62 and technology, 57, 59 Douglas, Margaret, 78–9 Dreyfus, Louis, 148 ‘Dumb and Dumber in Macroeconomics’ (Solow), 135 Durban, South Africa, 214 E Earning by Learning, 120 Earth-system science, 44–53, 115, 216, 288, 298 Easter Island, 154 Easterlin, Richard, 265–6 eBay, 105, 192 eco-literacy, 115 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 Ecological Performance Standards, 241 Econ 101 course, 8, 77 Economics (Lewis), 114 Economics (Samuelson), 19–20, 63–7, 70, 74, 78, 86, 91, 92, 93, 262 Economy for the Common Good, 241 ecosystem services, 7, 116, 269 Ecuador, 54 education, 9, 43, 45, 50–52, 85, 169–70, 176, 200, 249, 279 economic, 8, 11, 18, 22, 24, 36, 287–93 environmental, 115, 239–40 girls’, 57, 124, 178, 198 online, 83, 197, 264, 290 pricing, 118–19 efficient market hypothesis, 28, 62, 68, 87 Egypt, 48, 89 Eisenstein, Charles, 116 electricity, 9, 45, 236, 240 and Bangla Pesa, 186 cars, 231 Ethereum, 187–8 and MONIAC, 75, 262 pricing, 118, 213 see also renewable energy Elizabeth II, Queen of the United Kingdom, 145 Ellen MacArthur Foundation, 220 Embedded Economy, 71–93, 263 business, 88–9 commons, 82–4 Earth, 72–6 economy, 77–8 finance, 86–8 household, 78–81 market, 81–2 power, 91–92 society, 76–7 state, 84–6 trade, 89–90 employment, 36, 37, 51, 142, 176 automation, 191–5, 237, 258, 278 labour ownership, 188–91 workers’ rights, 88, 90, 269 Empty World, 74 Engels, Friedrich, 88 environment and circular economy, 220–42, 257 conservation, 121–2 and degenerative linear economy, 211–19, 222–3 degradation, 5, 9, 10, 29, 44–53, 74, 154, 172, 196, 206–42 education on, 115, 239–40 externalities, 152 fair share, 216–17 and finance, 234–7 generosity, 218–19, 223–7 green growth, 41, 210, 243–85 nudging, 123–5 taxation and quotas, 213–14, 215 zero impact, 217–18, 238, 241 Environmental Dashboard, 240–41 environmental economics, 7, 11, 114–16 Environmental Kuznets Curve, 207–11, 241 environmental space, 54 Epstein, Joshua, 150 equilibrium theory, 134–62 Ethereum, 187–8 ethics, 160–62 Ethiopia, 9, 226, 254 Etsy, 105 Euclid, 13, 15 European Central Bank, 145, 275 European Commission, 41 European Union (EU), 92, 153, 210, 222, 255, 258 Evergreen Cooperatives, 190 Evergreen Direct Investing (EDI), 273 exogenous shocks, 141 exponential growth, 39, 246–85 externalities, 143, 152, 213 Exxon Valdez oil spill (1989), 9 F Facebook, 192 fair share, 216–17 Fama, Eugene, 68, 87 fascism, 234, 277 Federal Reserve, US, 87, 145, 146, 271, 282 feedback loops, 138–41, 143, 148, 155, 250, 271 feminist economics, 11, 78–81, 160 Ferguson, Thomas, 91–2 finance animal spirits, 110 bank runs, 139 Black–Scholes model, 100–101 boom and bust, 28–9, 110, 144–7 and Circular Flow, 63–4, 87 and complex systems, 134, 138, 139, 140, 141, 145–7 cross-border flows, 89 deregulation, 87 derivatives, 100–101, 149 and distribution, 169, 170, 173, 182–4, 198–9, 201 and efficient market hypothesis, 63, 68 and Embedded Economy, 71, 86–8 and financial-instability hypothesis, 87, 146 and GDP growth, 38 and media, 7–8 mobile banking, 199–200 and money creation, 87, 182–5 and regeneration, 227, 229, 234–7 in service to life, 159, 234–7 stakeholder finance, 190 and sustainability, 216, 235–6, 239 financial crisis (2008), 1–4, 5, 40, 63, 86, 141, 144, 278, 290 and efficient market hypothesis, 87 and equilibrium theory, 134, 145 and financial-instability hypothesis, 87 and inequality, 90, 170, 172, 175 and money creation, 182 and worker’s rights, 278 financial flows, 89 Financial Times, 183, 266, 289 financial-instability hypothesis, 87, 146 First Green Bank, 236 First World War (1914–18), 166, 170 Fisher, Irving, 183 fluid values, 102, 106–9 food, 3, 43, 45, 50, 54, 58, 59, 89, 198 food banks, 165 food price crisis (2007–8), 89, 90, 180 Ford, 277–8 foreign direct investment, 89 forest conservation, 121–2 fossil fuels, 59, 73, 75, 92, 212, 260, 263 Foundations of Economic Analysis (Samuelson), 17–18 Foxconn, 193 framing, 22–3 France, 43, 165, 196, 238, 254, 256, 281, 290 Frank, Robert, 100 free market, 33, 37, 67, 68, 70, 81–2, 86, 90 free open-source hardware (FOSH), 196–7 free open-source software (FOSS), 196 free trade, 70, 90 Freeman, Ralph, 18–19 freshwater cycle, 48–9 Freud, Sigmund, 107, 281 Friedman, Benjamin, 258 Friedman, Milton, 34, 62, 66–9, 84–5, 88, 99, 183, 232 Friends of the Earth, 54 Full World, 75 Fuller, Buckminster, 4 Fullerton, John, 234–6, 273 G G20, 31, 56, 276, 279–80 G77, 55 Gal, Orit, 141 Gandhi, Mohandas, 42, 293 Gangnam Style, 145 Gardens of Democracy, The (Liu & Hanauer), 158 gender equality, 45, 51–2, 57, 78–9, 85, 88, 118–19, 124, 171, 198 generosity, 218–19, 223–9 geometry, 13, 15 George, Henry, 149, 179 Georgescu-Roegen, Nicholas, 252 geothermal energy, 221 Gerhardt, Sue, 283 Germany, 2, 41, 100, 118, 165, 189, 211, 213, 254, 256, 260, 274 Gessel, Silvio, 274 Ghent, Belgium, 236 Gift Relationship, The (Titmuss), 118–19 Gigerenzer, Gerd, 112–14 Gintis, Herb, 104 GiveDirectly, 200 Glass–Steagall Act (1933), 87 Glennon, Roger, 214 Global Alliance for Tax Justice, 277 global material footprints, 210–11 Global Village Construction Set, 196 globalisation, 89 Goerner, Sally, 175–6 Goffmann, Erving, 22 Going for Growth, 255 golden rule, 91 Goldman Sachs, 149, 170 Gómez-Baggethun, Erik, 122 Goodall, Chris, 211 Goodwin, Neva, 79 Goody, Jade, 124 Google, 192 Gore, Albert ‘Al’, 172 Gorgons, 244, 256, 257, 266 graffiti, 15, 25, 287 Great Acceleration, 46, 253–4 Great Depression (1929–39), 37, 70, 170, 173, 183, 275, 277, 278 Great Moderation, 146 Greece, Ancient, 4, 13, 32, 48, 54, 56–7, 160, 244 green growth, 41, 210, 243–85 Greenham, Tony, 185 greenhouse gas emissions, 31, 46, 50, 75–6, 141, 152–4 and decoupling, 260, 266 and Environmental Kuznets Curve, 208, 210 and forests, 50, 52 and G20, 31 and inequality, 58 reduction of, 184, 201–2, 213, 216–18, 223–7, 239–41, 256, 259–60, 266, 298 stock–flow dynamics, 152–4 and taxation, 201, 213 Greenland, 141, 154 Greenpeace, 9 Greenspan, Alan, 87 Greenwich, London, 290 Grenoble, France, 281 Griffiths, Brian, 170 gross domestic product (GDP), 25, 31–2, 35–43, 57, 60, 84, 164 as cuckoo, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 and Environmental Kuznets Curve, 207–11 and exponential growth, 39, 53, 246–85 and growth agnosticism, 29–30, 240, 243–85 and inequality, 173 and Kuznets Curve, 167, 173, 188–9 gross national product (GNP), 36–40 Gross World Product, 248 Grossman, Gene, 207–8, 210 ‘grow now, clean up later’, 207 Guatemala, 196 H Haifa, Israel, 120 Haldane, Andrew, 146 Han Dynasty, 154 Hanauer, Nick, 158 Hansen, Pelle, 124 Happy Planet Index, 280 Hardin, Garrett, 69, 83, 181 Harvard University, 2, 271, 290 von Hayek, Friedrich, 7–8, 62, 66, 67, 143, 156, 158 healthcare, 43, 50, 57, 85, 123, 125, 170, 176, 200, 269, 279 Heilbroner, Robert, 53 Henry VIII, King of England and Ireland, 180 Hepburn, Cameron, 261 Herbert Simon, 111 heuristics, 113–14, 118, 123 high-income countries growth, 30, 244–5, 254–72, 282 inequality, 165, 168, 169, 171 labour, 177, 188–9, 278 overseas development assistance (ODA), 198–9 resource intensive lifestyles, 46, 210–11 trade, 90 Hippocrates, 160 History of Economic Analysis (Schumpeter), 21 HIV/AIDS, 123 Holocene epoch, 46–8, 75, 115, 253 Homo economicus, 94–103, 109, 127–8 Homo sapiens, 38, 104, 130 Hong Kong, 180 household, 78 housing, 45, 59, 176, 182–3, 269 Howe, Geoffrey, 67 Hudson, Michael, 183 Human Development Index, 9, 279 human nature, 28 human rights, 10, 25, 45, 49, 50, 95, 214, 233 humanistic economics, 42 hydropower, 118, 260, 263 I Illinois, United States, 179–80 Imago Mundi, 13 immigration, 82, 199, 236, 266 In Defense of Economic Growth (Beckerman), 258 Inclusive Wealth Index, 280 income, 51, 79–80, 82, 88, 176–8, 188–91, 194, 199–201 India, 2, 9, 10, 42, 124, 164, 178, 196, 206–7, 242, 290 Indonesia, 90, 105–6, 164, 168, 200 Indus Valley civilisation, 48 inequality, 1, 5, 25, 41, 63, 81, 88, 91, 148–52, 209 and consumerism, 111 and democracy, 171 and digital revolution, 191–5 and distribution, 163–205 and environmental degradation, 172 and GDP growth, 173 and greenhouse gas emissions, 58 and intellectual property, 195–8 and Kuznets Curve, 29, 166–70, 173–4 and labour ownership, 188–91 and land ownership, 178–82 and money creation, 182–8 and social welfare, 171 Success to the Successful, 148, 149, 151, 166 inflation, 36, 248, 256, 275 insect pollination services, 7 Institute of Economic Affairs, 67 institutional economics, 11 intellectual property rights, 195–8, 204 interest, 36, 177, 182, 184, 275–6 Intergovernmental Panel on Climate Change, 25 International Monetary Fund (IMF), 170, 172, 173, 183, 255, 258, 271 Internet, 83–4, 89, 105, 192, 202, 264 Ireland, 277 Iroquois Onondaga Nation, 116 Israel, 100, 103, 120 Italy, 165, 196, 254 J Jackson, Tim, 58 Jakubowski, Marcin, 196 Jalisco, Mexico, 217 Japan, 168, 180, 211, 222, 254, 256, 263, 275 Jevons, William Stanley, 16, 97–8, 131, 132, 137, 142 John Lewis Partnership, 190 Johnson, Lyndon Baines, 37 Johnson, Mark, 38 Johnson, Todd, 191 JPMorgan Chase, 149, 234 K Kahneman, Daniel, 111 Kamkwamba, William, 202, 204 Kasser, Tim, 125–6 Keen, Steve, 146, 147 Kelly, Marjorie, 190–91, 233 Kennedy, John Fitzgerald, 37, 250 Kennedy, Paul, 279 Kenya, 118, 123, 180, 185–6, 199–200, 226, 292 Keynes, John Maynard, 7–8, 22, 66, 69, 134, 184, 251, 277–8, 284, 288 Kick It Over movement, 3, 289 Kingston, London, 290 Knight, Frank, 66, 99 knowledge commons, 202–4, 229, 292 Kokstad, South Africa, 56 Kondratieff waves, 246 Korzybski, Alfred, 22 Krueger, Alan, 207–8, 210 Kuhn, Thomas, 22 Kumhof, Michael, 172 Kuwait, 255 Kuznets, Simon, 29, 36, 39–40, 166–70, 173, 174, 175, 204, 207 KwaZulu Natal, South Africa, 56 L labour ownership, 188–91 Lake Erhai, Yunnan, 56 Lakoff, George, 23, 38, 276 Lamelara, Indonesia, 105–6 land conversion, 49, 52, 299 land ownership, 178–82 land-value tax, 73, 149, 180 Landesa, 178 Landlord’s Game, The, 149 law of demand, 16 laws of motion, 13, 16–17, 34, 129, 131 Lehman Brothers, 141 Leopold, Aldo, 115 Lesotho, 118, 199 leverage points, 159 Lewis, Fay, 178 Lewis, Justin, 102 Lewis, William Arthur, 114, 167 Lietaer, Bernard, 175, 236 Limits to Growth, 40, 154, 258 Linux, 231 Liu, Eric, 158 living metrics, 240–42 living purpose, 233–4 Lomé, Togo, 231 London School of Economics (LSE), 2, 34, 65, 290 London Underground, 12 loss aversion, 112 low-income countries, 90, 164–5, 168, 173, 180, 199, 201, 209, 226, 254, 259 Lucas, Robert, 171 Lula da Silva, Luiz Inácio, 124 Luxembourg, 277 Lyle, John Tillman, 214 Lyons, Oren, 116 M M–PESA, 199–200 MacDonald, Tim, 273 Machiguenga, 105–6 MacKenzie, Donald, 101 macroeconomics, 36, 62–6, 76, 80, 134–5, 145, 147, 150, 244, 280 Magie, Elizabeth, 149, 153 Malala effect, 124 malaria, 5 Malawi, 118, 202, 204 Malaysia, 168 Mali, Taylor, 243 Malthus, Thomas, 252 Mamsera Rural Cooperative, 190 Manhattan, New York, 9, 41 Mani, Muthukumara, 206 Manitoba, 282 Mankiw, Gregory, 2, 34 Mannheim, Karl, 22 Maoris, 54 market, 81–2 and business, 88 circular flow, 64 and commons, 83, 93, 181, 200–201 efficiency of, 28, 62, 68, 87, 148, 181 and equilibrium theory, 131–5, 137, 143–7, 155, 156 free market, 33, 37, 67–70, 90, 208 and households, 63, 69, 78, 79 and maxi-max rule, 161 and pricing, 117–23, 131, 160 and rational economic man, 96, 100–101, 103, 104 and reciprocity, 105, 106 reflexivity of, 144–7 and society, 69–70 and state, 84–6, 200, 281 Marshall, Alfred, 17, 98, 133, 165, 253, 282 Marx, Karl, 88, 142, 165, 272 Massachusetts Institute of Technology (MIT), 17–20, 152–5 massive open online courses (MOOCs), 290 Matthew Effect, 151 Max-Neef, Manfred, 42 maxi-max rule, 161 maximum wage, 177 Maya civilisation, 48, 154 Mazzucato, Mariana, 85, 195, 238 McAfee, Andrew, 194, 258 McDonough, William, 217 Meadows, Donella, 40, 141, 159, 271, 292 Medusa, 244, 257, 266 Merkel, Angela, 41 Messerli, Elspeth, 187 Metaphors We Live By (Lakoff & Johnson), 38 Mexico, 121–2, 217 Michaels, Flora S., 6 micro-businesses, 9, 173, 178 microeconomics, 132–4 microgrids, 187–8 Micronesia, 153 Microsoft, 231 middle class, 6, 46, 58 middle-income countries, 90, 164, 168, 173, 180, 226, 254 migration, 82, 89–90, 166, 195, 199, 236, 266, 286 Milanovic, Branko, 171 Mill, John Stuart, 33–4, 73, 97, 250, 251, 283, 284, 288 Millo, Yuval, 101 minimum wage, 82, 88, 176 Minsky, Hyman, 87, 146 Mises, Ludwig von, 66 mission zero, 217 mobile banking, 199–200 mobile phones, 222 Model T revolution, 277–8 Moldova, 199 Mombasa, Kenya, 185–6 Mona Lisa (da Vinci), 94 money creation, 87, 164, 177, 182–8, 205 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 Monoculture (Michaels), 6 Monopoly, 149 Mont Pelerin Society, 67, 93 Moral Consequences of Economic Growth, The (Friedman), 258 moral vacancy, 41 Morgan, Mary, 99 Morogoro, Tanzania, 121 Moyo, Dambisa, 258 Muirhead, Sam, 230, 231 MultiCapital Scorecard, 241 Murphy, David, 264 Murphy, Richard, 185 musical tastes, 110 Myriad Genetics, 196 N national basic income, 177 Native Americans, 115, 116, 282 natural capital, 7, 116, 269 Natural Economic Order, The (Gessel), 274 Nedbank, 216 negative externalities, 213 negative interest rates, 275–6 neoclassical economics, 134, 135 neoliberalism, 7, 62–3, 67–70, 81, 83, 84, 88, 93, 143, 170, 176 Nepal, 181, 199 Nestlé, 217 Netherlands, 211, 235, 224, 226, 238, 277 networks, 110–11, 117, 118, 123, 124–6, 174–6 neuroscience, 12–13 New Deal, 37 New Economics Foundation, 278, 283 New Year’s Day, 124 New York, United States, 9, 41, 55 Newlight Technologies, 224, 226, 293 Newton, Isaac, 13, 15–17, 32–3, 95, 97, 129, 131, 135–7, 142, 145, 162 Nicaragua, 196 Nigeria, 164 nitrogen, 49, 52, 212–13, 216, 218, 221, 226, 298 ‘no pain, no gain’, 163, 167, 173, 204, 209 Nobel Prize, 6–7, 43, 83, 101, 167 Norway, 281 nudging, 112, 113, 114, 123–6 O Obama, Barack, 41, 92 Oberlin, Ohio, 239, 240–41 Occupy movement, 40, 91 ocean acidification, 45, 46, 52, 155, 242, 298 Ohio, United States, 190, 239 Okun, Arthur, 37 onwards and upwards, 53 Open Building Institute, 196 Open Source Circular Economy (OSCE), 229–32 open systems, 74 open-source design, 158, 196–8, 265 open-source licensing, 204 Organisation for Economic Co-operation and Development (OECD), 38, 210, 255–6, 258 Origin of Species, The (Darwin), 14 Ormerod, Paul, 110, 111 Orr, David, 239 Ostrom, Elinor, 83, 84, 158, 160, 181–2 Ostry, Jonathan, 173 OSVehicle, 231 overseas development assistance (ODA), 198–200 ownership of wealth, 177–82 Oxfam, 9, 44 Oxford University, 1, 36 ozone layer, 9, 50, 115 P Pachamama, 54, 55 Pakistan, 124 Pareto, Vilfredo, 165–6, 175 Paris, France, 290 Park 20|20, Netherlands, 224, 226 Parker Brothers, 149 Patagonia, 56 patents, 195–6, 197, 204 patient capital, 235 Paypal, 192 Pearce, Joshua, 197, 203–4 peer-to-peer networks, 187, 192, 198, 203, 292 People’s QE, 184–5 Perseus, 244 Persia, 13 Peru, 2, 105–6 Phillips, Adam, 283 Phillips, William ‘Bill’, 64–6, 75, 142, 262 phosphorus, 49, 52, 212–13, 218, 298 Physiocrats, 73 Pickett, Kate, 171 pictures, 12–25 Piketty, Thomas, 169 Playfair, William, 16 Poincaré, Henri, 109, 127–8 Polanyi, Karl, 82, 272 political economy, 33–4, 42 political funding, 91–2, 171–2 political voice, 43, 45, 51–2, 77, 117 pollution, 29, 45, 52, 85, 143, 155, 206–17, 226, 238, 242, 254, 298 population, 5, 46, 57, 155, 199, 250, 252, 254 Portugal, 211 post-growth society, 250 poverty, 5, 9, 37, 41, 50, 88, 118, 148, 151 emotional, 283 and inequality, 164–5, 168–9, 178 and overseas development assistance (ODA), 198–200 and taxation, 277 power, 91–92 pre-analytic vision, 21–2 prescription medicines, 123 price-takers, 132 prices, 81, 118–23, 131, 160 Principles of Economics (Mankiw), 34 Principles of Economics (Marshall), 17, 98 Principles of Political Economy (Mill), 288 ProComposto, 226 Propaganda (Bernays), 107 public relations, 107, 281 public spending v. investment, 276 public–private patents, 195 Putnam, Robert, 76–7 Q quantitative easing (QE), 184–5 Quebec, 281 Quesnay, François, 16, 73 R Rabot, Ghent, 236 Rancière, Romain, 172 rating and review systems, 105 rational economic man, 94–103, 109, 111, 112, 126, 282 Reagan, Ronald, 67 reciprocity, 103–6, 117, 118, 123 reflexivity of markets, 144 reinforcing feedback loops, 138–41, 148, 250, 271 relative decoupling, 259 renewable energy biomass energy, 118, 221 and circular economy, 221, 224, 226, 235, 238–9, 274 and commons, 83, 85, 185, 187–8, 192, 203, 264 geothermal energy, 221 and green growth, 257, 260, 263, 264, 267 hydropower, 118, 260, 263 pricing, 118 solar energy, see solar energy wave energy, 221 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 rentier sector, 180, 183, 184 reregulation, 82, 87, 269 resource flows, 175 resource-intensive lifestyles, 46 Rethinking Economics, 289 Reynebeau, Guy, 237 Ricardo, David, 67, 68, 73, 89, 250 Richardson, Katherine, 53 Rifkin, Jeremy, 83, 264–5 Rise and Fall of the Great Powers, The (Kennedy), 279 risk, 112, 113–14 Robbins, Lionel, 34 Robinson, James, 86 Robinson, Joan, 142 robots, 191–5, 237, 258, 278 Rockefeller Foundation, 135 Rockford, Illinois, 179–80 Rockström, Johan, 48, 55 Roddick, Anita, 232–4 Rogoff, Kenneth, 271, 280 Roman Catholic Church, 15, 19 Rombo, Tanzania, 190 Rome, Ancient, 13, 48, 154 Romney, Mitt, 92 Roosevelt, Franklin Delano, 37 rooted membership, 190 Rostow, Walt, 248–50, 254, 257, 267–70, 284 Ruddick, Will, 185 rule of thumb, 113–14 Ruskin, John, 42, 223 Russia, 200 rust belt, 90, 239 S S curve, 251–6 Sainsbury’s, 56 Samuelson, Paul, 17–21, 24–5, 38, 62–7, 70, 74, 84, 91, 92, 93, 262, 290–91 Sandel, Michael, 41, 120–21 Sanergy, 226 sanitation, 5, 51, 59 Santa Fe, California, 213 Santinagar, West Bengal, 178 São Paolo, Brazil, 281 Sarkozy, Nicolas, 43 Saumweder, Philipp, 226 Scharmer, Otto, 115 Scholes, Myron, 100–101 Schumacher, Ernst Friedrich, 42, 142 Schumpeter, Joseph, 21 Schwartz, Shalom, 107–9 Schwarzenegger, Arnold, 163, 167, 204 ‘Science and Complexity’ (Weaver), 136 Scotland, 57 Seaman, David, 187 Seattle, Washington, 217 second machine age, 258 Second World War (1939–45), 18, 37, 70, 170 secular stagnation, 256 self-interest, 28, 68, 96–7, 99–100, 102–3 Selfish Society, The (Gerhardt), 283 Sen, Amartya, 43 Shakespeare, William, 61–3, 67, 93 shale gas, 264, 269 Shang Dynasty, 48 shareholders, 82, 88, 189, 191, 227, 234, 273, 292 sharing economy, 264 Sheraton Hotel, Boston, 3 Siegen, Germany, 290 Silicon Valley, 231 Simon, Julian, 70 Sinclair, Upton, 255 Sismondi, Jean, 42 slavery, 33, 77, 161 Slovenia, 177 Small Is Beautiful (Schumacher), 42 smart phones, 85 Smith, Adam, 33, 57, 67, 68, 73, 78–9, 81, 96–7, 103–4, 128, 133, 160, 181, 250 social capital, 76–7, 122, 125, 172 social contract, 120, 125 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 social media, 83, 281 Social Progress Index, 280 social pyramid, 166 society, 76–7 solar energy, 59, 75, 111, 118, 187–8, 190 circular economy, 221, 222, 223, 224, 226–7, 239 commons, 203 zero-energy buildings, 217 zero-marginal-cost revolution, 84 Solow, Robert, 135, 150, 262–3 Soros, George, 144 South Africa, 56, 177, 214, 216 South Korea, 90, 168 South Sea Bubble (1720), 145 Soviet Union (1922–91), 37, 67, 161, 279 Spain, 211, 238, 256 Spirit Level, The (Wilkinson & Pickett), 171 Sraffa, Piero, 148 St Gallen, Switzerland, 186 Stages of Economic Growth, The (Rostow), 248–50, 254 stakeholder finance, 190 Standish, Russell, 147 state, 28, 33, 69–70, 78, 82, 160, 176, 180, 182–4, 188 and commons, 85, 93, 197, 237 and market, 84–6, 200, 281 partner state, 197, 237–9 and robots, 195 stationary state, 250 Steffen, Will, 46, 48 Sterman, John, 66, 143, 152–4 Steuart, James, 33 Stiglitz, Joseph, 43, 111, 196 stocks and flows, 138–41, 143, 144, 152 sub-prime mortgages, 141 Success to the Successful, 148, 149, 151, 166 Sugarscape, 150–51 Summers, Larry, 256 Sumner, Andy, 165 Sundrop Farms, 224–6 Sunstein, Cass, 112 supply and demand, 28, 132–6, 143, 253 supply chains, 10 Sweden, 6, 255, 275, 281 swishing, 264 Switzerland, 42, 66, 80, 131, 186–7, 275 T Tableau économique (Quesnay), 16 tabula rasa, 20, 25, 63, 291 takarangi, 54 Tanzania, 121, 190, 202 tar sands, 264, 269 taxation, 78, 111, 165, 170, 176, 177, 237–8, 276–9 annual wealth tax, 200 environment, 213–14, 215 global carbon tax, 201 global financial transactions tax, 201, 235 land-value tax, 73, 149, 180 non-renewable resources, 193, 237–8, 278–9 People’s QE, 185 tax relief v. tax justice, 23, 276–7 TED (Technology, Entertainment, Design), 202, 258 Tempest, The (Shakespeare), 61, 63, 93 Texas, United States, 120 Thailand, 90, 200 Thaler, Richard, 112 Thatcher, Margaret, 67, 69, 76 Theory of Moral Sentiments (Smith), 96 Thompson, Edward Palmer, 180 3D printing, 83–4, 192, 198, 231, 264 thriving-in-balance, 54–7, 62 tiered pricing, 213–14 Tigray, Ethiopia, 226 time banking, 186 Titmuss, Richard, 118–19 Toffler, Alvin, 12, 80 Togo, 231, 292 Torekes, 236–7 Torras, Mariano, 209 Torvalds, Linus, 231 trade, 62, 68–9, 70, 89–90 trade unions, 82, 176, 189 trademarks, 195, 204 Transatlantic Trade and Investment Partnership (TTIP), 92 transport, 59 trickle-down economics, 111, 170 Triodos, 235 Turkey, 200 Tversky, Amos, 111 Twain, Mark, 178–9 U Uganda, 118, 125 Ulanowicz, Robert, 175 Ultimatum Game, 105, 117 unemployment, 36, 37, 276, 277–9 United Kingdom Big Bang (1986), 87 blood donation, 118 carbon dioxide emissions, 260 free trade, 90 global material footprints, 211 money creation, 182 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 New Economics Foundation, 278, 283 poverty, 165, 166 prescription medicines, 123 wages, 188 United Nations, 55, 198, 204, 255, 258, 279 G77 bloc, 55 Human Development Index, 9, 279 Sustainable Development Goals, 24, 45 United States American Economic Association meeting (2015), 3 blood donation, 118 carbon dioxide emissions, 260 Congress, 36 Council of Economic Advisers, 6, 37 Earning by Learning, 120 Econ 101 course, 8, 77 Exxon Valdez oil spill (1989), 9 Federal Reserve, 87, 145, 146, 271, 282 free trade, 90 Glass–Steagall Act (1933), 87 greenhouse gas emissions, 153 global material footprint, 211 gross national product (GNP), 36–40 inequality, 170, 171 land-value tax, 73, 149, 180 political funding, 91–2, 171 poverty, 165, 166 productivity and employment, 193 rust belt, 90, 239 Transatlantic Trade and Investment Partnership (TTIP), 92 wages, 188 universal basic income, 200 University of Berkeley, 116 University of Denver, 160 urbanisation, 58–9 utility, 35, 98, 133 V values, 6, 23, 34, 35, 42, 117, 118, 121, 123–6 altruism, 100, 104 anthropocentric, 115 extrinsic, 115 fluid, 28, 102, 106–9 and networks, 110–11, 117, 118, 123, 124–6 and nudging, 112, 113, 114, 123–6 and pricing, 81, 120–23 Veblen, Thorstein, 82, 109, 111, 142 Venice, 195 verbal framing, 23 Verhulst, Pierre, 252 Victor, Peter, 270 Viner, Jacob, 34 virtuous cycles, 138, 148 visual framing, 23 Vitruvian Man, 13–14 Volkswagen, 215–16 W Wacharia, John, 186 Wall Street, 149, 234, 273 Wallich, Henry, 282 Walras, Léon, 131, 132, 133–4, 137 Ward, Barbara, 53 Warr, Benjamin, 263 water, 5, 9, 45, 46, 51, 54, 59, 79, 213–14 wave energy, 221 Ways of Seeing (Berger), 12, 281 Wealth of Nations, The (Smith), 74, 78, 96, 104 wealth ownership, 177–82 Weaver, Warren, 135–6 weightless economy, 261–2 WEIRD (Western, educated, industrialised, rich, democratic), 103–5, 110, 112, 115, 117, 282 West Bengal, India, 124, 178 West, Darrell, 171–2 wetlands, 7 whale hunting, 106 Wiedmann, Tommy, 210 Wikipedia, 82, 223 Wilkinson, Richard, 171 win–win trade, 62, 68, 89 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 Wizard of Oz, The, 241 Woelab, 231, 293 Wolf, Martin, 183, 266 women’s rights, 33, 57, 107, 160, 201 and core economy, 69, 79–81 education, 57, 124, 178, 198 and land ownership, 178 see also gender equality workers’ rights, 88, 91, 269 World 3 model, 154–5 World Bank, 6, 41, 119, 164, 168, 171, 206, 255, 258 World No Tobacco Day, 124 World Trade Organization, 6, 89 worldview, 22, 54, 115 X xenophobia, 266, 277, 286 Xenophon, 4, 32, 56–7, 160 Y Yandle, Bruce, 208 Yang, Yuan, 1–3, 289–90 yin yang, 54 Yousafzai, Malala, 124 YouTube, 192 Yunnan, China, 56 Z Zambia, 10 Zanzibar, 9 Zara, 276 Zeitvorsoge, 186–7 zero environmental impact, 217–18, 238, 241 zero-hour contracts, 88 zero-humans-required production, 192 zero-interest loans, 183 zero-marginal-cost revolution, 84, 191, 264 zero-waste manufacturing, 227 Zinn, Howard, 77 PICTURE ACKNOWLEDGEMENTS Illustrations are reproduced by kind permission of: archive.org


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bernie Madoff, break the buck, centre right, collapse of Lehman Brothers, collateralized debt obligation, commoditize, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, light touch regulation, Long Term Capital Management, low earth orbit, mega-rich, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, too big to fail, trickle-down economics, value at risk, yield curve

It’s a shame the Fed doesn’t possess more Richard Fishers. Since the departure of Paul Volcker in 1987, the Federal Reserve has the unwelcome record of having gotten every single major decision wrong. Every time there has been a hint of a crisis, the Fed has acted like some senior court advisor to the Emperor of Planet Ponzi. The 1987 stock market crash, my liege? I’ll pump in liquidity. Asian financial crisis, sire? I’ll flood the place with dollars. A major hedge fund, LTCM, has gone bust, your majesty? I’ll organize a bailout. Dotcom bubble? Let’s watch it inflate. Even the September 11 terrorist attacks‌—‌surely a matter for the US security apparatus rather than its monetary authority‌—‌were taken as an excuse for monetary loosening. Little wonder that inflation has been racing away. Little wonder that the Washington establishment has been ever more anxious to manipulate the data.

The poster-child for irresponsible risk-taking was Long-Term Capital Management, which failed in 1998 under a senior management too impressed by its own academic excellence. Unfortunately, the real world is no respecter of academic reputations. The firm took on too much debt and bet the proceeds with too little thought for what might happen if things didn’t turn out as expected. When the Asian financial crisis was followed by a Russian one, LTCM found that its ‘safe’ bets had turned sour on a colossal scale. Given the scale of leverage at the firm‌—‌its capital represented just 3% of assets‌—‌there was no return from that misjudgment. A bailout, organized by the New York Fed, saw the firm’s creditors take control. The $1.9 billion which the firm’s principals had invested in it was wiped out.6 The story contains another moral.


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

"Robert Solow", Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, British Empire, business cycle, buy and hold, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, inflation targeting, interest rate swap, inventory management, Isaac Newton, John Meriwether, margin call, market bubble, McMansion, Menlo Park, money market fund, mortgage debt, Myron Scholes, new economy, Norman Mailer, Northern Rock, oil shock, Paul Samuelson, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, rolodex, Ronald Reagan, Sand Hill Road, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, stocks for the long run, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War, zero-sum game

.: Princeton University Press, 2001): Thomas Laubach and Adam S. Posen. 34 Kevin Warsh, “Hedge Funds and Systemic Risk: Perspectives on the President’s Working Group on Financial Markets,” Hearing of the House Financial Services Committee, July 11, 2007. 35 Ibid. 36 Randall S. Kroszner, “Analyzing and Assessing Banking Crises,” speech at the Federal Reserve Bank of San Francisco Conference on the Asian Financial Crisis Revisited, San Francisco (via videoconference), September 6, 2007. 37The Fed followed with a surprising announcement. It would “continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets.” This was an extraordinary change on the part of the Fed. Elsewhere in Washington, Secretary of the Treasury Hank Paulson told Fortune in July 2007: “This is far and away the strongest global economy I’ve seen in my business lifetime.”39 In August 2007, Paulson said that the subprime mortgage fallout remained “largely contained.”40 (By February 2008, Paulson admitted: “In terms of subprime and the resets, the worst isn’t over, the worst is just beginning.

Shaw & Company, 323 DeConcini, Dennis, 85 Deflation, 287–288, 359 de la Renta, Françoise, 75 de la Renta, Oscar, 75 Dell Computer Corporation, 130, 207, 216 Depression, deflation and, 285–286 Deregulation of banking, 99–100, 102 Derivatives, 111, 190 in 2007, 303 Congressional hearings on, 131 credit default swaps, 314 and fed funds rate, 130 Greenspan’s understanding of, 189–190, 343 held by commercial banks, 312 in late 1990s, 164–165 and LTCM failure, 183 mortgage securities, 273 and recession of early 1990s, 124–125 risk of, 131 synthetic CDOs, 313 Deutsche Bank, 300, 345 Dillon, Douglas, 26, 77 Dingell, John, 115 Discount rate, 1987 stock market crash and, 112–113 DJIA (see Dow Jones Industrial Average) Dollar(s): in 1980s, 72 and Asian financial crisis, 172–173 and gold standard, 22, 38, 41 and positive inflation, 288 recycled into Treasury securities, 309 shorting, 316–317 value of, 1–2, 5 as world’s reserve currency, 49 Dow 36,000 (James K. Glassman and Kevin A. Hassett), 198 Dow Jones Industrial Average (DJIA), 19, 29, 72 and 1987 stock market crash, 110–112 in 1999, 198 in 2000, 219 in 2009, 257 in mid–1970s, 43 Drexel Burnham, 80, 116, 117 Drexel Burnham Lambert, 117 Dunbar, Nicholas, 186 E Earnings growth: analysts’ predictions of, 199–200 stock prices vs., 175, 177–178, 194, 216 Eccles, Marriner, 20 Eckstein, Otto, 42, 60 Econometrics, 17, 40 Economic forecasts (in general), 10, 43 in 1995, 133 by Greenspan, 3, 6, 13, 16–17, 25, 43, 54–55, 97–98, 119 (See also Stock market analysts) Economic growth: and recovery from 1990s recession, 127 and types of inflation, 166 Economic power, struggle for, 364 Economic stimulation, through monetary policy, 121 Economics, 11–12, 96 “New Economics,” 26–27, 39, 121, 350 supply-side, 68–69 Economist, 195, 286, 299 Education, verbal inflation in, 63–64 Efficient market hypothesis, 26, 81, 81n.37, 112, 187, 318 Ely, Bert, 138 Employment Act (1946), 23 Enron Corporation, 183, 247–248, 284 Ertergun, Mica, 75 Ertegun, Ahmet, 75 E*TRADE, 212 Eveillard, Jean-Marie, 140 Excite@Home, 232 Exxon, 112 F Faber, Marc, 38–39 Fannie Mae Corporation, 266–272, 275, 279, 309, 310 Fatbrain.com, 174 FDIC (Federal Deposit and Insurance Commission), 78–79, 294 Fed funds rate, 368 and 1987 stock market crash, 113 in 1993, 162 in 1994, 128–130 in 1995, 136–137, 139–141, 160, 162 in 1996, 160 in 1997, 161, 162 in 1998, 187–189, 192 in 1999, 208 in 2000, 225 in 2001, 238, 239, 245, 246, 249, 258, 259 in 2002, 258–260 in 2003, 287 in 2004, 293 in 2007 and 2008, 338 and global crisis, 338 over the past two decades, 359 and recession of early 1990s, 122, 123, 125 Federal budget deficit, 77, 84, 113, 126 Federal Deposit and Insurance Commission (FDIC), 78–79, 294 Federal Home Loan Bank (FHLB), 86–87, 91 Federal Housing Authority (FHA), 272–273 Federal (Reserve) Open Market Committee (FOMC), 40, 344 and 1990s stock market bubble, 161–162, 170–172, 174–178, 192–194, 196, 200, 205–206, 212, 225, 285 1995 decisions of, 136–143 and 1998 rate cuts, 187–189 and 2000–2001 economic slowdown, 231–234, 238–245, 249 composition of, 367 and consumer debt‘, 251–257 Greenspan’s control of, 137 and LTCM failure, 184–186 and margin requirements, 220 and productivity claims, 157–160 rate changes by, 368 and recession of early 1990s, 122, 123, 128–130 and subprime market of 1990s, 166 Y2K discussions in, 210–211 Federal Reserve Act (1913), 367 Federal Reserve Board: and 1987 stock market crash, 112 Burns as chairman of, 13, 40, 66n.25 chairmen of, 362 and changes in CPI, 50 diminished influence of, 104 dissolution of, 359 Eccles, as chairman of, 20 economic growth mandate for, 23–24 and “the Great Impoverishment,” 358–359 Greenspan as chairman of, 104–107 Greenspan’s control of, 137–139 Greenspan’s early views of, 14, 28, 66n.25 Greenspan’s nomination hearing for, 95–102 and inflation of 1970s, 48–49 and inflation of late 1960s, 39–40 interest rates set by, 66 (See also Fed funds rate) and margin requirements (stock market), 104, 105, 161, 175, 219–220, 223, 286 Martin, as chairman of, 20, 40 McCabe, as chairman of, 20n.5 Miller, as chairman of, 66n.25 at mid-century, 20–22 and monetary base, 134, 216, 248 and money supply, 4, 351, 352, 362 Patman’s threats against, 65 power and prestige of, 115–116 and recession of early 1990s, 122–126, 128–132 Volcker as chairman of, 66, 82, 95 and Wall street collapse of 2008, 345 Federal Reserve System, 224, 367–368 Feldstein, Martin, 239 FHA (Federal Housing Authority), 272–273 FHA mortgages, 273, 277 FHLB (see Federal Home Loan Bank) Fidelity Investments, 130 15 Central Park West, 356–357 Financial activities: in the 1980s, 71–72 and commercial bank bailouts, 78–79 during conglomerate years, 33–36 innovation in, 124 junk bonds, 80–81 leveraged buyouts, 80 profits from, 3 Financial concentration, in banking industry, 100–101 Financial derivatives, description of, 109–112, 130–131, 276, 313–314 Financial institutions, Fed bailouts of, 115 The Financial Services Modernization Act (see GrammLeach-Bliley Act (1999)) Financial system: in the 1980s, 7 1994 deleveraging of, 128–129 1995 inflation of, 136–137 Proxmire’s fears for, 6 Financial Times, 192, 217, 242, 244, 313, 322, 328, 332, 345, 347 First Alliance Corporation, 274 Fixed-rate mortgages, 292 Fleet Financial, 130 FLEX-ARM mortgages, 289 FOMC (see Federal (Reserve) Open Market Committee) Forbes, Malcolm, 74 Ford, Gerald, 5, 47, 52–54, 69, 70 Ford Motor Company, 51, 246 Foreign buying: dollar supported by, 308–310 of mortgagebacked securities, 272 Fortune magazine, 3, 4, 13, 23, 24, 29, 34, 37, 51, 144, 191, 334, 349, 351 Frank, Barney, 268 Freddie Mac Corporation, 266–269, 272, 279, 309, 310, 347n.48 Freemarket economics, 15 Friedman, Milton, 21, 37, 42, 68, 288–289, 299, 354 Fritts, Steve, 294 FTSE (Financial Times Stock Exchange), 246 Fuld, Richard “Dick,” 274, 354 Futures Industry Association, 189–190 G Galbraith, James K., 327 Galbraith, John Kenneth, 66n.25, 361 Garment, Leonard, 31–32 Gates Commission, 36, 37 GDP (see Gross domestic product) Geithner, Timothy, 79, 277, 361 General Electric Corporation, 183, 364–365, 306 General Motors Corporation, 51, 112, 123, 127, 246 General Motors Acceptance Corporation, 306 GeoCities, 174 George Washington High School, 10 German central bank (Bundesbank), 49, 308–309, 351 Getz, Stan, 10 Glassman, James K., 198, 207, 243, 284–285 Glass-Steagall Act (1933), 101, 102, 275–276 Glenn, John, 85 Global Crossing, 248 “Global savings glut,” 310 TheGlobe.com, 191–192 Goebbels, Joseph, 218n.11 “Gold and Economic Freedom” (Alan Greenspan), 28–29, 45–46, 47, 115, 205, 286, 352, 362 Gold prices, 41, 66 Gold standard, 1, 5, 21–22, 27, 28–29, 38, 41, 47, 62, 115, 124, 305–306, 362–363, “gold exchange standard” (see also Bretton Woods), 22, 38, 41, 47, 49, 305–306, 362n.5 Goldberger, Paul, 357 Goldman Sachs, ix, 96, 174, 232, 272, 276, 283, 310, 321, 322, 347n.48, 354, 356 Gone with the Wind (Margaret Mitchell), 315 González, Henry, 115 Gordon, Robert J., 230 Gore, Al, 323 Government agency securities, 309–310 Gramlich, Edward “‘Ned,” 178, 188, 259–260 Gramm, Phil, 163, 217, 245, 322 GrammLeach-Bliley Act (1999), 275–277 Grant, Cary, 47, 57 Grant, James, 118, 125, 195, 314 Gray, Edwin, 91–93 Great Depression: Greenspan’s analysis of, 28–29, 205 and money supply, 352 “The Great Impoverishment,” 358–359 Greenspan, Alan: and 1987 stock market crash, 103–104, 112–114 and 1990s stock market bubble, 160–164, 170–178, 191–210, 219–225, 285–287 and 1990s subprime market, 164–166 and 1995 funds rate cuts, 139–141 and 1998 rate cuts, 187–189 and 2000–2001 economic slowdown, 224–225, 237–249 2007–2008 speaking tour of, 341–344 and analysts, consistent-bias theorem, 197, 199, 201 and analysts, upward bias of forecasts, 202, 203, 209, 232, 284 and (Wall Street) analysts, 29, 175, 177–178, 193, 194, 195, 196, 198, 199, 200, 201 n.35, 203, 204, 209, 218, 231n.16, 232, 233, 235, 239, 243, 244, 284 and asset inflation (vis-à-vis price inflation), 4, 16, 25, 28, 65, 106, 170, 171, 175, 176–177 awarded, American Hero of 2007, 329 awarded, Department of Defense Medal for Distinguished Public Service, 297 awarded, Enron Prize for Distinguished Service, 248, 284, 297 awarded, Knight Commander of the British Empire, 297 awarded, Order national de la Legion d’honneur, 297 awarded, Presidential Medal of Freedom 297 after retirement, 301–304 Americans’ feelings about, 104, 144, 164, 195, 203, 245, 243, 337–338 on asset inflation, 359 autobiography of, 154, 187, 303, 337–341, and bubbles, states he (and Federal Reserve) has and can pop bubbles, 128–129, 139–140, 161 and bubbles, states Federal Reserve cannot pop bubbles, 192–195, 203–205, 225, 228, 261, 285–286 on bubbles, 192, 203–204, 285, 349–350 campaign for Fed chairmanship, 82–83 debt, refers to as “wealth,” 2, 99, 107, 258, 260, 290 during Carter presidency, 60–67 character and personality of, 3, 14, 15, 27, 193, 211–213 and consumer debt, 254, 258, 261 and corporate management earnings bias, 235 control of FOMC/Federal Reserve by, 137–139 on Council of Economic Advisers, 5, 47, 50, 52–57 on credit default swaps, 315–316 and derivatives, 102–105, 110, 113, 128, 130–131, 182, 189–190, 206, 276, 312, 314, 343, 346 dissolution of Townsend Greenspan, 102 early life of, 2, 9–10 economic forecasts by, 3, 6, 13, 16–17, 25, 43, 54–55, 97–98, 119 education of, 3, 10–13, 59–60 and presidential election of 1980, 67–70 as Fed chairman, 6–7, 104–107 Fed nomination hearing for, 95–102 and financial institution bailouts, 115 “Gold and Economic Freedom,” 28–29, 205, 286, 352, (see additional pages under “Gold and Economic Freedom”) on gold standard, 362–363 and housing market, 254, 259–263 image presented by, 2, 52–53, 60, 61 infamous speeches of, 284–286, 289–299 on inflation, 4, 5, 45–46, 48 on investment, 350–352 legacy of, 365 and Lincoln Savings and Loan, 6–7, 85–93 on liquidity boom, 331 and LTCM failure, 181–187, 189 marriages of, 13, 57 and Mexico bailout, 135–136 Greenspan, Alan: (Cont.)


pages: 540 words: 119,731

Samsung Rising: The Inside Story of the South Korean Giant That Set Out to Beat Apple and Conquer Tech by Geoffrey Cain

Apple's 1984 Super Bowl advert, Asian financial crisis, autonomous vehicles, Berlin Wall, business intelligence, cloud computing, corporate governance, creative destruction, don't be evil, Donald Trump, double helix, Dynabook, Elon Musk, fear of failure, Internet of things, John Markoff, Jony Ive, Kickstarter, Mahatma Gandhi, Mark Zuckerberg, megacity, Mikhail Gorbachev, Nelson Mandela, patent troll, rolodex, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, Superbowl ad, Tim Cook: Apple, too big to fail, WikiLeaks, wikimedia commons

One by one, currencies were falling off a cliff, from Thailand to Indonesia, wiping out the savings of farmers and workers and later prompting Indonesian students to rise up and topple their longtime dictator, Suharto. Harried American officials suspended trading on the New York Stock Exchange, reacting to its worst decline ever in a single day until then, as the contagion spread to Japan, Brazil, and Russia. Despite the “Asian financial crisis,” as it was called, Chairman Lee stubbornly insisted that Samsung become an automaker. “I’ve studied the automobile industry more than anyone else….There are concerns that we made a mistake in starting the automobile business, but I am confident that Samsung Motors, which will be launched in March 1998, will put these misunderstandings and fears to bed.” The Samsung Group had been loading up on debt, as a result of this and other aggressive expansions.

Having slashed Samsung’s bureaucracy, the chairman’s empire was emerging nimbler, ready to focus on the businesses that mattered: mobile phones, televisions, LCD displays, lithium ion batteries for cellphones, and NAND flash memories—Samsung’s last investment, which later made advances in the iPod possible. “Think about it this way,” the chairman’s aide Hwang Young-key told me. “The Frankfurt Declaration, in 1993, was when the chairman laid down his vision. But the Asian financial crisis was his chance to execute it.” My Boss the Shit Kicker THREE FRANTIC SOUTH KOREAN executives showed up at Pete Skarzynski’s office in Richardson, Texas, in January 1998. “What do you need to double your plan for the year?” one asked. “We want you to grow six times.” A gregarious and talkative veteran of AT&T and Lucent Technologies who once did a stint in London debriefing teams of CIA officers on the telecommunications industry, Pete had joined Samsung a year earlier as senior vice president for sales and marketing at Samsung Telecommunications America.


pages: 316 words: 117,228

The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bernie Madoff, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Donald Trump, double helix, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Hernando de Soto, income inequality, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, transaction costs, Wolfgang Streeck

At first, everything went according to plan; in its first three years of operation, LTCM returned between 19 percent and 42 percent to its investors; and by late 1997 it had generated $7 billion in equity. After the peak came the fall; by early 1998, investors had taken out $2.7 billion and, in the fall of 1998, LTCM faced imminent collapse. Something had happened that was not supposed to: The East Asian Financial Crisis erupted in the summer of 1997 and cast a spell over emerging market debt; and in August 1998, Russia defaulted on its sovereign debt.68 In response, the price for debt of all emerging markets tumbled almost simultaneously as if orchestrated and the yields between US treasuries and emerging market debt widened rather than narrowed, as the model had predicted. In theory, LTCM should have been protected even against this calamity, because it had invested in emerging markets all over the world, assuming that they would not all move in the same direction, and yet, they did.

., 169 Bank for International Settlement (BIS), 149–50 bankruptcy, ix–x; capital rule and, 207, 209, 211, 227; cloning legal persons and, 48– 49, 51, 55, 62–63, 73, 75; code masters and, 160, 168, 269n58; coding land and, 27; derivatives and, 144–52; empire of law and, 3, 13–14, 16, 21; global code and, 137, 144–53, 262n42; ISDA and, 147–51; law and, 3, 13, 16, 21, 73, 78, 87, 107, 137, 144–52, 160, 168, 209, 239n55, 262n42, 269n58; Lehman Brothers and, 48–58, 61–65, 70–75, 80, 85, 96, 101, 103–4, 106, 135, 149, 175, 190, 245n4, 246n6, 248n33; minting debt and, 78–80, 83–84, 87, 107, 255n71; safe harbors and, 63, 145, 148–50, 152, 207, 211, 227, 262n44, 263n49; United States and, 55, 148, 239n55, 255n71, 262n44 Banque de France, 104 Barclays, 203 barristers, 169–70 Bayerische Landesbank, 85 bearer assets, 198 Bear Stearns, 64, 83 Belize: British colonialism and, 26–27; coding land and, 23–29, 230, 241n7, 261n21; Constitution of, 25, 28, 241n7; courts and, 23–24, 27–29, 126, 230, 261n21; global code and, 261n21; independence of, 26– 27; Maya people and, 23–29, 230, 261n21; mining and, 25–27, 29, 37; Privy Council and, 27–29, 126 beneficiaries, 43–45, 53, 81, 115, 164, 181–82 big data, 126–31 bilateral investment treaties (BITs), 140, 155, 264n67 bilateral trade, 122, 132, 136, 140, 154–56, 256n23 bills of exchange, 57, 78, 88–92, 108, 198–99, 252n31 Bitcoin, 197–202 Black Act, 243n42 blacklisting, 73, 225 Blackstone, William, 46 blockchain, 184, 187–90, 192, 195, 197–98, 203–4, 270n2 blue-chip corporations, 83, 175–76, 269n55 BNP Paribas, 85 Bonaparte, Louis, 104 Bonaparte, Napoleon, 133, 242n27 bourgeoisie, 10, 208 Brandeis, Louis, 109 Braudel, Fernand, 9 Breast Cancer Susceptibility Gene (BRCA), 111–14, 116, 127, 130, 214 Brexit, 179 bright-line rule, 224–25 Bristol-Myers, 124 Bruges, 57–58 bubbles, 59, 247n26 bugs, 185, 188, 196 Campbell, Lord, 158, 170 Canada: coding land and, 29; Comprehensive Economic and Trade Agreement (CETA) and, 156–57, 264n69; Eli Lilly and, 138–43, 152–55, 261n17, 261n19; Federal Court of, 139; global code and, 138–43, 156–57, 261n17, 261n18, 263n57, 264n69; intellectual property and, 138–43, 152–55, 261n17, 261n19; NAFTA and, 124, 138, 138–42, 155, 261n20; USMCA and, 139, 261n20 Canadian Patent Act, 140, 261n23 Cancer Genetics Network Project, 113 capital: attributes of, 3–4, 11–15, 21, 39, 78, 161, 183, 205, 211–12, 233; coding land and, 24, 26, 29, 34–45; Commons on, 12; convertibility and, 3–4, 11, 13, 15, 19, 77–78, 183, 193, 199, 211, 229, 233; corporations and, 47–48, 52–53, 56–57, 64–67, 70, 73–76; digital code and, 183–86, 189, 195–200, 203; durability and, 3, 211, 229, 233 (see also durability); economic growth and, 2; empire of law and, 2–22; enigma of, 9–13; global code and, 132–38, 143, 149, 152–57; intangible, 8, 115–18; intellectual property and, 108, 112–20, 126, 130; labor and, 2, 9–11, 116, 160, 169, 217, 237n37; legal attributes and, 13–15; legal codes and, 2 (see also legal code); Levy on, 12; Marxism and, 9–11; minting debt and, 77–79, 83, 92, 100–102, 107; Piketty on, 4–5; priority rights and, 206–7, 215 (see also priority rights); in service of, 152–57; Smith on, 6, 46, 134, 220, 240n68; state power and, 15–19 (see indeX also state power); universality and, 3–4, 11, 13–14, 19, 21, 54, 211, 229, 233; venture, 112; wealth and, 12–13 (see also wealth) capital gains, 235n9 Capital in the Twenty-First Century (Piketty), 4–5 capitalism: capital rule and, 205–9, 212, 217, 222, 224, 228–29, 234; cloning legal persons and, 47; code masters and, 168, 179, 182, 266n24; coding land and, 26; digital code and, 199–200; empire of law and, 2, 4, 8, 10–14, 17–21, 238n44; free markets and, 4, 19, 106–7, 128–29; global code and, 132–33; historiography of, 10; nature’s code and, 112; substance of, 238n44 Capitalism without Capital (Haskel and Westlake), 115–16 capital rule: arbitration and, 215, 217, 223, 226; autonomy and, 209, 212–13, 215, 218–20, 232, 272n29; bankruptcy and, 207, 209, 211, 227; bright-line rule and, 224–25; capitalism and, 205–9, 212, 217, 222, 224, 228–29, 234; coercive power and, 220, 232–33; collateral and, 224; contracts and, 209–18, 222–27, 231, 276n37; convertibility and, 211, 226–27, 229, 233; corporate law and, 209–11, 224; costly externalities and, 226; courts and, 206–7, 211–18, 221–24, 227, 230; creditors and, 206–7, 211, 216; debt and, 206–7, 209, 219, 228; derivatives and, 211, 227; durability and, 211, 229, 233; elitism and, 218; enclosure and, 229; enforcement and, 210, 220, 223; enigma of capital and, 9–13; feudalism and, 5–6, 205, 211, 223, 276n24; firstmover advantage and, 214–15; global code and, 152–57; globalization and, 219–23, 277n51; governing the code and, 222–29; growth and, 220; harmonization and, 227; inequality and, 223; intangible capital and, 212, 216; International Center for Settlement of Investment Disputes (ICSID) and, 154–55; investment and, 225–26; knowledge and, 229; law’s inherent incompleteness and, 210–13; lawyers and, 206–16, 221, 224, 227–29, 234; legal attributes and, 13–15; legal code and, 205, 211–13, 216, 218–20, 225, 227, 230; legal structures and, 225; Marxism and, 207–8, 216, 234; mortgages and, 206–7, 211; New York Arbitration 281 Convention and, 154; partnerships and, 228; patents and, 211–15, 230; priority rights and, 206–7, 215; private code and, 20, 209–19; private law and, 209–15; property and, 206, 209, 212–20, 222, 224, 230, 276n24; public power and, 216–19; reform and, 218, 231; regulation and, 211, 213, 216–17, 221, 224–27, 274n1; resurrecting limitations and, 227; risk and, 207, 226, 229; roll-back strategies for, 224–29; roving, 219–21; safe harbors and, 63, 145, 148–50, 152, 207, 211, 227, 262n44, 263n49; shareholders and, 213, 229; slavery and, 205; sovereignty and, 234, 277n51; state power and, 15–18, 205, 208–9, 212, 216, 221–23; treaty law and, 225; United Kingdom and, 228, 234; United States and, 219, 227–28, 234; universality and, 211, 229, 233; veils and, 8, 13, 48, 207, 246n16; wealth and, 205–9, 215, 217, 221–22, 224, 230; Weber and, 206; without law, 229–34 Cayman Islands, 50, 71, 99, 135, 249n53 central banks: code masters and, 167; empire of law and, 6; global code and, 151; minting debt and, 77–78, 89, 102–6, 255n72 Chase, 64, 83–85, 248n32, 255n70 Chicago Mercantile Exchange, 200 China, 178 China Investment Corporation (CIC), 85 Chrysler, 247n17 Citigroup, 60, 248n32; foreign help for, 84; Kleros clones and, 100; NC2 and, 79–87, 94, 98–100, 106–7, 135, 251n4, 251n19 Citigroup Mortgage Realty Corporation (CMRC), 80–85 City Group Global Markets (CGGM), 85 civil law, 42–43, 133, 168–73, 178, 249n48 civil rights, 232 claims to future pay, 78, 84, 88 cloning legal persons: bankruptcy and, 48–49, 51, 55, 62–63, 73, 75; capitalism and, 47; collateral and, 51; contracts and, 47–48, 52–55, 58–60, 64–65, 68–69, 247n24; corporate law and, 47–56, 60– 62, 65, 67–72, 74, 76, 246n14, 246n16, 248n30; courts and, 58, 68–70, 73–76, 247n24; creditors and, 47–48, 51, 54–67, 71, 73, 75, 246n16, 247n24; debt and, 47–53, 56, 59–60, 67, 73–74; durability and, 47, 54–55; elitism and, 66, 75; immortality and, 50, 55, 65–67; 282 indeX cloning legal persons (continued) incorporation theory and, 69–70, 74, 136, 246n10; investment and, 48–53, 60–65, 67, 72, 75, 248n39; Kleros and, 99; labor and, 49; lawyers and, 48, 52, 70; legal entities and, 51–53, 55, 57, 65, 69–71; Lehman Brothers and, 48–58, 61–65, 70– 75, 80, 85, 96, 101, 103–4, 106, 135, 149, 175, 190, 245n4, 246n6, 248n33, 250n59; limited liability and, 60–61; loss shifting and, 55, 59–64, 67; monopolies and, 66; NC2 and, 79–87, 94, 98–100, 106–7, 135, 251n4, 251n19; priority rights and, 55–56, 63; private law and, 68; property and, 47, 68; regulation and, 249n46; risk and, 48, 54–56, 59, 63–66, 70, 74–75; Roman law and, 51; slavery and, 49, 54, 57, 60; universality and, 54; wealth and, 48, 56, 59, 64, 66–67 Coase, Ronald, 45, 192 code masters: arbitration and, 161–62, 178, 180–82; assets and, 158–61, 164–69, 174–75, 177, 180–82; bankruptcy and, 160, 168, 269n58; capitalism and, 168, 179, 182, 266n24; central banks and, 167; coercive power and, 177, 180; collateral and, 160, 177; common law and, 168–73, 176–78; contracts and, 159–60, 172, 178, 181–82; corporate law and, 159–60, 163–64, 168, 174–79, 269n60; courts and, 159–64, 168–73, 177, 180–82; creditors and, 158–59, 168; debt and, 158, 167, 174; durability and, 159, 161, 182; elitism and, 158, 162, 164, 175–77; enforcement and, 168, 180; globalization and, 176–79, 270n71; growth and, 166, 175, 267n26, 270n71; inequality and, 167; investment and, 160–61, 165, 167–68; labor and, 160, 169; legal code and, 158–59, 167, 177, 180; legal origin of, 167–76; Lehman Brothers and, 175; partnerships and, 162–63, 166, 175–78; poison pills and, 163–64, 266n15, 266n17; priority rights and, 158, 161; private law and, 169–73, 182; private money and, 175; property and, 158–60, 164, 172, 177; reform and, 158–59, 171; regulation and, 160–63, 168, 171–77, 182, 267n37, 268n42; risk and, 161–62, 165; securitization and, 165; shareholders and, 164, 168; sovereignty and, 160; United Kingdom and, 168, 178–79; United States and, 162, 168, 171, 174–79; wealth and, 159, 162, 164–67, 174, 176 coding land: acquired rights and, 45–46; autonomy and, 33; bankruptcy and, 27; Belize and, 23–29, 230, 241n7, 261n21; British colonies and, 39–42; capitalism and, 26; collateral and, 30, 35–36; common law and, 31–32, 40, 243n43; common use and, 29–30; contracts and, 41–42; Conveyance Act and, 38–39; corporate law and, 24, 35, 37, 44; courts and, 23–34, 38–45, 244n63; creditors and, 24, 30, 35–45; debt and, 30, 35–42; decoding the trust and, 42–45; digital code and, 183–90, 194, 197, 203–4; discovery doctrine and, 34–35; durability and, 24, 39, 42–43, 46; elitism and, 8, 40–41, 75, 158, 164, 254n55; emerging land market and, 32; enclosure and, 29–35, 39, 229, 256n14; eviction and, 41, 233; important role of land and, 23–24; inequality and, 46; investment and, 25, 37, 45, 241n13; landowners and, 24, 34–39, 42, 45, 56, 78, 128, 158–59, 166, 254n55; lawyers and, 24, 31–32, 35, 37– 38, 40, 43–45, 164, 240n6, 242n29; legal code and, 24, 39–40, 43; legal title and, 24–29, 33–34, 45–46; Maya people and, 23–29, 230, 261n21; monopolies and, 41; mortgages and, 35–38, 43; ownership and, 30, 34–35, 136; priority rights and, 24–25, 29, 37, 39, 46; property and, 23–39, 42–46, 240n2, 241n10, 241n13, 242n27, 242n36, 243n41, 245n75; protecting spoils and, 35–39; reform and, 38–41, 244n58, 244n64; regulation and, 44; risk and, 35, 41; securitization and, 43, 45; Settled Land Acts and, 38–39; settlers and, 33–35, 42, 125, 192–93; shielding and, 44; slavery and, 39; sovereignty and, 26–27, 33–34; state power and, 23, 46; Statute of Enrollments and, 44; Statute of Uses and, 44; titles and, 25–27, 30–35, 37, 43, 46, 125, 194; trust law and, 42–45; turning land into private, 29–35; usage and, 24–29; wealth and, 24, 27, 35–46 coercive power: capital rule and, 220, 232– 33; code masters and, 177, 180; digital code and, 187, 193; empire of law and, 4, 7, 15–21, 239n60; global code and, 132, 154; minting debt and, 90; trade secrets and, 126, 129; World Trade Organization (WTO) and, 125 Cohen, Morris, 137–38 indeX Coindesk, 203 collateral, ix–x; capital rule and, 224; cloning legal persons and, 51; code masters and, 160, 177; coding land and, 30, 35–36; digital code and, 187, 190–91, 271n19; empire of law and, 3, 7, 11–13, 16, 21, 238n49; global code and, 144, 148, 263n48; minting debt and, 78, 81, 86–87, 92, 97, 99, 103, 107; mortgages and, 13–14; slavery and, 11–12 collateralized debt obligations (CDOs), 87, 99–101, 108, 165, 211, 254n53 Columbia Law School, 270n4 Commerce Clause, 70, 177 commercial codes, 13, 238n48, 260n8 common law: code masters and, 168–73, 176–78; coding land and, 31–32, 40, 243n43; digital code and, 271n13; empire of law and, 5, 8; English law and, 27, 38–40, 43, 146, 178, 262n41; frustration of contracts and, 271n13; global code and, 133, 264n65; law schools and, 243n43; nature’s code and, 119; New York State laws and, 8, 76, 80, 132–33, 135, 143, 146, 150, 168, 178; Roman law and, 30, 42, 132–33, 135, 170, 177, 242n27, 243n43; United Kingdom and, 176–77 Common Pleas, 32 Commons, John, 12, 238n44 Companies Act, 61 competition: free trade and, 38; guild barriers and, 128–29; intangible capital and, 118; investment banking and, 50, 91– 92; lawyers and, 174, 176; private rights and, 122; property and, 121; regulatory, 68, 135, 221, 227; Schumpeter on, 118, 276n30; state power and, 221; tax shelters and, 72; trade secrets and, 128–29 Comprehensive Economic and Trade Agreement (CETA), 156–57, 264n69 conflict-of-law rules, 9, 68–69, 134–35, 212, 225, 249n48, 276n37 contingent convertibles (CoCos), 202 contracts, ix–x; blockchain and, 184, 187–90, 192, 195, 197–98, 203–4, 270n2; capital rule and, 209–18, 222–27, 231, 276n37; cloning legal persons and, 47–48, 52–55, 58–60, 64–65, 68–69, 247n24; code masters and, 159–60, 172, 178, 181–82; coding land and, 41–42; credible enforcement and, 1–2; digital code and, 183–92, 195, 198, 203, 271n13, 271n17, 271n18, 272n32; empire of law and, 2–8, 283 13, 15–16, 21, 238n48; enforcement of, 2, 16, 203; frustration of in common law, 271n13; global code and, 135–37, 139, 145–53; insurance, 190, 271n17; minting debt and, 78–81, 86, 88–89, 107; nature’s code and, 129; nexus of, 48; rise of West and, 4; Roman law and, 187; smart, 187– 91; theory of firms and, 272n32 convertibility: capital rule and, 211, 226–27, 229, 233; debt and, 3, 15, 77–78, 87–91; digital code and, 183, 193, 199; empire of law and, 3–4, 11, 13, 15, 19; state money and, 3 Conveyance Act, 38–39 copyright, 11, 115, 256n23 corporate law, ix–x; asset partitioning and, 53; capital rule and, 209–11, 224; choosing, 69–71; cloning legal persons and, 47–56, 60–62, 65, 67–72, 74, 76, 246n14, 246n16, 248n30; code masters and, 159–60, 163–64, 168, 174–79, 269n60; coding land and, 24, 35, 37, 44; digital code and, 185, 189, 196, 202; empire of law and, 3, 5, 8, 11, 13, 21, 238n54; enabling, 55; global code and, 135–36, 155; incorporation theory and, 69–70, 74, 136, 246n10; international private, 68–69; international treaty, 9, 120, 136–39, 225; legal personality and, 55; minting debt and, 78, 80, 86, 91, 98–102, 107, 252n22, 253n41; nature’s code and, 108, 115, 122, 125; seat theory and, 53, 69–70; shopping for, 67–69; sunset provisions and, 76; treaty law and, 70; veils and, 8, 13, 48, 246n16 corporations: arbitration and, 48, 56, 67, 73–76; autonomy and, 50; blue-chip, 83, 175–76, 269n55; bonds and, 5, 16, 44, 48–49, 83, 86, 102–5, 108, 128, 195, 198, 202, 211, 252n22, 262n32; choosing tax rate and, 71–73; coding modern, 54–56; conflict of law and, 9, 68–69, 134–35, 212, 225, 249n48, 276n37; contracts and, 47–48, 52–55, 58–60, 64–65, 68–69; durability and, 47, 54–55; essence of, 52; immortality and, 50, 55, 65–67; incorporation theory and, 69–70, 74, 136, 246n10; legal entities and, 14, 51–59, 65, 69–71, 249n46, 253n41; legal structures and, 48–51, 54, 58, 70–71, 76, 80; Lehman Brothers’ bankruptcy and, 48–58, 61–65, 70–75, 80, 85, 96, 101, 103–4, 106, 135, 149, 175, 190, 245n4, 284 indeX corporations (continued) 246n6, 248n33; limited liability and, 51, 53–54, 60–61, 63, 99, 254n49; loss shifting and, 55, 59–64, 67; mobility and, 68, 70; ownership and, 59, 67, 92, 118, 136; partnerships and, 65 (see also partnerships); poison pills and, 163–64, 266n15, 266n17; PRIMA and, 136; put option and, 55, 64, 226; RASCAL and, 73–75, 250n60, 250n62; rating agencies and, 80, 86–87, 98–100, 251n6, 251n19; regulation and, 47–48, 50, 56, 68, 73–76, 226, 249n46; risk and, 48, 54–56, 59, 63–66, 70, 74–75; Roman law and, 51, 54; shareholders and, 48–56 (see also shareholders); shielding and, 3, 14, 20, 22, 44, 47–48, 51–63, 65, 67, 71, 78, 84, 86, 99, 107, 129, 161, 165, 205, 215, 238n51, 246n16, 247n20; sovereignty and, 53, 66–70; subsidiaries and, 50–53, 58–59, 61–64, 70–74, 84, 131, 135, 149, 151, 191, 196, 247n17, 250n59, 259n80; United States and, 139, 142, 148, 151, 156; US Supreme Court and, 68 cotton, 41, 49, 246n5 courts: appeals and, 26–27, 72, 113, 139, 143, 155–56, 261n18; arbitration and, 180–82 (see also arbitration); Belize and, 23–24, 27–29, 126, 230, 261n21; Canada and, 138–43, 152–57, 261n17, 261n19; capital rule and, 206–7, 211–18, 221–24, 227, 230; cease and desist orders and, 113; certiorari writ and, 261n18; cloning legal persons and, 58, 68–70, 73–76, 247n24; code masters and, 159–64, 168–73, 177, 180–82; coding land and, 23–34, 38–45, 244n63; Common Pleas and, 32; Comprehensive Economic and Trade Agreement (CETA) and, 156–57; digital code and, 187, 204; discovery doctrine and, 34–35; empire of law and, 7–8, 12, 15–20; equity rule and, 31–32; European Court of Justice and, 70, 156; first-mover advantage and, 214–15; genetics and, 109–16, 127, 211, 214; global code and, 133, 136, 138–46, 150, 152–56, 261n18, 261n21, 262n45; Ibanez case and, 95–97; Indian Removal Act and, 34; indigenous rights and, 126; Inns of Court and, 242n29; International Court of Justice and, 125, 146; ISDA and, 146; jingle rule, 247n24; King’s Council and, 27, 31; landowners and, 38–39; minting debt and, 87, 90–91, 96–98, 104, 252n31; nature’s code and, 110–16; patents and, 120; plaintiffs and, 32, 58, 69, 113, 142, 214, 265n5, 275n17; Privy Council and, 27–29, 126; property and, 17, 23–28, 30, 38–39, 43–44, 96–97, 126, 136, 140, 143, 159–60, 172, 214–15, 218, 262; Star Chamber and, 31; sunset provisions and, 76; trade secrets and, 127–31; tribunals and, 18, 136–43, 146, 152, 155–57, 261n21, 264n70; US Supreme Court and, 34, 68, 110–13, 116, 127, 211, 214 credit cooperatives, 93–95 credit default swaps (CDS), 190–91, 271nn17–19 credit derivatives, 78, 145, 165, 227 Crédit Mobilier, 102–6 creditors: bailouts and, 55, 62, 64, 104–5, 151, 226, 247n17; capital rule and, 206–7, 211, 216; cloning legal persons and, 47– 48, 51, 54–67, 71, 73, 75, 246n16, 247n24; code masters and, 158–59, 168; coding land and, 24, 30, 35–45; Debt Recovery Act and, 39–40; digital code and, 187–88, 202; empire of law and, 3, 13–16, 20; eviction and, 41, 233; global code and, 144, 147–50, 262n41, 262n45; landlords and, 206–7; Lehman Brothers and, 61, 63–64, 71, 73, 103; limited liability and, 51, 53–54, 60–61, 63, 99, 254n49; lobbying by, 207; minting debt and, 77–79, 88–89, 92–93, 95, 103–5, 107; reciprocal claims and, 262n41; Roman law and, 54; shareholders and, 14, 48, 55–56, 60–67, 71, 104, 168, 202, 246n16; shielding assets from, 14, 20, 47–48, 54– 61, 63, 65, 67, 71, 107, 247n20; Statute of Enrollments and, 44; Statute of Uses and, 44; tort, 55, 59; trade secrets and, 128 Crick, Francis, 108–10 Critique of Rights (Menke), 209, 231 cryptocurrencies, 15, 192, 196–203, 238n53, 270n4, 273n43, 274n57 debt, ix; bills of exchange and, 57, 78, 88–92, 108, 198–99, 252n31; capital rule and, 206–7, 209, 219, 228; cloning legal persons and, 47–53, 56, 59–60, 67, 73–74; code masters and, 158, 167, 174; coding land and, 30, 35–42; convertibility and, 3, 15, 77–78, 87–91; credit cooperatives and, 93–95; Crédit Mobilier and, 102–6; creditors and, 3, indeX 13 (see also creditors); default and, 14, 35–36, 38, 42, 56, 62, 81–83, 88–89, 92, 96–97, 100, 102, 105, 137, 146–48, 151, 153, 170, 174, 180, 187, 190, 223, 233, 262n45; derivatives and, 78, 81, 86, 91; digital code and, 187, 190, 198–203; empire of law and, 3, 13–16, 20–21; foreclosure and, 39, 95–98, 253n44; global code and, 144, 147, 149–50, 262n41; Kleros clones and, 79, 86, 98–100, 107, 135, 165; minting, 77–107 (see also minting debt); NC2 and, 79–87, 94, 98–100, 106–7, 135, 251n4, 251n19; notes and, 78, 88–92, 98, 108, 198–200, 202; private money and, 86, 89, 92, 101–7, 147, 202; regulation and, 85, 90–91, 99–100, 103–7, 251n6, 255n73; risk and, 78–87, 90–95, 98–100, 104–5, 251n6, 251n19; securitization and, 78–86, 91–95, 98–101, 251n11, 251n13, 253n41; state money and, 77–78, 88–93, 106; unsecured, 79 Debt Recovery Act, 39–40 Deposit Trust Corporation, 254n49 derivatives: Bank for International Settlement (BIS) and, 149–50; bankruptcy and, 144–52; capital rule and, 211, 227; collateralized debt obligations (CDOs) and, 87, 99–101, 108, 165, 211, 254n53; comeback of, 262n36; complex credit, 165; digital code and, 189, 202; empire of law and, 5, 8; Financial Stability Board (FSB) and, 150–51; global code and, 143–53, 262n36, 263n49; International Swaps and Derivatives Association (ISDA) and, 145–53, 261n31, 271n18; Lehman Brothers and, 63; Loan Market Association (LMA) and, 262n32; Master Agreement (MA) and, 146–47, 150–51, 153; minting debt and, 78, 81, 86, 91; paving way for, 143–52; PRIME and, 146; safe harbors for, 263n49; transnational, 150–51 De Soto, Hernando, 14 digital autonomous organizations (DAO), 194–97, 272n29, 272n30, 272n33 digital code: arbitration and, 190, 204; assets and, 187–94, 197–204; autonomy and, 194–97; Bitcoin and, 197–202; blockchains and, 184, 187–90, 192, 195, 197–98, 203–4, 270n2; bugs and, 185, 188, 196; capitalism and, 199–200; capital rule and, 205, 208–9, 212, 216, 221–23; “code is law” and, 183, 196; 285 coercive power and, 187, 193; collateral and, 187, 190–91, 271n19; common law and, 271n13; contracts and, 183–92, 195, 198, 203, 271n13, 271n17, 271n18, 272n32; convertibility and, 183, 193, 199; corporate law and, 185, 189, 196, 202; courts and, 187, 204; creditors and, 187–88, 202; debt and, 187, 190, 198–203; derivatives and, 189, 202; durability and, 183, 193; elitism and, 186; enclosure and, 183, 203; enforcement and, 187, 190, 203; exogenous shocks and, 188; hierarchy and, 185–86, 201–2; immutable ledgers and, 188–90; investment and, 195–97, 200–202, 272n33; knowledge and, 183; lawyers and, 183–86, 188, 204; legal code and, 183–90, 194, 197, 203–4; legal entities and, 195; Lehman Brothers and, 190; LIBOR and, 190; Marxism and, 185; as meritocracy, 186; mining and, 200– 201; patents and, 203–4; priority rights and, 193; private code and, 198; private money and, 198–99, 202; property and, 184–86, 191–94, 198, 203–4, 272n28; realists and, 184–86; reform and, 273n46; regulation and, 185–86, 190, 271n17, 272n30; replacing law by, 183–84; residual rights and, 191–92; scalability and, 184; shareholders and, 195–96, 202; state money and, 198–203; state power and, 184, 193, 197; Szabo on, 192–93, 198; United States and, 202; utopists and, 184; wealth and, 198, 200 discovery doctrine, 34–35 dividends, 11, 53, 61–62, 103 DNA (deoxyribonucleic acid), 108–11, 114 Drahos, Peter, 124 dry exchange, 90 Du Pont, 124 durability: capital rule and, 211, 229, 233; cloning legal persons and, 47, 54–55; code masters and, 159, 161, 182; coding land and, 24, 39, 42–43, 46; digital code and, 183, 193; empire of law and, 3–5, 11, 13–15, 19, 21; intangible capital and, 117; minting debt and, 78 Dutch East India Company (VOC), 65–67, 196 East Asian Financial Crisis, 105 Economist, The (magazine), 37 Edward III, King of England, 118 Egypt, 133 286 indeX Eichengreen, Barry, 240n64 elephant curve, 1, 8 Eli Lilly, 138–43, 152–55, 261n17, 261n19 elitism: capital rule and, 218; cloning legal persons and, 66, 75; code masters and, 158, 162, 164, 175–77; coding land and, 8, 40–41, 75, 158, 164, 254n55; digital code and, 186; empire of law and, 2, 8; global code and, 133; gold coins and, 254n55; Goldman Sachs and, 175; Lehman Brothers and, 175; minting debt and, 85, 254n55; Roman law and, 132–33; WASPs and, 176 Elizabeth I, Queen of England, 32, 119 empire of law: arbitration and, 15, 18; bankruptcy and, 3, 13–14, 16, 21; capitalism and, 2, 4, 8, 10–14, 17–21, 238n44; coercive power and, 4, 7, 15–21, 239n60; collateral and, 3, 7, 11–13, 16, 21, 238n49; common law and, 5, 8; contracts and, 2–4, 7–8, 13, 15–16, 21, 238n48; convertibility and, 3–4, 11, 13, 15, 19; corporate law and, 3, 5, 8, 11, 13, 21, 238n54; courts and, 7–8, 12, 15–20; creditors and, 3, 13–16, 20; debt and, 3, 13–16, 20–21; derivatives and, 5, 8; durability and, 3–5, 11, 13–15, 19, 21; elephant curve and, 1, 8; elitism and, 2, 8; enforcement and, 2, 9, 12, 16–19, 239n60; enigma of capital and, 9–13; globalization and, 2; growth and, 1, 4, 8, 20, 235n10; inequality and, 1–3, 6, 21–22, 235n9, 240n69, 240n70; inheritance and, 238n48; intangible capital and, 13; investment and, 12, 14, 16; labor and, 2, 9–11, 237n37; law’s guiding hand and, 6–9; lawyers and, 3–4, 6, 8, 15, 19–20, 22, 165, 236n26; legal attributes and, 13–15; legal code and, 2–15, 19–22; legal entities and, 14; legal norms and, 16–17; legal structures and, 4, 6, 9, 18, 21; Marxism and, 2, 9–11, 22; monopolies and, 17; mortgages and, 13–15; patents and, 11; priority rights and, 13–14, 16, 18; private law and, 20–21; property and, 1–5, 11–14, 17, 19, 21, 238n44, 238n48, 238n50, 239n56, 240n68; reform and, 1; regulation and, 7; risk and, 14, 17; selfinterest and, 6, 8–9, 18, 232, 236n18; shielding and, 3, 14, 20, 22; slavery and, 11–12, 237n38, 237n40; state power and, 4, 14–19; universality and, 3–4, 11, 13–14, 15, 19, 21; wealth and, 1–8, 12–14, 17–22 enclosure: capital rule and, 229; coding land and, 229; digital code and, 183, 203; intangible capital and, 117, 256n14; knowledge and, 35, 108–9, 115, 117, 131, 183; nature’s code and, 109–12, 115; property and, 29–35, 39, 229; trade secrets and, 131 Enclosure Acts, 29–30, 242n22 enforcement: capital rule and, 210, 220, 223; code masters and, 168, 180; contract, 2, 16, 203; digital code and, 187, 190, 203; empire of law and, 2, 9, 12, 16–19, 239n60; global code and, 134, 139–40, 147, 152, 154; International Court of Justice and, 125; law, 16–19, 125, 152, 154, 168, 180, 187, 220, 259n80; minting debt and, 88; priority rights and, 16; trade secrets and, 130; World Trade Organization (WTO) and, 125 Engels, Friedrich, 185 English law.


The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good by William Easterly

airport security, anti-communist, Asian financial crisis, bank run, banking crisis, Bob Geldof, Bretton Woods, British Empire, call centre, clean water, colonial exploitation, colonial rule, Edward Glaeser, end world poverty, European colonialism, failed state, farmers can use mobile phones to check market prices, George Akerlof, Gunnar Myrdal, Hernando de Soto, income inequality, income per capita, Indoor air pollution, invisible hand, Kenneth Rogoff, laissez-faire capitalism, land reform, land tenure, Live Aid, microcredit, moral hazard, Naomi Klein, Nelson Mandela, publication bias, purchasing power parity, randomized controlled trial, Ronald Reagan, Scramble for Africa, structural adjustment programs, The Fortune at the Bottom of the Pyramid, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, War on Poverty, Xiaogang Anhui farmers

If your ne’er-do-well cousin asks for a loan, you may decide to give it only on condition that he change his behavior in a way that makes it likely that he will pay back the loan—that he stop drinking, that he get a job, etc. The IMF has had some notable successes. It helped South Korea and Thailand with financial squeezes in the 1980s, after which they had rapid growth. The IMF bailout of Mexico in 1994–1995, although much criticized at the time, worked well. The Mexican government repaid the loans in advance, and economic growth resumed. Most recently, the IMF handled the 1997–1998 East Asian financial crisis with some success, especially, again, in South Korea. The IMF recruits talented Ph.D.’s in economics, who observe strong norms of professional analysis. It has an outstanding research department, as well as other specialized departments that provide valuable technical advice to poor countries on their fiscal and financial systems. The IMF has been a good source of economic advice to countries on the wisdom of government solvency and the folly of excessive government debt and deficits.

Post-program inflation under the IMF was higher than the program targets on average in the 1990s for a worldwide sample of countries.13 Conversely, what if people holding domestic currency suddenly panicked and wanted to turn it in for the central bank’s dollars? It’s not always clear why they panic, but it happens. International reserves would drop precipitously for reasons unrelated to government budget deficits. Many economists think that this is a good description of the East Asian financial crisis of 1997–1998. East Asian countries were not running large government deficits, yet they suffered currency panics and disappearing foreign exchange reserves all the same. Another loophole in the relationship between budget deficits and foreign exchange reserves is that the government finances its deficit not only with central bank credit but also with foreign debt. The willingness of foreign investors and banks to buy government bonds is another unknown.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, The Great Moderation, Thomas Bayes, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

Even if we are wrong on our underlying premises, we usually break even because we have entered at optimum pricing. And if the underlying hypotheses do not materialize, we get out, even if the trade is making money. Making money for the wrong reasons means you are rolling the dice, not trading. We are not here to gamble. Trades have to be making money for the reasons that we have identified and have the proper risk versus reward. The Asian financial crisis theme in 1998-1999 is a good example. The underlying premise was that a lack of transparency would stop the flow of funds into Asia, and we shorted the Hang Seng. The trade started working in our favor, but funds did not stop flowing into Asia, even though transparency did not increase, so we got out of the trade. With such a high hurdle for trades to get into your portfolio, do you sometimes find that you have a shortage of trades in the book?

There are a myriad of ways to express themes. We are very good at looking out at the periphery for trade ideas, not getting stuck at the center of a view or theme. You mentioned you have a one-year time horizon for trades. How far ahead do you look in developing your themes? Time horizons on themes vary considerably, from maybe six months to five years. We look at trends. For example, the Asian financial crisis theme lasted about six months, whereas the theme around commodity inelasticity of demand and supply has been on since inception. But the trades within a theme are all structured around a one-year investment horizon, both economically and technically. We look at valuations and targets based on one-year economic values, and our technical price model is also based on a one-year horizon. We might have two-, three-, five-year economic targets, but trades are one year.


pages: 496 words: 131,938

The Future Is Asian by Parag Khanna

3D printing, Admiral Zheng, affirmative action, Airbnb, Amazon Web Services, anti-communist, Asian financial crisis, asset-backed security, augmented reality, autonomous vehicles, Ayatollah Khomeini, barriers to entry, Basel III, blockchain, Boycotts of Israel, Branko Milanovic, British Empire, call centre, capital controls, carbon footprint, cashless society, clean water, cloud computing, colonial rule, computer vision, connected car, corporate governance, crony capitalism, currency peg, deindustrialization, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, energy security, European colonialism, factory automation, failed state, falling living standards, family office, fixed income, flex fuel, gig economy, global reserve currency, global supply chain, haute couture, haute cuisine, illegal immigration, income inequality, industrial robot, informal economy, Internet of things, Kevin Kelly, Kickstarter, knowledge worker, light touch regulation, low cost airline, low cost carrier, low skilled workers, Lyft, Malacca Straits, Mark Zuckerberg, megacity, Mikhail Gorbachev, money market fund, Monroe Doctrine, mortgage debt, natural language processing, Netflix Prize, new economy, off grid, oil shale / tar sands, open economy, Parag Khanna, payday loans, Pearl River Delta, prediction markets, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, Ronald Reagan, Scramble for Africa, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, special economic zone, stem cell, Steve Jobs, Steven Pinker, supply-chain management, sustainable-tourism, trade liberalization, trade route, transaction costs, Travis Kalanick, uber lyft, upwardly mobile, urban planning, Washington Consensus, working-age population, Yom Kippur War

At the same time, an insurgency in Kashmir and intermittent conflict with Pakistan soured relations, with both countries covertly accelerating their nuclear weapons programs and conducting nuclear tests in 1998. Pakistan also faced instability on its western border as the chaos of Afghanistan’s civil war resulted in the radical Taliban movement’s rise from the refugee camps of Peshawar to the takeover of Afghanistan in 1994, after which it began to set its sights on spreading Islamist revolution by harboring terrorist groups such as Al Qaeda. In the aftermath of the Asian financial crisis, the region’s economic conditions recovered in the late 1990s and 2000s thanks to increased outsourcing of manufacturing by Western companies and accelerated trade integration. By 2004, Asia’s intraregional trade surpassed its trade with developed countries, insulating the region’s economies from the demand shock of the 2007 Western financial crisis. India, too, continued to grow despite lackluster economic reforms and began a “Look East” policy to capitalize on the rising opportunities for trade and strategic collaboration with East Asia.

While these are either within the Gulf Cooperation Council (GCC) or within East Asia, the number of daily long-distance connections between Asian subregions is growing rapidly each year. Fitting the Pieces Together Today the Asian megasystem is coming together like an enormous jigsaw puzzle of dozens of large and small pieces, with economic complementarities creating a whole much greater than the sum of its parts. Since the 1997–98 Asian financial crisis, Asian countries’ trade growth with one another advanced at a faster pace than the world economy as a whole. By the time of the 2007–08 Western financial crisis, intra-Asian trade was so robust that it cushioned the shock of falling exports to the United States and European Union. The “global financial crisis” was not actually global. In less than a decade since the crisis, Asia’s internal trade as a share of its total trade nearly doubled from 29 percent in 2009 to 57 percent in 2016—nearly the same level as in Europe.


pages: 457 words: 143,967

The Bank That Lived a Little: Barclays in the Age of the Very Free Market by Philip Augar

activist fund / activist shareholder / activist investor, Asian financial crisis, asset-backed security, bank run, banking crisis, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, break the buck, call centre, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, family office, financial deregulation, financial innovation, fixed income, high net worth, hiring and firing, index card, index fund, interest rate derivative, light touch regulation, loadsamoney, Long Term Capital Management, Martin Wolf, money market fund, moral hazard, Nick Leeson, Northern Rock, offshore financial centre, old-boy network, out of africa, prediction markets, quantitative easing, Ronald Reagan, shareholder value, short selling, Sloane Ranger, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, too big to fail, wikimedia commons, yield curve

Countries were graded on a scale according to economic and political risk, which in this case led them to take a more cautious line on Russia than Barclays Capital wanted. Taylor opened the meeting up. There was one strong dissenter to Barclays Capital’s request: Christopher Haviland, a senior executive in Barclays’ international banking business and an independent-minded banker who had just witnessed the Asian financial crisis of 1997 at first hand. He was convinced that it would spread to Russia and was firmly set against any increase in the limit. Forster’s boss, Alan Brown, another Barclays’ veteran, had just also become a vice-chairman of Barclays Capital. He suggested a compromise, capping the Russia country limit at £500 million, more than double the existing limit but far short of the £1 billion that the Barclays Capital team were requesting.

Diamond was gracious, thanked Haviland for his input and briefed the rest of the team back at Canary Wharf. The emerging markets people were furious. Why had they been hired if they were not going to be allowed to take advantage of the wonderful prospects for fixed income investors in Russia and the other emerging markets? RUSSIAN DOLLS As it turned out, the traders were wrong. Barclays’ conservatism proved well judged and the investment bankers’ enthusiasm reckless. The Asian financial crisis of 1997 spilled over into Russia in exactly the way Haviland had feared. On 17 August 1998, the Russian government devalued the rouble, defaulted on its debt obligations and abandoned support for its currency altogether on 2 September. In Barclays’ group risk, Brown, Forster and colleagues were watching developments calmly. Their biggest Russian positions were with well-established trade banks and they believed their overall exposure was within the £500 million limit.


pages: 442 words: 130,526

The Billionaire Raj: A Journey Through India's New Gilded Age by James Crabtree

accounting loophole / creative accounting, Asian financial crisis, Big bang: deregulation of the City of London, Branko Milanovic, business climate, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial rule, Commodity Super-Cycle, corporate raider, creative destruction, crony capitalism, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, facts on the ground, failed state, Francis Fukuyama: the end of history, global supply chain, Gunnar Myrdal, income inequality, informal economy, Joseph Schumpeter, liberal capitalism, Mahatma Gandhi, McMansion, megacity, New Urbanism, offshore financial centre, open economy, Parag Khanna, Pearl River Delta, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, rent-seeking, Rubik’s Cube, Silicon Valley, Simon Kuznets, smart cities, special economic zone, spectrum auction, The Great Moderation, Thomas L Friedman, transaction costs, trickle-down economics, Washington Consensus, WikiLeaks, yellow journalism, young professional

The tycoons’ earlier hubris was rudely exposed, leaving their businesses overstretched and struggling to repay debts. In 2017, ten years after the financial crisis began, India’s banks were left holding at least $150 billion worth of bad assets.23 This cycle of boom and bust followed a pattern familiar from other emerging economies, as when tycoons in Malaysia and Thailand gorged on cheap credit and splurged on speculative investments in the run-in to the 1997 Asian financial crisis. But India’s wider story was still global. In America and Britain, two decades of hyper-globalization ultimately overwhelmed the financial system, taking down once-mighty banks and insurers in New York and London. In India, the same surging global forces swamped the industrial system instead, battering the conglomerates that had long formed the backbone of the industrial economy. And just as the reputations of financiers in London and New York were ruined, so the image of the swashbuckling tycoons of Mumbai and New Delhi took a hit from which they have still not entirely recovered.

His PhD thesis at MIT, entitled “Essays on Banking,”12 featured a trio of papers casting doubt on the idea of perfectly efficient financial markets, the last of which looked directly at the ties between corporations, lenders, and debt. In his early academic career he went on to explore a range of other unfashionable corners of the financial sector, from bond pricing and bank credit to capital structures. Rajan had an interest in corruption, too. After the late 1990s’ Asian financial crisis, he published a paper explaining why countries with “relationship-based systems” of investment, like Malaysia and Thailand—meaning those that suffered from rampant crony capitalism—were especially prone to financial collapse.13 Then, at the International Monetary Fund, where he was made the youngest-ever head of the research department, there was his 2005 speech highlighting the dangers posed by risk-taking financiers and predicting much of the coming global financial crisis.14 Yet for all this, Rajan told me he still had no real sense of the scale of India’s debt crisis when he arrived at the Reserve Bank of India.


Making Globalization Work by Joseph E. Stiglitz

affirmative action, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, Berlin Wall, business process, capital controls, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Gini coefficient, global reserve currency, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, new economy, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, trickle-down economics, union organizing, Washington Consensus, zero-sum game

., Castle House, 75/76 Wells Street, London W1T 3QT CONTENTS Preface Acknowledgments CHAPTER 1 Another World Is Possible CHAPTER 2 The Promise of Development CHAPTER 3 Making Trade Fair CHAPTER 4 Patents, Profits, and People CHAPTER 5 Lifting the Resource Curse CHAPTER 6 Saving the Planet CHAPTER 7 The Multinational Corporation CHAPTER 8 The Burden of Debt CHAPTER 9 Reforming the Global Reserve System CHAPTER 10 Democratizing Globalization Afterword to the Paperback Edition Notes PREFACE My book Globalization and Its Discontents was written just after I left the World Bank, where I served as senior vice president and chief economist from 1997 to 2000. That book chronicled much of what I had seen during the time I was at the Bank and in the White House, where I served from 1993 to 1997 as a member and then chairman of the Council of Economic Advisers under President William Jefferson Clinton. Those were tumultuous years; the 1997–98 East Asian financial crisis pushed some of the most successful of the developing countries into unprecedented recessions and depressions. In the former Soviet Union, the transition from communism to the market, which was supposed to bring new prosperity, instead brought a drop in income and living standards by as much as 70 percent. The world, in the best of circumstances, marked by intense competition, uncertainty, and instability, is not an easy place, and the developing countries were not always doing the most they could to advance their own well-being.

For instance, Bangladesh has faced enormous problems in its governance; but there are several very successful NGOs (BRAC, Grameen) that have shown they can use aid very effectively, so much so that the benefits of their programs show up in the country’s overall health and education statistics. Discontent with the World Bank and the IMF has manifested itself also in the creation of alternative institutions. In chapter 9, I described the attempt by Japan in 1997 to establish an Asian Monetary Fund, with $100 billion—partly motivated by dissatisfaction with the way that the IMF was dealing with the Asian financial crisis. The United States and the IMF managed to stop this initiative—as much as they believe in competition in the market place, they were appalled at the idea of competition in providing assistance for countries in need, or in providing advice on how to manage one’s economy. In February 2007, Venezuela, enriched by the high oil prices that had followed the Iraq War, joined several other countries, including Argentina, Bolivia, Ecuador, and Brazil, to found a new bank, the Bank of the South.


pages: 172 words: 54,066

The End of Loser Liberalism: Making Markets Progressive by Dean Baker

Asian financial crisis, banking crisis, Bernie Sanders, business cycle, collateralized debt obligation, collective bargaining, corporate governance, currency manipulation / currency intervention, Doha Development Round, financial innovation, full employment, Home mortgage interest deduction, income inequality, inflation targeting, invisible hand, manufacturing employment, market clearing, market fundamentalism, medical residency, patent troll, pets.com, pirate software, price stability, quantitative easing, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Silicon Valley, too big to fail, transaction costs

The result is that we export more and import less, thereby reducing the trade deficit and possibly even turning it into a surplus. In the first half of the Clinton administration, to some extent, this process played out as the textbook would dictate, but the tables turned when Robert Rubin became Treasury Secretary in January 1995. Rubin was openly committed to a strong dollar. When he first took office this may have just been words, but in 1997, during the East Asian financial crisis, he had the opportunity to put some serious muscle behind them. The United States used its de-facto control of the International Monetary Fund (IMF) to impose harsh conditions on the crisis countries. The IMF effectively acted as an enforcement agent for the banks that had made loans to the companies and countries in the region. To repay these loans, the countries had to run massive trade surpluses, which required a sharp decline in the value of their currencies against the dollar in order to make their exports hypercompetitive and to discourage imports.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

“­There is for all practical purposes, no such ­thing” as neoliberal theory, one scholar claimed recently.6 In 2016, however, the International Monetary Fund (IMF), making international headlines, not only identified neoliberalism as a coherent doctrine but asked if the policy package of privatization, deregulation, and liberalization had been “oversold.”7 Fortune reported at the time that “even the IMF now admits neoliberalism has failed.”8 The magazine’s suggestion that this was a new development was somewhat inaccurate. The policies associated with neoliberalism had been challenged—at least rhetorically—­for two I n t r o d u ctio n 3 de­cades. An early expression of doubt came from Joseph Stiglitz ­after the Asian financial crisis of 1997.9 World Bank chief economist from 1997 to 2000 and winner of the Nobel Memorial Prize in Economics, Stiglitz became a vocal critic of neoliberal globalization. In the late 1990s other critics declared that the un­regu­la­ted global ­free market was “the last utopia”—­and the international financial institutions partly agreed.10 They dropped their doctrinaire opposition to capital controls, the very subject of the 2016 Fortune article.

See also Invisibility Anti-­Semitism, 153 Antitrust measures, 209 Apartheid, 149; end of, 9, 16; neoliberals and, 22, 149–154, 172–179, 266, 332n194; opposition to, 172, 219, 323n23; U.S. conservatives and, 168–169 Arabs: Arab Spring, 279; as oil-­producing nations, 217; as a social group, 153 Area studies, 69 366 Index Argentina, 139, 236 Aristocracy, 45 Aron, Raymond, 78 Art, of GATT and WTO buildings, 240, 281, 282, 283, 284 Ashbrook, John M., 169 Asia, 42, 64, 126, 147, 152, 197; Asian Financial Crisis, 3 Atavism, 202, 286; social justice as, 281 Atlantic City, New Jersey, 35 Atlantic Community, 156, 184 Attlee, Clement, 139 Augustine, Saint, 268 Austerity, 25 Austria, 26, 42, 51, 106; and Eu­ro­pean integration, 189; First Republic, 31 Austrian Business Cycle Research Institute, 31, 59, 66, 82–83 Austrian economics, 6, 91 Austro-­Hungarian Empire. See Habsburg Empire Authoritarianism, 15, 116, 277, 296 Autocracy, 45 Babson, Roger, 60–61 Balfour, Sir Arthur, 39 Balogh, Thomas, 124 Banks, 36, 52, 61, 63, 69, 137, 140, 163; Bank of ­England, 39; Brazilian Development Bank, 199; central banks, 4, 23, 164, 267; Creditanstalt, 69; Deutsche Bank, 139; Eu­ro­pean Central Bank, 267; Postal Savings Bank, 32; secrecy of, 236; Swiss Bank Corporation, 59.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

For America, China is manipulating its currency artificially to prolong its export boom. The size of China’s foreign currency reserves, at one point half of China’s GDP, far outweighs its needs. For China, the reserves are a consequence of the efforts of its people, a sensible insurance policy against the speculative attacks made against the currencies of neighbouring countries during the East Asian financial crisis of 1997. China vowed that the agony, indignity and loss of sovereignty inflicted on its near neighbours then would not occur to it. China does not have a happy historic memory of how its large trade surpluses have been dealt with by more powerful nations. For centuries, China was not really interested in the goods the West was trying to sell it, as attested by a letter written in the late eighteenth century to George III by the Emperor Qianlong: ‘We possess all things and of the highest quality… I set no value on the strange and useless objects and have no use of your country’s manufactures.’

For anyone looking through an economic lens, however, Gangnam Style was far more interesting, an ironic critique of the absurdities of the crass consumerism that has emerged across South Korea over the past decade. In the 1980s and 1990s, South Korea had its own export-led manufacturing boom. A key feature of this was the thriftiness of Korean households. For thirteen consecutive years, Korean households were the number one savers in the rich man’s club of world nations, the OECD. Koreans saved around 25 per cent of their income. After the Asian financial crisis of the late 1990s, however, household saving collapsed, dropping as low as 0.4 per cent in 2002, and staying below 3 per cent in recent years. It was a spectacular fall to the bottom of that OECD savers’ league table. South Korea’s reputation for household thrift evaporated in an orgy of housing speculation, child tuition fees and credit-fuelled purchases of expensive Western brands. If the same happened in China – which could come about if the government allowed the renminbi to increase in value – China’s exporters could reorientate towards their massive domestic market.


pages: 529 words: 150,263

The Pandemic Century: One Hundred Years of Panic, Hysteria, and Hubris by Mark Honigsbaum

Asian financial crisis, biofilm, Black Swan, clean water, coronavirus, Donald Trump, en.wikipedia.org, germ theory of disease, global pandemic, indoor plumbing, Louis Pasteur, Mark Zuckerberg, megacity, moral panic, Pearl River Delta, Ronald Reagan, Skype, the built environment, trade route, urban renewal, urban sprawl

Hong Kong, which usually mustered the second biggest delegation after the Swiss, threatened to sue, but the Swiss refused to budge, prompting one Hong Kong company to erect a sign over an empty booth that read: “Due to our fear of Swiss Aggravated Respiratory Syndrome we are going home.” From an economic perspective, SARS could not have come at a worse time for Hong Kong as the territory was only just beginning to recover from the 1998 Asian financial crisis. The previous year Hong Kong had seen its real GDP grow by 2 percent, and in 2003 the government had been forecasting 3 percent real GDP growth. Within weeks of the WHO’s travel advisory, those forecasts were revised downward as shops reported a halving of retail sales and hotels saw their occupancy rates plunge by 60 percent. As malls emptied and banks like HSBC ordered bond traders to stay home, the only people seen to be doing a brisk trade on the formerly packed streets were salesmen of N95 masks.

See also specific antibiotics discovery of new, 149 drug-resistant microbes and, 365–66 era before, 47 antibody-dependent enhancement (ADE), 60, 347–48 antibody reactions, 259 “antigentic drift,” 55 antiretroviral drugs, 200, 226, 403n antiwar movement, 169–70 arboviruses, 319–24, 326, 330–31, 335, 359 Argentina, 106–8 Argentine National Health Board (Asistencia Publica), 107, 114 Armed Forces Institute of Pathology, 55, 109, 405–6n Armstrong, Charlie, 105–6, 115–17, 118, 120–24, 126, 132, 138–39 Asheville, North Carolina, 31–33 Asia Asian financial crisis of 1998, 266 mega-cities in, 362 Zika in, 326–27 “Asian flu,” 56, 245 Associated Press, 82 AIDS panic and, 213 Ebola and, 296 “parrot fever” pandemic 1929–1930 and, 138 Athenians, 14 Athens, Greece, plague of, 14, 362 Atlanta, Georgia, 300, 302, 303 the Atlanticos, 95 Attaran, Amir, 340 Aureomycin, 142 Avery, Oswald, 22, 35–36, 37, 149 avian influenza, 4, 10, 55–56, 243–48, 250, 257, 274, 284, 367, 381–82n of 1997, 4, 254 H5N1 virus, 59, 405n “multiple reassortants” of, 247 unusual pathology in young adults, 245–46 avian viruses, mutations of, 245–46 avirulence, survival strategy of, 30 Ayer, Massachusetts, 17–18, 19, 28, 33, 47 Aylward, Bruce, 308 Ayres, Constância, 350–51, 352 AZT, 212, 226, 403n Bachmann, Leonard, 155 Bacillus influenzae, 26–27, 34, 35–38, 36–39, 40, 42, 43, 48–49, 58, 113 Bacillus psittacosis, 112–13, 126 bacteria.


pages: 353 words: 355

The Long Boom: A Vision for the Coming Age of Prosperity by Peter Schwartz, Peter Leyden, Joel Hyatt

American ideology, Asian financial crisis, Berlin Wall, centre right, computer age, crony capitalism, cross-subsidies, Deng Xiaoping, Dissolution of the Soviet Union, European colonialism, Fall of the Berlin Wall, financial innovation, hydrogen economy, industrial cluster, informal economy, intangible asset, Just-in-time delivery, knowledge economy, knowledge worker, life extension, market bubble, mass immigration, megacity, Mikhail Gorbachev, Nelson Mandela, new economy, oil shock, open borders, Productivity paradox, QR code, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, the scientific method, upwardly mobile, Washington Consensus, Y2K

The Malaysian government decreed that indigenous Malaysians, the Bumiputras, must hold 50 percent of the economy. If that decree had not forced equality, the Chinese would have gobbled the vast majority of that economy, too. The Chinese ran outright and were the majority population of three of the four vaunted Asian tigers that stunned the world with their torrid growth in the 1980s and 1990s: Hong Kong, Taiwan, and Singapore. The fourth, South Korea, was the only one to collapse in the Asian financial crisis. Taiwan, the one that most closely compares with Korea in size and output, actually thrived during the crisis due to the much more decentralized, entrepreneurial nature of its economy, which also is decidedly high-tech, and due to its robust democracy. And Singapore has been a model for all Asian countries in making the transition to a higher value service economy and, ultimately, a knowledge economy.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bernie Madoff, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, principal–agent problem, profit maximization, profit motive, Richard Thaler, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, ultimatum game

., 210–211n2 Alexander the Great, 140, 180–181 alienation, 205, 207 alpha, 75 altruism, 4 apparently irrational, 28–29, 206 care altruism, 38, 104, 108–114, 115, 120, 135, 201 effective, 110–112, 126, 130, 135–136 in for-itself model, 19, 104, 123, 129 love altruism, 104, 116, 123–125, 203 manners and ethics in, 104, 106–108, 135 observed care altruism, 108–112 purposeful choice compatible with, 104, 113–114, 115–116 selfish, 104, 105–106, 109, 123, 125, 135 types of, 104, 123, 130 utility maximized by, 5–6 vaccination as, 59. See also mercy ambiguity effect, 24 American Work-Sports (Zarnowski), 191 Anaximander, 190 anchoring, 168 angel investors, 212–213n1 “animal spirits,” 169 Antipater of Tarsus, 134–135, 137 “anxious vigilance,” 73, 82 arbitrage, 70, 78 Aristotle, 200, 220n24 Asian financial crisis (1997–1998), 13 asset-backed securities, 93–95 asset classes, 75 astrology, 67 asymmetric information, 96, 210n2 authenticity, 32–37, 114 of challenges, 176–179 autism, 58, 59 auto safety, 139 Bank of New York Mellon, 61 Battle of Waterloo, 71, 205 Bear Stearns, 85 Becker, Gary, 33, 108–109 behavioral economics, 4, 10, 198–199 assumptions underlying, 24 insights of, 24–25 rational choice complemented by, 6 Belgium, 191 beliefs: attachment to, 51 defined, 50 evidence inconsistent with, 54, 57–58 formation of, 53, 92 persistence of, 26–28, 54 transmissibility of, 92–93, 95–96 Bentham, Jeremy, 127, 197–198 “black swans,” 62–64 blame aversion, 57, 72 brain hemispheres, 161 Brexit, 181–185 “bull markets,” 78 capital asset pricing model, 64 care altruism, 38, 104, 108–114, 115, 120, 135, 201 Casablanca (film), 120, 125 The Cask of Amontillado (Poe), 126–127 challenges, 202–203 authenticity of, 176–179 staying in the game linked to, 179–181 changes of mind, 147–164 charity, 40, 45–46, 119, 128 choice: abundance of, 172–174 intertemporal, 149–158, 166 purposeful vs. rational, 22–23 Christofferson, Johan, 83, 86, 87, 88 Cicero, 133–134 Clark, John Bates, 167 cognitive bias, 6, 23, 51, 147–148, 167, 198–199 confirmation bias, 200 experimental evidence of, 10–11, 24 for-itself behavior disguised as, 200–201 gain-loss asymmetry, 10–11 hostile attribution bias, 59 hyperbolic discounting as, 158 lawn-mowing paradox and, 33–34 obstinacy linked to, 57 omission bias, 200 rational choice disguised as, 10–11, 33–34, 199–200 salience and, 29, 147 survivor bias, 180 zero risk bias, 24 Colbert, Claudette, 7 Columbia University, 17 commitment devices, 149–151 commodities, 80, 86, 89 commuting, 26, 38–39 competitiveness, 11, 31, 41, 149, 189 complementary skills, 71–72 compound interest, 79 confirmation bias, 57, 200 conspicuous consumption, 31 consumption planning, 151–159 contrarian strategy, 78 cooperation, 104, 105 coordination, 216n15 corner solutions, 214n8 cost-benefit analysis: disregard of, in military campaigns, 117 of human life, 138–143 credit risk, 11 crime, 208 Dai-Ichi Kangyo Bank (DKB), 12–14, 15, 17, 87, 192–193 Darwin, Charles, 62–63 depression, psychological, 62 de Waal, Frans, 118 Diogenes of Seleucia, 134–135, 137 discounting of the future, 10, 162–164 hyperbolic, 158, 201 disjunction effect, 174–176 diversification, 64–65 divestment, 65–66 Dostoevsky, Fyodor, 18 drowning husband problem, 6–7, 110, 116, 123–125 effective altruism, 110–112, 126, 130, 135–136 efficient market hypothesis, 69–74, 81–82, 96 Empire State Building, 211–212n12 endowment effect, 4 endowments, of universities, 74 entrepreneurism, 27, 90, 91–92 Eratosthenes, 190 ethics, 6, 104, 106–108, 116, 125 European Union, 181–182 experiential knowledge, 59–61 expert opinion, 27–28, 53, 54, 56–57 extreme unexpected events, 61–64 fairness, 108, 179 family offices, 94 Fear and Trembling (Kierkegaard), 53–54 “felicific calculus,” 197–198 financial crisis of 2007–2009, 61, 76, 85, 93–94, 95 firemen’s muster, 191 flow, and well-being, 201–202 Foot, Philippa, 133–134, 135 for-itself behavior, 6–7, 19, 21, 27, 36, 116, 133–134, 204–205, 207–208 acting in character as, 51–53, 55–56, 94–95, 203 acting out of character as, 69, 72 analyzing, 20 authenticity and, 33–35 charity as, 39–40, 45–46 comparison and ranking lacking from, 19, 24, 181 consequences of, 55–64 constituents of, 26–31 defined, 23–24 difficulty of modeling, 204 expert opinion and, 57 extreme unexpected events and, 63–64 flow of time and, 30 free choice linked to, 169–172 in groups, 91–100 incommensurability of, 140–143 in individual investing, 77–78 in institutional investing, 76 intertemporal choice and, 168, 175, 176 job satisfaction as, 189 mercy as, 114 misclassification of, 42, 44, 200–201 out-of-character trading as, 68–69 purposeful choice commingled with, 40–43, 129, 171 rationalizations for, 194–195 in trolley problem, 137 unemployment and, 186 France, 191 Fuji Bank, 14 futures, 80–81 gain-loss asymmetry, 10–11 Galperti, Simone, 217n1 gambler’s fallacy, 199 gamifying, 177 Garber, Peter, 212n1 Germany, 191 global equity, 75 Good Samaritan (biblical figure), 103, 129–130, 206 governance, of institutional investors, 74 Great Britain, 191 Great Depression, 94 Greek antiquity, 190 guilt, 127 habituation, 201 happiness research (positive psychology), 25–26, 201–202 Hayek, Friedrich, 61, 70 hedge funds, 15–17, 65, 75, 78–79, 93, 95 herd mentality, 96 heroism, 6–7, 19–20 hindsight effect, 199 holding, of investments, 79–80 home country bias, 64–65 Homer, 149 Homo ludens, 167–168 hostile attribution bias, 59 housing market, 94 Huizinga, Johan, 167–168 human life, valuation of, 138–143 Hume, David, 62, 209n5 hyperbolic discounting, 158, 201 illiquid markets, 74, 94 index funds, 75 individual investing, 76–82 Industrial Bank of Japan, 14 information asymmetry, 96, 210n2 innovation, 190 institutional investing, 74–76, 82, 93–95, 205 intergenerational transfers, 217n1, 218n4 interlocking utility, 108 intertemporal choice, 149–159, 166 investing: personal beliefs and, 52–53 in start-ups, 27 Joseph (biblical figure), 97–99 Kahneman, Daniel, 168 Kantianism, 135–136 Keynes, John Maynard, 12, 58, 167, 169, 188–189 Kierkegaard, Søren, 30, 53, 65, 88 Knight, Frank, 145, 187 Kranton, Rachel E., 210–211n2 labor supply, 185–189 Lake Wobegon effect, 4 lawn-mowing paradox, 33–34, 206 Lehman Brothers, 61, 86, 89, 184 leisure, 14, 17, 41, 154, 187 Libet, Benjamin, 161 life, valuation of, 138–143 Life of Alexander (Plutarch), 180–181 Locher, Roger, 117, 124 long-term vs. short-term planning, 148–149 loss aversion, 70, 199 lottery: as rational choice, 199–200 Winner’s Curse, 34–36 love altruism, 104, 116, 123–125, 126, 203 lying, vs. omitting, 134 Macbeth (Shakespeare), 63 MacFarquhar, Larissa, 214n6 Madoff, Bernard, 170 malevolence, 125–127 Malthus, Thomas, 212n2 manners, in social interactions, 104, 106, 107, 116, 125 market equilibrium, 33 Markowitz, Harry, 65 Marshall, Alfred, 41, 167 Mass Flourishing (Phelps), 189–191 materialism, 5 merchant’s choice, 133–134, 137–138 mercy, 104, 114–116, 203 examples of, 116–120 inexplicable, 45–46, 120–122 uniqueness of, 119, 129 mergers and acquisitions, 192 “money pump,” 159 monks’ parable, 114, 124 Montaigne, Michel de, 114, 118 mortgage-backed securities, 93 Nagel, Thomas, 161 Napoleon I, emperor of the French, 71 neoclassical economics, 8, 10, 11, 22, 33 Nietzsche, Friedrich, 21, 43, 209n5 norms, 104, 106–108, 123 Norway, 66 Nozick, Robert, 162 observed care altruism, 108–112 Odyssey (Homer), 149–150 omission bias, 200 On the Fourfold Root of the Principle of Sufficient Reason (Schopenhauer), 209n5 “on the spot” knowledge, 61, 70, 80, 94, 205 Orico, 13 overconfidence, 57, 200 “overearning,” 44–45 The Palm Beach Story (film), 7 The Paradox of Choice (Schwartz), 172 parenting, 108, 141, 170–171 Pareto efficiency, 132–133, 136, 139–140 Peirce, Charles Sanders, 53–54, 67, 94 pension funds, 66, 74–75, 93, 95 permanent income hypothesis, 179 Pharaoh (biblical figure), 97–99 Phelps, Edmund, 17, 189–191 Philip II, king of Macedonia, 181 planning, 149–151 for consumption, 154–157 long-term vs. short-term, 148–149 rational choice applied to, 152–158, 162 play, 44–45, 167, 202 pleasure-pain principle, 18 Plutarch, 180–181 Poe, Edgar Allan, 126 pollution, 132–133 Popeye the Sailor Man, 19 portfolio theory, 64–65 positive psychology (happiness research), 25–26, 201–202 preferences, 18–19, 198 aggregating, 38–39, 132, 164 altruism and, 28, 38, 45, 104, 110, 111, 116 in behavioral economics, 24, 168 beliefs’ feedback into, 51, 55 defined, 23 intransitive, 158–159 in purposeful behavior, 25, 36 risk aversion and, 51 stability of, 33, 115, 147, 207, 208 “time-inconsistent,” 158, 159, 166, 203 present value, 7, 139 principal-agent problem, 72 Principles of Economics (Marshall), 41 prisoner’s dilemma, 105 private equity, 75 procrastination, 3, 4, 19, 177–178 prospect theory, 168 protectionism, 185–187 Prussia, 191 public equities, 75 punishment, 109 purposeful choice, 22–26, 27, 34, 36, 56, 133–134, 204–205 altruism compatible with, 104, 113–114, 115–116 commensurability and, 153–154 as default rule, 43–46 expert opinion and, 57 extreme unexpected events and, 62–63 flow of time and, 30 for-itself behavior commingled with, 40–43, 129, 171 mechanistic quality of, 68 in merchant’s choice, 135, 137–138 Pareto efficiency linked to, 132 rational choice distinguished from, 22–23 regret linked to, 128 social relations linked to, 28 stable preferences linked to, 33 in trolley problem, 135–136 vaccination and, 58–59 wage increases and, 187.


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